<PAGE> 1
GOLDEN SYSTEMS, INC.
PRELIMINARY PROXY MATERIAL, AS FILED ON APRIL 1, 1997
<PAGE> 2
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ X ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
GOLDEN SYSTEMS, INC.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and O-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule O-11:*
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule O-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE> 3
GOLDEN SYSTEMS, INC.
2125-C Madera Road
Simi Valley, California 93065
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 4, 1997
TO THE SHAREHOLDERS OF GOLDEN SYSTEMS, INC.
The 1996 Annual Meeting of Shareholders (the "1996 Annual Meeting") of
Golden Systems, Inc. (the "Company") will be held at 10:00 a.m., Pacific Time,
on Wednesday, June 4, 1997 at the Clarion Hotel, 1775 Madera Road, Simi Valley,
California 93065, for the following purposes:
1. To elect five Directors of the Company to serve during the
ensuing year and until their successors are elected and
qualified.
2. To approve the proposed Recapitalization Plan.
3. To approve an amendment to Article 3 of the Company's Articles
of Incorporation to increase the number of shares of Common
Stock that the Company is authorized to issue by 44,000,000
shares to 50,000,000 shares.
4. To approve an amendment to the Company's Articles of
Incorporation to change the name of the Company to Cortech
Systems, Inc.
5. To approve the adoption of the Company's 1997 Stock Option
Plan.
6. To ratify the appointment of Arthur Andersen LLP as the
Company's independent auditors for the fiscal year ending
March 31, 1997.
7. To transact such other business as may properly come before
the meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only the shareholders of record at the
close of business on April 18, 1997, will be entitled to notice of and to vote
at the 1996 Annual Meeting or any adjournment or postponement thereof.
A copy of the Company's Annual Report to Shareholders for the fiscal
year ended March 31, 1996 is being mailed with this Notice but is not to be
considered part of the proxy soliciting material.
By Order of the Board of Directors
J.L. TANDON
Chief Executive Officer,
Chief Financial Officer and Secretary
April 18, 1997
Simi Valley, California
YOU ARE URGED TO VOTE UPON THE MATTERS PRESENTED AND TO SIGN, DATE AND
PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED. IT IS IMPORTANT
FOR YOU TO BE REPRESENTED AT THE MEETING. PROXIES ARE REVOCABLE AT ANY TIME
AND THE EXECUTION OF YOUR PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF
YOU ARE PRESENT AT THE MEETING.
REQUESTS FOR ADDITIONAL COPIES OF PROXY MATERIALS SHOULD BE ADDRESSED
TO J.L. TANDON, CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL OFFICER AND SECRETARY,
AT THE OFFICES OF THE COMPANY, 2125-C MADERA ROAD, SIMI VALLEY, CALIFORNIA
93065.
<PAGE> 4
GOLDEN SYSTEMS, INC.
2125-C MADERA ROAD
SIMI VALLEY, CALIFORNIA 93065
PROXY STATEMENT
1996 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 4, 1997
------------------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors (the "Board") of Golden Systems, Inc., a
California corporation (the "Company"), for use at the 1996 Annual Meeting of
Shareholders (the "1996 Annual Meeting") to be held on June 4, 1997 at 10:00
a.m., Pacific Time, at the Clarion Hotel, 1775 Madera Road, Simi Valley,
California 93065, and any adjournment or postponement thereof. This Proxy
Statement and the form of proxy to be utilized at the 1996 Annual Meeting were
mailed or delivered to the shareholders of the Company on or about April 18,
1997.
MATTERS TO BE CONSIDERED
The 1996 Annual Meeting has been called to (1) elect five Directors of
the Company to serve during the ensuing year and until their successors are
elected and qualified, (2) approve the proposed Recapitalization Plan, (3)
approve an amendment to Article 3 of the Company's Articles of Incorporation to
increase the number of shares of common stock, no par value per share ("Common
Stock"), that the Company is authorized to issue by 44,000,000 shares to
50,000,000 shares, (4) approve an amendment to the Articles of Incorporation to
change the name of the Company to Cortech Systems, Inc., (5) approve the
adoption of the Company's 1997 Stock Option Plan, (6) ratify the appointment of
Arthur Andersen LLP as the Company's independent auditors for the fiscal year
ending March 31, 1997 ("fiscal 1997"), and (7) transact such other business as
may properly come before the meeting or any adjournment or postponement
thereof.
RECORD DATE AND VOTING
The Board has fixed the close of business on April 18, 1997 as the
record date (the "Record Date") for the determination of shareholders entitled
to vote at the 1996 Annual Meeting and any adjournment or postponement thereof.
As of the Record Date, there were outstanding 4,449,998 shares of the Company's
Common Stock.
QUORUM AND VOTING REQUIREMENTS
The holders of record of a majority of the outstanding shares of
Common Stock, represented in person or by proxy, will constitute a quorum for
the transaction of business at the 1996 Annual Meeting. As to all matters,
except the election of Directors, each shareholder is entitled to one vote for
each share of Common Stock held.
Upon the request of any person entitled to vote, each holder of Common
Stock entitled to vote in the election of Directors may cumulate such
shareholder's votes and give one candidate a number of votes equal to the
number of Directors to be elected multiplied by the number of votes to which
the shareholder's shares are normally entitled, or distribute such
shareholder's votes on the same principle among as many candidates as the
shareholder may select. However, no shareholder shall be entitled to cumulate
votes for any candidate unless, pursuant to the Bylaws of the Company, the
candidate's name has been placed in nomination prior to the voting and the
shareholder has given notice at the meeting, prior to the voting, of such
shareholder's intention to cumulate his or her votes. If any one shareholder
has given such notice, all shareholders may cumulate their votes for such
candidates in nomination.
2.
<PAGE> 5
All proxies properly completed, signed and returned prior to the 1996
Annual Meeting will be voted. If a shareholder specifies how the proxy is to
be voted with respect to any of the proposals for which a choice is provided,
the proxy will be voted in accordance with such specifications. If a
shareholder fails to so specify with respect to any such proposals, the proxy
will be voted in accordance with the recommendations of the Board of Directors.
Any proxy given by a shareholder may be revoked at any time before it is
exercised, by filing with the Secretary of the Company an instrument revoking
it, by delivering a duly executed proxy bearing a later date or by the
shareholder attending the 1996 Annual Meeting and expressing a desire to vote
his or her shares in person.
VOTE REQUIRED
With respect to "Proposal No. 1--Election of Directors," the five
Director nominees who receive the greatest number of votes at the 1996 Annual
Meeting will be elected to the Board of the Company. Shareholders may cumulate
their votes for one or more candidates in the manner and upon satisfaction of
the conditions described in this Proxy Statement. Abstentions and votes
against a candidate shall have no effect on voting for election of directors.
Approval of "Proposal No. 2--Approval of Recapitalization Plan"
requires the affirmative vote of the holders of a majority of the shares of
Common Stock represented and voting at a meeting at which a quorum is present
(which shares voting affirmatively also constitute at least a majority of the
required quorum). Abstentions will have no effect. A condition to the
Recapitalization Plan (as defined below) is that Proposal No. 2 is approved in
the manner described above and that the holders of a majority of the
outstanding shares of Common Stock be voted in favor of Proposal No. 3. See
"Proposal No. 3--Approval of Amendment to Articles of Incorporation to Increase
Number of Authorized Shares."
Approval of "Proposal No. 3--Approval of Amendment to Articles of
Incorporation to Increase Number of Authorized Shares" requires the affirmative
vote of the holders of a majority of the outstanding shares of Common Stock.
Abstentions will have the effect of a negative vote. A condition to the
Recapitalization Plan is that Proposal No. 3 is approved in the manner
described above and that the holders of a majority of the shares of Common
Stock represented and voting at the 1996 Annual Meeting be voted in favor of
Proposal No. 2. See "Proposal No. 2--Description of Recapitalization Plan."
Approval of "Proposal No. 4--Approval of Amendment to Articles of
Incorporation to Change the Name of the Company" requires the affirmative vote
of the holders of a majority of the outstanding shares of Common Stock.
Abstentions will have the effect of a negative vote.
Approval of "Proposal No. 5--Approval of the 1997 Stock Option Plan"
requires the affirmative vote of the holders of a majority of the shares of
Common Stock represented and voting at the 1996 Annual Meeting. Abstentions
will have no effect.
Approval of "Proposal No. 6--Ratification of the Appointment of Arthur
Andersen LLP as Independent Accountants" requires the affirmative vote of the
holders of a majority of the shares of Common Stock represented and voting at
the 1996 Annual Meeting. Abstentions will have no effect.
EFFECT OF BROKER NON-VOTES
"Broker Non-Votes" occur when a broker holding shares of Common Stock
in street name withholds its vote on certain "non-routine" matters because the
broker has not received instructions from the beneficial owner of those shares
and does not have discretionary authority to vote on such non-routine matters
without specific instructions. Brokers holding shares in street name must
receive specific instructions from the beneficial owners in order to have the
authority to vote, in person or by proxy, on certain non-routine matters. When
a beneficial owner does not give specific instructions to the broker, the
broker, as the holder of record, is entitled to vote only on "routine" matters
and must withhold its votes as to any "non-routine" matters. Where a proxy
solicitation includes a non-routine proposal and the broker does not receive
specific instructions from the beneficial owner, the resulting proxy is
considered a "limited proxy." Shares represented by limited proxies are
considered present for quorum purposes,
3.
<PAGE> 6
but are not considered present for purposes of determining the total number of
shares with voting power present with regard to a non-routine proposal. The
resulting Broker Non-Vote of such a limited proxy will be treated as an
abstention on such non-routine proposal.
Each of "Proposal No. 2--Approval of Recapitalization Plan," "Proposal
No. 3--Approval of Amendment to Articles of Incorporation to Increase Number of
Authorized Shares," "Proposal No. 4--Approval of Amendment to Articles of
Incorporation to Change the Name of the Company," and "Proposal No. 5--Approval
of the 1997 Stock Option Plan" is a non-routine proposal. Approval of
Proposals No. 2 and No. 5 requires the affirmative vote of the holders of a
majority of the shares of Common Stock represented and voting at the meeting.
A limited proxy as to Proposals No. 2 and No. 5 will be treated as an
abstention and will have no effect. Approval of Proposals No. 3 and No. 4
requires the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock. The effect of a limited proxy will be that Broker
Non-Votes will be treated as votes against each of Proposals No. 3 and No. 4.
"Proposal No. 1--Election of Directors" and "Proposal No. 6--Ratification of
the Appointment of Arthur Andersen LLP as Independent Accountants" are
"routine" matters upon which brokers holding shares in street name can cast
votes with or without specific instructions from the beneficial holders of
those shares. Shares held by brokers thus will be counted as present and
voting for purposes of determining whether Proposals No. 1 and No. 6 have been
approved.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's capital stock as of March 3, 1997 by (i)
each person who is known by the Company to be the beneficial owner of more than
5% of any class of the Company's capital stock, (ii) each Director, nominee and
certain executive officers of the Company, individually, and (iii) all
Directors and executive officers as a group:
<TABLE>
<CAPTION>
AMOUNT
NAME OF BENEFICIALLY PERCENT
BENEFICIAL OWNER(1) OWNED OF CLASS
- --------------------------------------------------------------------------------
<S> <C> <C>
J.L. Tandon(2) ....................................... 1,426,666(3) 32.1%(3)
Clady(4) ............................................. 1,275,000 28.7
Hathaway & Associates, Ltd.(5) ....................... 283,400 6.4
D.L. Tandon(6) ....................................... 141,666 3.2
M.L. Tandon(7) ....................................... 0 0.0
S.L.Tandon(7) ........................................ 141,666 3.2
Norman A. Barkeley(8) ................................ 12,000 *
R.D. Middlebrook, Ph.D.(9) ........................... 24,000 *
Robert Sherburne(9) .................................. 18,000 *
Harvey A. Marsh ...................................... 0 0.0
All executive officers and directors as a group ...... 1,480,666 32.9%
- ----------------
</TABLE>
* Less than one percent
(1) Except as otherwise indicated below, the persons named have sole voting
power and investment power with respect to all shares of capital stock
shown as beneficially owned by them, subject to community property laws
where applicable.
(2) The address for J.L. Tandon is 2125-C Madera Road, Simi Valley,
California 93065.
4.
<PAGE> 7
(3) Includes 1,275,000 shares owned by Clady International Corporation, a
Panamanian corporation ("Clady"), of which J.L. Tandon is the
President.
(4) The address for Clady is c/o J.L. Tandon, 2125-C Madera Road, Simi
Valley, California 93065.
(5) The address for Hathaway & Associates, Ltd. is 119 Rowayton Ave.,
Rowayton, Connecticut 06853.
(6) D. L. Tandon is an officer and director of Clady. He expressly
disclaims beneficial ownership of any shares owned by Clady for the
purposes of Sections 13(d) and 13(g) of the Securities Exchange Act
of 1934 (the "Exchange Act").
(7) M.L. Tandon and S. L. Tandon expressly disclaim beneficial ownership
of any shares owned by Clady for the purposes of Section 13(d) and
13(g) under the Exchange Act.
(8) Includes 12,000 shares issuable upon exercise of stock options
exercisable within sixty days of March 3, 1997.
(9) Includes 18,000 shares issuable upon exercise of stock options
exercisable within sixty days of March 3, 1997.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
As of March 31, 1996, Eastern Peripherals, a Tandon family affiliated
company, which has purchased power supplies from Ultra Tek Devices Private
Limited ("Ultra Tek"), the Company's manufacturing subsidiary in Bombay, India,
and incurred charges for the sharing of common expenses, owed Ultra Tek
$423,000. As of March 31, 1995, Eastern Peripherals owed Ultra Tek $519,000.
R.D. Middlebrook, Ph.D. and Robert Sherburne were granted options to
purchase 5,000 shares of Common Stock each in August 1995 pursuant to formula
grant provisions, applicable to non-employee directors, of the 1994 Amended and
Restated Stock Option Plan (the "1994 Plan"). Norman Barkeley was granted an
option to purchase 20,000 shares of Common Stock, consistent with the 1994 Plan
formula grant provisions, effective upon his appointment to the Board of
Directors in April 1995. All of these grants were at the fair market value of
the Common Stock at the time of the grants and vest in five equal annual
installments beginning on the date of grant.
PROPOSAL 1 -- ELECTION OF DIRECTORS
Five Directors are to be elected at the 1996 Annual Meeting to serve
until the next Annual Meeting of shareholders and until their respective
successors have been elected and qualified. In the absence of instructions to
the contrary, proxies covering shares of Common Stock will be voted in favor
of the election of the persons listed below. In the event that any nominee for
election as Director should become unavailable to serve, it is intended that
votes will be cast, pursuant to the enclosed proxy, for such substitute nominee
as may be nominated by the Company. Management has no present knowledge that
any of the persons named will be unavailable to serve.
No arrangement or understanding exists between any nominee and any
other person or persons pursuant to which any nominee was or is to be selected
as a Director or nominee. None of the nominees has any family relationship to
any other nominee or to any executive officer of the Company except that
nominee J.L. Tandon is the brother of M.L. Tandon, Chairman of the Board of
Directors of Ultra Tek, the Company's manufacturing subsidiary in Bombay,
India.
The terms of the Recapitalization Plan (discussed in "Proposal 2"
below) would result in the Tandon family owning approximately 77.3% of the
Company's outstanding Common Stock. This would give the Tandon family the
ability to elect a majority of the Board. In addition, as part of the
Recapitalization Plan, the Company would agree to nominate a sufficient number
of candidates designated by the Tandon family such that the Tandon nominees,
including J.L. Tandon who presently serves on the Board, would constitute a
majority of the Board. J.L. Tandon has informed the Company that the Tandon
family has no present intention of naming any Director candidates as designees
of the Tandon family, should the Recapitalization Plan be approved.
5.
<PAGE> 8
INFORMATION CONCERNING INCUMBENT DIRECTORS AND NOMINEES TO BOARD OF DIRECTORS
Information is set forth below concerning the incumbent Directors, all
of whom are also nominees for election as Directors, and the year in which each
Director was first elected as a Director of the Company. Each nominee has
furnished the information as to his beneficial ownership of Common Stock as of
March 3, 1997 and, if not employed by the Company, the nominee's principal
occupation. Each nominee has consented to being named in this Proxy Statement
as a nominee for Director and has agreed to serve as a Director if elected.
<TABLE>
<CAPTION>
DIRECTOR
DIRECTOR NAME AGE POSITION WITH THE COMPANY SINCE
- ------------- --- ------------------------- -----
<S> <C> <C> <C>
J.L. Tandon 47 Chief Executive Officer, Chief Financial 1991
Officer, Secretary and Director
Norman Barkeley(1) 67 Director 1995
R.D. Middlebrook, Ph.D.(1) 67 Director 1993
Robert Sherburne(1) 76 Director 1993
Harvey A. Marsh 58 Nominee for Director --
- ---------------
</TABLE>
(1) Member of the Audit Committee, Compensation Committee, Subsidiary
Securities Committee and Independent Directors Committee.
J.L. Tandon has been Chief Executive Officer and a director of the
Company since February 1991 and served as President from February 1991 to April
1995. On October 11, 1996, J.L. Tandon was elected Chief Financial Officer of
the Company. From December 1978 to July 1993, J.L. Tandon was President of
Tandon Associates, an affiliate of the Company. From March 1992 to August
1993, J.L. Tandon was President of Tantec, Inc., an affiliated company. From
1983 to present, J.L. Tandon has been President and a director of Clady,
Fairplay and Lunenburg S. A., all affiliated companies. M.L. Tandon, Chairman
of the Board and Managing Director of Ultra Tek, is J.L. Tandon's brother.
Norman A. Barkeley joined the Company as director in April 1995. From
1988 to present, Mr. Barkeley has been Chairman and Chief Executive Officer of
Ducommun Incorporated. Prior to 1988, Mr. Barkeley was an executive at Lear
Siegler, Inc. for over thirty years, holding positions including Chairman and
Chief Executive Officer. Mr. Barkeley is also a director of Dames & Moore,
Inc., RHR International Company and Technetics Corp.
R. D. Middlebrook, Ph.D. joined the Company as a director in August
1993. From 1955 to present, Dr. Middlebrook has been a Professor of Electrical
Engineering at the California Institute of Technology.
Robert Sherburne joined the Company as a director in August 1993.
From January 1992 to present, Mr. Sherburne has been a merger and acquisition
consultant. From November 1990 to December 1991, Mr. Sherburne was the
Chairman of the Board of Everest & Jennings International and served as a
director until November 1996. From June 1987 to October 1990, Mr. Sherburne
was the Chairman of the Board of Guardian X-Ray Services.
Mr. Harvey A. Marsh has been a financial consultant to the Company
since October 1996 to the present. From 1989 to 1996, Mr. Marsh was the Chief
Financial Officer for various non-profit healthcare organizations, including
Saint John's Medical Center and Childrens Hospital Los Angeles. Prior to 1989,
Mr. Marsh was an executive at Lear Siegler, Inc. for approximately 13 years
where the last position he held was Vice President, Controller.
6.
<PAGE> 9
THE BOARD OF DIRECTORS
COMMITTEES
The standing committees of the Board are the Audit Committee (the
"Audit Committee"), the Compensation Committee (the "Compensation Committee"),
the Subsidiary Securities Committee (the "Securities Committee") and the
Independent Directors Committee (the "Independent Directors Committee"). The
Company does not have a standing nominating committee or any committee
performing the functions thereof. The Audit Committee, the Compensation
Committee, the Securities Committee and the Independent Directors Committee
each presently consist of Messrs. Barkeley, Middlebrook and Sherburne. The
Audit Committee met once during the fiscal year ended March 31, 1996 ("fiscal
1996"). The Compensation Committee met once during fiscal 1996. The
Securities Committee did not meet during fiscal 1996. The Independent
Directors Committee met once during fiscal 1996 and four times in fiscal 1997.
The Audit Committee recommends to the Board the engagement or
discharge of the Company's independent auditors; reviews with the independent
auditors the scope, timing and plan for the annual audit, any non-audit
services and the fees for audit and other services; reviews outstanding
accounting and auditing issues with the independent auditors; and supervises or
conducts such additional projects as may be relevant to its duties. The Audit
Committee is also responsible for reviewing and making recommendations with
respect to the Company's financial condition, its financial controls and
accounting practices and procedures.
The Compensation Committee establishes the general compensation
policies of the Company, establishes the compensation plans and specific
compensation levels for executive officers, and administers the 1994 Stock
Option Plan. See "Report of the Compensation Committee of the Board of
Directors."
The Securities Committee is responsible for the oversight of the
820,000 ten-year preference shares issued by Ultra Tek. The approval of the
Securities Committee is required for any redemption of such preference shares.
It is not anticipated that the Securities Committee will meet at any time
unless issues arise with regard to the preference shares issued by Ultra Tek.
In February 1996, an Independent Directors Committee consisting of the
outside directors was established to provide a disinterested review and
approval structure for any material transaction involving a business
combination, or investment in or refinancing of the Company.
MEETINGS AND REMUNERATION
During fiscal 1996, the Board held eight meetings and took various
actions by written consent. Each incumbent Director attended at least 75% of
the aggregate of (i) the total number of meetings held by the Board in fiscal
1996 and (ii) the total number of meetings held by all committees of the Board
during that period for which he was a Director or member of such committee of
the Board.
Each outside director receives $1,500 for each board meeting attended
and $1,000 for each committee meeting attended; provided, however, that if two
committee meetings are held on the same day, outside directors in attendance
receive only $1,000. In August 1993, the Board of Directors established an
Audit Committee, a Compensation Committee and a Subsidiary Securities
Committee, each comprised of the outside directors. In February 1996, an
Independent Directors Committee consisting of the outside directors was
established to provide a disinterested review and approval structure for any
material transaction involving a business combination, or investment in or
refinancing of the Company. In September 1993, the Board of Directors granted
each outside director an option to purchase 20,000 shares of Common Stock at
the initial offering price to the public of $7.00. The Company's policy is to
issue its outside directors options to purchase 20,000 shares upon election to
the Board and options to purchase 5,000 additional shares after each two years
of subsequent service. A proposal to adopt a formula grant amendment to the
Company's 1994 Stock Option Plan implementing this policy was approved by the
Company's shareholders at the 1995 Annual Shareholders' Meeting. All such
grants are at fair market value at the time of the grant. See "Certain
Relationships and Related Party Transactions."
7.
<PAGE> 10
EXECUTIVE OFFICERS, COMPENSATION AND OTHER INFORMATION
EXECUTIVE OFFICERS
Set forth in the table below are the names, ages and current offices
held by all executive officers of the Company.
<TABLE>
<CAPTION>
EXECUTIVE OFFICER
NAME AGE POSITION WITH THE COMPANY SINCE
---- --- ------------------------- -------------------
<S> <C> <C> <C>
J.L. Tandon 47 Chief Executive Officer, Chief Financial February 1991
Officer, Secretary and Director
M.L. Tandon(1) 55 Chairman of the Board of Directors and Managing August 1993
Director of Ultra Tek, the manufacturing
subsidiary of the Company
Prakash Thanky(2) 46 President July 1996
- ----------------
</TABLE>
(1) Mr. M.L. Tandon served as an executive officer of Ultra Tek prior to its
being acquired by the Company in August 1993.
(2) Mr. Prakash Thanky replaced Michael D. Thomas who acted as the
President, Chief Operating Officer, Chief Financial Officer, Secretary
and Director of the Company from April 1995 to July 1996 when he
resigned. In addition, David B. Barton, who was Senior Vice President
for Sales & Marketing, resigned in July 1996.
Executive officers of the Company are elected by and serve at the
discretion of the Board. No arrangement exists between any officer and any
other person or persons pursuant to which any executive officer was or is to be
selected as an executive officer. None of the executive officers has any
family relationship to any nominee for Director or to any other executive
officer of the Company except that J.L. Tandon and M.L. Tandon are brothers.
Set forth below is a brief description of the business experience for the
previous five years of all executive officers except Mr. J.L. Tandon. See
"Information Concerning Incumbent Directors and Nominees to Board of Directors"
for information on Mr. J.L. Tandon.
M.L. Tandon served as a director of the Company from August 1993
through April 1995. M.L. Tandon has been a director of Ultra Tek, a subsidiary
of the Company, since October 1985, and was elected Chairman of the Board of
Ultra Tek in August 1993. From June 1988 to the present, M.L. Tandon has been
Managing Director of Ultra Tek. M.L. Tandon was Managing Director of Eastern
Peripherals from September 1984 to May 1993. M.L. Tandon was Managing Director
of Tandon Motors P. Ltd., an affiliated company, from June 1982 to August 1989.
M.L. Tandon is J.L. Tandon's brother.
Prakash Thanky became the President of the Company on July 1, 1996,
after having served as President of Magnum Power Solutions, Inc., an affiliated
company of Magnum Power PLC, from August 1994 to June 1996. In January 1993,
Mr. Thanky founded Logicom, a manufacturer's representative for technical
companies, and served as its President until June 1996. Mr. Thanky was a
co-founder and partner at Quad States Sales & Marketing, also a manufacturer's
representative, from January 1989 to December 1992. His prior experience
includes executive positions in sales at Advanced Micro Devices and Hewlett
Packard.
COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company paid or
accrued by the Company to the President and Chief Executive Officer and to each
of the four other most highly compensated executive officers of the Company for
each of the fiscal years in the three year period ended March 31, 1996:
8.
<PAGE> 11
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------- ----------------------- -------
SECURITIES
RESTRICTED UNDERLYING
OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARDS SARS PAYOUTS COMPENSATIONS
POSITIONS YEAR (1) ($) ($) (2) ($) ($) (#) ($) ($)
- -------------------------- ---- ------- --- ------- --- --- ------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J.L. Tandon 1996 198,000 0 22,269 0 --- 0 0
President and Chief 1995 198,000 0 12,580 0 --- 0 0
Executive Officer 1994 198,000 0 23,500 0 --- 0 0
David B. Barton(3) 1996 124,383 0 0 0 --- 0 0
Senior Vice President 1995 116,650 0 0 0 --- 0 0
Worldwide Sales and 1994 96,300 36,350 0 --- 10,000 --- ---
Marketing
Michael D. Thomas(3) 1996 194,231 0 5,964 0 100,000 0 ---
President, Chief
Operating Officer and
Chief Financial Officer
- ----------------
</TABLE>
(1) Includes compensation deferred at the officer's election. No
compensation has been deferred at the election of David B. Barton.
