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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 1997
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Transition Period From _______ To _______
Commission File No. 0-24604
Tivoli Industries, Inc.
(Name of small business issuer in its charter)
California 95-2786709
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1513 East St. Gertrude Place, Santa Ana, California 92705
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 957-6101
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
$.001 PAR VALUE COMMON STOCK
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months, and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [_]
[_] Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB.
State issuer's revenues for its most recent fiscal year: $9,846,174
The aggregate market value of this Registrant's voting stock held as of 12/5/97,
by non-affiliates of the Registrant was $4,550,918.
As of December 5, 1997, Registrant had 3,937,871 shares of $.001 par value
common stock outstanding.
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TABLE OF CONTENTS
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Item 1. DESCRIPTION OFBUSINESS.......................................... 1
Business Development and Business of Issuers.................... 1
Industry Overview............................................... 3
The Company Strategy............................................ 6
Marketing....................................................... 7
Products........................................................ 7
Sales and Distribution.......................................... 10
Competition..................................................... 11
Assembly and Manufacturing Operations........................... 12
Customers....................................................... 13
Patents and Trademarks.......................................... 13
Government Approval............................................. 14
Product Development............................................. 14
Research and Development........................................ 14
Environmental Matters........................................... 15
Employees....................................................... 15
Item 2. DESCRIPTION OF PROPERTY......................................... 15
Item 3. LEGAL PROCEEDINGS............................................... 15
Item 4. SUBMISSION OF MATTERS OF A VOTE OF SECURITY HOLDERS............. 15
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS........ 16
Recent Sales of Unregistered Securities......................... 16
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION....... 17
Overview........................................................ 17
Results of Operations........................................... 17
Seasonality..................................................... 18
Inflation....................................................... 18
Financial Position, Capital Resources and Liquidity............. 18
New Accounting Pronouncements................................... 19
Factors Affecting Growth and Profitability...................... 19
Penny Stock Regulations......................................... 19
Item 7. FINANCIAL STATEMENTS............................................ 20
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE........................................ 20
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT............... 21
Item 10. EXECUTIVE COMPENSATION.......................................... 22
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.. 23
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................. 24
Item 13. EXHIBITS AND REPORTS............................................ 24
INDEX TO FINANCIAL STATEMENTS............................................. F-1
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PART I
Except for the historical information contained herein, this Annual Report
contains forward-looking statements that involve risks and uncertainties,
including the impact of competitive products and pricing and general economic
conditions as they affect the Company's customers. Actual results and
developments may therefore differ materially from those described in this
report.
Item 1. DESCRIPTION OF BUSINESS
Business Development and Business of Issuer
Tivoli Industries, Inc. (the "Company") designs, develops, manufactures,
markets, sells and distributes specialty lighting and related products
worldwide. These products are designed to fulfill architectural applications
where specific requirements dictate the use of energy efficient, economical,
precision, decorative, integrated, high performance lighting equipment. The
Company has expanded its product lines and markets to serve general and
specialized commercial construction projects and applications which require a
combination of specialty lighting and related product features. In addition,
the Company develops modified, customized and engineered to order products for
larger customers, and for those willing to pay the value added development costs
of special product development. Representative applications of the Company's
products, which can be found globally, are casinos and gaming venues, movie
theater aisle and step lighting, illuminated ceilings, cove, soffit and
valances, retail accent and display, cabinet and furniture, theme parks, high-
end residential, gaming vessels, cruise ships, aircraft, marquees, topiary,
exterior building accent, lighting truss and support systems, and integrated
illuminated surveillance systems.
Over 30 years ago, Tivoli introduced a series of low voltage miniature lamps
encased in a variety of plastic extrusions. These "tube lighting" products
established the Company as an innovator in decorative commercial, hospitality
and residential lighting applications. After the change in ownership in 1991,
Tivoli began a rapid expansion of its product lines. Through internal product
acquisition and development, the Company currently holds eight U.S. patents on
technical features and three US patents on design features. The Company's
product line expansion has encompassed broad development of standard, line
voltage products in addition to low voltage products. Low voltage lighting uses
transformers to convert standard electrical power from 110, 120, 220 or 277
volts down to 12 or 24 volts, and is generally used in environments seeking
decorative, accent, energy efficient, safe, easy to operate applications. Since
standard line voltage products have dominated commercial market usage, the
Company has included a number of products to satisfy these requirements and
offer differentiation in terms of features, design, performance and energy
efficiency. "Tivoli", "Tivolite", "The Light Fantastic", "Lumitred", and
"tivoli", are registered trademarks of the Company.
The Company's existing product families include low voltage tube lighting,
accent and task lighting, aisle guidelight and step lighting, chandeliers and
light curtains, decorative ceiling systems, energy efficient fluorescent cove
lighting, low voltage linear cove lighting, specialized aircraft, marine and
vehicular lighting, long life energy efficient low-voltage lamps, electronic
transformers and lighting controllers, illuminated surveillance systems and
furniture, cabinet and kiosk lighting. The Company originally formed a joint
venture with Targetti Sankey S.P.A. ("Targetti") of Florence, Italy in November
1994 which consisted of a reciprocal license and distribution arrangement
between Tivoli and Targetti. In November of 1997, the scope of the joint
venture was expanded with the formation of a jointly owned company in the U.S. -
Targetti USA, LLC ("Targetti USA"). Through this joint venture, Targetti USA
offers a wide range of product families which both broaden and complement the
Company's products. These products include low voltage track lighting, low
voltage open frame and open conductor systems, illuminated sky lights, low
voltage recessed lighting fixtures, precision adjustable fixtures, energy
efficient compact fluorescent ("CF") downlights , decorative wall sconces, and a
variety of lighting accessories and options.
All the Company's products and that of its subsidiary are submitted to
National Recognized Testing Laboratories ("NRTL's") for testing and
certification. Such NRTL's are Underwriters Laboratory ("UL"), Intertek Testing
Laboratories ("ETL"), Canadian Standard Association and Canadian Underwriters
Laboratory.