J.L. Tandon has deferred compensation of $66,345 and Michael D.
Thomas has deferred compensation of $50,000 for fiscal year 1996.
(2) Represents supplemental income, such as automobile allowance, club
dues and payments made toward medical and group life insurance on
behalf of executive officers.
(3) Messrs. Barton and Thomas resigned from the Company in July 1996.
EMPLOYMENT AGREEMENT
In April 1995, the Company hired Michael D. Thomas as President, Chief
Operating Officer, Chief Financial Officer, and Secretary at an annual salary
of $150,000 pursuant to a letter agreement. Additionally, the Company granted
Mr. Thomas an option to purchase 100,000 shares of Common Stock which was to
vest over five years and had a ten-year term. This option expired by its terms
in October 1996 as a result of Mr. Thomas' resignation from the Company in
July 1996. The Company also agreed to grant Mr. Thomas an additional option to
purchase 50,000 shares of Common Stock which would vest and become exercisable
in the event that the Company's fiscal year 1996 performance substantively
conformed to a financial and cash management plan prepared by Mr. Thomas and
approved by the Board of Directors. However, these performance targets were
not met and consequently, Mr. Thomas' option to purchase 50,000 shares did not
vest.
Mr. Thomas' letter agreement called for him to receive deferred
compensation in the amount of $50,000 at the end of each fiscal year that he
remained an executive of the Company. Mr. Thomas also was entitled to an
annual bonus, not to exceed $50,000, if the Company had met certain sales and
profitability targets. Those targets were not met for fiscal year 1996 and no
bonus was paid. Mr. Thomas' letter agreement with the Company terminated when
he resigned from the Company in July 1996. He received six months of severance
pay and the pro rata portion of his deferred compensation.
CHANGE IN CONTROL ARRANGEMENTS
Under his letter agreement with the Company, Mr. Thomas was entitled
to treat a termination of his employment in connection with a change in control
of the Company as a termination without cause. His letter agreement terminated
upon his resignation in July 1996.
Under the terms of the Company's 1994 Stock Option Plan, upon a change
in control or liquidation of the Company, the Compensation Committee, in its
discretion, may allow each person holding an option (who did not
9.
<PAGE> 12
receive a replacement stock option from the Company's successor entity) to
exercise that option without regard to its vesting provisions.
1994 STOCK OPTION PLAN
Key employees, including Directors who are key employees, who are
chosen by the Compensation Committee are eligible to participate in the 1994
Plan. Messrs. J.L. Tandon and M.L. Tandon have agreed that they will not be
eligible to receive grants of options under the 1994 Plan.
The following table sets forth information concerning options granted
to each of the executive officers named in the "Summary Compensation Table"
during fiscal 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ARRIVAL RATES OF STOCK
SECURITIES OPTIONS/SARS EXERCISE PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM(3)
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION -------------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- -------------------------- ----------- ----------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
J.L. Tandon . . . . . . . 0 --- --- --- --- ---
David B. Barton(1) . . . 0 --- --- --- --- ---
Michael D. Thomas(1)(2) . 150,000 100 0.3125 7/6/05 19,652.96 49,804.45
- ----------------
</TABLE>
- ----------------------
(1) Messrs. Barton and Thomas resigned from the Company in July 1996.
(2) Mr. Thomas' option grants included the right to purchase 50,000 shares
that did not vest as a result of the Company's failure to meet certain
performance targets during fiscal year 1996. As those options were not
exercisable at the end of fiscal year 1996 and could not vest
thereafter, they are not included in the potential realizable value
calculation. Mr. Thomas' options terminated in their entirety on
October 1, 1996, as a result of his resignation from the Company.
(3) This calculation is required disclosure, but should not be construed in
any way as a prediction or estimate of the actual value of options
granted.
The following table sets forth information concerning the aggregate
number of options exercised by each of the executive officers named in the
"Summary Compensation Table" during fiscal year 1996 and outstanding options
held by each such officer as of March 31, 1996.
OPTION EXERCISES AND YEAR END VALUE TABLE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/ IN-THE-MONEY
SARS AT OPTIONS/SARS AT
MARCH 31, 1996 (#) MARCH 31, 1996 ($)(2)
------------------ ---------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
J.L. Tandon . . . . . . . --- --- --- ---
David B. Barton(1) . . . --- --- 4,000/8,000 N/A
Michael D. Thomas(1) . . --- --- 0/100,000 N/A
- ----------------
</TABLE>
(1) Messrs. Barton and Thomas resigned from the Company in July 1996 and,
by their terms, their option grants expired in October 1996. (2)
None of the outstanding options were "in-the-money" as of March 31,
1996.
10.
<PAGE> 13
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board for fiscal year 1996 was
comprised of Messrs. Barkeley, Middlebrook and Sherburne. The Compensation
Committee establishes the general compensation policies of the Company,
establishes the compensation plans and specific compensation levels for
executive officers, and administers the 1994 Stock Option Plan.
As required by recently adopted rules designated to enhance the
disclosure of the Company's executive compensation policies and practices, the
following is the Compensation Committee's report submitted to the Board
addressing the compensation of the Company's executive officers for fiscal
1996.
The Compensation Committee of the Board of Directors establishes the
general compensation policies of the Company, establishes the compensation
plans, establishes the specific compensation of Mr. J.L. Tandon, the Company's
Chief Executive Officer, reviews the Chief Executive Officer's recommendations
as to the specific compensation levels for the other executive officers and, in
conjunction with the Option Committee, administers the Company's incentive
plans. The Compensation Committee is composed of three independent
non-employee directors who have no interlocking relationships as defined by the
Securities and Exchange Commission.
COMPENSATION POLICY AND PROGRAMS. The Compensation Committee's
responsibility is to provide a strong and direct link among shareholder values,
Company performance and executive compensation through its oversight of the
design and implementation of a sound compensation program that will attract and
retain highly qualified personnel. Compensation programs are intended to
complement the Company's short and long-term business objectives and to focus
executive efforts on the fulfillment of these objectives.
The Compensation Committee has conducted a full review of the
Company's executive compensation program and will repeat this review annually.
It is the Compensation Committee's practice to establish target levels of
compensation for senior officers consistent with that of companies comparable
in size and complexity to the Company, as well as companies which are direct
business competitors of the Company. Actual compensation of the Company's
executive officers is subject to increase or decrease by the Compensation
Committee from targeted levels according to the Company's overall performance
and the individual's efforts and contributions. A significant portion of
executive compensation is directly related to the Company's financial
performance and is therefore at risk. Total compensation for the Company's
senior management is composed of base salary, near-term incentive compensation
in the form of bonuses and long-term incentive compensation in the form of
stock options. The Compensation Committee retains the discretion to adjust the
formula for certain items of compensation so long as total compensation
reflects overall corporate performance and individual achievement.
BASE SALARY. In establishing base salary levels for senior officer
positions, the Compensation Committee and Mr. J.L. Tandon consider levels of
compensation at other similarly situated companies and at direct competitors,
levels of responsibility and internal issues of consistency and fairness. In
determining the base salary of a particular executive, the Compensation
Committee and Mr. J.L. Tandon consider individual performance, including the
accomplishment of short and long-term objectives, and various subjective
criteria including initiative, contribution to overall corporate performance
and leadership ability.
In the fiscal year ended March 31, 1996, the annual base salary of Mr.
J.L. Tandon was unchanged at $198,000, a level determined to be appropriate by
the Compensation Committee based on comparable chief executive salaries of a
peer group of companies and of direct competitors referred to above, the
Company's overall performance in the prior fiscal year and Mr. J.L. Tandon's
efforts and contributions to the Company.
BONUSES. The Company's executive officers are eligible for annual
bonuses based upon recommendations made by Mr. J.L. Tandon (as to the other
executive officers) and the Compensation Committee (as to Mr. J.L. Tandon) as
to individual performance and the Company's achievement of certain operating
results.
11.
<PAGE> 14
Amounts of individual awards are based principally upon the results of
the Company's financial performance during the prior fiscal year. The amount
of awards for senior officers are within guidelines established by the
Compensation Committee and Mr. J.L. Tandon as a result of their review of total
compensation for senior management of peer companies and competitors. The
actual amount awarded, within these guidelines, will be determined principally
by the Compensation Committee's and Mr. J.L. Tandon's assessment of the
individual's contribution to the Company's overall financial performance.
Consideration is also given to factors such as the individual's successful
completion of a special project, any significant increase or decrease in the
level of the participant's executive responsibility and the Compensation
Committee's and Mr. J.L. Tandon's evaluation of the individual's overall
efforts and ability to discharge the responsibilities of his position. In
fiscal 1996, in light of the Company's financial results, no bonuses were paid
to any of the executive officers named in the Summary Compensation Table.
Mr. J.L. Tandon received no bonus with respect to the March 31, 1996
fiscal year. In determining bonuses in future years, the Compensation
Committee will give particular consideration to the following factors: (1) the
Company's progress toward break-even financial results and sustainable positive
cash flow; (2) the narrowing of losses and the trend toward positive earnings
growth of the Company during the fiscal year; (3) the efforts and contributions
made by Mr. J.L. Tandon in discharging his responsibilities as Chief Executive
Officer; and (4) the efforts and contributions by the other executives of the
Company.
STOCK OPTIONS. During fiscal 1994, the Compensation Committee adopted
the Company's 1994 Stock Option Plan. The purpose of the 1994 Plan is to
provide incentives and reward the contributions of key employees and officers
for the achievement of long-term Company performance, as measured by earnings
per share and the market value of the Common Stock. The Compensation
Committee, working with the Option Committee (which, prior to being disbanded
in fiscal 1996, consisted of Mr. J.L. Tandon and Mr. M.L. Tandon), set
guidelines for the number and terms of stock option awards based on factors
similar to those considered with respect to the other components of the
Company's compensation program, including comparison with the practices of peer
group companies and direct competitors. In the event of unsatisfactory
corporate performance, the Compensation Committee may decide not to award stock
options or restricted stock in any given fiscal year although exceptions to
this policy may be made for individuals who have assumed substantially greater
responsibilities and other similar factors. An example of this policy is the
agreement to issue options to Michael D. Thomas, described above. The awards
under the 1994 Plan are designed to align the interests of executives with
those of the shareholders. Generally, stock options become exercisable in
cumulative installments over a period of five years, but the individual
forfeits any installment which has not vested during the period of his
employment.
Under the 1994 Plan, the Compensation Committee awarded stock options
in the fiscal year ended March 31, 1996 to Michael D. Thomas, described above.
However, Mr. Thomas' options terminated in their entirety in October 1996 as a
result of his resignation from the Company.
In light of the Company's financial performance during fiscal 1996,
the Compensation Committee has tabled its review of any necessary revisions to
the Company's executive compensation policy or plans due to the provisions of
the Omnibus Budget Reconciliation Act of 1993. This legislation amended
Section 162 of the Code by limiting to $1,000,000 the deductibility of
compensation paid to certain executives. The Company's 1994 Stock Option Plan
has been amended by the Board of Directors to conform with new rules on Section
162 compliance and those amendments were approved at the Company's 1995 Annual
Meeting of Shareholders. It is the current policy of the Compensation
Committee to maximize, to the extent reasonably possible, the Company's ability
to obtain a corporate tax deduction for compensation paid to executive officers
of the Company to the extent consistent with the best interests of the Company
and its stockholders.
THE COMPENSATION COMMITTEE
Norman A. Barkeley
R.D. Middlebrook, Ph.D.
Robert Sherburne
12.
<PAGE> 15
COMPANY PERFORMANCE
The following graph shows a comparison of cumulative total returns for
the Company, the NASDAQ Stock Market-U.S. Index and a peer group index
comprised of the NASDAQ Computer Index (as described below) for the period
during which the Company's Common Stock has been registered under Section 12 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
NASDAQ Computer Index includes approximately 170 companies, all of which are
manufacturers of computer hardware or software. The Company believes that the
companies included in the NASDAQ Computer Index are reasonably representative
of companies in the Company's industry.
COMPARISON OF 29 MONTH CUMULATIVE TOTAL RETURN*
AMONG GOLDEN SYSTEMS, INC., THE NASDAQ STOCK MARKET-U.S. INDEX
AND THE NASDAQ COMPUTER INDEX
[PERFORMANCE GRAPH]
* $100 INVESTED ON 11/09/93 IN STOCK OR
INDEX-INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING MARCH 31.
13.
<PAGE> 16
PROPOSAL 2 -- APPROVAL OF RECAPITALIZATION PLAN
At the 1996 Annual Meeting, the shareholders will be asked to approve
a recapitalization plan (the "Recapitalization Plan"). The terms of the
Recapitalization Plan are summarized below, but these descriptions are subject
to and are qualified in their entirety by the full text of the agreements
contemplated by the Recapitalization Plan. Copies of these agreements are
attached to this Proxy Statement as Annex A. On February 27, 1997, the Board
unanimously approved, subject to shareholder approval, the adoption of the
Recapitalization Plan. The Board recommends that the shareholders vote to
approve the Recapitalization Plan for the reasons indicated below.
As discussed more fully below, the Company needs additional capital in
order to remain operational. Traditional sources of funds (such as bank loans)
are not available to the Company due to the large debt owed to certain banks in
India by the Company's manufacturing subsidiary, Ultra Tek, which debt has been
guaranteed by the Company. Pursuant to the Recapitalization Plan, the Tandon
family would contribute an additional $2 million in cash in exchange for
13,333,333 shares of Company Common Stock and certain members of the Company's
management and key employees would contribute $250,000 in cash in exchange for
1,666,667 shares of the Company's Common Stock. In addition, the Tandon family
would commit to obtaining a standstill arrangement with the Indian bank lenders
of Ultra Tek for a period of not less than one year, at no material cost to the
Company. The Recapitalization Plan would result in the Tandon family owning
approximately 77.3% of the Company's outstanding Common Stock, while management
would acquire approximately 8.6% of the Company. The specific terms of the
Recapitalization Plan are described in detail below. Shareholder approval of
the Recapitalization Plan is necessary due to the substantial dilution of the
existing shareholders' interest in the Company, which would result from the
implementation of the Recapitalization Plan.
On February 21, 1997, the Independent Directors Committee determined
to recommend to the Board that the Recapitalization Plan and the transactions
contemplated thereby be approved by the Board. On February 27, 1997, the Board
approved the Recapitalization Plan. In arriving at the Board's conclusion, the
Board determined that the Recapitalization Plan is fair, from a financial point
of view, to the Company's existing shareholders and that the purchase price of
$0.15 per share of Common Stock is within the acceptable range of fairness.
The Board considered the value of the Company and the fairness of the
consideration being offered to the Company, including the standstill
arrangement with the Company's Indian banks. The Company's debt to the Indian
banks amounts to approximately $8,120,308 (as of January 31, 1997) and is
secured by the assets of Ultra Tek and guaranteed by the Company. The Tandon
family, which has also personally guaranteed the debt, assumed additional risks
by allowing their personal assets to be used as security for the debt and thus
was able to secure a temporary holiday on interest payments. The Tandon family
is willing to make further personal commitments to the Indian banks in order to
negotiate a bank standstill arrangement. In approving the fairness of the
Recapitalization Plan, the Board also took into consideration the fairness
opinion delivered by Wedbush (as defined below), as described in detail below.
In conclusion, given the unique value of the bank standstill arrangement to be
negotiated by the Tandon family and the supporting fairness opinion of Wedbush,
the Board recommends that the shareholders of the Company approve the
Recapitalization Plan as described in further detail below.
HISTORY OF EVENTS LEADING UP TO NEED FOR RECAPITALIZATION
As was previously reported, the Company's cash flow was significantly
impacted by the product rejection that took place during the third quarter of
fiscal year 1995 which cost the Company $4.2 million of lost accounts
receivable directly related to the sales of the rejected units and $2.2 million
related to other direct costs stemming from the rejection. This additionally
placed the Company in an unfavorable position with its raw material vendors due
to limited cash, high short-term debt and a severe stretch-out of payment to
its banking institutions and vendors. Existing and potential new customers to
the Company were very aware of the significant product return and the
unfavorable financial position the Company was experiencing.
In recognition of the unfavorable circumstances created by this event
(high short-term debt, limited capital, vendor problems and negative perception
by its existing and potential customer base), the Company was required to
develop and implement a strategy for immediate cash recovery. The Company
implemented this strategy to overcome its severe cash difficulties by
utilization or sale of its raw material inventory, cost reductions,
organization
14.
<PAGE> 17
restructuring, price increases, volume growth and obtaining more favorable
terms from its existing customers. In addition, the Company recognized that
these would be difficult to achieve in the very competitive personal computer
market and would be short-term under the best of circumstances and results.
Based on this, the Company recognized the need on a longer term basis to pursue
new equity investment primarily through a merger or acquisition.
The Company implemented its strategy for cash recovery and was very
successful in achieving certain portions of its strategy as is demonstrated in
the financial statements of the Company. While achieving success in certain
areas, the Company did not generate the anticipated amounts of cash recovery
from inventory reduction and, to date, has been unsuccessful in its efforts to
resell material quantities of the reworked, rejected product which was targeted
for $2 million in sales.
In addition, though the Company was successful in increasing its
volume with its primary customer, IBM, through December of 1995, it has not
been successful in building its sales volumes to other existing customers or to
new customers. The Company also was notified by IBM in the second half of
fiscal year 1996 that IBM was reducing its number of vendors for power supplies
to companies which were larger and best financially prepared to support IBM's
activities and that the Company no longer met IBM's long-term profile.
In the second quarter of fiscal year 1996, the Company entered into
negotiations with Magnum Power PLC, a United Kingdom based power supply company
("Magnum"), regarding a business relationship of the two companies. Magnum is
a publicly traded company in the United Kingdom with advanced technologies and
patented designs for products in the power supply market, and possesses
significant technology, engineering and a strong presence in Europe. Magnum
has little presence in the U.S. and no significant or cost-effective
manufacturing. In August 1995, Magnum and the Company entered into a
non-binding letter of intent setting forth a "partnering" relationship intended
to exploit Magnum's technology and the Company's manufacturing capability as an
interim step towards a possible business combination. During the months that
followed, however, it became clear that potential OEM customers were not
comfortable dealing with "partnered" vendors. The synergy between the two
companies and the stated ability by the officers of Magnum to raise capital
through a new public offering to finance a merger created a positive catalyst
for continued negotiations regarding a combination of the companies. These
negotiations continued through November of 1995 and included a full due
diligence audit by Magnum of Golden Systems, Inc. and its subsidiary, Ultra Tek
in Bombay, India. By January 1996 these discussions shifted focus to an
acquisition by Magnum of Ultra Tek. In March 1996, the Company was informed by
Magnum that they were experiencing problems in their activities to issue a new
stock offering to raise capital. As a result of that situation, and other
internal issues at Magnum, including changes in management personnel, the
proposed transaction terms were revised several times and the likelihood that a
transaction could be agreed upon diminished. Discussions with Magnum ended in
first quarter fiscal year 1997.
Based on these facts, the operating results discussed in "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" of the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1996 which is contained in the Company's Annual Report to
Shareholders enclosed herewith, and the overall financial position of the
Company, the Board of Directors concluded during the second half of fiscal 1996
that it must evaluate all measures to obtain additional capital from sources
outside the Company or that the Company must engage in a transaction that would
change the Company's fundamental structure. Absent success in generating cash
from inventory or a dramatic change in the Company's daily or ongoing
operations, the Company must conclude a significant new investment and a new
business strategy to continue its operations beyond the next several months.
DESCRIPTION OF RECAPITALIZATION PLAN
On February 13, 1996, the Board of Directors established an
Independent Directors Committee, made up of non-management directors, to
evaluate financing and restructuring options and opportunities available to the
Company, including the Magnum situation. In May 1996, following the
termination of the Magnum discussions, J.L. Tandon, the Company's Chief
Executive Officer, informed the Independent Directors Committee that the Tandon
family, which owns approximately 38.5% of the Company's outstanding shares of
Common Stock and has personally guaranteed Ultra Tek's bank debt in India,
amounting to approximately $8,120,308 at January 31, 1997, was prepared to
invest additional equity in the Company and to support the Company in
negotiations with the Indian banks. A
15.
<PAGE> 18
number of issues were discussed, leading to an initial proposal from the Tandon
family dated July 31, 1996. During August 1996, the Independent Directors
Committee informed J.L. Tandon that, in addition to financial terms, an
acceptable proposal must include a business plan showing that the investment
would be sufficient to restart the Company with new products, and an
organization chart showing that the Company had in place, or had identified,
the management and engineering talent necessary to implement the plan. In
addition, aspects of the proposal presented valuation and tax issues that both
the Committee and the Tandons needed more information to resolve.
During September 1996, the Company prepared and delivered a business
plan and reviewed personnel issues. The Independent Directors Committee
pointed out the weakness in senior financial management as a result of the
resignation of Michael D. Thomas, the Company's President and Chief Financial
Officer, effective July 1, 1996. The Committee directed management to initiate
a search for a chief financial officer and indicated its willingness to accept
an interim consultant in that position while the search is under way.
In October 1996, the Tandon family made a new proposal to the
Independent Directors Committee that eliminated any valuation issues by
deleting any in-kind contributions and added a financial commitment from the
Company's management and certain key employees. This proposal calls for an
investment of $2 million by certain members of the Tandon family or entities
controlled by them (the "Tandon family") in exchange for Common Stock and an
investment of $250,000 by certain members of the Company's management and
certain key employees in exchange for Common Stock, together with the
commitment from the Tandon family to obtain a standstill arrangement with the
Indian bank lenders of Ultra Tek for a period of not less than one year, at no
material cost to the Company. The proposed per-share stock purchase price is
$0.15, which exceeded both the public bid and asked prices at the time of the
proposal. The terms presented by the Tandon family would result in the Tandon
family owning approximately 77.3% of the Company's outstanding Common Stock,
while management would acquire approximately 8.6% of the Company.
The specific terms of the Recapitalization Plan are as follows:
BASIC TERMS. The Company would sell (i) to Clady International
Corporation, an affiliate of the Tandon family and an existing shareholder
("Clady"), 13,333,333 shares of Common Stock at a price of $0.15 per share for
an aggregate purchase price of $2 million (in order to avoid fractional shares,
the actual amount paid will be $1,999,999.95) and (ii) to certain members of
the management and certain key employees of the Company 1,666,667 shares of
Common Stock at a price of $0.15 per share for an aggregate purchase price of
$250,000 (in order to avoid fractional shares, the actual amount paid will be
$250,000.05). The shares issued under the Recapitalization Plan will not have
any preemptive rights.
BRIDGE NOTE. Because the Company needs the funds to be provided by
the Recapitalization Plan and currently does not have a sufficient number of
authorized shares of Common Stock to make all of the aforementioned issuances,
the Company would deliver to Clady 850,000 shares of Common Stock and a bridge
promissory note in the principal amount of $1,872,499.95 (the "Bridge Note") in
substitution for the remaining 12,483,333 shares of Common Stock. As described
in "Proposal 3" below, the Board recommends shareholder approval for an
amendment to the Company's Articles of Incorporation to increase the number of
authorized shares of Common Stock to allow for the prepayment of the Bridge
Note by the issuance of shares of Common Stock. See "Proposal 3" below.
Upon the tenth day after shareholder approval of an amendment to the
Company's Articles of Incorporation to increase the authorized capital of the
Company has been obtained and a certificate regarding such amendment has been
filed with the California Secretary of State, the Company would become
obligated to prepay the Bridge Note in its entirety by issuing shares of Common
Stock in payment therefor at the rate of one share per $0.15 of outstanding
principal thereunder by June 7, 1997. If the Bridge Note is not prepaid by
June 7, 1997, it would become a demand note in favor of Clady. The Bridge Note
would have the following additional terms: (i) interest on the Bridge Note
would be at a rate of 8%; (ii) the Bridge Note would be secured by all of the
Company's assets; and (iii) there would be anti-dilution protection only for
stock splits and dividends or any change in capitalization as a result of a
merger or other fundamental change in the ownership of the Company.
16.
<PAGE> 19
As payment for its purchase of 850,000 shares of Common Stock and the
issuance of the Bridge Note, Clady will deliver to the Company $1,313,397.21 in
cash and will surrender certain short-term notes having an aggregate principal
amount of $680,000 and aggregate accrued interest of $6,602.74 as of March 31,
1997 that were issued in exchange for cash advances to the Company while the
Recapitalization Plan has been pending.
MANAGEMENT INVESTMENT. Because the Company currently does not have a
sufficient number of authorized shares of Common Stock to make all of the
issuances contemplated by the Recapitalization Plan, the members of management
and key employees who are investing in the Company as part of the
Recapitalization Plan have executed binding subscription agreements for their
purchase of shares, but will not receive such shares or make any payment for
such shares until after shareholder approval of the Recapitalization Plan and
of the amendment to the Company's Articles of Incorporation to increase the
number of authorized shares of Common Stock, has been obtained.
BOARD REPRESENTATION. After the closing of the transaction, the
Company would agree to nominate a sufficient number of candidates designated by
the Tandon family such that the Tandon family nominees, including J.L. Tandon
who presently serves on the Board, would constitute a majority of the Board.
J.L. Tandon has informed the Company that the Tandon family has no present
intention of designating candidates for election to the Board.
REGISTRATION RIGHTS. The Tandon family will receive three demand
registration rights and unlimited piggyback and S-3 registration rights for the
shares of Common Stock issued at closing and upon conversion of the Bridge
Note.
CONDITIONS. Conditions to the Recapitalization Plan include, among
other things, (i) approval of the transaction by the Independent Directors
Committee; (ii) receipt of any required governmental consents and/or completion
of any third party consents required for the Company's or the Tandon family's
completion of their obligations; (iii) negotiation of definitive documentation;
(iv) obtaining of a satisfactory standstill arrangement with the Indian bank
lenders of Ultra Tek; and (v) shareholder approval of the Recapitalization
Plan. While authorization of a sufficient number of shares of Common Stock is
not an explicit condition to the Recapitalization Plan, such authorization will
be necessary in order to consummate the transaction. It is anticipated that
the Company's immediate capital needs will require that the 850,000 shares of
Common Stock and the Bridge Note be issued prior to the date of this Proxy
Statement. However, shareholder approval is required for the prepayment of the
Bridge Note by the issuance of Common Stock of the Company.
BANK STANDSTILL ARRANGEMENT. As a condition to the closing of the
transactions contemplated by the Recapitalization Plan, the Tandon family has
agreed to procure an agreement with the Indian bank lenders of Ultra Tek,
whereby payment of the principal and interest accrued on such debt would be
deferred during the full fiscal year ending March 31, 1998. In the event that
the Indian banks should make any demand for payment of principal or interest
from the Company or Ultra Tek during such one-year period, each of J.L. Tandon,
S.L. Tandon and D.L. Tandon have agreed to make such payments on behalf of the
Company and/or Ultra Tek. If J.L. Tandon, S.L. Tandon and/or D.L. Tandon make
any such payments, the Company has agreed to execute a promissory note in favor
of J.L. Tandon, S.L. Tandon and/or D.L. Tandon, as the case may be, in the
principal amount of such payment; provided, however, that payment of principal
and interest on such promissory note will be deferred until April 1, 1998. In
addition, the Company has agreed to pledge all of its assets as security for
any such promissory note.
USE OF PROCEEDS. The net proceeds received by the Company under the
Recapitalization Plan will be used for working capital purposes in the
implementation of the Company's plans for new products and new market strategy.
GENERAL EFFECT. Based on the current market price of the Common Stock
of the Company, the Recapitalization Plan will have a dilutive effect on the
value of outstanding shares as a result of the issuance of shares under the
Recapitalization Plan at below market price. Because the current trading
volume is relatively small, the current market price does not provide a
definitive indication of the value of the stock, whether there is dilution and
what the amount of that dilution might be is difficult to determine. The
Company recognizes, however, that the cost at which the vast majority of the
Company's investors acquired their shares was substantially higher than the
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current market price and the $0.15 per share price called for by the
Recapitalization Plan, and those investors will be significantly affected by
the issuances pursuant to the Recapitalization Plan. Further, there will be
dilution of value based on the significant shift in the Tandon family's
percentage of ownership of the Company contemplated by the Recapitalization
Plan. However, the infusion of capital under this transaction will allow the
Company to meet its current operating needs and continue as a going concern.
Ultimately, it is the opinion of the Board and, separately, the opinion of the
Independent Directors Committee, that the Recapitalization Plan is in the best
interest of the Company's shareholders.
EFFECT OF THE RECAPITALIZATION PLAN ON THE COMPANY'S NET OPERATING LOSSES AND
SECTION 382 OF THE INTERNAL REVENUE CODE
As of March 31, 1996, the Company had available net operating losses
("NOLs") for federal tax purposes of $10 million to offset taxable income
recognized by the Company in periods after March 31, 1996. For federal income
tax purposes, these NOLs will expire in material amounts beginning in the
fiscal year 2009. NOLs benefit the Company by offsetting taxable income
dollar-for-dollar by the amount of the NOLs, thereby eliminating (subject to a
relatively minor alternative minimum tax) the federal corporate tax on such
income. The maximum federal corporate tax rate is currently 35%.
The benefit of a company's NOLs can be reduced or eliminated under
Section 382 of the Internal Revenue Code. Section 382 limits the use of losses
and other tax benefits by a company that has undergone an "ownership change,"
as defined in Section 382. Generally, an ownership change occurs if one or
more shareholders, each of whom owns 5% or more in value of a company's capital
stock, increase their aggregate percentage ownership by more than 50 percentage
points over the lowest percentage of stock owned by such shareholders over the
preceding three-year period.
If an ownership change of the Company were to occur, the amount of
taxable income in any year (or portion of a year) subsequent to the ownership
change that could be offset by NOLs or other carryovers existing (or
"built-in") prior to such ownership change could not exceed the product
obtained by multiplying (i) the aggregate value of the Company's stock
immediately prior to the ownership change with certain adjustments by (ii) the
federal long-term tax exempt rate (currently 5.80%). The Company would incur
corporate income tax on any taxable income during a given year in excess of
such limitation. Because the value of the Company's stock, as well as the
federal long-term tax-exempt rate, fluctuate, it is impossible to state exactly
the annual limitation upon the amount of taxable income of the Company that
could be offset by such NOLs or other items if an ownership change were to
occur. The increase in the percentage of ownership of the Company by the
Tandons contemplated by the Recapitalization Plan approaches, but does not
cross the 50% threshold which would trigger a limitation on the Company's
ability to use its NOLs. However, there is a substantial risk that any future
acquisitions of Common Stock by the Tandons or by other 5% or more shareholders
would trigger the Section 382 limitations on availability of the NOLs.
FAIRNESS OPINION
The Independent Directors Committee requested that the Company retain
an independent investment banking firm to render an opinion as to the fairness,
from a financial point of view, of the Recapitalization Plan to the Company's
public shareholders. Pursuant to an engagement letter dated November 15, 1996,
the Company retained Wedbush Morgan Securities ("Wedbush") to render an opinion
in connection with the proposed Recapitalization Plan. Wedbush is an
investment banking firm and a member of the New York Stock Exchange and other
principal stock exchanges in the United States, and is regularly engaged as
part of its business in the valuation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings, private
placements, secondary distributions of listed and unlisted securities, and
valuations for estate, corporate and other purposes. Wedbush was selected by
the Company based on Wedbush's experience, expertise, reputation, and
familiarity with the Company.
On February 21, 1997, Wedbush delivered its final written opinion to
the Independent Directors Committee to the effect that, as of February 20, 1997
(the date of the opinion) and based upon the factors described in the opinion,
the Recapitalization Plan as described in this Proxy Statement is fair, from a
financial point of view, to the Company's public shareholders. Wedbush assumed
that the factual circumstances and terms, as they existed as of
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the date of its opinion, will remain substantially unchanged through the time
the Recapitalization Plan is completed. Wedbush will not undertake to update
its opinion for any changes occurring between the date of the opinion and of
the consummation of the Recapitalization Plan.
THE FULL TEXT OF WEDBUSH'S FAIRNESS OPINION, DATED FEBRUARY 20, 1997,
WHICH SETS FORTH THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED,
AND QUALIFICATIONS AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY WEDBUSH IN
ARRIVING AT ITS OPINION, IS ATTACHED TO THIS PROXY STATEMENT AS ANNEX B. ALL
SHAREHOLDERS ARE URGED TO READ THE OPINION IN ITS ENTIRETY. WEDBUSH'S OPINION
DOES NOT CONSTITUTE A RECOMMENDATION BY WEDBUSH TO ANY SHAREHOLDER TO VOTE TO
APPROVE THE RECAPITALIZATION PLAN. THE SUMMARY OF THE OPINION OF WEDBUSH SET
FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF SUCH OPINION.
In connection with its opinion, Wedbush reviewed, among other things,
the proposed Recapitalization Plan; a draft of the preliminary Proxy Statement
to be filed by the Company with the Securities and Exchange Commission
regarding its 1996 Annual Meeting of Shareholders to be held in May 1997;
Annual Reports on Form 10-K of the Company for each of the three fiscal years
ended March 31, 1994, 1995 and 1996; Quarterly Reports on Form 10-Q of the
Company for the periods ended June 30, 1996, September 30, 1996, and December
31, 1996; projected financial statements for the four fiscal years ending March
31, 2000; purchase orders/letters of intent from Siemens Nixdorf, Iomega and
ICL to purchase the Company's products; minutes of meetings of the Board of
Directors of the Company dated April 27, 1994 through the issuance of Wedbush's
opinion; the Company's restructured organization chart; current term
sheets/proposal for renegotiation of the Company's credit lines with certain
Indian banks that have previously extended credit to the Company; Articles of
Incorporation of the Company, By-laws of Golden Power Systems, the predecessor
of the Company; the Company's February 5, 1997 news release of fiscal year 1997
third quarter earnings; and the personal and corporate guaranty agreement
between the Company and the Tandon family and the Indian bank group. Wedbush
also held discussions with certain members of the senior management of the
Company regarding the past and current business operations, financial
condition, future prospects and projected operations and performance of the
Company. Wedbush also visited the corporate headquarters of the Company in
Simi Valley, California; its engineering facility in Boxburn, United Kingdom;
and its manufacturing facility in Bombay, India. In addition, Wedbush reviewed
the reported prices and trading activity of the Company's Common Stock on the
Over-the-Counter Market Bulletin Board; compared certain statistical and
financial information of the Company with similar information for certain other
publicly-traded electronic component manufacturing companies; reviewed the
financial terms, to the extent publicly available, of certain recent business
combinations in the electronic component manufacturing industry; and conducted
such other financial studies, analyses and inquiries, and considered such other
matters as Wedbush deemed necessary and appropriate for its opinion.
Wedbush did not undertake any obligation independently to verify the
accuracy or completeness of the financial information or other information
furnished by the Company orally or in writing, or other information obtained
from publicly available sources and reviewed by Wedbush for purposes of its
opinion. Wedbush was provided with information represented to Wedbush as the
best currently available estimates and judgments of the management of the
Company, as to the expected future financial and operating performance of the
Company, and Wedbush did not undertake any obligation to assess whether such
forecasts, estimates or judgments are reasonable or are likely to be accurate,
nor did Wedbush undertake any obligation independently to verify the underlying
assumptions made in connection with such forecasts, estimates or judgments. In
addition, Wedbush did not make an independent evaluation or appraisal of any
particular assets or liabilities of the Company.
Wedbush did not negotiate, or participate in any way in the
negotiation of, the terms of the Recapitalization Plan, or advise the Company
regarding strategic alternatives. Wedbush has not been asked to consider, and
its opinion does not address, the relative merits of the Recapitalization Plan
as compared to any alternative business strategies that might exist for the
Company or the effect of any other transaction in which the Company might
engage.
Set forth below is a brief summary of certain financial analyses performed
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by Wedbush in connection with the preparation of its opinion and reviewed with
the Independent Directors Committee at such committee's meeting held on
February 21, 1997. Such summary does not purport to be a complete description
of the analyses performed by Wedbush. Preparation of a fairness opinion is a
complex process involving subjective judgments. Therefore, Wedbush believes
its analyses must be considered as a whole and that considering any portion of
such analyses and of the factors considered, without considering all analyses
and factors, could create a misleading or incomplete view of the process
underlying the opinion. In its analyses, Wedbush made numerous assumptions
with respect to industry performance, general business, and other conditions
and matters, many of which cannot be predicted and are beyond the Company's
control. Any estimates contained in Wedbush's analyses are not necessarily
indicative of actual values or predictive of future results or values, which
may be significantly more or less favorable than such estimates. In addition,
Wedbush's analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the price at which businesses or
securities may actually be sold. Because such estimates are inherently subject
to uncertainty, neither the Company nor Wedbush assumes any responsibility for
their accuracy.
GOLDEN SYSTEMS STOCK TRADING HISTORY. Wedbush examined the historical
trading prices and volume of the Company's Common Stock as reported by the
Over-the-Counter Market Bulletin Board; the relationship between the movements
in the prices of the Company's Common Stock to movements in certain key
indices, including the Dow Jones Industrial Average of 30 Stocks, the Standard
and Poor's 500 Index, and the Nasdaq Composite Index. This analysis showed
that the closing price of the Company's Common Stock was between $0.06 and
$0.50 for the final trading day of each week from January 2, 1996 to February
20, 1997. The average weekly trading volume for this period was 10,244 shares,
with the volume ranging from 100 shares to 58,300 shares traded. During this
same period, on a relative performance basis (indexed to beginning of period),
the Company's Common Stock underperformed the Dow Jones Industrial Average of
30 Stocks by 101%, underperformed the Standard and Poor's 500 Index by 96% and
underperformed the Nasdaq Composite Index by 96%.
On November 1, 1996, five trading days prior to the Company's
announcement of the Recapitalization Plan on November 8, 1996, the bid and
asked prices of the Company's Common Stock, as reported by the Over-the-Counter
Market Bulletin Board, were $0.15 and $0.15 per share, respectively, with
reported trading volume of 10,000 shares. On November 15, 1996, five trading
days after such announcement, the bid and asked prices of the Company's Common
Stock were $0.094 and $0.15 per share, respectively, with no trading volume.
Wedbush noted that the proposed price of the Company's Common Stock under the
terms of the Recapitalization Plan falls within the recent trading price range.
PUBLIC MARKET COMPARABLE COMPANIES ANALYSIS. Using publicly available
information, Wedbush compared selected financial data of the Company with
similar data of selected publicly traded companies engaged in businesses
considered by Wedbush to be appropriate for comparison to those of the Company.
Although such companies were considered similar to the Company, none of the
companies has the same management, makeup, size or combination of business as
the Company.
Wedbush considered the following group of companies for purposes of
comparison (the "Comparison Companies") to the Company, which group includes
manufacturers of power supply products, power conversion equipment, or other
electronic component products: Acme Electric Corp., American Power Conversion,
Espey Manufacturing and Electronics Corp., Oryx Technology Corp., TII
Industries Inc., Vicor Corp., and Zytec Corp.
Wedbush analyzed the following financial data for each of the
Comparison Companies: (1) the "market value" of each company (defined as the
total number of shares outstanding times the closing price of such company's
stock on February 20, 1997) as a multiple of: (a) publicly reported latest
twelve months net income; (b) estimated earnings per share for the years ended
December 31, 1997 and 1998 (based on a composite of research analysts'
estimates as reported by the Institutional Brokers Estimate Service for each of
the Comparison Companies), and (c) latest publicly reported book value of
shareholders' equity; and (2) the "enterprise value" or "firm value" of each
company (defined as market value plus debt, net of cash) as a multiple of
publicly reported latest twelve months revenues, publicly reported latest
twelve months earnings before interest, taxes, depreciation and amortization
("EBITDA"), and publicly reported latest twelve months earnings before interest
and taxes ("EBIT").
Due to the lack of market capitalization size, diversity, growth,
stability, and profitability of the Company, Wedbush derived a range of
adjusted median multiples by applying discount rates from 60% to 80% to the
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Comparison Companies' median multiples calculated from the foregoing analyses
and applied these adjusted median multiples to certain financial data of the
Company. Wedbush also noted that the Company incurred significant losses from
operations in fiscal years 1995 and 1996, had negative working capital of
$5,116,000 as of December 31, 1996, and a retained deficit of $21,208,000 as of
December 31, 1996, that raise substantial doubt about its ability to continue
as a going concern. The underlying component in a public market comparable
companies analysis assumes the companies are ongoing concerns. Wedbush found
that forecasts and estimates provided by the Company's management for fiscal
years 1998 through 2000 appeared optimistic in light of historical financial
and operational results, aggressive competition in the Company's industry, and
the inherent risk of a start-up operation, and as such, bear a high risk of
uncertainty of the Company's ability to achieve those optimistic projected
results. Wedbush concluded that the valuations based on EBITDA and EBIT for
the latest twelve months ended December 31, 1996 and book value of
shareholders' equity as of December 31, 1996, were not meaningful due to the
losses and deficits incurred by the Company. Based on the foregoing adjusted
median values for the Comparison Companies, Wedbush calculations yielded an
implied equity valuation of from negative $0.38 to positive $3.99 per share of
the Company's Common Stock.
MERGER AND ACQUISITION COMPARABLE TRANSACTION ANALYSIS. Wedbush
reviewed certain publicly available information regarding selected merger and
acquisition transactions involving companies engaged in similar business to the
Company occurring during the period January 1, 1993 through January 25, 1997.
Because of the losses and deficits of the Company during the latest twelve
months ended December 31, 1996, Wedbush advised the Company that this valuation
methodology could not be performed to arrive at an implied equity valuation
reference range for the Company's Common Stock.
DISCOUNTED CASH FLOW ANALYSIS. Wedbush also analyzed the value of the
Company utilizing a discounted projected future value analysis. This analysis
was based solely on information, including certain projected financial
information, prepared or provided by the Company's management.
Using a discounted projected future value analysis, Wedbush estimated
the present value of the future stream of after-tax cash flows that the Company
would produce through March 31, 2000. Wedbush estimated the projected future
equity value range of the Company at March 31, 2000 to be from $183.4 million
to $238.9 million by applying multiples of from 9x to 12x to the Company's
projected EBIT for the fiscal year ending March 31, 2000. In order to derive
the projected future equity value of the Company, Wedbush added the estimated
cash, net of debt, at March 31, 2000 of approximately $17 million. The cash
flow streams and the projected future equity value were discounted using a
discount rate ranging from 60% to 80%.
In determining the discount rates used in the projected future value
analysis of the Company, Wedbush noted, among other things, factors such as
inflation, prevailing market interest rates, the business risk inherent to the
Company, the optimistic financial projections the Company supplied Wedbush,
rates of return required by investors in high growth technology-related
companies, the historical weighted average cost of capital for the Company, and
the historical weighted cost of capital for public companies which Wedbush
deemed comparable to the Company. Wedbush noted that the Company's financial
projections assumed a dramatic change in its business strategy, which involves
manufacturing proprietary power supply products with higher profit margins and
lower volume for original equipment manufacturers (OEM) and that there are
significant risks and uncertainties in the Company's new business strategy and
its ability to achieve the positive results indicated in its optimistic
financial projections, in recognition of the unfavorable circumstances from the
Company's historical performance (significant financial losses, product
rejection, high short-term debt, limited capital, vendor problems, and negative
perception by its existing and potential customer base).
In determining the range of projected future equity value multiples
used in the discounted projected future value analysis, Wedbush noted, among
other things, the multiples at which public companies which Wedbush deemed
comparable to the Company historically traded, and the multiples observed in
historical business combination or merger transactions which Wedbush deemed
relevant. Based on the foregoing analysis, Wedbush indicated an implied
present value reference range of between $1.61 and $2.96 per share of the
Company's Common Stock.
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ADJUSTED NET BOOK VALUE ANALYSIS (LIQUIDATION ANALYSIS). Using the
adjusted book value analysis, Wedbush determined the value of the equity based
upon the net book value of the assets of the Company adjusted to reflect the
fair market value of assets and liabilities of the Company. Based on the
consolidated balance sheet statement of the Company as of December 31, 1996,
the Company's shareholders' equity was negative $5,492,000. Wedbush noted that
a significant portion of the Company's short-term borrowings with certain
Indian banks were due for renewal prior to March 31, 1996, and that the Company
has been unable to generate sufficient revenues to service its debt.
The Company is a holding company and conducts its business through its
wholly owned subsidiary, Ultra Tek, an Indian corporation, whose manufacturing
facilities are primarily located in Bombay, India. Most of the Company's
assets, through Ultra Tek, are located in India and are subject to the laws of
the Indian government. Based on the foregoing, Wedbush determined that the
adjusted book value method of valuation (liquidation analysis) demonstrated
that without the Recapitalization Plan the Company's public shareholders would
be left with a significant negative shareholders' equity in fiscal year 1998 of
approximately $14 million due to the significant amounts of debt and operating
losses of the Company.
MISCELLANEOUS. Pursuant to the engagement letter dated November 15,
1996, for Wedbush's services to the Company in rendering its fairness opinion,
the Company has agreed to pay Wedbush a fee of $60,000, of which $30,000 was
contingent upon Wedbush notifying the Company of Wedbush being prepared to
deliver Wedbush's opinion referred to herein. The amount of the fee payable to
Wedbush was not contingent on its conclusion regarding the fairness of the
Recapitalization Plan to the Company's public shareholders. The Company also
has agreed to reimburse Wedbush for its out-of-pocket expenses reasonably
incurred in connection with its engagement, and to indemnify Wedbush against
certain liabilities relating to or arising out of services performed by
Wedbush. In the normal course of its business, Wedbush may, from time to time,
actively trade securities of the Company for its own account or for the account
of its customers and, accordingly, may at any time have a long or a short
position in such securities.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
FOR APPROVAL OF THE RECAPITALIZATION PLAN.
PROPOSAL 3 -- APPROVAL OF AMENDMENT TO
ARTICLES OF INCORPORATION TO
INCREASE NUMBER OF AUTHORIZED SHARES
The Board has unanimously approved, subject to shareholder approval,
the adoption of an amendment to the Company's Articles of Incorporation to
increase the number of authorized shares of Common Stock by 44,000,000 shares
to 50,000,000 shares.
Presently, the Company does not have an adequate number of shares
authorized to consummate the Recapitalization Plan described in "Proposal 2"
above and to meet foreseeable future capital needs. The Company currently has
6,000,000 authorized shares of Common Stock and 4,449,998 shares issued and
outstanding. The Company currently has only 946,002 shares available for the
Recapitalization Plan (455,000 shares are reserved for issuance under the
Company's 1994 Stock Option Plan; and 149,000 shares are reserved for issuance
pursuant to certain common stock purchase warrants issued to U.S. banks in
connection with various loan arrangements; therefore, 604,000 shares of the
remaining non-issued shares would be unavailable for the Recapitalization
Plan). The Recapitalization Plan requires the issuance of an additional
15,000,000 shares.
Therefore, it is necessary to amend the Company's Articles of
Incorporation to increase the number of authorized shares of Common Stock. The
general effect of this amendment is that more shares of Common Stock will be
authorized and, therefore, more shares of Common Stock can be issued by the
Company, which, depending upon the terms of their issuance, may result in some
dilution in value of the shares currently held by existing shareholders.
Please refer to the Recapitalization Plan proposal described in "Proposal 2"
above. The newly
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authorized shares not issued as part of the Recapitalization Plan will not be
issued other than pursuant to a plan or transaction approved by the Company's
Board of Directors (and, depending upon the circumstances, the Company's
shareholders). A copy of the Company's proposed Amended and Restated Articles
of Incorporation is attached as Annex C to this Proxy Statement.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
VOTE FOR APPROVAL OF THE AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK.
PROPOSAL 4 -- APPROVAL OF AMENDMENT TO
ARTICLES OF INCORPORATION TO CHANGE THE NAME
OF THE COMPANY
The Board has unanimously approved, subject to shareholder approval,
the adoption of an amendment to the Company's Articles of Incorporation to
change the name of the Company to Cortech Systems, Inc.
The Board believes it would be in the best interest of the Company and
its shareholders to change the Company's name, given the decline of the
Company's image in the marketplace. In addition, the new name of the Company
would reflect the Company's commitment to and emphasis on its desire to make
its products part of its customers' "core technology." This new name would
allow the Company to create its new identity and put its less than successful
past behind it. The new name will reflect the Company's fresh start, its new
markets, new products, new customers and new strategy. The general effect of
the proposed amendment instituting the name change would be that the Company
would operate under a new name and its stock would trade under a new trading
symbol, which will be announced when the name change, if approved, becomes
effective. A copy of the Company's proposed Amended and Restated Articles of
Incorporation is attached as Annex C to this Proxy Statement.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
VOTE FOR APPROVAL OF THE AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION
TO CHANGE THE NAME OF THE COMPANY.
PROPOSAL 5 - APPROVAL OF THE 1997 STOCK OPTION PLAN
On February 27, 1997, the Board approved, subject to shareholder
approval, the adoption of the 1997 Stock Option Plan (the "1997 Plan"). The
Board recommends that the shareholders vote to approve the 1997 Plan for the
reasons indicated below.
The purpose of the 1997 Plan and of granting options to specified
persons is to further the growth, development and financial success of the
Company and its directly or indirectly owned subsidiaries (individually, a
"Subsidiary," and collectively, the "Subsidiaries"), by providing stock-based
incentives to certain key employees holding responsible positions. By allowing
key employees to acquire shares of the Company's Common Stock, the Company can
expand management's stake in the long term development, performance and
financial success of the Company. In this way, the Company can directly link
the interests of management to maximizing shareholder value. In the opinion of
the Board, it is in the best interests of the Company and its shareholders to
provide, through the 1997 Plan, an incentive compensation program designed to
enable the Company to attract, retain, and reward key employees.
The 1997 Plan differs from the 1994 Plan (as amended and restated) in
two key respects: (i) it omits certain administrative provisions and the
formula grant structure of the 1994 Plan, which govern option grants to
non-employee directors, in order to conform to new Rule 16b-3 of the Exchange
Act, and (ii) it contains additional provisions which comply with the
California employee benefit plan exemption available under Section 25102(o) of
the California Corporate Securities Law of 1968, as amended. This latter
exemption is only available for newly
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approved plans, which is the primary reason why the Board adopted the 1997 Plan
rather than amend the Company's existing option plan.
The following is a brief summary of the material features of the 1997
Plan and is qualified in its entirety by express reference to the 1997 Plan, a
copy of which is attached as Annex D to this Proxy Statement.
SUMMARY OF THE 1997 PLAN
Under the 1997 Plan, directors, officers, key employees and
consultants of the Company or its Subsidiaries may be granted options (the
"Options") to purchase shares of Common Stock of the Company. The 1997 Plan
permits the granting of both options that qualify for treatment as incentive
stock options ("Incentive Stock Options") under Section 422 of the Internal
Revenue Code (the "Code"), and options that do not qualify as Incentive Stock
Options ("Nonqualified Stock Options").
ELIGIBILITY. The persons who shall be eligible to receive grants of
Options under the 1997 Plan shall be, at the time of the grant, the directors,
officers, key employees and consultants of the Company and its Subsidiaries.
No optionee may be granted Options to purchase an aggregate of more than
250,000 shares of Common Stock pursuant to the 1997 Plan. Monetary regulations
in India currently restrict the ability of Indian residents to receive stock
options. Consultants and directors who are not also employees are not eligible
to receive Incentive Stock Options. Notwithstanding the foregoing, only
officers and key employees who do not own 10% or more of any class of the
Company's voting securities shall be eligible to receive grants of Options.