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In North America, the Company's products are sold through 69 independent
marketing representatives, and directly by the Company to a large customer base
consisting of electrical distributors, contractors, owner representatives,
hotels, showrooms, theater distributors and other end users. In Mexico, the
Company's products are sold through its representatives and through the
Company's Mexican subsidiary, Tivoli de Mexico, S.A. The Company serves other
international markets through a network of over 50 representatives and
distributors who are part of the Targetti worldwide network, and through 6
independent offices located in other specialized territories.
After the Company was acquired by its present management in July of 1991, a
strategic goal was defined to become a globally recognized supplier offering a
broad range of specialty lighting and related products. Management believes
that this strategy will position the Company to be a supplier of choice to a
wide range of customers. The combined strategies of offering a broad range of
products to a diverse number of discrete and/or unique markets will allow the
Company to become a one-source package to an extensive group of customers. The
key elements that are embodied in the Company's strategic plan are:
. Development and internal expansion of the Company's product lines and
markets.
. Expand the introduction of unique, highly designed European lighting
products to the U.S. market through participation with the Company's
subsidiary - Targetti USA.
. Increase international export sales of the Company's products through its
exclusive network of Targetti sales offices and distributors, its Mexican
subsidiary, and select other international selling arrangements not in
conflict with Targetti.
. Pursue select acquisitions of complementary lighting companies and
technologies.
Management believes that by pursuing these strategies, the Company will
establish itself as a leader in supplying specialty lighting and related
products through an increasing global market. The Company's comprehensive
product development programs and aggressive market penetration efforts are key
to broadening the Company's appeal as a single source supplier of specialty
lighting equipment. Continuing trends in a number of the markets served by the
Company appear to provide additional opportunity for growth and penetration.
Among the markets which exhibit these trends are gaming, hospitality, specialty
retail, multi-national accounts and themed entertainment. The trends among
these types of market segments are to utilize lighting as an integral part of
architectural design and as a tool to enhance the marketing perception of the
client. As part of these trends, management has focused the Company's programs
to accomplish the following objectives:
. Provide lighting services and equipment to furnish attractive, ambient, and
energy efficient environments which maximize the enhancement of
merchandise and the environmental experience.
. Position its lighting products to represent a high potential value in
relation to overall construction and electrical costs. The continued use
of themeing applications in casinos, theme parks, restaurant and retail
shops represents an opportunity to integrate diverse lighting systems.
Several of the Company's core markets frequently use design elements intended
to enhance the image and environmental experience of their customers, while
achieving the economic requirements of balanced energy use. Core markets such as
casino/gaming, theater (cinema), and specialty retail represent the leading edge
of lighting design requirements. These markets have proliferated globally and
the Company believes that the ability to provide both central design and local
project support will contribute to continued growth. The inter-relationship
among a number of customers within these markets is also an important factor.
Shopping centers, retail shops, theaters and restaurants have often collaborated
around a central theme - examples are Forum Shops at Caesar's Palace, Las Vegas,
and Via Rodeo in Beverly Hills, California. This continued use of lighting as a
key design element extends to renovation as well as new construction projects,
and the rate and frequency of major renovation projects in core markets is
increasing.
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Industry Overview
The U.S. domestic lighting fixture market is estimated to be between $7.5 - 8
billion. Domestic shipments of lamps ("bulbs") are not included in the lighting
fixture amount, but in the same report are estimated at about $2.25-2.5 billion
for 1996. The major traditional segments of the lighting fixture industry have
been historically categorized as commercial/institutional, residential, outdoor,
industrial, vehicular and N.E.C. ("Not Elsewhere Classified"). The NEC category
has been utilized to include companies and products that do not clearly fit into
one of the more structural classifications. Although there is currently no
specific category for specialty lighting, management believes that specialty
lighting type products and companies comprise a significant growth trend and
opportunity within the major categories. Additionally, specialty lighting
products can be found in non-lighting related industry classifications such as
furniture, millwork, cabinets, signage, security, exhibit builders, kiosk, and
point of purchase display manufacturers. Management believes that this range of
industries represents a marketing opportunity because of the broad selection and
characteristics of the Company's product lines.
The major characteristics of the U.S. domestic lighting fixture industry can
be described as follows:
. Although there are a number of major conglomerates in the lighting
industry, it remains highly fragmented with a large number of companies
providing a variety of products and services.
. The primary econometric trends and indicators which have a direct result on
the lighting industry are housing starts, commercial construction,
renovation and capital expenditures.
. There is a continued focus on energy efficiency and product
differentiation.
Significant trends which directly and indirectly affect the industry are as
follows:
. Formal guidelines for energy use and management continue to be adopted by
both federal and state jurisdictions;
. Consolidation among manufacturers of specialty lamp sources could provide
increased development and support for co-development of specialty
lighting products.
. A growing number of lighting designers have become increasingly familiar
with European product technology and performance which has increased the
acceptance and use of these types of products in the U.S. Consequently,
there are more European lighting companies providing products to the U.S.
market than there were 5-10 years ago.
. Municipal utility organizations have developed energy utilization programs
and have provided incentives to encourage energy efficient retrofitting
projects.
. The increasing use of low voltage lighting sources has resulted in National
Electric Code ("NEC") adopting Article 411, specifically aimed at improved
safety and application of low voltage fixtures, transformers and systems.
UL has recently proposed development of further guidelines, such as UL
Section 2081, which are designed to deal with low voltage lighting issues.
Management believes that the international lighting market offers major growth
opportunities through the development of the Company's strategic product and
marketing plans. Although detailed reports of the size and characteristics of
the international lighting market are not available to the same level as the
U.S. market, management's experience in these areas indicates that there is a
large market potential. The Company presently serves international clients
located in Europe, the Middle East, Mexico, South America, the Far East and
Pacific Rim. Management estimates that the population dynamics and construction
trends in these markets provide continued opportunity for growth because the
Company is one of the relatively small number of U.S. based lighting
manufacturers that serve these markets despite intense competition from local
companies.