J. L. Tandon and M. L. Tandon have agreed that, because their family holds
significant interests in the Company, they will be ineligible to receive
Options under the Plan. Option grants under the 1997 Plan may include an
Incentive Stock Option, Nonqualified Stock Option, or any combination thereof.
ADMINISTRATION. The 1997 Plan shall be administered by the Option
Committee established by the Board, which has the power to construe and
interpret the provisions of the 1997 Plan and any Option granted thereunder.
The Option Committee shall be constituted so as to permit the 1997 Plan to
comply with the provisions of new Rule 16b-3 ("Rule 16b-3") under the Exchange
Act and Sections 162(m) and 422 of the Code. No member of the Option Committee
shall be liable for any action or determination made in good faith with respect
to the 1997 Plan or any Option granted under it. The Compensation Committee of
the Board will act as the Option Committee under the 1997 Plan.
SHARES SUBJECT TO THE 1997 PLAN. The number of shares of Common Stock
in respect of which Options may be granted under the 1997 Plan shall not exceed
900,000 shares in the aggregate, including shares, or shares subject to
options, issued pursuant to the Company's 1994 Plan. Amounts are subject to
adjustment upon certain changes in the Company's capitalization or structure.
Upon the expiration or termination, in whole or in part, for any reason of an
outstanding Option or any portion thereof which shall not have vested or shall
not have been exercised in full or in the event the Company repurchases any
shares of Common Stock acquired pursuant to the 1997 Plan, (a) any shares of
Common Stock then remaining unissued which shall have been reserved for
issuance upon such exercise or (b) any shares of Common Stock which shall have
been repurchased, as the case may be, shall again become available for the
granting of additional Options under the 1997 Plan. Notwithstanding the
preceding sentence, shares of Common Stock subject to a terminated Option shall
continue to be considered to be outstanding for purposes of determining the
maximum number of shares of Common Stock underlying Options that may be issued
to a single optionee under the 1997 Plan. Similarly, the repricing of an
Option will be considered the grant of a new Option for this purpose.
OPTION PRICE AND VESTING OF OPTIONS. The purchase price per share
(the "Option Price") of the shares of Common Stock underlying each Option and
vesting schedule for each Option shall be determined by the Option Committee,
but shall not be less than the fair market value of such shares on the date of
granting of the Option.
EXERCISE OF OPTIONS. Options granted under the 1997 Plan may be
exercised, to the extent vested, by the optionee by giving written notice to
the Company specifying the number of full shares to be purchased and
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accompanied by payment of the full purchase price therefor in cash, by check or
in such other form of lawful consideration as the Option Committee may approve
from time to time, including, without limitation and in the sole discretion of
the Option Committee, the assignment and transfer by the optionee to the
Company of outstanding shares of Common Stock theretofore held by the optionee
in a manner intended to comply with the provisions of Rule 16b-3. Each Option
shall become fully exercisable no later than five years from the date the
Option is granted, the number of shares of Common Stock subject to each Option
shall become exercisable at the rate of at least 20% per year each year until
the Option is fully exercisable, and no Option may be exercisable subsequent to
its termination date. Options may only be exercised by the optionee or, in the
event of death of the optionee, by the person or persons (including the
deceased optionee's estate) to whom the deceased optionee's rights under such
Option shall have passed by will or the laws of descent and distribution. No
Option granted to a person subject to Section 16 of the Exchange Act shall be
exercisable during the first six months after the date such Option is granted.
NONTRANSFERABILITY. An Option may not be assigned or transferred
other than by will or by the laws of descent or distribution and, once vested,
and prior to its termination date, may be exercised during the lifetime of the
optionee only by such optionee.
ADJUSTMENTS UPON CAPITALIZATION AND CORPORATE CHANGES. If the
outstanding shares of the Common Stock of the Company are increased, decreased
or exchanged for, different securities of the Company through reorganization,
merger, consolidation, recapitalization or reclassification, stock split, stock
dividend, or like capital adjustment, a proportionate adjustment shall be made
(a) in the number of shares of Common Stock which may be purchased pursuant to
the exercise of Options granted under the Plan and (b) in the number, price,
and kind of shares subject to any outstanding Option granted under the Plan.
Upon the dissolution or liquidation of the Company or upon any reorganization,
merger or consolidation in which the Company does not survive or in which the
equity ownership of the Company prior to such transaction represents less than
50% of the equity ownership of the Company subsequent to the transaction, the
Plan and each outstanding Option shall terminate; provided that, subject to
certain terms and conditions, (i) the Company may in its sole discretion allow
the exercise of the Options without regard to the installment provisions
thereof or (ii) the surviving corporation may in its sole discretion tender to
any optionee a substantially equivalent option to purchase shares of the
surviving corporation.
SUBSTITUTE OPTIONS. If the Company at any time should succeed to the
business of another corporation through a merger or consolidation, or through
the acquisition of stock or assets of such corporation or its subsidiaries,
Options may be granted under the 1997 Plan to those employees of such
corporation or its subsidiaries who, in connection with such succession, become
employees of the Company or its subsidiaries, in substitution for options to
purchase stock of such corporation held by them at the time of such succession,
subject to certain conditions, including the approval of the Option Committee
in its sole discretion.
OPTION AGREEMENT. Each Option granted under the 1997 Plan shall be
evidenced by a written stock option agreement ("Option Agreement") executed by
the Company and the optionee which (a) shall contain each of the provisions and
agreements specifically required by the 1997 Plan to be contained therein and
(b) may contain such other terms and conditions as the Option Committee deems
desirable and which are not inconsistent with the 1997 Plan.
TERMINATION OF OPTIONS. Each Option granted under the Plan shall set
forth a termination date thereof, which date shall not be later than ten years
from the date such Option is granted. An Incentive Stock Option shall contain
any termination events required by Section 422 of the Code. In any event all
Options shall terminate and expire upon the first to occur of the following
events:
(a) the expiration of three months from the date of an
optionee's termination of employment (other than by reason of death),
except that if an optionee is then disabled, the expiration of one
year from the date of such optionee's termination of employment; or
(b) the expiration of one year from the date of the death
of an optionee if his or her death occurs while he or she is, or not
later than three months after he or she has ceased to be, employed by
the
25.
<PAGE> 28
Company or any of its subsidiaries in a capacity in which he or she
would be eligible to receive grants of Options under the 1997 Plan; or
(c) the termination of the Option pursuant to a
recapitalization, reorganization, merger or consolidation.
EFFECTIVENESS AND TERMINATION OF PLAN. Notwithstanding any provision
of the 1997 Plan or in any Option Agreement, no option granted under the 1997
Plan shall be exercisable prior to shareholder approval of the 1997 Plan. The
1997 Plan shall terminate at the earliest of the time when all shares of Common
Stock which may be issued thereunder have been so issued, or at such time as
set forth in "Termination of Options" above; provided, however, that the Board
may in its sole discretion terminate the 1997 Plan at any other time. Unless
earlier terminated by the Board, the 1997 Plan shall terminate on that date
which is ten years from the effective date of the 1997 Plan.
AMENDMENT OF 1997 PLAN. The Option Committee may (a) make such
amendments to the terms and conditions of granted Options as it shall deem
advisable, provided each optionee affected by such change consents thereto, and
(b) make such amendments to the 1997 Plan as it deems advisable.
FEDERAL INCOME TAX CONSEQUENCES
Based on current provisions of the Code, and the existing regulations
thereunder, the anticipated federal income tax consequences with respect to the
Options under the 1997 Plan are as described below. In addition, participating
in this plan may have state and local tax consequence. Optionees should
consult with their own tax advisors with respect to the tax consequences of
participating in the 1997 Plan.
INCENTIVE STOCK OPTIONS. No taxable income will be recognized by an
optionee upon the grant or exercise of any Incentive Stock Option.
Additionally, the Company will not be entitled to any income tax deduction as
the result of the grant or exercise of an Incentive Stock Option.
Any gain or loss resulting from the subsequent sale of Common Stock
acquired upon exercise of an Incentive Stock Option will be long-term capital
gain or loss if such sale is made after the later of:
1. Two years from the date of the grant of the Incentive Stock
Option; or
2. One year from the date of the exercise of the Incentive Stock
Option.
In the event of the optionee's death or disability prior to exercise of an
Incentive Stock Option, special rules apply in determining whether gain or loss
upon sale of the stock acquired upon exercise of such option will be taxable as
long-term capital gain or loss.
If the subsequent sale of stock is made prior to the expiration of
such two-year or one-year periods, the optionee will recognize ordinary income
in the year of sale in an amount equal to the difference between the aggregate
Option Price (the "Aggregate Option Price") of the Common Stock and the fair
market value of the Common Stock on the date of exercise, provided that if such
sale is a transaction in which a loss (if sustained) would have been recognized
by the optionee, the amount of ordinary income recognized by the optionee will
not exceed the excess (if any) of the amount realized on the sale over the
Aggregate Option Price. The Company will then be entitled to an income tax
deduction of like amount. Any excess gain recognized by the optionee upon such
sale would then be taxable as capital gain, either long-term or short-term
depending upon whether the Common Stock had been held for more than one year
prior to sale.
If the sale of Common Stock received upon exercise of an Option
qualifies for long term capital gain treatment, any gain from such a sale would
be taxed at the current maximum federal income tax rate of 28% and ordinary
income is currently taxed at a maximum federal income tax rate of 39.6%. The
amount by which the fair
26.
<PAGE> 29
market value of Common Stock purchased upon exercise of an Incentive Stock
Option exceeds the Aggregate Option Price of such stock constitutes an item of
tax preference that could then be subject to the alternative minimum tax in the
year that the Option is exercised.
NONQUALIFIED STOCK OPTIONS. Generally, at the time of the grant of a
Nonqualified Stock Option, no taxable income will be recognized by the
optionee, and the Company will not be entitled to a deduction. Upon the
exercise of such an Option, the optionee generally will recognize taxable
income, and the Company will then be entitled to a deduction, in the amount by
which the then fair market value of the shares of Common Stock issued to such
optionee exceeds the Aggregate Option Price. However, if a sale of Common
Stock received upon exercise of such Option would subject the optionee to suit
under Section 16(b) of the Exchange Act, the optionee will not recognize income
(and the Company will not be entitled to a deduction) at the time such Option
is exercised unless the optionee makes an election to recognize income at that
time. If such election is not made, the optionee will recognize income and the
Company will be entitled to a deduction at the time when Section 16(b) of the
Exchange Act would no longer apply to such sale.
Income recognized by the optionee upon exercise of a Nonqualified
Stock Option will be taxed as ordinary income. Such income constitutes "wages"
with respect to which the Company is required to deduct and withhold federal
and state income tax. Pursuant to the 1997 Plan, the exercise of each
Nonqualified Stock Option shall be subject to the Company's determination that
all withholding taxes and liabilities relating to the Option have been
satisfied. At the Company's option, deductions sufficient to satisfy such
withholding liability may be made from the wages, salary, bonus or other income
to which the optionee would otherwise be entitled.
Upon the subsequent disposition of shares of Common Stock acquired
upon the exercise of a Nonqualified Stock Option, the optionee will recognize
capital gain or loss in an amount equal to the difference between the proceeds
received upon disposition and the fair market value of such shares at the time
of exercise. If such shares have been held for more than one year at the time
of such disposition, the capital gain or loss will be long-term.
EXERCISING OPTIONS WITH SHARES OF COMMON STOCK. To the extent an
optionee pays all or part of the Option Price by tendering shares of Common
Stock owned by the optionee, the tax consequences described above generally
would apply. However, the number of shares received (upon exercise) equal to
the number of shares surrendered in payment of the Aggregate Option Price will
have the same basis and tax holding period as the shares surrendered. The
additional shares received upon such exercise will have a tax basis equal to
the amount of ordinary income recognized and any cash paid on such exercise and
a holding period which commences on the date of exercise.
Under proposed Treasury regulations, if an optionee exercises an
Option by tendering shares previously acquired on the exercise of an Incentive
Stock Option, a disqualifying disposition will occur if the applicable holding
period requirements have not been satisfied with respect to the surrendered
stock. The consequences of such a disqualifying disposition is that the
optionee may recognize ordinary income at that time.
ACCELERATION OF STOCK OPTIONS UPON TRANSFER OF CONTROL. Pursuant to
the 1997 Plan, the exercisability of Nonqualified Stock Options and Incentive
Stock Options may be accelerated. Such acceleration will likely be determined
to be, in whole or in part, a "parachute payment" for federal income tax
purposes if it arises from any events connected with a change of control of the
Company. If the present value of all of the optionee's parachute payments
exceeds three times the optionee's average annual compensation for the past
five years, the optionee will be subject to a special excise tax of 20% on the
"excess parachute payment." Such tax will be applied to the amount of such
parachute payment which is in excess of the greater of such average annual
compensation of the optionee or an amount which the optionee establishes as
reasonable compensation. In addition, the Company will not be allowed a
deduction for such "excess parachute payment."
COMPENSATION DEDUCTION LIMITATION. Upon exercise, Options granted to a
"covered employee" with an Aggregate Option Price equal to or greater than the
fair market value of the Common Stock at the time of grant should not be
subject to the $1,000,000 deduction
27.
<PAGE> 30
cap for compensation paid to certain executives of publicly held corporations
such as the Company. The 1997 Plan should satisfy the rules governing
exemption from the deduction cap, because (1) shareholders should have received
adequate disclosure of the terms of the 1997 Plan in this Proxy Statement, and
(2) the 1997 Plan has been approved by an Option Committee consisting solely of
two or more Outside Directors (as defined below) of the Company.
Upon exercise, Options granted to a covered employee with an Aggregate
Option Price less than the fair market value of the Common Stock at the time of
grant would be subject to the $1,000,000 deduction cap for the Company. A
"covered employee" is an optionee who, on the last day of the taxable year of
the Company, is the Chief Executive Officer or one of the four other most
highly compensated executive officers for proxy disclosure purposes. An
"Outside Director" is a Director who is not (1) a current employee of the
Company or related entity, (2) a former employee who is receiving compensation
for prior services, (3) a former officer or (4) receiving compensation from the
Company in any capacity other than regular Directors' compensation.
The foregoing summary of the effects of federal income taxation upon
optionees and the Company with respect to shares of Common Stock issued under
the 1997 Plan does not purport to be complete and reference is made to the
applicable provisions of the Code.
At the 1996 Annual Meeting, shareholders will be asked to approve the
adoption of the 1997 Plan. Such approval will require the affirmative vote of
the holders of a majority of the shares of Common Stock represented and voting
at the 1996 Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
VOTE FOR APPROVAL OF THE COMPANY'S 1997 STOCK OPTION PLAN.
PROPOSAL 6 -- RATIFICATION OF THE APPOINTMENT OF
ARTHUR ANDERSEN LLP AS INDEPENDENT ACCOUNTANTS
The Audit Committee of the Board has selected Arthur Andersen LLP as
independent public accountants to audit the consolidated financial statements
of the Company and its consolidated subsidiaries for the year ending March 31,
1997. Arthur Andersen LLP has audited the Company's financial statements
annually since the Company's initial public offering in 1993. A member of that
firm is expected to be present at the 1996 Annual Meeting, will have an
opportunity to make a statement if so desired, and will be available to respond
to appropriate questions. If the shareholders do not ratify the selection of
Arthur Andersen LLP, if it should decline to act or otherwise become incapable
of acting, or if its employment is discontinued, the Audit Committee will
appoint independent public accountants for fiscal 1997. Proxies solicited by
the Board will be voted in favor of ratification unless shareholders specify
otherwise.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
VOTE FOR RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE
COMPANY'S INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR 1997.
28.
<PAGE> 31
COMPANY INFORMATION
SELECTED FINANCIAL DATA
Nine Months Ended December 31, 1996
and December 31, 1995 and Fiscal
Years Ended 1992 through 1996
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
1992 1993 1994 1995 1996 1995 1996
--------------------------------------------------- ------------------
(in thousands except share data)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Net Sales $ 4,511 $ 21,316 $ 29,395 $ 24,539 $16,814 $13,924 $2,262
Net income (loss) for the year (2,023) 235 778 (13,308) (4,890) (4,228) (3,464)
Net income (loss) per share (1.18)* .04* .26* (2.99) (1.10) (.95) (.78)
</TABLE>
*Pro forma for fiscal year 1992, 1993 and 1994.
<TABLE>
<CAPTION>
At
At March 31, Dec. 31,
1992 1993 1994 1995 1996 1996
------------------------------------------------------ ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital .................... $ (1,290) $ 211 $ 17,760 $ 2,589 $ (2,282) $ (5,116)
Total assets ....................... 5,315 10,299 29,675 22,649 14,483 10,106
Long-term debt ..................... ----- ----- ----- 856 934 1,216
Minority interest .................. ----- ----- 2,599 2,599 2,599 2,599
Total shareholders' equity (deficit) 1,018 1,253 16,769 3,355 (2,010) (5,492)
</TABLE>
In reviewing the selected fiscal year data above, please refer to the
more detailed financial information disclosed in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Item 8. Financial Statements and Supplementary Data" of the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1996 which is contained
in the Company's Annual Report to Shareholders enclosed herewith, and
incorporated herein by reference. Please also refer to the interim
Consolidated Balance Sheet at December 31, 1996, the Consolidated Statements of
Operations and Consolidated Statements of Cash Flows for the nine months ended
December 31, 1995 and 1996, and the discussions in Management's Discussion and
Analysis of Financial Condition and Results of Operations for the nine months
ended December 31, 1995 and 1996, which follow.
29.
<PAGE> 32
GOLDEN SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
DEC. 31, MARCH 31,
1996 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 153 $ 684
Restricted cash balances . . . . . . . . . . . . . . . . . . . . . . . 35 886
Accounts receivable, net of allowances . . . . . . . . . . . . . . . . 660 1,349
Net due from related parties . . . . . . . . . . . . . . . . . . . . . 36 273
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,315 6,643
Prepaid expenses and other current assets . . . . . . . . . . . . . . . 468 797
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . -- 46
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 6,667 10,678
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost, net of accumulated
depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,439 3,805
----------- -----------
$ 10,106 $ 14,483
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,212 $ 8,177
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,518 3,596
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 1,053 1,187
----------- -----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 11,783 12,960
----------- -----------
NOTES PAYABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,216 934
COMMITMENTS AND CONTINGENCIES (Note 6)
MINORITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,599 2,599
SHAREHOLDERS' DEFICIT:
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,278 16,278
Retained earnings (deficit) . . . . . . . . . . . . . . . . . . . . . . (21,208) (17,743)
Cumulative translation adjustments . . . . . . . . . . . . . . . . . . (562) (545)
----------- ---------
Total shareholders' deficit . . . . . . . . . . . . . . . . . . . . (5,492) (2,010)
----------- ---------
$ 10,106 $ 14,483
=========== =========
</TABLE>
30.
<PAGE> 33
GOLDEN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------
DEC. 31, DEC. 31,
1996 1995
-------- --------
<S> <C> <C>
NET SALES .......................................... $ 2,262 $13,924
COST OF GOODS SOLD ................................. 2,383 14,222
------- -------
Gross loss ...................................... (121) (298)
------- -------
OPERATING EXPENSES:
Selling, general and administration ............. 2,321 2,852
Engineering ..................................... 504 364
------- -------
2,825 3,216
------- -------
Operating loss .................................. (2,946) (3,514)
------- -------
OTHER INCOME (EXPENSE):
Interest expense ................................ (1,088) (868)
Other income .................................... 570 155
------- -------
(518) (713)
------- -------
Loss before provision for income taxes .......... (3,464) (4,227)
PROVISION FOR INCOME TAXES ......................... -- 1
------- -------
NET LOSS ........................................... $(3,464) $(4,228)
======= =======
NET LOSS PER SHARE ................................. $ (.78) $ (.95)
======== ========
WEIGHTED AVERAGE NUMBER OF OUTSTANDING SHARES ...... 4,450 4,450
======== ========
</TABLE>
31.
<PAGE> 34
GOLDEN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------
DEC. 31, DEC. 31,
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,464) $ (4,228)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization expense . . . . . . . . . . . . . . . 340 302
Provision for losses on accounts receivable . . . . . . . . . . . . 266 31
Provision for losses on inventories . . . . . . . . . . . . . . . . 45 45
Decrease (increase) in:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . 423 2,008
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . 1,283 1,371
Prepaid expenses and other current assets . . . . . . . . . . . 375 715
Increase (decrease) in:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . (78) 680
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . (134) 306
---------- ----------
Net cash provided by (used in) operating activities . . . . . (944) 1,230
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Dispositions of property, plant & equipment, net . . . . . . . . . . . 25 247
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 851 (167)
---------- ----------
Net cash provided by (used in) investing activities . . . . . . . . 876 80
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net of (repayments) . . . . . . . . . . . . . . (965) (1,271)
Borrowings under notes payable . . . . . . . . . . . . . . . . . . . . 282 59
Net change in related party balances . . . . . . . . . . . . . . . . . 237 14
---------- ----------
Net cash used in financing activities . . . . . . . . . . . . . . . (446) (1,198)
---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17) (803)
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . (531) (691)
CASH & CASH EQUIVALENTS, beginning of period . . . . . . . . . . . . . . . 684 1,497
---------- ----------
CASH & CASH EQUIVALENTS, end of period . . . . . . . . . . . . . . . . . . $ 153 $ 806
========== ==========
</TABLE>
32.
<PAGE> 35
GOLDEN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED)
Note 1. GENERAL
In management's opinion, all adjustments, which are necessary for a
fair presentation of financial condition and results of operations, are
reflected in the accompanying interim consolidated financial statements. All
amounts are unaudited, except the March 31, 1996 balance sheet. This report
should be read in conjunction with the audited consolidated financial
statements, notes, and disclosures presented in the Company's 1996 Annual
Report on Form 10-K. Footnotes and other disclosures which would substantially
duplicate the disclosures in the Company's audited financial statements for the
fiscal year ended March 31, 1996 contained in the Company's 1996 Annual Report
on Form 10-K, have been omitted. The interim financial information herein is
not necessarily representative of operations for a full year.
Note 2. RISKS AND FUTURE OPERATIONS
The Company has incurred significant losses from operations in fiscal
years 1995 and 1996 and during the nine months ended December 31, 1996, has
negative working capital of $5,116,000 and a retained deficit of $21,208,000.
While the Company is seeking to develop and implement its new business
strategy, substantial doubt remains about the Company's ability to continue as
a going concern. Also, a significant portion of the Company's short-term
borrowings with Indian banks were due for renewal prior to March 31, 1996, and
the Company has suffered a substantial decline in net sales in fiscal years
1995 and 1996 and the nine months ended December 31, 1996.
Since March 31, 1996, the Company has been negotiating with certain
Indian banks for an extension of payment terms of existing debt as well as an
extension of credit to support planned production and sales. The Company's
indebtedness to these banks at December 31, 1996 was approximately $7,600,000.
Currently, the consortium of banks has expressed interest in assisting the
Company with its request. In addition, certain members of the Tandon family
(the Company's largest shareholders) have proposed a plan of recapitalization
of the Company, which is subject to certain conditions among which are (1)
approval by a Special Committee of outside directors of the Board of Directors,
(2) negotiation of a definitive agreement, and (3) approval by the
shareholders. The proposed plan of recapitalization would require those
participating members of the Tandon family to invest $2 million in cash and
certain members of management to invest $250,000 in cash. The proposed
per-share stock purchase price is $0.15, which exceeded both the public bid and
ask prices at the time of the proposal. The recapitalization plan also
includes actions by the Tandon family, who have personally guaranteed the
Indian bank debt, to obtain a standstill from these banks at no material cost
to the Company. This proposed plan is currently being evaluated by a Special
Committee of outside directors of the Board of Directors.
There can be no assurance, though, that the Company will be able to
successfully increase sales or reduce operating costs, raise sufficient capital
to meet its current operating needs, or renew its obligations to the Indian
banks.
33.
<PAGE> 36
Note 3. INVENTORIES
Inventories are valued at the lower of cost (first in, first out) or
market. Cost includes cost of material, freight and manufacturing overhead.
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, 1996 Dec. 31, 1996
-------------- -------------
<S> <C> <C>
Raw materials $5,575 $4,662
Work-in-progress 780 390
Finished goods 288 263
-------------- -------------
$6,643 $5,315
============== =============
</TABLE>
Note 4. ORDER CANCELLATION SETTLEMENT
In November 1996, the Company entered into a release and settlement
agreement with a former customer relating to an order cancellation. Net
proceeds to the Company, after expenses incurred to negotiate the settlement,
approximated $670,000. Consistent with the accounting for such settlements,
$670,000 has been included in net sales for the three months ended December 31,
1996 and for the nine months then ended.
Note 5. LITIGATION SETTLEMENT
In April 1996, the Company settled a lawsuit with an outside
contractor. Under the agreement, the Company received a cash settlement (the
agreement prohibits the disclosure of the amount) of which $163,000 related to
the reimbursement of legal expenses incurred in fiscal year 1996, and
accordingly, this amount was recorded as a reduction of legal expenses in
fiscal year 1996. The balance of the settlement has been recorded together
with other items as other income for the nine months ended December 31, 1996.
Note 6. COMMITMENTS AND CONTINGENCIES
For a description of commitments and contingencies, refer to Note 11
to the Combined/Consolidated Financial Statements contained in the 1996 Annual
Report on Form 10-K.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995
RESULTS OF OPERATIONS
NET SALES. Sales for the nine months ended December 31, 1996 were
$2,262,000 compared to $13,924,000 for the first nine months of the prior
fiscal year. This decline of approximately 84% is due to the continuing
adverse effects of the product returns in the third quarter of fiscal year 1995
by the Company's then major customer. Since the product returns occurred, the
Company was successful in increasing its sales volume with its newly
established primary customer, IBM, through December 1995, however, it has not
been successful in building its sales volume with other existing customers or
in establishing new customers. Additionally, the Company has been notified by
IBM that it is reducing its number of vendors for power supplies to those who
are the larger and best financially prepared to support their needs and the
Company no longer meets its new vendor criteria. The Company's future
marketing and sales strategy will be the re-evaluation of the second tier OEM
power supply business which is primarily made up of customers requiring strong
engineering support and lower volumes but with significantly higher selling
prices and gross margins. The success of this strategy will be contingent upon
the Company's ability to
34.
<PAGE> 37
obtain new capital resources. Included in net sales for the current year to
date period is approximately $670,000 of net settlement proceeds relating to an
order cancellation by a former customer.
GROSS LOSS. Gross loss for the current nine month period of $121,000
was much higher as a percent of sales than the $298,000 gross loss in the prior
year due principally to a major decline in manufacturing capacity utilization
which has resulted in significant unabsorbed direct manufacturing overhead.
This overhead expense has been partially offset by the sale of reworked
inventory which was previously written off and the net settlement proceeds of
approximately $670,000 related to the previously mentioned order cancellation.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses of $2,321,000 for the nine months ended December 31,
1996 were 19% less than the comparable period in the prior year, due to
continuing efforts to reduce costs. However, engineering expenses of $504,000
were 38% higher than the prior year, as the Company builds its engineering
support to meet the product demands of customers manufacturing electronic
equipment other than personal computers.
INTEREST EXPENSE. Interest expense of $1,088,000 for the current nine
month period compares to $868,000 for the same period in the prior fiscal year.
This increase is due principally to the higher interest rates the Company is
incurring on short-term debt that is currently delinquent.
OTHER INCOME. Other income of $570,000 for the nine months ended
December 31, 1996 is substantially higher than the $155,000 for the nine months
ended December 31, 1995 because of the inclusion in the current period of
proceeds received in settlement of a lawsuit with an outside contractor.
NET LOSS. Net loss for the nine months ended December 31, 1996 was
$3,464,000 versus a net loss of $4,228,000 for the same period in the prior
year. The reasons for this loss are set forth in the foregoing discussion.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. During the nine months ended December 31, 1996
the Company consumed $944,000 for operating activities. The major reason for
this negative cash from operating activities is the net loss from operations
offset in part by certain non-cash charges and the liquidation of inventories
and accounts receivable as the Company winds down its business with
manufacturers of personal computers.
INVESTING ACTIVITIES. Cash provided by investing activities during
the first nine months of fiscal year 1997 was $876,000 due principally to a
decrease in restricted cash which was securing certain bank obligations.
FINANCING ACTIVITIES. Cash used in the first nine months of fiscal
year 1997 for financing activities aggregated $446,000. The primary factor
contributing to this amount relates to net repayments of short-term borrowings
totaling $965,000. This was partially offset by $282,000 in additional
long-term borrowings and collection of related party balances.
The Company believes that current liquidity and capital resources are
not sufficient to continue operations beyond the next several months. However,
the Company is discussing the restructuring of its debt with certain Indian
banks and a plan of recapitalization, as previously disclosed in "Item 1.
Business" of the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1996 which is contained in the Company's Annual Report to
Shareholders enclosed herewith, and incorporated herein by reference.
Shortly after the close of the third quarter of fiscal 1997, the
Company's current liquidity and capital resources became insufficient to cover
current operating expenses. Consequently, the Tandon family is making
temporary advances to the Company to provide working capital needed to continue
operations until the previously disclosed recapitalization plan and debt
restructuring with certain Indian banks can be concluded or other financing can
be obtained.
35.
<PAGE> 38
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act ("Section 16(a)") requires the
Company's Directors and certain of its officers, and persons who own more than
10% of a registered class of the Company's equity securities (collectively,
"Insiders"), to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Insiders are required by the Securities
and Exchange Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no reports on
Form 5 were required for those persons, the Company believes that its Insiders
complied with all applicable Section 16(a) filing requirements for fiscal 1996.
OTHER BUSINESS
The Company is not aware of any other business to be presented at the
1996 Annual Meeting. All shares represented by Company proxies will be voted
in favor of the proposals of the Company described herein unless otherwise
indicated on the form of proxy. If any other matters properly come before the
meeting, Company proxy holders will vote thereon according to their best
judgment.
SUBMISSION OF SHAREHOLDER PROPOSALS
Any shareholder who wishes to present a proposal for action at the
1997 Annual Meeting and who wishes to have it set forth in the corresponding
proxy statement and identified in the corresponding form of proxy prepared by
management must notify the Company no later than May 22, 1997 in such form as
required under the rules and regulations promulgated by the Securities and
Exchange Commission.
ANNUAL REPORTS
A copy of the 1996 Annual Report to Shareholders (which includes the
Company's Annual Report on Form 10-K) is being mailed to each shareholder of
record together with this Proxy Statement. The Company has also filed with the
Securities and Exchange Commission its Annual Report on Form 10-K for the
fiscal year ended March 31, 1996. This Report contains information concerning
the Company and its operations. A COPY OF THIS REPORT WILL BE FURNISHED TO
SHAREHOLDERS WITHOUT CHARGE UPON REQUEST IN WRITING TO J.L. Tandon at 2125-C
Madera Road, Simi Valley, California 93065. Such reports are not a part of the
Company's soliciting material.
PROXIES AND SOLICITATION
Proxies for the 1996 Annual Meeting are being solicited by mail
directly and through brokerage and banking institutions. The Company will pay
all expenses in connection with the solicitation of proxies. In addition to
the use of mails, proxies may be solicited by Directors, officers and regular
employees of the Company personally or by telephone. The Company may reimburse
brokers and other persons holding stock in their names, or in the names of
nominees, for their expenses in sending proxy materials to principals and
obtaining their proxies (plus paying fees of up to $5,000 to First National
Bank of Boston for soliciting such proxies from brokers and other persons
holding stock in their names, or in the names of nominees).
All shareholders are urged to complete, sign and promptly return the
enclosed proxy card.
By Order of the Board of Directors
J.L. TANDON
Chief Executive Officer,
Chief Financial Officer and Secretary
Simi Valley, California
April 18, 1997
36.
<PAGE> 39
ANNEXES
Annex A - Form of Stock Purchase Agreement among the Company, J.L.
Tandon, Clady International Corporation and certain members of
management and key employees listed therein (with exhibits
attached thereto, including Exhibit A--Form of Subscription
Agreement and Exhibit D--Form of Bridge Note).
Annex B - Fairness Opinion of Wedbush Morgan Securities.
Annex C - Form of Restated Articles of Incorporation of Cortech Systems,
Inc.
Annex D - Golden Systems, Inc. 1997 Stock Option Plan.
37.
<PAGE> 40
ANNEX A
---------------------------------
STOCK PURCHASE AGREEMENT
among
GOLDEN SYSTEMS, INC.,
JAWAHAR L. TANDON,
CLADY INTERNATIONAL CORPORATION
AND
THE MANAGEMENT INVESTORS ON THE SIGNATURE PAGES TO THE SUBSCRIPTION AGREEMENTS
ATTACHED HERETO
---------------------------------
DATED AS OF MARCH 31, 1997
---------------------------------
<PAGE> 41
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I THE TRANSACTIONS . . . . . . . . . . . . . . . . . . . 2
1.1 Purchase and Sale . . . . . . . . . . . . . . . . . . 2
1.2 Purchase Price . . . . . . . . . . . . . . . . . . . . 2
1.3 Bridge Note . . . . . . . . . . . . . . . . . . . . . 2
1.4 Payment of Purchase Price . . . . . . . . . . . . . . 2
1.5 The Initial and Secondary Closings . . . . . . . . . . 3
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS . . . 4
2.1 Organization . . . . . . . . . . . . . . . . . . . . . 4
2.2 Authority . . . . . . . . . . . . . . . . . . . . . . 4
2.3 No Violation . . . . . . . . . . . . . . . . . . . . . 4
2.4 Brokers . . . . . . . . . . . . . . . . . . . . . . . 5
2.5 Funds Available . . . . . . . . . . . . . . . . . . . 5
2.6 Securities Act Representation . . . . . . . . . . . . 5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . 5
3.1 Corporate Organization . . . . . . . . . . . . . . . . 5
3.2 Capital Stock . . . . . . . . . . . . . . . . . . . . 6
3.3 Newly Issued Shares . . . . . . . . . . . . . . . . . 6
3.4 Authority . . . . . . . . . . . . . . . . . . . . . . 6
3.5 No Violation . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE IV COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . 7
4.1 Proxy Statement and Meeting of Company's Shareholders 7
4.2 Board Representation . . . . . . . . . . . . . . . . . 8
4.3 Registration Rights . . . . . . . . . . . . . . . . . 8
4.4 Bank Standstill . . . . . . . . . . . . . . . . . . . 16
4.5 Best Efforts . . . . . . . . . . . . . . . . . . . . . 16
4.6 Consents . . . . . . . . . . . . . . . . . . . . . . . 17
4.7 Use of Proceeds . . . . . . . . . . . . . . . . . . . 17
ARTICLE V CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . 17
5.1 Conditions to Each Party's Obligations . . . . . . . . 17
5.2 Conditions to the Obligations of the Company . . . . . 18
5.3 Conditions to the Obligations of the Purchasers . . . 19
ARTICLE VI MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . 21
6.1 Termination . . . . . . . . . . . . . . . . . . . . . 21
6.2 Amendment . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
i.
<PAGE> 42
TABLE OF CONTENTS (Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
6.3 Waiver . . . . . . . . . . . . . . . . . . . . . .. . 21
6.4 Survival . . . . . . . . . . . . . . . . . . . . .. . 21
6.5 Notices . . . . . . . . . . . . . . . . . . . . .. . 21
6.6 Headings; Agreement . . . . . . . . . . . . . . .. . 22
6.7 Publicity . . . . . . . . . . . . . . . . . . . .. . 22
6.8 Entire Agreement . . . . . . . . . . . . . . . . .. . 22
6.9 Conveyance Taxes . . . . . . . . . . . . . . . . .. . 22
6.10 Assignment . . . . . . . . . . . . . . . . . . . .. . 23
6.11 Counterparts . . . . . . . . . . . . . . . . . . .. . 23
6.12 Governing Law . . . . . . . . . . . . . . . . . .. . 23
6.13 Third Party Beneficiaries . . . . . . . . . . . .. . 23
6.14 Costs and Expenses . . . . . . . . . . . . . . . .. . 23
</TABLE>
ii.
<PAGE> 43
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
Exhibit A Form of Subscription Agreement
Exhibit B Investment by the Tandons
Exhibit C Investment by the Management Investors
Exhibit D Form of Bridge Note
</TABLE>
iii.
<PAGE> 44
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT ("Agreement") dated as of March 31,
1997 by and among Golden Systems, Inc., a California corporation (the
"Company"), Jawahar L. Tandon ("J.L. Tandon") and Clady International
Corporation, a Panamanian corporation ("Clady"), and such investors, listed on
Exhibit C attached hereto, who are members of management and key employees of
the Company and who executed the form of Stock Subscription Agreement (the
"Subscription Agreement") attached hereto as Exhibit A (the "Management
Investors" and, together with Clady, the "Purchasers").
R E C I T A L S:
WHEREAS, the Purchasers wish to purchase from the Company, and
the Company wishes to sell to the Purchasers, the number of shares of common
stock, no par value, of the Company (the "Common Stock") as is set forth in
Section 1.1 below, on the terms and subject to the conditions set herein;
WHEREAS, in connection with transactions contemplated herein,
J.L. Tandon requested from certain members of management and certain key
employees of the Company that they make a contemporaneous, personal, financial
commitment to the Company. In response, those members of management and key
employees proposed that they be given the opportunity to invest in the Company
on substantially the same terms as Clady;
WHEREAS, such Management Investors have previously agreed to
make such contemporaneous, personal, financial commitment to the Company by
purchasing shares of Common Stock and by consummating the transactions
contemplated herein on the terms and conditions set forth below; and
WHEREAS, the Board of Directors of the Company has approved
this Agreement and the transactions contemplated hereby, upon the terms and
subject to the conditions set forth herein.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants, agreements and conditions
contained herein, the sufficiency of which is hereby acknowledged, and in order
to set forth the terms and conditions of the transactions described herein and
the mode of carrying the same into effect, the parties hereby agree as follows:
1.
<PAGE> 45
ARTICLE I
THE TRANSACTIONS
1.1 Purchase and Sale.
(a) Subject to the terms and conditions of this
Agreement, Clady agrees to purchase from the Company and the Company agrees to
sell to Clady at the Initial Closing (as defined below) the number of shares of
Common Stock set forth opposite each person's or entity's name on Exhibit B
hereto, the aggregate number of shares being 13,333,333 (the "Tandon Shares").
(b) Subject to the terms and conditions of this
Agreement, the Management Investors agree to purchase from the Company and the
Company agrees to sell to the Management Investors at the Secondary Closing (as
defined below) the number of shares of Common Stock set forth opposite each
Management Investor's name on Exhibit C hereto, the aggregate number of shares
being 1,666,667 (the "Management Shares" and collectively with the Tandon
Shares, the "Shares"). Each Subscription Agreement executed by a Management
Investor shall be attached hereto and become a part of this Agreement.
1.2 Purchase Price. The purchase price to be paid for
each Share of Common Stock shall be $0.15 (the "Share Price"), constituting an
aggregate purchase price for the Shares of $2,250,000 (the "Purchase Price").
1.3 Bridge Note. Because the Company does not have a
sufficient number of shares of capital stock authorized to issue all of the
Shares, at the Initial Closing, the Company will deliver to Clady a total of
850,000 Shares, together with a bridge promissory note in the principal amount
of $1,872,499.95 which, subject to the receipt of prior shareholder approval,
shall be prepaid by the Company by issuing shares of Common Stock to Clady at
the rate of one share per $0.15 of principal outstanding thereunder (the
"Bridge Note"), the terms and conditions of which are set forth in the form of
bridge promissory note attached hereto as Exhibit D, which shall substitute for
12,483,333 Shares which would otherwise be issued to Clady at the Initial
Closing.
1.4 Payment of Purchase Price.
(a) Payment by Clady of its portion of the
Purchase Price shall be made as follows: (a) $1,313,397.21 in cash via wire
transfer of immediately available funds on the Initial Closing Date (as defined
below), (b) cancellation by Clady as the holder on the Initial Closing Date of
certain short-term promissory notes having an aggregate principal amount of
$680,000 (the "Short-Term Notes") that were issued to J.L. Tandon in exchange
for cash advances made by J.L. Tandon to the Company pending the execution of
this Agreement, and (c) forgiveness by Clady as the holder of the Short-Term
Notes of $6,602.74 accrued interest on the Short-Term Notes on the Initial
Closing Date (such that as of the
2.
<PAGE> 46
Initial Closing Date, the Short-Term Notes shall have been paid in full). At
the Initial Closing, the Company shall deliver to Clady one or more
certificates representing 850,000 Shares purchased by Clady and the Bridge Note
in accordance with Section 1.3 hereof.
(b) In consideration of the fact that the
Management Investors reside outside of the United States and of certain
personal financial situations of certain Management Investors, payment by the
Management Investors of their portion of the Purchase Price ($250,000.05 in the
aggregate) shall be made by money order or personal check which must be
actually received by the Company on or prior to the Secondary Closing Date (as
defined below). At the Secondary Closing (as defined below), the Company shall
deliver to each of the Management Investors a certificate representing the
number of Shares (1,666,667 in the aggregate) purchased by each such
Management Investor.
1.5 The Initial and Secondary Closings.
(a) Subject to the fulfillment of the conditions
precedent specified in Article V hereof (any or all of which may be waived in
writing by the respective parties whose performance is conditioned upon
satisfaction of such conditions precedent), the purchase and sale of the Tandon
Shares shall be consummated at an initial closing (the "Initial Closing") to be
held at the offices of Riordan & McKinzie, on March 31 at 9:00 a.m., California
time, or as soon as practicable following the satisfaction or waiver of all
conditions precedent specified in Article V hereof, or at such other place and
time as the Company and Clady shall mutually agree after the satisfaction or
waiver of all conditions precedent specified in Article V hereof (the date on
which the Initial Closing occurs being herein referred to as the "Initial
Closing Date").
(b) Subject to the fulfillment of the conditions
precedent specified in Article V hereof (any or all of which may be waived in
writing by the respective parties whose performance is conditioned upon
satisfaction of such conditions precedent), the purchase and sale of the
Management Shares shall be consummated at a secondary closing (the "Secondary
Closing") to be held at the offices of Riordan & McKinzie, at a time and date
reasonably designated by the Company on or prior to June 7, 1997 which shall
coincide with the time and date of the Company's prepayment (subject to
shareholder approval) of the Bridge Note, or as soon as practicable following
the satisfaction or waiver of all conditions precedent specified in Article V
hereof (the date on which the Secondary Closing occurs being herein referred to
as the "Secondary Closing Date").
3.
<PAGE> 47
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASERS
Each of the Purchasers, severally but not jointly, represents
and warrants to the Company, as to all matters relevant thereto, as follows:
2.1 Organization. Such Purchaser is either (a) a
corporation duly organized, validly existing and in good standing under the
laws of its respective jurisdiction or (b) a natural person (or nominee of a
natural person) who is either a resident of the State of California, the State
of Texas or a resident of a jurisdiction outside of the United States.
2.2 Authority. If such Purchaser is a corporation (the
"Corporation"), (i) such Corporation has full corporate power and authority to
execute and deliver this Agreement and each other agreement contemplated
hereby, to carry out its obligations hereunder and to consummate the
transactions contemplated on its part hereby, (ii) the execution, delivery and
performance by such Corporation of this Agreement and each other agreement
contemplated hereby have been duly authorized by all necessary corporate action
on the part of such Corporation and (iii) no other action on the part of such
Corporation is necessary to authorize the execution and delivery of this
Agreement and each other agreement contemplated hereby by such Corporation or
the performance by such Corporation of its obligations hereunder. With respect
to all Purchasers, this Agreement, and with respect to J.L. Tandon only, the
Bank Standstill Agreement (as defined herein), have been duly executed and
delivered by such Purchaser and constitute a legal, valid and binding agreement
of such Purchaser, enforceable against it in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, moratorium, reorganization
or similar laws affecting creditors' rights generally and subject to general
equitable principles (regardless of whether such enforceability is considered
in a proceeding in equity or at law). If such Purchaser is a Management
Investor, the Subscription Agreement to be executed by such Purchaser in
connection with this Agreement on or prior to the Initial Closing Date will be
duly executed and delivered by such Purchaser, and (assuming due execution and
delivery by the other party or parties thereto) will constitute a legal, valid
and binding obligation of such Purchaser, enforceable against it in accordance
with its terms, subject to applicable bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting creditors' rights generally and
subject to general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
2.3 No Violation. The execution and delivery of this
Agreement and, for J.L. Tandon, the Bank Standstill Agreement (as defined
herein), and, for the Management Investors, the Subscription Agreement, by such
Purchaser, the performance by such Purchaser of its obligations hereunder and
thereunder and the consummation by it of the transactions contemplated hereby
and thereby will not (a) violate any provision of law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award applicable to
4.
<PAGE> 48
such Purchaser, (b) require the consent, waiver, approval, license or
authorization of or any filing by such Purchaser with any person or
governmental authority, except for filings to be made in connection with or in
compliance with the provisions of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), Regulation D as promulgated under the Securities
Act of 1933, as amended (the "Securities Act") and applicable state securities
laws, or (c) violate, result (with or without notice or the passage of time, or
both) in a breach of or give rise to the right to accelerate, terminate or
cancel any obligation under or constitute (with or without notice or the
passage of time, or both) a default under, any of the terms or provisions of
any charter or bylaw, partnership agreement, indenture, mortgage, agreement,
contract, order, judgment, ordinance, regulation or decree to which such
Purchaser is subject or by which such Purchaser is bound, except for any of the
foregoing matters which would not have, individually or in the aggregate, a
material and adverse effect upon the operations, financial condition, prospects
or results of operations of such party (a "Material Adverse Effect").
2.4 Brokers. Such Purchaser has not paid or become
obligated to pay any fee or commission to any broker, finder, investment banker
or other intermediary in connection with this Agreement.
2.5 Funds Available. Such Purchaser has funds available,
or commitments from third parties to provide funds, sufficient to pay such
Purchaser's respective portion of the Purchase Price.
2.6 Securities Act Representation. Such Purchaser is an
"accredited investor" as defined in Rule 501 promulgated as part of Regulation
D under the Securities Act and an "excluded purchaser" under Title 10,
California Code of Regulations Section 260.102.12. Such Purchaser is not
purchasing such Purchaser's respective portion of the Shares with a view to a
distribution or resale of any of such securities in violation of any applicable
securities laws.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
Company represents and warrants to each of the Purchasers as
follows:
3.1 Corporate Organization. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of California, with all requisite corporate power and authority to lease
its properties and to carry on its business as it is now being conducted, and
is qualified or licensed to do business and is in good standing in each
jurisdiction in which it currently carries on business, except where the
failure to be so qualified or licensed or be in good standing would not
reasonably be
5.
<PAGE> 49
expected, individually or in the aggregate, to have a Material Adverse Effect
on the Company. With respect to the Company, a "Material Adverse Effect" shall
refer to the Company and its subsidiaries on a consolidated basis. True and
complete copies of the Articles of Incorporation and the Bylaws of the Company,
each as amended to date, have been delivered to the Purchasers.
3.2 Capital Stock. The authorized capital stock of the
Company consists in its entirety of 6,000,000 shares of Common Stock, of which,
as of the date hereof, 4,449,998 are issued and outstanding. All of the
outstanding shares of Common Stock have been duly and validly authorized and
issued, are fully paid and nonassessable and were issued in compliance with all
applicable federal and state securities laws.
3.3 Newly Issued Shares. The Shares to be sold and
issued by the Company to the Purchasers in accordance with the terms of this
Agreement have been duly authorized, subject to shareholder approval, and, when
issued as contemplated hereby, including upon prepayment of the Bridge Note, if
applicable, will be validly issued, fully paid and non-assessable and no other
person has any preemptive right, option, warrant, subscription agreement or
other right with respect to such Shares. Upon the issuance of the Shares, the
Purchasers will acquire good and marketable title to the Shares free and clear
of any and all liens, encumbrances, security interests, preemptive rights,
adverse claims or equities or rights in favor of another ("Encumbrances"),
except such Encumbrances as may be created pursuant to this Agreement.
3.4 Authority. The Company has full corporate power and
authority to execute and deliver this Agreement, the Bridge Note, and each
other agreement contemplated hereby, to carry out its obligations hereunder and
thereunder and to consummate the transactions contemplated on its part hereby
and thereby. The execution, delivery and performance by the Company of this
Agreement and each other agreement contemplated hereby and the consummation of
the transactions contemplated on its part hereby and thereby have been duly
authorized by the Board, and no other corporate proceedings on the part of the
Company, except for the approval by the shareholders of the Company to (a) the
Company's issuance of the Shares to be issued in prepayment of the Bridge Note
pursuant to this Agreement and (b) the amendment to the Company's Articles of
Incorporation to increase the number of authorized shares of Common Stock of
the Company to 50,000,000 shares at the annual meeting of shareholders of the
Company to be held in the manner set forth in Section 4.1 hereof, and the
filing with the California Secretary of State of the Certificate of Amendment
to the Company's Articles of Incorporation to increase the number of authorized
shares of Common Stock of the Company to 50,000,000 shares, are necessary to
authorize the execution and delivery of this Agreement and each other agreement
contemplated hereby by the Company or the performance by the Company of its
obligations hereunder. This Agreement has been duly executed and delivered by
the Company and constitutes legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with its terms, subject
to applicable bankruptcy, insolvency, moratorium, reorganization or similar
laws affecting creditors' rights generally and subject to
6.
<PAGE> 50
general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law). The Agreement and the
transactions contemplated hereby have been approved by the Board of Directors
(the "Board") of the Company upon the recommendation of the Independent
Directors Committee of the Board.
3.5 No Violation. The execution and delivery by the
Company of this Agreement and each other agreement contemplated hereby, the
performance by the Company of its obligations hereunder and the consummation by
it of the transactions contemplated hereby will not (a) violate any provision
of law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award applicable to the Company, or (b) require the consent,
waiver, approval, license or authorization of or any filing by the Company with
any person or governmental authority, except for filings to be made in
connection with or in compliance with the provisions of the Exchange Act,
Regulation D as promulgated under the Securities Act, applicable state
securities laws, and the shareholder approval referenced in Section 3.4 above.
ARTICLE IV
COVENANTS AND AGREEMENTS
4.1 Proxy Statement and Meeting of Company's
Shareholders.
(a) As soon as reasonably practicable following
the date hereof, Company shall prepare and file with the Securities and
Exchange Commission (the "Commission"), and, within three (3) business days
following clearance with the Commission, mail to its shareholders the Proxy
Statement with respect to the annual meeting of the Company's shareholders to
consider and vote, among other things, upon the issuance of the Shares as
contemplated hereby. The Board of Directors of the Company shall recommend
such approval and take all reasonable lawful action to solicit such approval.
Each Purchaser agrees to assist and cooperate with the Company in the
preparation of the Proxy Statement with respect to information therein
concerning any such Purchaser.
(b) The Company, on the one hand, and each
Purchaser, on the other hand, hereby represents, warrants and agrees with the
other that the Proxy Statement will not, at the time the Proxy Statement is
mailed, and at the date of the meeting of the shareholders of the Company held
to approve the matters described therein, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they are made, not misleading, or to correct any statement made in
any earlier communication with respect to the solicitation of any proxy or
approval of the transactions contemplated by this Agreement in connection with
which the Proxy Statement shall be mailed, except that no representation or
warranty is being made by either party with respect to information supplied by
the other party for inclusion in the Proxy Statement. The
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Company further represents, warrants and agrees that the Proxy Statement will
comply as to form in all material respects with the provisions of the Exchange
Act. The letter to shareholders, notice of meeting, proxy statement and form
of proxy, or any information statement filed under the Exchange Act, as the
case may be, that may be provided to shareholders of the Company in connection
with the transactions contemplated by this Agreement (including any
supplements), and any schedules required to be filed with the Commission in
connection therewith, as from time to time amended or supplemented, are
collectively referred to as the "Proxy Statement."