Although some of the characteristics and trends of the international lighting
industry are similar to those of the U.S. market, local customs, electrical
codes and economic demographics provide unique distinctions. The major trends
are:
. The international lighting industry is fragmented somewhat similar to the
U.S. market, however there are more dominant major companies in these
markets.
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. Overall, the European lighting industry is estimated by top U.S. lighting
professionals to be approximately 10 years ahead of the U.S. in general
terms of certain lighting fixture technology and design. There are
several probable reasons for this factor that has consensus among
industry leaders and professionals:
- The combination of high European income taxes and accelerated
depreciation create a favorable environment for capital re-investment
in products, plants, tooling and equipment combined with strong
commitment to research, development and market design criteria. As a
consequence, large capital investments in low cost manufacturing
production have created in Europe a planned obsolescence of products
and a bias toward new technology.
- Several large European lighting companies pursue the simultaneous
development and marketing of all three major lighting components -
lighting fixtures, lamps and power sources (transformers). This
characteristic has often provided more new products that are atypical
of the U.S. lighting market. Specific examples of this technology were
the development of the energy saving compact fluorescent lamp,
electronic ballasts, color corrected metal halide lamps and low voltage
open conductor systems. In the U.S. no one company offers all of these
components.
- Renovation and retrofitting currently play a larger factor in the
European lighting market than they do in the U.S. due to the age,
number and construction of older buildings and structures.
- Museums, galleries and older structures that pose unique design
solutions for lighting manufacturers and architects and represent a
major niche in the European lighting market. Preservation of structures
with historical heritage is common throughout Europe and creative use
of new lighting technology within these environments, without intrusive
and damaging consequences has created more engineered product options.
In the Far East, South America and other developing countries emphasis in
lighting has been on low cost production with minimal design characteristics.
From an export perspective, many Far Eastern manufacturers have made significant
inroads in the U.S. and Europe by offering cheaper products with similar
characteristics, if not the same performance as locally made products.
Nonetheless, both these markets have niche segments that have increasing
requirements of higher end design and performance products, that management
believes can be served through alliances of the type developed in cooperation
with Targetti. The rapid expansion and growth of certain Asian markets has also
required the use of more select, high performance lighting solutions. Despite
the recent economic crisis in Asia, management believes that continued growth
opportunity exists to export specialty products to global multi-nationals.
Management believes that these domestic and international trends within the
lighting industry provide the Company with a demonstrable opportunity to
continue revenue growth and profitability. The introduction of additional
products, technologies and service have strengthened the Company's position as a
provider to its markets, while enabling the Company to participate in larger,
more diverse projects. Management believes that this combination of products,
markets, and technology position it to capitalize on developing trends within
the international lighting industry, as well as to take advantage of the select
trends within its customers' markets.
While the key trends which affect the global lighting industry are important,
the Company also believes that trends affecting its customers within its served
markets are equally important. In addition to subscribing to a large number of
diverse trade publications, the Company also actively seeks publications and
studies focused on its customers markets. Through industry trade studies in
casino/gaming, hospitality, themed restaurants and the international theater
owner, the Company is aware of a number of trends that affect these customers.
Some of the more important trends in these areas as perceived by the Company
are:
. Continued expansion within the major casino/gaming industry venues is
expected to continue within larger U.S. jurisdictions. The major, or
traditional jurisdictions are Las Vegas, Nevada, Atlantic City and Gulfport
(e.g., Biloxi and Tunica, Mississippi). Other localized, smaller
jurisdictions such as Minnesota, Colorado, and New Mexico are expected to
have more modest growth.
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. In Las Vegas, recent estimates place the number of hotel rooms at about
105,000 with additions expected to account for about 25,000 more. Major
projects currently under construction have large budgets that involve
extended use of specialized, general, high performance and special effect
lighting products. Although there has been some recent concern over how
many hotel rooms and casinos that can be supported in Las Vegas, these
large projects continue to be developed. For example, Caesar's new tower
opened and Bellagio , the top-end project of Mirage resorts, is expected to
open in 1998. Recently, another "mega-resort", The Venetian, announced
plans to build a 6,000 room hotel and resort complex at an estimated $1.5-
$2 billion budget. Las Vegas has also given strong support to related
infrastructure projects such as retail shops, commercial service
industries, theater and entertainment projects.
. The frequency and scope of renovation projects in Las Vegas and other large
jurisdictions has expanded. According to a survey of the Global Gaming
Industry, the time between new construction/openings and renovation is now
3 years, down from 5. In an attempt to attract and maintain a high level of
repeat customers, the frequent refurbishment of facilities, additions of
new themes and attractions figures to be an important consideration.
. The much anticipated expansion and up-scaling of Atlantic City appears to
be underway as Mirage Resorts, among others, has committed to a large
project.
. The trends within the Gulfport, Native Indian Gaming and Detroit venues are
as follows:
- The Gulfport area's projects are established and thus far successful,
although, principal opportunities in the future will center around
renovation and expansion of infrastructure and hospitality projects.
- The Native Indian Gaming establishments have slowed in number of
projects and are expected to grow at a slower pace, when agreements
with state governments, are in place.
- Detroit has approved the construction of three major Vegas-type
casino/retreat projects and the major bidders selected are all
experienced in that venue. The Detroit projects, if initiated, are
expected to span 2-3 years in construction.
. Expansion into other local jurisdictions and states is expected to be
severely limited. Backlash against the spread of local venues has been led
by organized religious groups who have been successful in stopping an
estimated 22 - 26 attempts to expand in a number of states. The positive
implication of this resistance, however, appears to reinforce and expand
the acceptance of larger legal venues, such as Las Vegas.
. On the international front, the publication "International Gaming and
Wagering Business" reports gaming expansion in Australia, South Africa,
Eastern Europe and Canada. In Canada, Ontario is anticipated to open
between 25-40 smaller casinos.
. Themed entertainment projects and venues continue to increase, according to
industry sources. The trend to develop themes that differentiate
merchandise, enhance and attract the customers attention, are present in
specialty restaurants, retail chains and shopping centers. These projects
often combine a variety of entertainment products in concert with the
retail environment. Location based entertainment ("LBE") projects cover a
wide range from geographically central projects (Disneyworld, Universal
Theme Park, Mall of America and Six Flags), to specialized shopping malls
and entertainment oriented establishments such as upscale arcades and
virtual entertainment centers. These types of more complex, inter-dependent
projects require specialized design elements involving specifiers such
architects, interior architects, lighting consultants and engineers who
tend to utilize high performance, specialty, energy efficient lighting
equipment. Management believes that the Company's products and services are
positioned to be chosen by these professionals on an increasing basis.
. The expansion and trends within the motion picture industry continue to
experience a rapid development of theater cinemas globally. According to a
Business Trends Analyst Report, and the National Associating Theater Owner
("NATO"), the largest trend in this global construction surge is the
development of the large stadium-style multiplex. The stadium type theater
centers around a multiplex project which includes from 8 to 30 screens
(auditoriums), the majority of which offer stadium seating
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that allow the patron a better line of sight viewing experience. The
Company was an innovator in developing the highly specialized lighting
products required to safely illuminate the stadium auditorium, and has
patents for products in that market. These global opportunities to expand
within these markets is continuing at an unprecedented rate, and these
multiplex projects are inter-connected with retail, restaurant, gaming,
LBE, and other entertainment settings.
The Company's Strategy
During the three years following its initial public offering, the Company has
developed and focused on its strategic plan which encompasses new product
development, market penetration, and the joint venture with Targetti. Management
believes that the investments in product development, literature, catalogs,
systems and technology acquisition supported the continuous growth and expansion
through fiscal 1997.
Management believes the persistent adherence and development of the three
point strategic plan are fundamental to the Companys' past success and
instrumental in expanding that success in the future. This three part strategy
is outlined below:
. Continued internal product development and market penetration.
. Aggressive marketing in the U.S. of Targetti products through the Targetti
USA joint venture and the concurrent growth of the Company's products
through Targetti's global network.
. Acquisition of other lighting companies and related products and
technologies.
The Company's continued expansion of its product lines combined with marketing
penetration programs are the major factors contributing to the significant
growth of 48% in revenues for 1997 fiscal year. Internally, the Company has
positioned itself to be a niche market leader in a number of served markets.
These markets can be further developed by introducing new and existing products
to both new and existing market segments and leveraging these products through
the strength of the Tivoli brand name and trademarks. As internal product
development and market strength are established, management believes that the
Company will be able to participate in the lighting industry consolidation by
the acquisition of profitable niche companies and technologies.
Management believes there are three benefits to these strategies. First, they
provide the Company a more complete package of products and services to serve an
increasingly diverse customer base as a single source supplier. Second, they
lessen the Company's dependence on any one market or customer group, and allow
the Company to address a broader, more counter-cyclical approach to marketing.
Third, they increase the Company's ability to attract and maintain stronger,
more effective sales representatives and distribution channels both domestically
and internationally.
The Company's strategy encompasses the following objectives:
. Strengthen the Company's organization, people, procedures and systems to
maximize effectiveness and manage growth opportunities.
. Enhance and expand its core decorative low voltage lighting and related
products to provide new features, differentiation, value pricing and
services.
. Develop and introduce new products that offer features, technology and
service that our customers seek.
. Expand the global marketing of products through the Targetti sales and
distribution network and through other international distribution
arrangements in selected areas that do not conflict with Targetti.
. Expand and introduce products from Targetti to the U.S. market that add
design, innovation and technology to high end commercial accounts, through
the Targetti USA joint venture.
. Develop and provide high quality literature, technical data and services to
support the Company's appeal and strength focused on its high end
specification market.
. Seek out acquisition of companies and/or technologies that are lighting or
lighting related to further reinforce and strengthen the Company's
expansion efforts, and to develop and implement joint venture and strategic
alliances.
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Marketing
The continued growth experienced by the Company is directly attributable to an
aggressive expansion of markets served and the introduction of new products.
The primary objective of this strategic element is to provide a more
comprehensive package of products and services to our customers by offering a
complete selection of specialty lighting and related equipment. A chief
characteristic of this marketing strategy is that the Company requires more
experienced and diverse representative and distribution channels to support its
sales objectives. Therefore, one of the primary objectives of the Company's
marketing and sales strategy is to continue to strengthen and expand the
effectiveness of its manufacturers representatives, both domestically and
internationally. The number of representatives covering the North American
market is 69. During fiscal year 1997, the Company, through its evaluation of
representatives, performed a number of territory changes in the U.S. and Canada,
designed to strengthen our local representation.
Internationally, the Company's products are represented by a network of 66
sales offices and distributors (34 European and 32 worldwide) of Targetti, the
Company's international joint venture partner. Formal training programs and
procedures were established to increase the effectiveness and revenue potential
of the Targetti network. Sales managers from the Company also attend the annual
training sessions on Targetti products, while concurrently utilizing these
training sessions to educate the Targetti personnel on the Company's core
products. Although the Targetti sales network represents the major global
representation of the Company, there are certain markets the Company operates
directly in, such as Mexico, Canada and Hong Kong. In Mexico, the Company formed
a new corporation - Tivoli de Mexico, S.A. - that registers all the Company's
products and trade names in that country and provides further opportunity to
penetrate many growing South American markets, such as Chile, Argentina, Peru
and Brazil, based on Mexico's membership in Organization of American States
(O.A.S.).