(c) The Company shall take all actions necessary
in accordance with the California Corporations Code and the bylaws of the
Company to duly call, give notice of, convene and hold a meeting of its
shareholders within forty-five (45) calendar days after the mailing of the
Proxy Statement to approve the matters set forth therein.
4.2 Board Representation.
Following the issuance of all of the Tandon Shares, the
Company will cooperate in causing the election of sufficient nominees of Clady
such that the Clady nominees, including J.L. Tandon who presently serves on the
Board, would constitute a majority of the Board.
4.3 Registration Rights.
(a) Demand Registration.
(i) Request for Demand Registration. At
any time after June 7, 1998, Purchasers (the "Initiating Holders") holding in
the aggregate at least 33.3% of the Shares issued as contemplated under the
terms of this Agreement, excluding from both the numerator and denominator for
the purpose of such 33% calculation, any Shares which have been resold pursuant
to the exemption from registration provided by Rule 144 (as recently amended)
of the Securities Act, any Shares which are eligible for resale without
registration pursuant to Rule 144(k) of the Securities Act or any other similar
broad transfer exemption under the federal securities laws, and any Shares
which have been previously publicly registered and resold, whether pursuant to
this Agreement or otherwise (the "Registrable Securities") shall be entitled to
request in writing that the Company use its best efforts to effect the
registration under the Securities Act, and under the securities or "blue sky"
laws of any jurisdiction designated by such Initiating Holders, of all or part
of such Initiating Holders' Registrable Securities in accordance with this
Section 4.3 (a "Demand Registration"). Any such request for a Demand
Registration shall specify the amount of Registrable Securities proposed to be
sold and the intended method of disposition thereof. Upon receiving a request
for a Demand Registration, the Company will, as provided in this Section 4.3,
use its best efforts to effect the registration under the Securities Act of (i)
the Registrable Securities which the Company has been so requested by the
Initiating Holders to register and (ii) all other shares of Common Stock which
the Company has been requested in
8.
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writing to register by such Purchasers (which requests shall specify the number
of shares of Common Stock proposed to be sold and the intended method of
disposition thereof and shall be given to the Company within 30 days after the
giving of such written notice of the Demand Registration by the Company).
(ii) Limitation on Demand Registrations.
Notwithstanding anything to the contrary set forth in Section 4.3(a)(i), the
Company shall not be obligated to file a Registration Statement with respect to
a Demand Registration upon a request by the Initiating Holders under Section
4.3(a)(i) if (w) the Company has any other Registration Statement on file but
not yet declared effective, (x) the Company has filed any other Registration
Statement that has an effective date within a period of 180 days prior to the
filing of the Registration Statement with respect to the Demand Registration,
(y) Registrable Securities having an anticipated aggregate net offering price
of less than $5,000,000 are to be registered in such Demand Registration or (z)
the Company has paid the Registration Expenses (as hereinafter defined) for the
maximum number of Demand Registrations for which it is obligated to pay under
Section 4.3(a)(iv).
(iii) Effective Demand Registration. A
registration shall not constitute a Demand Registration until it has become
effective and remains continuously effective for the lesser of (i) the period
during which all Registrable Securities registered in the Demand Registration
are sold and (ii) 180 days; provided, however, that a registration shall not
constitute a Demand Registration if (x) after such Demand Registration has
become effective, such registration or the related offer, sale or distribution
of Registrable Securities thereunder is interfered with by any stop order,
injunction or other order or requirement of the Commission or other
governmental agency or court for any reason not attributable to the Initiating
Holders and such interference is not thereafter eliminated or (y) the
conditions to closing specified in the underwriting agreement, if any, entered
into in connection with such Demand Registration are not satisfied or waived,
other than by reason of a failure by the Initiating Holders.
(iv) Expenses. The Company will pay all
registration expenses, including without limitation, attorneys' fees (including
one legal counsel for the selling shareholders), accountants' fees, filing fees
and printing costs, but excluding sales commissions and underwriting discounts
("Registration Expenses"), in connection with three Demand Registrations under
this Section 4.3 (a) that either become effective under the Securities Act or
are withdrawn prior to the effective date thereof; provided, however, that the
Company shall be obligated to pay all Registration Expenses in connection with
only two Demand Registrations under this Section 4.3 that either become
effective under the Securities Act or are withdrawn prior to the effective date
thereof if (i) there shall have been an Incidental Registration (as hereinafter
defined) pursuant to Section 4.3(b) and (ii) the Company shall have registered
in such Incidental Registration Registrable Securities held by the Purchasers
having an anticipated aggregate net offering price of not less than $5,000,000;
provided further, that any such withdrawal as the result of the actions of any
persons other than the Initiating Holders, or based upon material adverse
information relating to the
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Company that is different from the information known by or available (upon
request from the Company or otherwise) to the Initiating Holders at the time of
their request for a Demand Registration under this Section 4.3, shall not
diminish the number of registrations in connection with which the Company
agrees to pay Registration Expenses; and provided further, that if such
withdrawal is the result of the actions of the Initiating Holders, then such
Initiating Holders may in their sole and unlimited discretion elect to bear the
Registration Expenses of such Demand Registration, in which case such
registration shall not be counted as a Demand Registration pursuant to this
Section 4.3. In the event that the Initiating Holders elect to bear the
Registration Expenses (and underwriting discounts and commissions and transfer
taxes, if any) in connection with any Demand Registration requested under this
Section 4.3, such Registration Expenses shall be apportioned among the holders
whose shares of Common Stock are then being registered, on the basis of the
respective amounts (by number of shares) of Common Stock then being registered
by them or on their behalf.
(v) Underwriting Procedures. If the
Initiating Holders so elect, the offering of Registrable Securities pursuant to
a Demand Registration shall be in the form of a firm commitment underwritten
offering and the managing underwriter or underwriters selected for such
offering shall be the Approved Underwriter (as hereinafter defined) selected in
accordance with Section 4.3(vi). With respect to any firm commitment
underwritten offering, the Company shall enter into a reasonable and customary
underwriting agreement with the Approved Underwriter. If the Approved
Underwriter advises the Company in writing that in its opinion the aggregate
amount of Common Stock requested to be included in such offering is
sufficiently large to have a material adverse effect on the success of such
offering, then the Company shall include in such registration only the
aggregate amount of Common Stock that in the opinion of the Approved
Underwriter may be sold without any such material adverse effect and shall
reduce, as to the Initiating Holders, the amount of Common Stock to be included
in such registration, pro rata within such group based on the number of
Registrable Securities and other shares of Common Stock included in the request
for registration pursuant to Section 4.3(a)(i); provided, however, that the
amount of Common Stock held by any selling shareholders other than the
Purchasers and intended to be included in such offering shall be reduced in its
entirety prior to any pro rata reduction of the number of Registrable
Securities or other shares of Common Stock to be sold by the Purchasers in such
offering.
(vi) Selection of Underwriters. If any
Demand Registration of Registrable Securities is in the form of an underwritten
offering, the Initiating Holders holding a majority of the Registrable
Securities held by all such Initiating Holders shall select and obtain an
investment banking firm of national reputation to act as the managing
underwriter of the offering (the "Approved Underwriter"); provided, however,
that the Approved Underwriter shall, in any case, be acceptable to the Company
in its reasonable judgment.
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(b) Incidental or "Piggy-Back" Registration; Form
S-3.
(i) Request for Incidental Registration.
If the Company, at any time or from time to time, proposes to register any of
its shares of Common Stock for its own account under the Securities Act (other
than a registration of shares of Common Stock solely in connection with any
plan for the acquisition of shares of Common Stock by employees of the Company
or any dividend reinvestment plan, and other than a registration of shares of
Common Stock, the Registration Statement pertaining to which does not permit
secondary sales or include substantially the same information as would be
required to be included in a Registration Statement covering the sale of
Registrable Securities), then it will at each such time give written notice
(given at least 30 days prior to the proposed filing date) describing the
proposed registration and distribution to each of the Purchasers of its
intention to do so and, upon the written request of each of the Purchasers,
made within 30 days after the receipt of any such notice (which request shall
specify the amount of Registrable Securities proposed to be sold by such
Purchasers and the intended method of disposition thereof), the Company will,
as provided in Section 4.3(c), use its best efforts to effect the registration
under the Securities Act (and pay the Registration Expenses in connection
therewith) of all of the Registrable Securities that the Company has been so
requested to register by the Purchasers, to the extent required to permit the
disposition (in accordance with the intended methods thereof as aforesaid) of
the Registrable Securities to be registered (each, an "Incidental
Registration"); provided, however, that if, at any time after giving written
notice of its intention to register any of its shares of Common Stock and prior
to the effective date of the Registration Statement filed in connection with
such Incidental Registration, the Company shall determine for any reason not to
register such shares of Common Stock, the Company may, at its election, give
written notice of such determination to each of the Purchasers and, thereupon,
shall be relieved from its obligation to register any Registrable Securities in
connection with such Incidental Registration (but not from its obligation to
pay the Registration Expenses in connection therewith). In connection with any
Incidental Registration under this Section 4.3(b)(i) involving an underwriter,
or a distribution with the assistance of a selling agent, the right of any
Purchaser to participate in such Incidental Registration shall be conditioned
upon such Purchaser's participation in such underwriting or distribution.
(ii) Registration on Form S-3.
(1) After the Initial Closing Date,
the Company shall use its best efforts to qualify for
registration on Form S-3 or any comparable or successor form
or forms. After the Company has qualified for the use of Form
S- 3, in addition to the rights contained in the foregoing
provisions of this Section 4.3, the Holders of Registrable
Securities shall be entitled to request in writing that the
Company use its best efforts to effect a registration on Form
S-3 (and pay the Registration Expenses in connection
therewith) of all or a part of such Initiating Holders'
Registrable Securities (any such request shall specify the
number of shares of Common Stock proposed to be sold and
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the intended method of disposition thereof), provided,
however, that the Company shall not be obligated to effect any
such registration if (x) the Initiating Holders propose to
sell Registrable Securities on Form S-3 at an aggregate price
to the public of less than $1,000,000 or (y) in a given
twelve-month period, the Company has effected one (1) such
registration in such period. If the request for registration
on Form S-3 is made in connection with a proposed firm
commitment underwritten offering, the Company shall enter into
a reasonable and customary underwriting agreement with an
investment banking firm of national reputation as the managing
underwriter of such offering, which managing underwriter shall
be selected by the holders of a majority of the Registrable
Securities to be included in such registration; provided,
however, that such underwriter shall, in any case, be
acceptable to the Company in its reasonable judgment.
(2) If a request complying with the
requirements of this Section 4.3(b)(ii) is delivered to the
Company, the provisions of Section 4.3(c) hereof shall apply
to such registration.
(c) Registration Procedures.
(i) Obligations of the Company. If and
whenever the Company is requested to effect the registration of any Registrable
Securities under the Securities Act as provided in this Section 4.3, then the
Company will promptly use its best efforts to:
(1) prepare and (in any event
within 90 days after the end of the period within which
requests for registration may be given to the Company) file
with the Commission a Registration Statement with respect to
such Registrable Securities and use its best efforts to cause
such Registration Statement to become effective;
(2) prepare and file with the
Commission such amendments and supplements to such
Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration
Statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all
Registrable Securities covered by such Registration Statement
until such time as all of such securities have been disposed
of in accordance with the intended methods of disposition
thereof by the seller or sellers thereof set forth in such
Registration Statement, but in no event for a period of more
than six months after such Registration Statement becomes
effective;
(3) as soon as reasonably possible,
furnish to each seller of Registrable Securities, after filing
a Registration Statement, such
12.
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number of conformed copies of such Registration Statement and
of each such amendment and supplement thereto (in each case
including all exhibits, except that the Company shall not be
obligated to furnish any seller of Registrable Securities with
more than two copies of such exhibits), such number of copies
of the prospectus contained in such Registration Statement
(including each preliminary prospectus and any summary
prospectus), in conformity with the requirements of the
Securities Act, and such other documents, as such seller may
reasonably request in order to facilitate the disposition of
the Registrable Securities owned by such seller;
(4) register or qualify such
Registrable Securities covered by such Registration Statement
under such other securities or "blue sky" laws of such
jurisdictions as each seller of Registrable Securities shall
request, and do any and all other acts and things which may be
necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable
Securities owned by such seller, except that the Company shall
not for any such purpose be required to qualify generally to
do business as a foreign corporation in any jurisdiction
wherein it is not so qualified, or to subject itself to
taxation in any such jurisdiction, or to consent to general
service of process in any such jurisdiction;
(5) cause the Registrable
Securities covered by such Registration Statement to be
registered with or approved by such other governmental
agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable the seller or
sellers of Registrable Securities to consummate the
disposition of such Registrable Securities;
(6) notify each seller of any
Registrable Securities covered by such Registration Statement,
at any time when a prospectus relating thereto is required to
be delivered under the Securities Act, upon discovery that, or
upon the happening of any event as a result of which, the
prospectus included in such Registration Statement, as then in
effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein
or necessary to make statements therein not misleading in the
light of the circumstances then existing, and prepare and
furnish to such seller a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus shall not
include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the
light of the circumstances then existing;
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(7) advise each seller of
Registrable Securities as to the time when such Registration
Statement becomes effective and as to the threat of or the
issuance by the Commission of any stop order suspending the
effectiveness of such Registration Statement or the
institution of any proceedings for that purpose, and use its
best efforts to prevent the issuance of any such stop order
and to obtain as soon as possible the removal thereof, if
issued;
(8) comply with all applicable
rules and regulations of the Commission, and make available to
each seller of Registrable Securities, as soon as reasonably
practicable, an earnings statement covering the period of at
least 12 months, but not more than 18 months, beginning with
the first month after the effective date of the Registration
Statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158
thereunder;
(9) list all the Registrable
Securities on any securities exchange (or The Nasdaq Stock
Market, Inc. or the over-the-counter market) on which similar
securities are then listed, if such securities are not already
so listed and such listing is then permitted under the rules
of such exchange;
(10) cooperate with each seller of
Registrable Securities and each underwriter participating in
the disposition of such Registrable Securities and their
respective counsel in connection with any filings required to
be made with the National Association of Securities Dealers,
Inc.; and
(11) furnish to each seller a signed
counterpart, addressed to the sellers, of (x) an opinion of
counsel representing the Company for purposes of such
registration, dated the effective date of such Registration
Statement, and (y) a "comfort letter" signed by the
independent public accountants of the Company who have
certified the Company's financial statements included in such
Registration Statement, in each case, covering substantially
the same matters with respect to such Registration Statement
(and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the
date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters
delivered to the underwriters in underwritten public offerings
of securities; provided, however, that the Company shall not
be obligated to furnish such accountants' letter except in
connection with an underwritten offering.
(ii) Seller Information. The Company may
require each seller of Registrable Securities as to which any registration is
being effected to furnish to the
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Company such information regarding the distribution of such securities as the
Company may from time to time reasonably request in writing and as shall be
required by law in connection therewith.
(iii) Preparation; Reasonable
Investigation. In connection with the preparation and filing of each
Registration Statement registering Registrable Securities under the Securities
Act, the Company will give the holders of such Registrable Securities so
registered and their underwriters, if any, and their respective counsel and
financial advisors, the opportunity to participate in the preparation of such
Registration Statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give
each of them such access to its books and records (including the books and
records of its Subsidiaries (as hereinafter defined)) and such opportunities to
discuss the business of the Company with its officers and the independent
public accountants who have certified its financial statements as shall be
necessary, in the opinion of such holders' and such underwriters' respective
counsel, to conduct a reasonable investigation within the meaning of the
Securities Act; provided, however, that the Company shall not be obligated to
give such opportunities and access to any holder of Registrable Securities
holding less than 1,000,000 Registrable Securities other than the Initiating
Holders, as a group, requesting a Demand Registration pursuant to Section
4.3(a). "Subsidiaries" means, with respect to the Company, a corporation or
other entity of which 50% or more of the voting power of the outstanding voting
securities or 50% or more of the outstanding equity interests is held, directly
or indirectly, by the Company.
(iv) Notice to Discontinue. Each holder
of Registrable Securities agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section
4.3(c)(i)(6), such holder shall forthwith discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 4.3(c)(i)(6) and, if
so directed by the Company, such holder shall deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
holder's possession, of the prospectus covering such Registrable Securities
that is current at the time of receipt of such notice. If the Company shall
give any such notice, the Company shall extend the period during which such
Registration Statement shall be maintained effective pursuant to this Agreement
(including, without limitation, the period referred to in Section 4.3(c)(i)(2))
by the number of days during the period from and including the date of the
giving of such notice pursuant to Section 4.3(c)(i)(6) to and including the
date when the holder shall have received the copies of the supplemented or
amended prospectus contemplated by and meeting the requirements of Section
4.3(c)(i)(6).
(v) Assignability of Registration
Rights. In connection with the sale of any of the Shares pursuant to a private
transaction, other than a transaction under Rule 144 of the Securities Act, the
Purchasers may assign their Registration Rights under this
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Agreement to the buyer of such Shares; provided, however, that such buyer
executes an agreement to be bound by the terms and conditions of this
Agreement.
(vi) Indemnification by Company for
Certain Information in Registration Statement. With respect to the information
contained in (or omitted from) a registration statement for the registration of
any Shares pursuant to this Section 4.3, the Company agrees to indemnify,
protect and hold harmless any Purchaser (other than any director or executive
officer of the Company) who is participating in the offering covered by such
registration statement from and against all loss, cost, liability, claim or
damage (including without limitation court costs and attorneys' fees) to which
such Purchaser may be subject or liable in respect of any untrue statement of a
material fact or omission to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading, except that no
indemnification is being made by the Company with respect to any information
supplied by such Purchaser for inclusion in such registration statement or any
failure to disclose, or any omission by, such Purchaser of any material fact
required to be stated in such registration statement or necessary to make the
statements in such registration statement, in light of the circumstances under
which they are made, not misleading.
4.4 Bank Standstill. J.L. Tandon shall have procured and
shall maintain in place, for a one-year period from April 1, 1997 through March
31, 1998, a standstill arrangement with Canara Bank, State Bank of India, and
Vysya Bank Ltd. (the "Indian Banks") from which Ultra Tek Devices, Ltd. ("Ultra
Tek"), the Company's manufacturing subsidiary in Bombay, India, has borrowed
certain sums (approximately $8,120,308 principal and interest outstanding as of
January 31, 1997). Such standstill with the Indian Banks shall consist of the
complete deferral of all principal and interest payments during such one-year
period. In addition, J.L. Tandon shall deliver at the Initial Closing a
written agreement providing for his agreement to cause the standstill to occur
in accordance with the terms set forth herein (the "Bank Standstill
Agreement").
4.5 Best Efforts. Upon the terms and subject to the
conditions herein provided, each of the Purchasers and the Company agrees to
use its reasonable best efforts to take, or cause to be taken, all action, and
to do, or cause to be done, all things necessary, proper or advisable to
consummate the transactions contemplated by this Agreement and each other
agreement contemplated hereby including (a) to lift or rescind any injunction
or restraining order or other order adversely affecting the ability of the
parties to consummate the transactions contemplated hereby and (b) to fulfill
all conditions on its part to be fulfilled under this Agreement and each other
agreement contemplated hereby. In case at any time after the Initial Closing
Date any further action is reasonably necessary or desirable to carry out the
purposes of this Agreement and each other agreement contemplated hereby, each
party to this Agreement who is a natural person and the proper partners,
officers or directors of all other parties to this Agreement shall take all
such reasonably necessary action. No party hereto will take any action for the
purpose of delaying, impairing or impeding the receipt of any required consent,
authorization, order or approval or the making of any
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required filing. Each party hereto shall give prompt notice to all other
parties of (i) the occurrence, or failure to occur, of any event which
occurrence or failure would be likely to cause any representation or warranty
of such party contained in this Agreement, as the case may be, to be untrue or
inaccurate in any material respect any time from the date hereof to the
Secondary Closing Date and (ii) any material failure of such party, as the case
may be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder, and such party shall use all
reasonable efforts to remedy such failure.
4.6 Consents. The Company and each of the Purchasers
will use its reasonable best efforts to obtain all necessary waivers, consents
and approvals of all third parties and governmental authorities necessary to
the consummation of the transactions contemplated by this Agreement and each
agreement contemplated hereby, including, but not limited to, those required in
connection with the filing of any required pre-merger notification reports
under Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR
Reports") and any filings to be made in connection with or in compliance with
the provisions of each of the Securities Act, the Exchange Act and any
applicable state securities laws.
4.7 Use of Proceeds. The Company covenants and agrees
that it will use the proceeds from the sale of the Shares hereunder for general
working capital purposes.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions to Each Party's Obligations. The
respective obligations of each party to effect the transactions contemplated by
the Agreement shall be subject to the conditions that:
(a) No United States or state governmental
authority or other agency or commission or United States or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, injunction or other order (whether
temporary, preliminary, or permanent) which is in effect and has the effect of
prohibiting consummation of the transactions contemplated by this Agreement.
(b) Any waiting period applicable to the
transactions contemplated by this Agreement and each agreement contemplated
hereby, including, without limitation, those applicable to any HSR Report or
any filing in connection with or in compliance with the provisions of each of
the Securities Act, the Exchange Act and any applicable state securities laws
shall have expired or been terminated.
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5.2 Conditions to the Obligations of the Company.
(a) The obligation of the Company to effect the
transactions contemplated by this Agreement to occur at the Initial Closing
shall be subject to the fulfillment at or prior to the Initial Closing Date of
the following additional conditions:
(i) The Purchasers shall have performed
in all material respects their obligations under this Agreement required to be
performed by them on or prior to the Initial Closing Date pursuant to the terms
hereof.
(ii) The representations and warranties
of the Purchasers contained in this Agreement shall be true and correct in all
material respects at and as of the Initial Closing Date as if made at and as of
such date, except to the extent that any such representation or warranty is
made as of a specified date in which case such representation or warranty shall
have been true and correct as of such date. The standstill arrangement
required by Section 4.4 above, shall be in place in a form satisfying the terms
of that Section.
(iii) The Company shall have received
fully executed copies of the Subscription Agreements, the Bank Standstill
Agreement and any and all other agreements, documents, certificates or
instruments contemplated by this Agreement and any of the foregoing.
(iv) The favorable written opinion of
Wedbush Morgan dated February 20, 1997 as to the fairness on a financial basis
of the terms of the initial capitalization purchase and the transactions
contemplated by this Agreement and delivered orally and in writing to the
Independent Directors Committee of the Board on February 21, 1997 shall not
have been revised and remains in effect.
(v) All necessary waivers, consents and
approvals to or of the transactions contemplated by this Agreement to occur at
the Initial Closing and each agreement contemplated hereby shall have been
obtained.
(vi) The Company shall have received such
other duly and validly executed documents and instruments in connection with
the Initial Closing as are reasonably requested by it.
(b) The obligation of the Company to effect the
transactions contemplated by this Agreement to occur at the Secondary Closing
shall be subject to the fulfillment at or prior to the Secondary Closing Date
of the following additional conditions:
(i) The Initial Closing shall have
occurred.
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(ii) The Management Investors shall have
performed in all material respects their obligations under this Agreement
required to be performed by them on or prior to the Secondary Closing Date
pursuant to the terms hereof.
(iii) The representations and warranties
of the Management Investors contained in this Agreement and the Subscription
Agreements shall be true and correct in all material respects at and as of the
Secondary Closing Date as if made at and as of such date, except to the extent
that any such representation or warranty is made as of a specified date in
which case such representation or warranty shall have been true and correct as
of such date.
(iv) The shareholders of the Company
shall have duly approved (a) the issuance of the Shares to be issued in
prepayment of the Bridge Note pursuant to this Agreement and (b) the amendment
to the Company's Articles of Incorporation to increase the number of authorized
shares of Common Stock of the Company to 50,000,000 shares at the annual
meeting of the shareholders of the Company to be held in the manner set forth
in Section 4.1 hereof.
(v) The favorable written opinion of
Wedbush Morgan dated February 20, 1997 as to the fairness on a financial basis
of the terms of the initial capitalization purchase and the transactions
contemplated by this Agreement and delivered orally and in writing to the
Independent Directors Committee of the Board on February 21, 1997 shall not
have been revised and remains in effect.
(vi) All necessary waivers, consents and
approvals to or of the transactions contemplated by this Agreement to occur at
the Secondary Closing and each agreement contemplated hereby shall have been
obtained.
(vii) The Company shall have received such
other duly and validly executed documents and instruments in connection with
the Secondary Closing as are reasonably requested by it.
5.3 Conditions to the Obligations of the Purchasers.
(a) The obligations of the Purchasers to effect
the transactions contemplated by this Agreement to occur at the Initial Closing
shall be subject to the fulfillment at or prior to the Initial Closing Date of
the following additional conditions:
(i) The Company shall have performed in
all material respects its obligations under this Agreement required to be
performed by it on or prior to the Initial Closing Date pursuant to the terms
hereof.
(ii) The representations and warranties
of the Company contained in this Agreement shall be true and correct in all
material respects at and as of the
19.
<PAGE> 63
Initial Closing Date as if made at and as of such date, except to the extent
that any such representation or warranty is made as of a specified date in
which case such representation or warranty shall have been true and correct as
of such date.
(iii) Since December 31, 1996, there shall have been no Material
Adverse Effect on the Company.
(iv) The Purchasers shall have received
fully executed copies of the Subscription Agreements and, if applicable, the
Bridge Note and any and all other agreements, documents, certificates or
instruments contemplated by this Agreement and any of the foregoing (including
without limitation the security agreement to be executed by the Company in
favor of Clady).
(v) The Purchasers shall have received
such other duly and validly executed documents and instruments in connection
with the Initial Closing as are reasonably requested by them.
(vi) All necessary waivers, consents and
approvals to or of the transactions contemplated by this Agreement to occur at
the Initial Closing or each other agreement contemplated shall have been
obtained.
(b) The obligations of the Purchasers to effect
the transactions contemplated by this Agreement to occur at the Secondary
Closing shall be subject to the fulfillment at or prior to the Secondary
Closing Date of the following additional conditions:
(i) The Initial Closing shall have
occurred.