The primary selection and specification influences for the Company's products
are specification professionals such as architects, lighting consultants,
electrical engineers and interior designers and corporate end users. As a
consequence of this specification oriented marketing, management believes that
high quality catalogs, literature and technical data sheets are necessary to
present the Company's products. Full color brochures and catalog sheets include
both suggested applications of products as well as required technical
performance and data. These catalogs and technical data sheets are contained
within a custom three ring binder that is distributed to specifiers by the
Company's manufacturer representatives, and directly to select corporate
accounts by Company personnel. All binders are registered to their end user,
and a returned registration program card is maintained on the Company's customer
data base. As new products and features are introduced, catalogs and technical
sheets are updated, revised and expanded. Supplementing the catalog sheets are
programs geared at the introduction of new products or technologies. Often,
promotional literature will introduce products prior to the finalization of
catalog sheets in order to maximize market feed back.
The Company maintains and reinforces its market presence in its primary
markets by exhibiting products at specialized trade shows within the lighting
industry, as well as industries served by its customers. Among the major trade
shows the Company attended in fiscal 1997 were: "Lighting International", "World
Gaming Congress", "Showest", "Showeast", and "CineExpo". Respectively, these
trade shows deal with the lighting industry, casino gaming industry, and global
theater construction and distribution industry. The Company also attends select
representatives shown on a regional basis for specific territories.
The Company retains an industry trade specialist for its advertising and
public relations within its markets, occasionally advertising in select
publications such as Architectural Lighting, Casino Journal, Casino Executive,
and Boxoffice Visual Merchandising & Sales Display. The Company is active in
certain professional trade organizations such as The National Association of
Concessionaires, National Association of Theater Owners, Themed Entertainment
Association and lighting industry trade organizations.
Products
The Company's existing products can be grouped into the following major
categories, based upon technical features or the types of design applications
for which they are typically used:
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Tube Lighting. A family of products in which a variety of sub-miniature, low-
voltage lamps are inserted into a linear plastic tube and connected to a
transformer and power source. A patented addition to tube lighting is the
company's process of injecting non-flammable, optically clear, viscous gel that
surrounds the lamps, protecting them from vibration and moisture. These
products are used in a wide variety of interior and exterior applications as
decorative highlights, guidelines, building outlines, pools and spas in acoustic
panels.
Aisle, Step and Stair Lighting. A variety of specialized vinyl, PVC, composite
extrusions and plastic light diffusing lenses that contain small, replaceable
lamps. These products are used to light the edges of aisles and walkways, and
for safety illumination in theaters, auditoriums and showrooms. The unique dual
stair/step lighting products are widely used in stadium seating applications,
lobbies and transition areas. The Company has received patents, covering these
products and their ability to simultaneously direct light to the top of a step
and illuminate, without glare, the adjoining step riser and tread. This product
line has been extensively expanded to provide the maximum number of lighting
solutions for stadium, aisle and combined cinema usage. Recent design
innovations include the introduction of solid state light emitting diodes
("LED's") for extensive lamp life, low energy consumption and minimum
maintenance. Also included among the Company's innovations to these product
families is the use of electro-luminescent ("EL") lighting devised from phosphor
coated, laminated linear lighting - sources which offer an even, uninterrupted
glow with minimum energy usage. The EL product family can also be utilized in
point of purchase display applications.
Accent and Task Lighting. An array of aluminum channels with a variety of
specialized, low voltage, halogen lamps to highlight, spot, or illuminate
products, merchandise or working areas. The task lighting products in this
group can also be mounted under a counter or shelf for specific illumination of
the working surface.
Cove, Soffit and Valance Lighting. An extensive family of products that use
several different aluminum channels onto which high performance, energy
efficient compact fluorescent lamps are attached. These products are used in
coves, valances, soffits, or raceways where the fixture is concealed to provide
indirect illumination from the ceiling and to highlight an architectural
feature, and to achieve architectural layering effects. These cove lighting
products use both 277 and 110 voltage, and are offered in a wide range of lamp
wattages and custom configurations. A patented innovation to the Company's cove
lighting family was developed as "Flex-Cove", a field adjustable product that
allows for uninterrupted illumination to be achieved when accommodating design
features such as curved radius applications. The field adjustability feature
reduces contractor installation time while minimizing errors caused by field
measurements and drawings not matching.
Minicove. A family of products which supplements the high performance cove
lighting family with a broad range of compact, small low voltage incandescent,
xenon, argon and halogen lamps. This product line has recently been expanded to
include a wider range of specialized halogen lamps such as the halogen MR11 and
MR16. These products are often selected to illuminate areas that include small
coves or are incorporated into furniture cabinets, retail store fixtures and
where minimum clearances are provided in an architectural element.
Decorative Chandeliers. The chandelier product family consist of a wide
variety of low voltage and line voltage tubes, plastic extrusions and reflectors
affixed to aluminum, or brass mounting plates. These products are offered in
standard round or square single and multi-tiered configurations in addition to
custom requirements. Chandelier and light curtains manufactured by the Company
have been used in hotel lobbies, atriums, theaters, casinos and custom
residences. In addition to providing a decorative and economic alternative to
expensive crystal chandeliers, the addition of lighting controls can add special
effects such as the appearance of motion to the products.
Customized Lighted Ceiling Panels. Illuminated ceiling panels with utilize
miniature lights inserted into a variety of ceiling tiles including acoustic
tiles, polycarbonate sheets and metalized panels. Referred to as "Starlight
Panels" these illuminated ceilings have been used as centerpieces in casinos,
gaming vessels, clubs and on wall panels. In addition to simulating a starfield,
custom designs such as "shooting stars," "galaxies," or other effects can be
added.
8
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Canopies and Marquees. Specialized custom canopies and marquees which use a
combination of Tivolite lamps, as well as lamps manufactured by other lamp
manufacturers, mounted to reflective surfaces at the entrance of movie theaters,
auditoriums, casinos and hotels. These products can be utilized in damp and wet
locations, and are intended to provide architectural definition to a project.
Vehicular and Marine Lighting Products. Certain aisle and safety lighting
products which have FAA approval and are sold to several private aircraft
manufacturers. The Company's low voltage products allow for use with either 12V
or 24V sources, which are commonly used in aircraft and other vehicles. The
Company also provides certain low voltage products such as its chandeliers, tube
lighting and panels to manufacturers of customized recreational vehicles. The
product family also offers Coast Guard approved products, such as decorative
ceiling lights, for cruise vessels and for the specialized riverboat gaming
market.
Long Life, Low Voltage Lamps. A family of patented Tivolite bulbs which
consist of a multi-lamp filament inside a variety of glass envelopes. These
bulbs are provided in both low and line voltage as decorative, energy-efficient
alternatives to standard line voltage bulbs. Tivolites have a rated life of
10,000 - 25,000 hours compared to 1,000 - 1,200 hours for competitive lamps, and
can offer up to 80% savings in energy. The Tivolite lamps are used for
applications in concert with other products manufactured by the Company, such as
its "Lite-Bar" aluminum extrusion. The product family is being expanded to
include more variety of lamps, colors and base mounting options.
Perimeter and Landscape Lighting. A "Twilight" product series which uses
miniature lamps pre-mounted on wire and connected to a transformer for
perimeter, topiary and landscape lighting. These "Twilights" are approved by UL
for exterior usage and are mounted to trees, landscape, topiary elements, and
gazebo's. In addition, a version of the product is used to outline perimeters
and buildings providing a variety of weather-resistant multi-colored lens caps.
Parallax(tm). A patented Parallax product line which provides a high quality
linear aluminum tube system with integrated, fully adjustable, halogen lamps
offered with a variety of spacing. The aluminum tube has structural strength
and clean design that provides an aesthetic, energy efficient alternative to
traditional track and down lighting systems. Applications also include self
support kiosk systems as well as integration into free standing lighting truss
systems offered through Targetti USA.
Paravision(tm). A proprietary (patent pending) variation of Parallax, which
offers integrated surveillance closed circuit television cameras combined with
the high performance halogen lighting of the Company's Parallax product line.
Applications are for casino/gaming installations, banking, retail and high end
residential market segments. The Paravision product was recently named one of
the "Top 20 most innovative gaming products" at the American Gaming and
Hospitality Summit.
Transformers and Controllers. Transformers and other specialized equipment
designed by the Company to provide power and safety when dealing with conversion
from primary (standard voltage) to secondary (low voltage). Controllers are the
electrical devices that control the variety of effects such as "chasing,"
"sparkling," or "moving." In addition to offering a range of standard products
in this catalog, the Company offers custom capability to support larger
electrical control requirements. The Company continues to expanded its
selection of specialized circuit protection devices that are used in conjunction
with the open conductor low voltage lighting products developed by Targetti such
as Stellaria and Structurella.
Targetti USA Product Families. The joint venture with Targetti which created
Targetti USA provides the Company with access to the complete Targetti product
range. Under this agreement, Targetti USA has introduced versions of the
Targetti products that are modified, assembled and manufactured by the Company
to comply with U.S. electrical codes. At present, a large selection of the
Targetti product range, as identified in their most recent catalog has been
selected and modified for introduction into the U.S. market. The products
introduced into the U.S. market are:
. Structura: A unique truss system designed for large, open areas such as
convention centers, or exhibition halls, which can provide architectural
design alternatives when ceiling systems are either too high or unsuited
for the installation of high quality, precise lighting applications.
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. Minitondo: A complete low voltage track system, including both track
sections as well as 14 heads or fixtures with a wide variety of lamping
and design options.
. Excelsior: An illuminated skylight type lighting fixture incorporating
high performance energy efficient florescent lamps with a complete range of
polycarbonate and stained glass lenses. Available in a variety of ceiling
mounted options and capable of incorporation signage or promotional
messages.
. Stellaria & Structurella: A low voltage open frame linear and grid system
that can be suspended from a ceiling or from a `Structura' truss system,
incorporating Minitondo low voltage heads. The Stellaria system allows a
free standing approach to high ceiling areas, providing capability to
achieve linear planes of design.
. Mondial: A family of recessed products consisting of two main groups: the
Mondial 50, a small aperture, low voltage recessed adjustable downlight,
and Mondial, high performance, larger aperture precision adjustable
projectors offering a variety of incandescent, halogen, and metal halide
lamp sources.
. CCT: A specialized recessed downlighting families of products, offering
high performance energy efficient CFL's with a complete series of unique
decorative trims and a wall washer option.
. Low Voltage Downlights: A comprehensive family of low voltage, decorative
downlights using high performance halogen (MR-16) lamps, the `VIT',
`LITEX', `BTT', and `Micro', offer a variety of features including glass
trims, filters and directional options.
. Wall Sconces: Wall mounted indirect uplighting units designed for accent
illumination as well as high performance lamp sources. `Upper' provides
high performance metal halide lamp sources while `Spectra' offers
decorative halogen accent lighting with dichroic filters to achieve color
accents.
Sales and Distribution
The Company's products currently are sold through a total of 69 independent
manufacturers' representatives in the U.S. and Canada and directly by the
Company's own personnel to a broad customer base consisting of electrical
distributors, contractors, showrooms, owner representatives and end users. The
Company's focus in serving its diverse customer base is to increase both the
number of accounts, as well as the amount of product being purchased by these
accounts. Management believes that this increase is a direct result of expanding
its product lines and market penetration efforts. Approximately half of the
Company's total revenues were derived from sales through manufacturers'
representatives, with the remaining half of total revenues to national and house
accounts. The independent manufacturers' representatives who market the
Company's products are under a standard contract and are paid commissions on
their sales. These representatives market to architects, lighting designers,
electrical engineers, electrical distributors, lighting showrooms, contractors
and others within an assigned geographic territory. While sales through these
representatives are generally to commercial lighting markets, a number of
agencies in major territories have developed personnel trained to penetrate
specialized markets such as showrooms and corporate accounts. Management
believes that certain trends in distribution and sales representative
organizations provide additional opportunity to increase revenues and
profitability to the Company's products. The expanding nature and
characteristics of certain of the Company's specialty product lines indicate
that other types of sales distribution channels could be utilized. For example,
the Company's proprietary integrated illuminated surveillance system
("Paravision"), is more suitable with distribution channels involving security
and surveillance equipment. Other products, such as ceiling panels, and free
standing truss systems are, respectively, suitable for ceiling sales
organizations, and exhibit manufacturers.