(ii) The Company shall have performed in
all material respects its obligations under this Agreement required to be
performed by it on or prior to the Secondary Closing Date pursuant to the terms
hereof.
(iii) The representations and warranties
of the Company contained in this Agreement shall be true and correct in all
material respects at and as of the Secondary Closing Date as if made at and as
of such date, except to the extent that any such representation or warranty is
made as of a specified date in which case such representation or warranty shall
have been true and correct as of such date.
(iv) The shareholders of the Company
shall have duly approved the amendment to the Company's Articles of
Incorporation to increase the number of authorized shares of Common Stock of
the Company to 50,000,000 shares at the annual meeting of the shareholders of
the Company to be held in the manner set forth in Section 4.1 hereof.
20.
<PAGE> 64
(v) The size and composition of the
Board of Directors of the Company shall be satisfactory to Clady in light of
Section 4.2 above.
(vi) The Purchasers shall have received
such other duly and validly executed documents and instruments in connection
with the Secondary Closing as are reasonably requested by them.
(vii) All necessary waivers, consents and
approvals to or of the transactions contemplated by this Agreement to occur at
the Secondary Closing or each other agreement contemplated shall have been
obtained.
ARTICLE VI
MISCELLANEOUS
6.1 Termination. This Agreement shall terminate if the
Initial Closing does not occur within thirty (30) days of the date hereof,
absent the mutual agreement of the Company and Clady to extend the time
permitted. Such a termination shall not effect the rights of any party with
respect to a breach prior to the termination by another party.
6.2 Amendment. This Agreement may be amended by the
parties hereto. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto, provided that after the
Secondary Closing this Agreement may be amended without each party's written
agreement, but no such amendment shall be enforceable against any party which
has not signed such amendment.
6.3 Waiver. At any time prior to the Initial Closing
Date or the Secondary Closing Date, as applicable, the parties hereto may (a)
extend the time for the performance of any of the obligations or other acts of
the other parties, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto, and
(c) waive compliance with any of the agreements or conditions herein, provided
that any such waiver of or failure to insist on strict compliance with any such
representation, warranty, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of such
party.
6.4 Survival. The representations and warranties set
forth in Articles II and III hereof shall survive both the Initial Closing and
the Secondary Closing.
6.5 Notices. All notices and other communications given
or made pursuant hereto shall be in writing and shall be deemed to have been
given or made if in writing and delivered personally, sent by commercial
carrier or registered or certified mail (postage
21.
<PAGE> 65
prepaid, return receipt requested) or transmitted by facsimile with automated
receipt confirmation to the parties at the following addresses and numbers:
(a) If to Clady, to:
c/o J.L. Tandon
Golden Systems, Inc.
2125-C Madera Road
Simi Valley, California 93065
Fax No.: (805) 582-4415
(b) If to the Company, to:
Prakash Thanky, President
Golden Systems, Inc.
2125-C Madera Road
Simi Valley, California 93065
Fax No.: (805) 582-4415
If to the Purchasers who executed the Subscription
Agreements, to the address and facsimile number set forth in their respective
Subscription Agreement, or at such other addresses as shall be furnished by the
parties by like notice, and such notice or communication shall be deemed to
have been given or made as of the date actually received.
6.6 Headings; Agreement. The headings contained in this
Agreement are inserted for convenience only and do not constitute a part of
this Agreement. The term "Agreement" for purposes of representations and
warranties hereunder shall be deemed to include the exhibits hereto to be
executed and delivered by a party.
6.7 Publicity. So long as this Agreement is in effect,
the parties hereto shall not, and shall cause their affiliates not to, issue or
cause the publication of any press release or other announcement with respect
to the transactions contemplated by this Agreement or the other agreements
contemplated hereby without the consent of the other parties, which consent
shall not be unreasonably withheld or delayed.
6.8 Entire Agreement. This Agreement (including all
exhibits hereto) constitutes the entire agreement among the parties and
supersedes all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof.
6.9 Conveyance Taxes. The Company agrees to assume
liability for and to hold the Purchasers harmless against any sales, use,
transfer, stamp, stock transfer, real property transfer or gains, and value
added taxes, any transfer, registration, recording or
22.
<PAGE> 66
other fees, and any similar taxes incurred as a result of the issuance and sale
of the Shares as contemplated hereby.
6.10 Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefits of the parties hereto
and their respective successors and permitted assigns. Except as otherwise
provided in the exhibits to this Agreement or the other agreements contemplated
hereby, neither this Agreement nor any of the rights, interests or obligations
shall be assigned by any of the parties hereto without the prior written
consent of the other parties.
6.11 Counterparts. This Agreement may be executed in one
or more counterparts, all of which shall be considered one and the same
agreement and each of which shall be deemed an original.
6.12 Governing Law. The validity and interpretation of
this Agreement shall be governed by the laws of the State of California,
without reference to the conflict of laws principles thereof.
6.13 Third Party Beneficiaries. This Agreement is not
intended to confer upon any other person any rights or remedies hereunder.
6.14 Costs and Expenses. Each party will pay its own
costs and expenses incurred in connection with the transactions contemplated
hereby, except that the Company shall pay the reasonable legal fees and
expenses of one legal counsel to the Purchasers.
23.
<PAGE> 67
IN WITNESS WHEREOF, each of the Purchasers and the Company has
caused this Agreement to be duly signed as of the date first written above.
GOLDEN SYSTEMS, INC.,
a California corporation
By:
------------------------------------------
Name: Robert Sherburne
Title: Authorized Representative
and Director
CLADY INTERNATIONAL CORPORATION,
a Panamanian corporation
By:
------------------------------------------
Name: Jawahar L. Tandon
Title: President
With respect to Section 4.4 hereof:
- ------------------------------------
JAWAHAR L. TANDON
24.
<PAGE> 68
EXHIBIT A
STOCK SUBSCRIPTION AGREEMENT
THIS STOCK SUBSCRIPTION AGREEMENT (this "Subscription
Agreement") is made and entered into as of March __, 1997 by and between Golden
Systems, Inc., a California corporation (the "Company"), and _______________
(the "Purchaser"). All capitalized terms used herein shall have the meaning
ascribed to such terms in the Stock Purchase Agreement (as defined below) to
which this Subscription Agreement is attached as an exhibit.
R E C I T A L S
WHEREAS, the Company desires to issue and sell to the
Purchaser, and the Purchaser desires to subscribe for and purchase from the
Company, the number of Shares set forth below in Section 1 hereof on the terms
and conditions set forth in this Subscription Agreement and the Stock Purchase
Agreement (the "Stock Purchase Agreement") dated as of March 31, 1997 by and
among the Company, J.L. Tandon, Clady and such other persons or entities listed
on Exhibit C attached thereto.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing recitals and
the mutual covenants and conditions contained herein and in the Stock Purchase
Agreement, the parties hereto agree as follows:
(a) Sale and Purchase of Stock. The Company hereby
agrees to issue and sell to the Purchaser, and the Purchaser agrees to purchase
from the Company, subject to the terms and conditions set forth in this
Subscription Agreement and the Stock Purchase Agreement, __________ Shares, at
a price of $0.15 per Share, for an aggregate purchase price of
$__________________. Payment of the Purchase Price by Purchaser and delivery
by the Company of a certificate representing the Shares purchased hereunder
shall be made (in the manner described in the Stock Purchase Agreement) at the
Secondary Closing.
A-1.
<PAGE> 69
(b) Representations and Warranties of Purchaser.
Purchaser hereby represents and warrants to the Company as follows and
Purchaser acknowledges that Purchaser has full knowledge that the Company
intends to rely on such representations and warranties:
(1) Organization. Purchaser is a natural person
(or nominee of a natural person) who is either a resident of the State of
California, the State of Texas or a resident of a jurisdiction outside of the
United States.
(2) Authority. This Subscription Agreement, to
be executed by Purchaser in connection with the Stock Purchase Agreement on or
prior to the Initial Closing Date, has been duly executed and delivered by
Purchaser, and (assuming due execution and delivery by the other party or
parties thereto) constitutes a legal, valid and binding obligation of
Purchaser, enforceable against him or her in accordance with its terms, subject
to applicable bankruptcy, insolvency, moratorium, reorganization or similar
laws affecting creditors' rights generally and subject to general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(3) No Violation. The execution and delivery of
this Subscription Agreement by Purchaser, the performance by Purchaser of his
or her obligations hereunder and the consummation by him or her of the
transactions contemplated hereby will not (a) violate any provision of law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award applicable to Purchaser, (b) require the consent, waiver, approval,
license or authorization of or any filing by Purchaser with any person or
governmental authority, except for filings to be made in connection with or in
compliance with the provisions of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), Regulation D as promulgated under the Securities
Act of 1933, as amended (the "Securities Act") and applicable state securities
laws, or (c) violate, result (with or without notice or the passage of time, or
both) in a breach of or give rise to the right to accelerate, terminate or
cancel any obligation under or constitute (with or without notice or the
passage of time, or both) a default under, any of the terms or provisions of
any charter or bylaw, partnership agreement, indenture, mortgage, agreement,
contract, order, judgment, ordinance, regulation or decree to which Purchaser
is subject or by which Purchaser is bound, except for any of the foregoing
matters which would not have, individually or in the aggregate, a material and
adverse effect upon the operations, financial condition, prospects or results
of operations of such party (a "Material Adverse Effect").
(4) Brokers. Purchaser has not paid or become
obligated to pay any fee or commission to any broker, finder, investment banker
or other intermediary in connection with this Subscription Agreement.
(5) Funds Available. Purchaser has funds
available, or commitments from third parties to provide funds, sufficient to
pay Purchaser's respective portion of the Purchase Price.
A-2.
<PAGE> 70
(6) Investment Representations.
(i) Purchaser is an "accredited
investor" as defined in Rule 501 promulgated as part of Regulation D under the
Securities Act and an "excluded purchaser" under Title 10, California Code of
Regulations Section 260.102.12 because Purchaser is (check all that apply):
_____ A director or executive officer of the Company;
_____ A natural person whose individual net worth,
or joint net worth with that person's spouse,
at the time of his or her purchase exceeds
$1,000,000;
_____ A natural person who had an individual income
in excess of $200,000 in each of the two most
recent years or joint income with that
person's spouse in excess of $300,000 in each
of those years and has a reasonable
expectation of reaching the same income level
in the current year; or
_____ Purchaser is NOT an "accredited investor."
(ii) Purchaser is purchasing the Shares
for investment for his or her own account and without the intent of
participating, directly or indirectly, in a distribution of the Shares, and not
with a view to, or for resale in connection with, any distribution of the
Shares, or any portion thereof, in violation of law.
(iii) Purchaser has such knowledge and
experience in financial and business matters that he or she is capable of
evaluating the merits and risks of an investment in the Company and that he or
she is capable of protecting his or her own interests in connection with this
transaction. Purchaser acknowledges that investment in the Company is risky
and subject to risk of loss for many reasons and Purchaser is able to bear the
full loss of his or her investment in the Company. Purchaser understands that
the Company has a very troubled financial and operating history and that this
is a speculative investment that includes a risk of loss of Purchaser's entire
investment in the Company. Purchaser has evaluated the risks of investing in
the Company and, based on Purchaser's independent examination and judgment as
to the prospects of the Company, has determined that this is a suitable
investment for Purchaser.
(iv) Purchaser has had access to, and
made an investigation of, the pertinent facts relating to the Company and has
reviewed the terms of the Stock Purchase Agreement to the extent he or she
deems necessary in order to be fully informed with respect thereto. Purchaser
acknowledges that he or she has been given the opportunity to ask questions of,
and receive answers from, the Company concerning the Company, his or her
interest therein and all other matters that are relevant to his or her decision
to invest in
A3.
<PAGE> 71
the Company, including any additional information necessary to verify the
information relative to the financial data and business of the Company.
(v) Purchaser is entering into this
Subscription Agreement solely in reliance on the facts and terms set forth in
this Subscription Agreement, the Stock Purchase Agreement and any additional
documents furnished to him or her by the Company and the Company has not made
any representations or warranties of any kind or nature, except as specifically
set forth in such documents.
(vi) Purchaser understands that any
projections or predictions for the Company are based on estimates, assumptions
and forecasts which may prove to be incorrect.
(vii) Purchaser understands that the
Shares have not been registered under the Securities Act, nor have the Shares
been qualified under applicable state securities laws, and will not be so
registered or qualified and, therefore, the Shares constitute "restricted
securities" under Rule 144 of the Securities Act and cannot be resold unless
the Shares are subsequently registered under the Securities Act and appropriate
state law or unless an exemption from such registration is available; that,
except as provided for in the Stock Purchase Agreement, the Company does not
have any intention of and is not under any obligation to register the Shares
under the Securities Act or any state law or to comply with any exemption
available for sale of the Shares without registration; and that the information
or conditions necessary to permit routine sales of securities of the Company
under Rule 144 of the Securities Act are not now available and no assurance has
been given that they will become available.
(viii) Purchaser agrees not to offer for
sale, resell, assign, transfer, pledge, encumber or otherwise dispose of the
Shares (or any interest or participation therein) (a) except pursuant to a
registration statement which has been declared effective under the Securities
Act and applicable state securities laws or (b) unless, prior to such transfer,
Purchaser delivers to the Company an opinion of counsel in form and substance
reasonably acceptable to the Company, to the effect that such transfer is not
required to be registered under the Securities Act or, if applicable, qualified
under applicable state securities laws.
(ix) Purchaser initially learned of this
transaction through a direct communication, and was never presented or
solicited by any leaflet, public promotional meeting, newspaper or magazine
article, radio or television announcement or any other form of general
advertising or solicitation regarding this transaction.
(x) Purchaser understands that no
federal or state agency has passed upon this transaction or has made any
finding as to the fairness of its terms.
(c) One Agreement. This Subscription Agreement, when
fully executed, shall be attached as an exhibit to the Stock Purchase Agreement
and become a part of the Stock Purchase Agreement. The Purchaser agrees (i)
that he/she/it is a "Purchaser" as such
A-4.
<PAGE> 72
term is defined in the Stock Purchase Agreement and (ii) to be bound by all
terms, provisions and conditions of the Stock Purchase Agreement applicable to
such Purchaser.
(d) Notices. Any notice or other writing given by either
party hereto to the other party relating to the subject matter of this
Agreement shall be delivered in the manner set forth in Section 6.5 of the
Stock Purchase Agreement. Any such notice, if to the Purchaser, shall be
delivered to:
---------------------------
---------------------------
---------------------------
(e) Amendments. This Subscription Agreement may be
amended only by a written agreement executed by the Company and the Purchaser.
(f) Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed an original and both of which, when
taken together, shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Subscription Agreement as of the day and year first above written.
THE COMPANY:
GOLDEN SYSTEMS, INC.,
a California corporation
By:
------------------------------------
Name: Robert Sherburne
Title: Authorized Representative
and Director
PURCHASER:
------------------------------------
Please Print Name:
-------------------
A-5.
<PAGE> 73
EXHIBIT B
INVESTMENT BY THE TANDONS
<TABLE>
<CAPTION>
Number Aggregate
Name of Shares Purchase Price
---- --------- --------------
<S> <C> <C>
Clady International Corporation, 13,333,333 $1,999,999.95
a Panamanian corporation
</TABLE>
B-1.
<PAGE> 74
EXHIBIT C
INVESTMENT BY THE MANAGEMENT INVESTORS
<TABLE>
<CAPTION>
Number Aggregate
Name of Shares Purchase Price
---- --------- --------------
<S> <C> <C>
Dennis Probert 100,000 $ 15,000.00
Alastair Stanley 100,000 15,000.00
David Gordon 10,000 1,500.00
Peter Tod 75,000 11,250.00
Homi Ahmadi 10,000 1,500.00
Peter Dangelo 66,667 10,000.05
Julie Durham 35,000 5,250.00
Prakash Thanky 1,270,000 190,500.00
--------- -----------
TOTAL: 1,666,667 $250,000.05
========= ===========
</TABLE>
C-1.
<PAGE> 75
EXHIBIT D
FORM OF BRIDGE NOTE
$________________
Simi Valley, California
Dated: March __, 1997
FOR VALUE RECEIVED, the undersigned, Golden Systems, Inc., a
California corporation (the "Debtor"), promises to pay to the order of Clady
International Corporation, a Panamanian corporation, or the duly assigned
holder hereof (the "Holder"), at c/o Jawahar L. Tandon, Golden Systems, Inc.,
2125-C Madera Road, Simi Valley, California 93065, or such other place as the
holder hereof may designate, the principal sum of ($_____________) together with
simple interest at the rate of eight per cent (8%) per annum on all principal
amounts outstanding from the date hereof until payment in full.
This Note shall bear interest (computed on the basis of a 365
day year for the actual number of days elapsed) at the rate set forth above on
the unpaid principal amount hereof outstanding from time to time from the date
hereof until payment in full. Both principal and interest are payable in
lawful money of the United States of America at the address first mentioned
above in immediately available funds.
This Note may not be prepaid, other than by the issuance of
Common Stock as set forth herein. Debtor shall prepay all of the outstanding
principal represented in this Note
D-1.
<PAGE> 76
by the issuance of Common Stock of the Debtor to the Holder at a rate of one
share per $0.15 of outstanding principal (the "Conversion Price"); provided,
however, that such obligation to prepay the Note shall not arise unless and
until the tenth business day after (i) an amendment to the Debtor's Articles of
Incorporation, increasing the authorized capital of the Debtor sufficiently to
allow for full conversion of this Note, and all other similar bridge promissory
notes issued by Debtor (collectively, the "Bridge Notes"), is adopted by the
Board of Directors and a requisite number of shareholders of Debtor and filed
with the Secretary of State of the State of California and (ii) the requisite
number of shareholders of Debtor shall have approved the issuance of a
sufficient number of shares of Common Stock by the Debtor to the Holder and the
holders of all other Bridge Notes for the purpose of prepaying this Note and
all other Bridge Notes.
If this Note has not been prepaid by the issuance of Common
Stock to the Holder in accordance with the terms described above by June 7,
1997, this Note shall become a demand note, immediately payable in full upon
Holder's written notice to Debtor. After June 7, 1997, accrued interest on
this Note shall be paid on the last day of each calendar month and all accrued
and unpaid interest then outstanding shall be paid in full upon payment of the
principal of this Note.
This Note is secured by the assets of the Debtor as provided
for in the Security Agreement dated the date hereof between the Debtor and the
Holder.
D-2.
<PAGE> 77
If outstanding shares of the Common Stock of the Debtor shall
be subdivided into a greater number of shares or a dividend in Common Stock
shall be paid in respect of Common Stock, the Conversion Price in effect
immediately prior to such subdivision or at the record date of such dividend
shall, simultaneously with the effectiveness of such subdivision or immediately
after the record date of such dividend, be proportionately reduced. If
outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Conversion Price in effect immediately prior to such combination
shall, simultaneously with the effectiveness of such combination, be
proportionately increased.
If there shall occur any capital reorganization or
reclassification of the Debtor's Common Stock (other than a change in par value
or a subdivision or combination as described above), or any consolidation or
merger of the Debtor with or into another corporation, or a transfer of all or
substantially all of the assets of the Debtor, then, as part of any such
reorganization, reclassification, consolidation, merger or sale, as the case
may be, lawful provision shall be made so that the Holder shall have the right
thereafter to receive upon the conversion hereof the kind and amount of shares
of stock or other securities or property which such Holder would have been
entitled to receive if, immediately prior to any such reorganization,
reclassification, consolidation, merger or sale, as the case may be, such
Holder had held the number of shares of Common Stock which were then issuable
upon the conversion of this Note. In any such case, appropriate adjustment (as
reasonably determined in good faith by the Board of Directors of the Debtor)
shall be made in the application of the provisions set forth herein with
respect to the rights and interests thereafter
D-3.
<PAGE> 78
of the Holder of this Note, such that the provisions set forth in this Note
(including provisions with respect to adjustment of the Conversion Price) shall
thereafter be applicable, as nearly as is reasonably practicable, in relation
to any shares of stock or other securities thereafter deliverable upon the
conversion of this Note.
The right to plead any and all statutes of limitation as a
defense to any demand hereunder is hereby waived to the fullest extent
permitted by law. Presentment for payment, notice of dishonor, protest and
notice of protest are hereby waived. This Note shall be governed by and
construed in accordance with the laws of the State of California, and the
Debtor hereby consents to service of process in connection with any action in
any federal or state court in the State of California to enforce any provision
of this Note.
In the event of a default by Debtor of its obligations under
this Note, if not cured in five (5) days, the Holder may declare the full
principal amount then outstanding to be due and owing, and the holder may
pursue successively or concurrently any or all remedies available under law. A
default shall include, without limitation, any act by Debtor in connection with
its winding up, dissolution, assignment of assets for the benefit of creditors,
bankruptcy or other termination of its business operations by Debtor that is
not terminated, reversed or abandoned within two (2) business days of the date
taken. A default of this nature shall not be subject to the five (5) day cure
period generally applying to defaults under the terms of this Note.
D-4.
<PAGE> 79
If the Holder or Debtor engages an attorney to protect its
interests under this Note following an uncured default, the defaulting party
shall pay reasonable attorney's fees incurred in obtaining the advice and
services of that legal counsel. No delay or omission by the Holder of this
Note or the Debtor to exercise any right or remedy under this Note shall impair
any such right or remedy, nor shall it be construed to be a waiver or
acquiescence to any similar breach or default thereafter occurring.
GOLDEN SYSTEMS, INC.
By:
-------------------------------
Name: Robert Sherburne
Title: Authorized Representative
and Director
D-5.
<PAGE> 80
ANNEX B
[WEDBUSH MORGAN SECURITIES LETTERHEAD]
February 20, 1997
PERSONAL & CONFIDENTIAL
Independent Directors Committee
of the Board of Directors
Golden Systems, Inc.
2125-C Madera Road
Simi Valley, California 93065
Attention: Mr. Robert C. Sherburne
Director
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the Public Shareholders of the Common Stock of Golden Systems, Inc.
(the "Company") of the recapitalization plan ("Recapitalization Plan") proposed
by certain members of the Tandon Family (the "Tandons") and the Company's
management.
Wedbush Morgan Securities is an investment banking firm and a member of the New
York Stock Exchange and other principal stock exchanges in the United States,
and is regularly engaged as part of its business in the valuation of businesses
and their securities in connection with mergers and acquisitions, negotiated
underwritings, private placements, secondary distributions of listed and
unlisted securities, and valuations for corporate, estate and other purposes.
In arriving at our opinion set forth below, we have reviewed, among other
things, the proposed Recapitalization Plan; preliminary Proxy Statement to be
filed by the Company with the Securities and Exchange Commission regarding its
1996 Annual Meeting of Shareholders to be held in March, 1997; Annual Reports
on Form 10-K of the Company for each of the three fiscal years ended March 31,
1996; Quarterly Reports on Form 10-Q of the Company for the periods ended June
30, 1996, September 30, 1996, and December 31, 1996; projected financial
statements for the four fiscal years ending March 31, 2000; reviewed purchase
orders/letters of intent from Siemens Nixdorf, Iomega, ICL to purchase the
Company's products; Minutes of Meetings of the Board of Directors of the
Company dated April 27, 1994 through the issuance of this report; restructured
organization chart; current term sheets/proposal for
<PAGE> 81
Independent Directors Committee
of the Board of Directors
Golden Systems, Inc.
Page Two
renegotiation of credit line with the Indian banks of the Company; Articles of
Incorporation of the Company, By-laws of Golden Power Systems, the predecessor
of the Company; and the February 5, 1997 news release of fiscal year 1997 third
quarter earnings.
We have held discussions with certain members of the senior management of the
Company regarding the past and current business operations, financial
condition, future prospects and projected operations and performance of the
Company. Wedbush Morgan also visited the corporate headquarters of the Company
in Simi Valley, California; its engineering facility in Boxburn, United
Kingdom; and its manufacturing facility in Bombay, India. In addition, Wedbush
Morgan reviewed the reported prices and trading activity of the Company's
Common Stock on the Over-the-Counter Market Bulletin Board; compared certain
statistical and financial information of the Company with similar information
for certain other publicly-traded electronic component manufacturing companies;
reviewed the financial terms, to the extent publicly available, of certain
recent business combinations in the electronic component manufacturing
industry; and conducted such other financial studies, analyses and inquiries,
and considered such other matters as Wedbush Morgan deemed necessary and
appropriate for this opinion.
We have not undertaken any obligation independently to verify the accuracy or
completeness of the financial information or other information furnished to us
by the Company orally or in writing, or other information obtained from
publicly available sources and reviewed by Wedbush Morgan for purposes of this
opinion. Wedbush Morgan was provided with information represented to Wedbush
Morgan as the best currently available estimates and judgments of the management
of the Company, as to the expected future financial and operating performance
of the Company, and Wedbush Morgan did not undertake any obligation to assess
whether such forecasts, estimates or judgments are reasonable or are likely to
be accurate, nor did Wedbush Morgan undertake any obligation independently to
verify the underlying assumptions made in connection with such forecasts,
estimates or judgments. In addition, Wedbush Morgan did not make an independent
evaluation or appraisal of any particular assets or liabilities of the Company.
Wedbush Morgan did not negotiate, or participate in any way in the negotiation
of, the terms of the Recapitalization Plan, or advise the Company regarding
strategic alternatives. Wedbush Morgan has not been asked to consider, and this
opinion does not address, the relative merits of the Recapitalization Plan as
compared to any
<PAGE> 82
Independent Directors Committee
of the Board of Directors
Golden Systems, Inc.
Page Three
alternative business strategies that might exist for the Company or the effect
of any other transaction in which the Company might engage.
Based upon and subject to the foregoing and based upon such other matters as
Wedbush Morgan consider relevant, it is Wedbush Morgan's opinion that, as of
the date hereof, the terms of the Recapitalization Plan is fair, from a
financial point of view, to the Public Shareholders of the Company's Common
Stock.