The Company's national type accounts have historically included a number of
major corporate customers within each of the market segments served by the
Company - casino/gaming, theater chains, themed restaurant and retail accounts.
In many of these instances, customers maintain their own internal design and
development departments that interface directly with the Company's internal
sales personnel. These corporate accounts also utilize professional services
from interior architects and lighting consultants to assist in achieving their
desired market image. Management anticipates that the Company will experience
continued growth in sales to national and corporate accounts as the Company
increases its market penetration efforts in these markets, since customers in
these markets do not generally purchase all of their specialty lighting
requirements through commercial lighting distributors or representatives. As a
result, management believes that training key representatives in major
territories in the expanded use of the Company's products can provide
significant opportunity for the Company. In addition to a more
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comprehensive representative training program, the Company intends to create
specialized national account specialists to manage programs, products and
services for these accounts. The development of these programs, combined with
the Company's international distribution with Targetti, create a strong
foundation upon which to build increased sales to high profile multi-national
corporate accounts.
The Company's international sales have continued to increase over prior years,
and grew at a rate of 40% from fiscal 1996 to fiscal 1997. These sales are
served by three sales and distribution elements: 1) in Europe, Eastern Europe,
the Middle East, Far East, South America and Australia, an extensive network of
66 representatives and distributors through Targetti worldwide. 2) in certain
territories such as Hong Kong, Taiwan and Japan, 6 other independent
representatives, and 3) in Mexico and Central America, the Company's subsidiary
Tivoli S.A. de Mexico and its representatives in Mexico.
Management believes that the combination of its representation, distribution
and product lines, have increased the Company's continued success as a global
specialty lighting supplier, and that further opportunity for global growth is
supported by a number of factors:
. The Tivoli name and trademark has extensive worldwide recognition.
. The Company's low voltage products and experience allow it to be more
adaptable to the needs of the diverse and disparate electrical code
requirements encountered globally.
. The continued development of projects by multi-national firms require a
combination of central design control and local support.
As a result of the recently created joint venture company - Targetti USA, the
Company has adopted an expanded sales and distribution strategy for products
offered through Targetti USA. The focus of this strategy is "separate but
unified", which describes the operating mode of the Company with Targetti USA.
Under the new joint venture, all Targetti products will be placed in a separate
Targetti USA binder. Additionally, all Tivoli sales representatives will have
to execute a separate contract for Targetti USA to continue representation. It
is the overall objective of this strategy not to separate the two Companies
within specific territories although it is a potential option in certain
territories where a strategic advantage exists. Management believes that, by
adopting a `separate but unified' approach, the Company can develop an expanded
cross brand, multi-market approach that will put an increasingly diverse product
line to a wider range of sales personnel within the sales representatives
agencies and among their specifiers they serve.
Competition
The lighting industry remains highly fragmented and can be characterized into
two general groups of companies. The first group consists of large, multi-
divisional conglomerates that service the general electrical distribution and
contractor marketplaces. These conglomerates are substantially larger and more
established, and offer a broader range of products, combined with greater
financial, marketing and other resources, than the Company. The second group
consists of approximately 400 companies that collectively offer a wide range of
products to a broad market base, including niche and general lighting markets.
Although many of these companies are smaller than the conglomerates, there are a
number of publicly held and private companies that have greater financial and
other resources than those presently available to the Company.
The Company's competition, within its served markets, are generally
categorized in two groups: The first group are a number of companies that sell
products similar to those offered by the Company that can be used as
substitutions or replacements for the Company's products. Although many of these
products do not have all the features of the Company's products, they are often
sold at a lower price. The Company endeavors to compete with the suppliers of
these alternative products primarily on the basis of quality, special features,
service delivery and value pricing. The Company's sales representatives and
personnel encourage architects, lighting consultants, interior designers,
engineers and space planners to specify certain of the Company's products, or
lighting products having features and characteristics offered only by the
Company, for a specific project. The second group of potential competitors
consists of companies that offer products not currently sold by the Company,
and/or products that can be used in alternative methods for achieving desired
lighting effects. Management has developed a growth and marketing
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<PAGE>
strategy designed to expand the Company's product and customer base, and
management believes that this strategy, coupled with the Company's name and
trademark recognition, will enable the Company to more effectively compete with
the smaller, specialty suppliers in the Company's targeted market segments. In
addition, the Company currently holds eight United States patents on technical
features and three patents on design features, and management believes that the
success of the Company in continuing to develop and design technical
innovations, which could lead to the issuance of additional patents, will play
an important role in the ability of the Company to continue to compete in the
future. Management believes that the joint venture with Targetti, offered
exclusively through Targetti USA, greatly enhances the Company's competitive
position, by providing access to products and technologies unavailable to the
Company's competitors.
Assembly and Manufacturing Operations
The Company's manufacturing operations consist primarily of procurement,
inspection and testing of components, selected fabrication, cutting and metal
work and the assembly of finished products, at the Company's facility in Santa
Ana, California. The Company operates one shift of production from this
facility, but frequently utilizes additional personnel to operate a second shift
to support demand. The growth of the Company over the past several years,
combined with future products being added from the Targetti venture, has
required the Company to expand its warehouse storage space with the addition of
two small facilities nearby the main factory. Management anticipates that a
larger, single facility will be required within the next 12-18 month period.
Recently, management contracted with an outside engineering consulting firm to
evaluate present work flow, operations and material handling. There are two
objectives in performing their study: first to improve production efficiency
and reduce costs, and second, to prepare for implementing an improved facility
plan prior to a major move. Quality and reliability are constantly emphasized
in the selection of components and in the assembly of finished products.
From time to time, as a convenience to certain larger customers, the Company
will arrange to supply products, such as signage, or similar equipment, that are
manufactured for the Company by other manufacturers. The volume of these types
of products is not material to the Company's sales, nor does the Company have an
exclusive arrangement or OEM agreement, nor is the Company required to order
minimum amounts of material from any manufacturer.
The Company obtains materials parts and components, such as aluminum and
plastic extrusions, plastic lens covers, wire, lamps, injection molded
components, sockets, ballasts, transformers, controllers and housing, from
numerous suppliers. Management believes that alternative suppliers are
available for most of these components. Several components used in the Company's
products are supplied by companies located in Taiwan and China. However, the
Company has identified alternative overseas suppliers for these components, and
continues to evaluate the possibility of purchasing all or some of these
components from domestic or North American sources, in an effort to ensure that
supply of critical or proprietary components. The Company maintains an
inventory of items supplied by offshore companies to minimize any potential
disruption caused by an interruption of shipments. The Company's joint venture
with Targetti has provided additional resources in evaluating and procuring
selected components and materials that enhance the ability to manage its
inventory. A goal of the Company's operations management is to reduce the
overall inventory levels and minimize the number of unique parts. Consequently,
a number of the Company's products use a variety of the same components in their
assembly, and many of its products can be fabricated in a number of optional
configurations. Since most of the Company's inventory consists of component
parts, the ability to assemble and ship its products within competitive lead
times is enhanced. Management believes that the combination of minimizing its
finished goods inventory and maintaining an adequate component parts inventory
provides protection against unanticipated supply interruptions. Therefore, the
Company can limit the amount of working capital invested in inventory and
mitigate the Company's exposure to potential inventory obsolescence. With this
scheme, the Company does not maintain an extensive finished goods inventory. As
a result of the joint venture with Targetti, the Company has transferred
Targetti product inventory to Targetti USA. This transfer of assets was matched
by Targettis' contribution of an equal amount of cash.
During fiscal year 1997, the Company's management implemented a comprehensive
manufacturing resource planning system, ("MRP") - an extensive software system
provided by a leading international software developer and a new computer system
to support the software. The software system is comprised of a number of
modules -
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<PAGE>
inventory management, order entry, material requirements and purchasing,
forecasting, and financial reporting. This system was implemented through the
third quarter of fiscal 1997 and has expanded the Company's capability in
dealing with customers, order processing, purchasing, production and resource
planning, inventory management, and sales forecasting. Management believes the
implementation of the system and software will greatly enhance the Company's
ability to manage its growth more efficiently and allow the critical assets such
as inventory to be optimized.
Customers
The Company has a broad and diverse base of customers consisting of thousands
of clients such as electrical distributors and wholesalers, contractors,
lighting showrooms, theater owners, casino and gaming establishments, and
corporate clients. In addition, the Company also sells to a number of
specialized firms such as aircraft manufacturers, cruise line shipbuilders,
restaurant suppliers, furniture fixture manufacturers and select high end
residential customers. For fiscal year 1997, one customer - City Lighting
Products, accounted for more than 10% of sales. This order was for a large
national retail accounts' implementation of a new product display program for
5,200 corporate owned stores.
The existing customer base includes a substantial number of companies that are
recognized leaders in either the motion picture, theme park, casino or specialty
retail store industries. These customers represent leaders within their
respective industries that rely upon the Company for some of their lighting
requirements. The importance and influence of these types of account
constitutes an important market strategy for the Company. Management believes
that the continued success with leaders of corporate multi-nationals will have a
complementary effect on sales to other customers in similar market segments.
Sales to this segment of the Company's customer base accounted for approximately
35% of the Company's revenue for fiscal year 1997, while international customers
contributed approximately $900,000 or 9% of sales in fiscal year 1997.
The established customers provide the Company with a diverse, broad and deep
base that represents continued opportunity for growth in revenues and
profitability. If the Company is successful in expanding its strategic program
it will become a single source supplier from which many of its customers can
fill their lighting requirements. Management believes that many of its existing
customers are continuing to follow the trend to integrating various lighting and
related products in order to produce specific effects, ambiance and energy
efficiency while creating an attractive destination environment for their
clients. Management believes that the diversity and depth of the Company's
products, and those of its joint venture - Targetti USA, provide a wide range of
lighting solutions to address a large range of architectural applications.
The Company's strengthens relationships with certain key customers by working
with them on the development of lighting projects. Selectively, the Company
provides the services of a sales engineer trained on the use of the Company's
computer aided design systems to collaborate with the customer's architects in
developing both concept and specific design plans. Using the architect's
blueprints of a project, the Company can produce an engineering layout of
recommended products, power supplier and installation guidelines. Management
believes that this service, accompanied with pricing quotations for the
Company's products that have been specified, is a successful marketing practice
that enhances customer loyalty. Further, such custom development projects can
benefit the Company by enabling it to develop new products, often with a large
portion of the cost of the development effort paid for by the customer. The
Company has collaborated with a number of firms on custom projects to develop
unique options, features and capabilities for its products.
Patents and Trademarks
The performance of the Company will depend on the success of its existing
product families as well as its ability to develop, acquire and market new
products and encompass new developing and changing technologies. Concurrently,
the ability to address pricing considerations and other market factors, is an
important element.
The Company maintains, and relies on a combination of patents, trademarks,
trade secrets, nondisclosure agreements and licensing arrangements to establish
and protect its proprietary rights. The Company has received
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<PAGE>
eight United States patents on technical features of certain of its products,
three United States patents on design features of certain of its products, and
has a number of patent applications pending. The Company intends to continue to
file patent applications covering certain of its products both domestically and
in certain key foreign countries, as appropriate. The process of seeking patent
protection can be long and expensive, and there can be no assurance that patents
will be issued from patent applications or that any of the Company's existing
patents or additional patents are or will be of sufficient scope or strength to
provide meaningful protection or marketing advantage to the Company. The Company
recently settled a patent infringement claim brought by Lighting World, Inc. See
"Legal Proceedings." Other than as set forth in "Legal Proceedings," the Company
is not aware of any pending or threatened claims against any of the