This opinion is intended solely for the benefit of the Independent Directors
Committee of the Board of Directors of the Company in connection with its
consideration of the Recapitalization Plan. This opinion is not to be used,
circulated, quoted or otherwise referred to for any purpose, except in
accordance with Wedbush Morgan's prior written consent.
Very truly yours,
WEDBUSH MORGAN SECURITIES
<PAGE> 83
ANNEX C
RESTATED ARTICLES OF INCORPORATION
OF
CORTECH SYSTEMS, INC.
J.L. Tandon and Prakash Thanky certify that:
1. They are the Chief Executive Officer, Chief Financial
Officer and Secretary, and President, respectively, of Cortech Systems, Inc., a
California corporation (the "Corporation").
2. The Articles of Incorporation of the Corporation, as
amended to the date of the filing of these Restated Articles of Incorporation,
including amendments set forth herein but not separately filed (and with the
omissions required by Section 910 of the California Corporations Code) are
restated in their entirety as follows:
FIRST. The name of the corporation is Cortech Systems, Inc.
SECOND. The purpose of the corporation is to engage in any
lawful act or activity for which a corporation may be organized under the
General Corporation law of California other than the banking business, the
trust company business or the practice of a profession permitted to be
incorporated by the California Corporations Code.
THIRD. The corporation is authorized to issue only one class
of shares without par value; and the total number of shares which this
corporation is authorized to issue is 50,000,000.
FOURTH. The liability of the directors of the corporation for
monetary damages shall be eliminated to the fullest extent permissible under
California law.
FIFTH. The corporation is authorized to indemnify the
directors, officers, employees or other agents of the corporation to the
fullest extent permissible under California law.
3. The foregoing Restated Articles of Incorporation have
been duly approved by the Board of Directors of the Corporation.
4. The article amendments included in the foregoing
Restated Articles of Incorporation (other than omissions required by Section
910 of the California Corporations Code) have been duly approved by the
required vote of the shareholders in accordance with Section 902 of the
California Corporations Code. The Corporation has only one class of shares and
the total number
<PAGE> 84
of outstanding shares is 5,299,998. The number of shares voting in favor of
the amendments equaled or exceeded the vote required. The percentage vote
required for the approval of the amendments was more than fifty percent of all
of the outstanding shares of stock of the Corporation.
IN WITNESS WHEREOF, the undersigned have signed these Restated
Articles of Incorporation on June __, 1997.
-------------------------------
J.L. Tandon
Chief Executive Officer,
Chief Financial Officer and
Secretary
-------------------------------
Prakash Thanky
President
J.L. Tandon and Prakash Thanky each declare under penalty of
perjury under the laws of the State of California that he has read the
foregoing Restated Articles of Incorporation and knows the contents thereof and
that the same is true of his own knowledge.
Dated: June __, 1997
2.
<PAGE> 85
ANNEX D
GOLDEN SYSTEMS, INC.
1997 Stock Option Plan
Section 1. Description of Plan. This is the 1997 Stock Option
Plan (the "Plan"), of GOLDEN SYSTEMS, INC. (the "Company"), a California
corporation. Under this Plan, directors, officers, key employees and
consultants of the Company or of any present and future subsidiaries of the
Company to be selected as set forth below, may be granted options ("Options")
to purchase shares of the common voting stock, without par value, of the
Company ("Common Stock"). For purposes of this Plan, the term "subsidiary"
means any corporation 50% or more of the voting stock of which is owned by the
Company or by a subsidiary (as so defined) of the Company. It is intended that
the Options under this Plan either will qualify for treatment as incentive
stock options under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") and be designated "Incentive Stock Options," or not
qualify for such treatment and be designated "Nonqualified Stock Options."
Section 2. Purpose of Plan. The purpose of this Plan and of
granting options to specified employees and directors is to further the growth,
development and financial success of the Company and its subsidiaries by
providing additional incentives to certain directors, officers, key employees
and consultants by assisting them to acquire shares of Common Stock and to
benefit directly from the Company's growth, development and financial success.
Section 3. Eligibility. The persons who shall be eligible to
receive grants of Options under this Plan shall be the directors, officers, key
employees and consultants of the Company or any of its subsidiaries.
Consultants and directors who are not also employees of the Company
("Nonemployee Directors") are not eligible to receive Incentive Stock Options.
A person who holds an Option is herein referred to as an "Optionee." More than
one Option may be granted to any one Optionee. However, during the term of
this Plan, no Optionee may be granted options to purchase an aggregate of more
than 250,000 shares of Common Stock pursuant to or during the term of this
Plan. Notwithstanding the foregoing, holders of 10% or more of any class of
the Company's voting securities shall be ineligible from participation in this
Plan.
For Incentive Stock Options, the aggregate fair market value
(determined at the time the Option is granted) of the Common Stock with respect
to which Incentive Stock Options are exercisable for the first time by any
Optionee during any calendar year (under all Incentive Stock Option plans of
the Company or any subsidiary which are qualified under Section 422 of the
Code) shall not exceed $100,000.
1.
<PAGE> 86
Section 4. Administration.
(a) The Plan shall be administered by a committee (the
"Option Committee") to be composed of at least two Nonemployee Directors who
shall also be "outside directors" within the meaning of Section 162(m) of the
Code. Members of the Option Committee shall be appointed, both initially and
as vacancies occur, by the Board of Directors of the Company (the "Board"), to
serve at the pleasure of the Board. The entire Board may also serve as the
Option Committee. The Option Committee shall meet at such times and places as
it determines and may meet through a telephone conference call. A majority of
its members shall constitute a quorum, and the decision of a majority of those
present at any meeting at which a quorum is present shall constitute the
decision of the Option Committee. A memorandum signed by all of its members
shall constitute the decision of the Option Committee without necessity, in
such event, for holding an actual meeting.
(b) The Option Committee is authorized and empowered to
administer the Plan and, subject to the Plan, including the provisions of
Section 17, (i) to select the Optionees, to specify the number of shares of
Common Stock with respect to which Options are granted to each Optionee, to
specify the Option Price and the terms of the Options, and in general to grant
Options and to extend the time during which a Nonqualified Stock Option may be
exercised; (ii) to determine the dates on which Options shall be granted and
the terms and conditions thereof in a manner consistent with this Plan, which
terms and conditions need not be identical as to the various Options granted;
(iii) to determine which Options are to be Incentive Stock Options and which
Options are to be Nonqualified Stock Options; (iv) to interpret the Plan; (v)
to prescribe, amend and rescind rules relating to the Plan; (vi) to accelerate
the time during which an Option may be exercised, notwithstanding the
provisions of the Option Agreement (as defined in Section 12) stating the time
during which it may be exercised; (vii) to accelerate the date by which any
unexercised but vested portion of an Option terminates, thereby requiring the
Optionee to exercise the vested unexercised portion of such Option or forfeit
it, but in no event shall such date be less than two (2) weeks later than the
date the Optionee is informed of such acceleration; (viii) to authorize any
person to execute on behalf of the Company any instrument required to
effectuate the grant of an Option previously granted by the Committee; and (ix)
to determine the rights and obligations of participants under the Plan. The
good faith interpretation and construction by the Option Committee of any
provision of the Plan or of any Option granted under it shall be final,
conclusive and binding. No member of the Option Committee shall be liable for
any action or determination made in good faith with respect to the Plan or any
Option granted under it.
Section 5. Shares Subject to the Plan. The aggregate number
of shares of Common Stock which may be purchased pursuant to the exercise of
Options (whether Incentive Stock Options or Nonqualified Stock Options) granted
under the Plan shall not exceed 900,000 shares in the aggregate, including
shares, or shares subject to options, issued pursuant to the Company's
presently existing Amended and Restated Stock Option Plan. Upon
2.
<PAGE> 87
the expiration or termination, in whole or in part, for any reason of an
outstanding Option or any portion thereof which shall not have vested or shall
not have been exercised in full or in the event the Company repurchases any
shares of Common Stock acquired pursuant to the Plan, (a) any shares of Common
Stock then remaining unissued which shall have been reserved for issuance upon
such exercise or (b) any shares of Common Stock which shall have been
repurchased, as the case may be, shall again become available for the granting
of additional Options under the Plan. Notwithstanding the preceding sentence,
shares of Common Stock subject to a terminated Option shall continue to be
considered to be outstanding for purposes of determining the maximum number of
shares of Common Stock underlying Options that may be issued to a single
Optionee under this Plan. Similarly, the repricing of an Option will be
considered the grant of a new Option for this purpose.
Section 6. Option Price. Except as provided in Section 11
hereof, the purchase price per share (the "Option Price") of the shares of
Common Stock underlying each Option shall not be less than 100 percent of the
fair market value of such shares on the date of grant of the Option. Such fair
market value shall be determined by the Option Committee on the basis of
reported closing sales price on such date or, in the absence of a reported
sales price on such date, on the basis of the average of reported closing bid
and asked prices on such date. In the absence of both a reported sales price
and reported bid and asked prices, the Option Committee shall determine such
fair market value on the basis of the best available evidence as it deems
appropriate in its sole discretion.
Section 7. Exercise of Options. Subject to all other
provisions of this Plan, each Option shall be exercisable for the full number
of shares of Common Stock subject thereto, or any part thereof, in such
installments and at such intervals as the Option Committee may determine in
granting such Option, provided that (i) each Option shall become fully
exercisable no later than five (5) years from the date the Option is granted,
(ii) the number of shares of Common Stock subject to each Option shall become
exercisable at the rate of at least 20% per year each year until the Option is
fully exercisable, and (iii) no option may be exercisable subsequent to its
termination date. In addition, no Option granted to a person subject to
Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), shall be exercisable during the first six months after the date such
Option is granted. Each Option shall terminate and expire, and shall no longer
be subject to exercise, as the Option Committee may determine in granting such
Option, but in no event later than ten years after the date of grant thereof.
Once vested, and prior to its termination date, an Option may be exercised by
the Optionee by giving written notice to the Company specifying the number of
shares of Common Stock to be purchased and accompanied by payment of the full
purchase price therefor in cash, by check or in such other form of lawful
consideration as the Board may approve from time to time, including, without
limitation and in the sole discretion of the Board, the assignment and transfer
by the Optionee to the Company of outstanding shares of the Company's Common
Stock theretofore held by Optionee in a manner intended to comply with the
provisions of Rule 16b-3 under the Exchange Act, if applicable. After giving
due
3.
<PAGE> 88
consideration to the consequences under Section 16 of the Exchange Act and
under the Code, the Committee may also authorize the exercise of Options by the
delivery to the Company or its designated agent of an irrevocable written
notice of exercise form together with irrevocable instructions to a
broker-dealer to sell or margin a sufficient portion of the shares of Common
Stock and to deliver the sale or margin loan proceeds directly to the Company
to pay the exercise price of the Option.
Section 8. Issuance of Common Stock. The Company's obligation
to issue shares of its Common Stock upon exercise of an Option granted under
the Plan is expressly conditioned upon the completion by the Company of any
registration or other qualification of such shares under any state and/or
federal law or rulings and regulations of any government regulatory body and/or
the making of such investment or other representations and undertakings by the
Optionee (or his or her legal representative, heir or legatee, as the case may
be) in order to comply with the requirements of any exemption from any such
registration or other qualification of such shares which the Company in its
sole discretion shall deem necessary or advisable. Such required
representations and undertakings may include representations and agreements
that such Optionee (or his or her legal representative, heir or legatee): (a)
is purchasing such shares of Common Stock for investment and not with any
present intention of selling or otherwise disposing thereof; and (b) agrees to
have a legend placed upon the face and reverse of any certificates evidencing
such shares of Common Stock (or, if applicable, an appropriate data entry made
in the ownership records of the Company) setting forth (i) any representations
and undertakings which such Optionee has given to the Company or a reference
thereto, and (ii) that, prior to effecting any sale or other disposition of any
such shares of Common Stock, the Optionee must furnish to the Company an
opinion of counsel, satisfactory to the Company and its counsel, to the effect
that such sale or disposition will not violate the applicable requirements of
state and federal laws and regulatory agencies. The Company will make a
reasonable good faith effort to comply with such state and/or federal laws,
rulings or regulations as may be applicable at the time the Optionee (or his or
her legal representative, heir or legatee, as the case may be) wishes to
exercise an Option, provided that the Optionee (or his or her legal
representative, heir or legatee) also makes a reasonable good faith effort to
comply with said laws, rulings and regulations; however, there can be no
assurance that either the Company or the Optionee (or his or her legal
representative, heir or legatee), each in the respective exercise of their
reasonable good faith business judgment, will in fact comply with said laws,
rulings and regulations. Inability of the Company to obtain, from any
regulatory body having jurisdiction, authority reasonably deemed by the
Company's counsel to be necessary for the lawful issuance and sale of any
shares of Common Stock hereunder shall relieve the Company of any liability in
respect of the nonissuance or sale of such shares of Common Stock as to which
such requisite authority shall not have been obtained.
Section 9. Nontransferability. No Option shall be assignable
or transferable, except that an Option may be transferable by will or by the
laws of descent and distribution.
4.
<PAGE> 89
During the lifetime of an Optionee, once vested, and prior to its termination
date, any Option granted to an Optionee shall be exercisable only by such
Optionee. After the death of an Optionee, the Option granted to such Optionee
may be exercised, once vested and prior to its termination date, only by the
person or persons (including the deceased Optionee's estate) to whom the
deceased Optionee's rights under such Option shall have passed by will or the
laws of descent and distribution.
Section 10. Recapitalization, Reorganization, Merger or
Consolidation. If the outstanding shares of Common Stock of the Company are
increased, decreased or exchanged for different securities through
reorganization, merger, consolidation, recapitalization, reclassification,
stock split, stock dividend or like capital adjustment, a proportionate
adjustment shall be made (a) in the aggregate number of shares of Common Stock
which may be purchased pursuant to the exercise of Options granted under the
Plan, as provided in Section 5 hereof, and (b) in the number, price, and kind
of shares subject to any outstanding Option granted under the Plan.
Upon the dissolution or liquidation of the Company or upon any
reorganization, merger or consolidation in which the Company does not survive
or in which the equity ownership of the Company prior to such transaction
represents less than 50% of the equity ownership of the Company subsequent to
the transaction, the Plan and each outstanding Option shall terminate; provided
that the Company will give written notice thereof to each Optionee at least
thirty (30) days prior to the date of such dissolution, liquidation,
reorganization, merger or consolidation, and in such event (a) the Company may,
but shall not be obligated to, with respect to each Optionee who is not
tendered an option by the surviving corporation in accordance with all of the
terms of provision (b) immediately below, grant the right, until ten (10) days
before the effective date of such dissolution, liquidation, reorganization,
merger or consolidation, to exercise, in whole or in part, any unexpired Option
or Options issued to him or her, without regard to the installment provisions
of said Option and of Section 7 of the Plan; or (b) in its sole and absolute
discretion, the surviving corporation may, but shall not be so obligated,
tender to any Optionee an option or options to purchase shares of the surviving
corporation, and such new option or options shall contain such terms and
provisions as shall be required to substantially preserve the rights and
benefits of any Option then outstanding under the Plan.
To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. Except
as hereinbefore expressly provided in this Section 10, (a) the Optionee shall
have no rights by reason of any subdivision or consolidation of shares of stock
of any class or the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class, and (b) the number or
price of shares of Common Stock subject to any Option shall not be affected by,
and no adjustment shall be made by reason of, any dissolution, liquidation,
reorganization, merger or consolidation, or
5.
<PAGE> 90
any issuance by the Company of shares of stock of any class, or rights to
purchase or subscribe for stock of any class, or securities convertible into
shares of stock of any class.
The grant of an Option under the Plan shall not affect in any
way the right or power of the Company to make adjustments, reclassifications or
changes in its capital or business structures or to merge, consolidate,
dissolve, or liquidate or to sell or transfer all or any part of its business
or assets.
Section 11. Substitute Options. If the Company at any time
should succeed to the business of another corporation through a merger or
consolidation, or through the acquisition of stock or assets of such
corporation or its subsidiaries, Options may be granted under the Plan to those
employees or directors of such corporation or its subsidiaries who, in
connection with such succession, become employees or directors of the Company
or its subsidiaries, in substitution for options to purchase stock of such
corporation held by them at the time of succession. The Option Committee
shall, in its sole and absolute discretion, determine the extent to which such
substitute Options shall be granted (if at all), the person or persons to
receive such substitute Options (who need not be all optionees of such
corporation), the number of Options to be received by each such person, the
Option Price of such Option (which may be determined without regard to Section
6 hereof) and the terms and conditions of such substitute Options; provided,
however, that the Option Price of each such substituted Option shall be an
amount such that, in the sole and absolute judgment of the Option Committee and
in compliance with Section 424(a) of the Code (in the case of an Incentive
Stock Option), the economic benefit provided by such Option is not greater than
the economic benefit represented by the option in the acquired corporation as
of the date of the Company's acquisition of such corporation. Notwithstanding
anything to the contrary herein, no option shall be granted, nor any action
taken, permitted or omitted, which would cause the Plan, or any Options granted
hereunder as to which Rule 16b-3 under the Exchange Act may apply, not to
comply with such Rule.
Section 12. Option Agreement. Each Option granted under the
Plan shall be evidenced by a written stock option agreement (the "Option
Agreement") executed by the Company and accepted by the Optionee, which (a)
shall contain each of the provisions and agreements herein specifically
required to be contained therein, (b) shall indicate whether such Option is to
be an Incentive Stock Option or a Nonqualified Stock Option, and shall contain
terms and conditions permitting such Option to qualify for treatment as an
incentive stock option under Section 422 of the Code if the Option is
designated an Incentive Stock Option, (c) may contain the agreement of the
Optionee to resell any Common Stock issued pursuant to the exercise of Options
granted under the Plan to the Company (or its assignee) for the Option Price of
such Options to the extent any vesting restrictions apply to such Common Stock;
provided, however, that such agreement to resell shall comply with Title 10,
Section 260.140.41 of the California Code of Regulations (so long as that rule
is applicable to the Plan) or any successor rule of like effect, (d) may
contain the agreement of the Optionee
6.
<PAGE> 91
granting a right of first refusal to the Company (or its assignee) on transfers
of Common Stock not subject to vesting restrictions, and (e) may contain such
other terms and conditions as the Option Committee deems desirable and which
are not inconsistent with the Plan. With regard to agreements of the Optionee
contemplated by items (c) and (d) of the previous sentence, the Company's
rights pursuant to a right of first refusal and, notwithstanding any other
termination provisions, the Company's right to repurchase vested shares shall
terminate upon the liquidation or dissolution of the Company.
Section 13. Rights as a Shareholder. An Optionee or a
transferee of an Option shall have no rights as a shareholder with respect to
any shares covered by this Option until exercise thereof, except that each
Optionee shall have the right to receive a copy of the Company's audited
financial statements (if available) no later than 120 days following the end of
each fiscal year of the Company. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the
exercise date, except as expressly provided in Section 10 hereof.
Section 14. Termination of Options. Each Option granted under
the Plan shall set forth a termination date thereof, which date shall be not
later than ten years from the date such Option is granted. An Incentive Stock
Option shall contain any termination events required by Section 422 of the
Code. In any event all Options shall terminate and expire upon the first to
occur of the following events:
(a) the expiration of three months from the date
of an Optionee's termination of employment or service as a Nonemployee Director
(other than by reason of death), except that if an Optionee is then disabled
(within the meaning of Section 22(e)(3) of the Code), the expiration of one
year from the date of such Optionee's termination of employment or service as a
Nonemployee Director; or
(b) the expiration of one year from the date of
the death of an Optionee if his or her death occurs while he or she is, or not
later than three months after he or she has ceased to be, employed by or in the
service of the Company or any of its subsidiaries in a capacity in which he or
she would be eligible to receive grants of Options under the Plan; or
(c) the termination of the Option pursuant to
Section 10 of the Plan.
The termination of employment or of service as a Nonemployee
Director of an Optionee by death or otherwise shall not accelerate or otherwise
affect the number of shares with respect to which an Option may be exercised
and such Option may only be exercised with respect to that number of shares
which could have been purchased under the Option had the Option been exercised
by the Optionee on the date of such termination.
7.
<PAGE> 92
Section 15. Withholding of Taxes. The Company may deduct and
withhold from the wages, salary, bonus and other compensation paid by the
Company to the Optionee the requisite tax upon the amount of taxable income, if
any, recognized by the Optionee in connection with the exercise in whole or in
part of any Option or the sale of Common Stock issued to the Optionee upon
exercise of the Option, all as may be required from time to time under any
federal or state tax laws and regulations. This withholding of tax shall be
made from the Company's concurrent or next payment of wages, salary, bonus or
other income to the Optionee or by payment to the Company by the Optionee of
required withholding tax, as the Option Committee may determine.
Section 16. Effectiveness and Termination of Plan. The Plan
shall be effective on the date on which it is adopted by the Board; provided,
however, (a) the Plan shall be approved by the shareholders of the Company
within 12 months of such date of adoption by the Board, (b) no Option shall be
exercised pursuant to the Plan until the Plan has been approved by the
shareholders of the Company, and (c) no Option may be granted hereunder on or
after that date which is ten years from the effective date of the Plan. The
Plan shall terminate when all Options granted hereunder either have been fully
exercised, and all shares of Common Stock which may be purchased pursuant to
the exercise of such Options have been so purchased, or have expired; provided,
however, that the Board may in its absolute discretion terminate the Plan at
any time. Unless earlier terminated by the Board, the Plan shall terminate on
that date which is ten years from the effective date of the Plan. No such
termination, other than as provided for in Section 10 hereof, shall in any way
affect any Option then outstanding.
Section 17. Amendment of Plan. The Board may (a) make such
changes in the terms and conditions of granted Options as it deems advisable,
provided each Optionee affected by such change consents thereto, and (b) make
such amendments to the Plan as it deems advisable. Such amendments and changes
shall include, but not be limited to, acceleration of the time at which an
Option may be exercised, but may not, without the written consent or approval
of the holders of a majority of that voting stock of the Company which is
represented and is entitled to vote at a duly held shareholders' meeting (a)
increase the maximum number of shares subject to Options, except pursuant to
Section 10 hereof, or (b) change the designation of the class of employees
eligible to receive Incentive Stock Options.
8.
<PAGE> 93
GOLDEN SYSTEMS, INC. ANNUAL MEETING OF SHAREHOLDERS
JUNE 4, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned shareholder of Golden Systems, Inc., a California
corporation (the "Company"), hereby acknowledges receipt of the Notice of
Annual Meeting of Shareholders and Proxy Statement, each dated April 18, 1997,
and hereby appoints Jawahar L. Tandon, Norman Barkeley, R.D. Middlebrook,
Ph.D. and Robert Sherburne, and each of them, proxies and attorneys-in-fact,
with full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the Annual Meeting of Shareholders
of the Company to be held on Wednesday, June 4, 1997 at 10:00 a.m., Pacific
Time, at the Clarion Hotel, 1775 Madera Road, Simi Valley, California, and at
any postponements or adjournments thereof, and to vote all shares of common
stock at the Annual Meeting the undersigned would be entitled to vote if
personally present, on the matters set forth below:
1. PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
[ ] For all nominees listed below
(except as indicated).
[ ] Withhold authority for all nominees
listed below.
IF YOU WISH TO WITHHOLD AUTHORITY FOR ANY INDIVIDUAL
NOMINEE(S), STRIKE A LINE THROUGH HIS OR THEIR
NAME(S) IN THE LIST BELOW:
Jawahar L. Tandon R.D. Middlebrook, Ph.D.
Harvey A. Marsh Robert Sherburne
Norman Barkeley
2. PROPOSAL NO. 2 -- APPROVAL OF RECAPITALIZATION PLAN
Consummation of the Recapitalization Plan is
conditioned upon approval of Proposal No. 3.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL NO. 3 -- APPROVAL OF AMENDMENT TO ARTICLES
OF INCORPORATION TO INCREASE NUMBER OF AUTHORIZED
SHARES
Approval of Proposal No. 3 is a condition to the
consummation of the Recapitalization Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. PROPOSAL NO. 4 -- APPROVAL OF AMENDMENT TO ARTICLES
OF INCORPORATION TO CHANGE THE NAME OF THE COMPANY
Approval of Proposal No. 4 is NOT a condition to the
consummation of the Recapitalization Plan or the
approval of any other proposal.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE> 94
5. PROPOSAL NO. 5 -- APPROVAL OF THE 1997 STOCK OPTION
PLAN
Approval of Proposal No. 5 is NOT a condition to the
consummation of the Recapitalization Plan or the
approval of any other Proposal.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. PROPOSAL NO. 6 -- RATIFICATION OF THE APPOINTMENT OF
ARTHUR ANDERSEN LLP AS INDEPENDENT ACCOUNTANTS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, upon such other matter or matters which
may properly come before the meeting or any postponements or
adjournments thereof.
THIS PROXY WILL BE VOTED AS DIRECTED AND AS SAID PROXIES DEEM ADVISABLE ON SUCH
OTHER MATTERS AS MAY COME BEFORE THE MEETING. IF NO CONTRARY OBJECTION IS
INDICATED HEREIN, THIS PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS
RECOMMENDED BY THE BOARD OF DIRECTORS. IN PARTICULAR, WITH RESPECT TO THE
ELECTION OF DIRECTORS, IF NO CONTRARY OBJECTION IS INDICATED HEREIN, THIS PROXY
WILL BE VOTED FOR THE NOMINEES LISTED.
Dated: ___________________________, 1997 __________________________________
Printed name(s) as shown on
Stock Certificate
----------------------------------
(Signature)
----------------------------------
(Signature)
THIS PROXY SHOULD BE MARKED AND SIGNED BY THE SHAREHOLDER(S) EXACTLY AS HIS,
HER, THEIR OR ITS NAME APPEARS ON THE STOCK CERTIFICATE AND RETURNED PROMPTLY
IN THE ENCLOSED ENVELOPE. PERSONS SIGNING IN A FIDUCIARY CAPACITY SHOULD SO
INDICATE. IF SHARES ARE HELD BY TWO PEOPLE (FOR EXAMPLE, AS JOINT TENANTS OR
COMMUNITY PROPERTY) BOTH PARTIES SHOULD SIGN.
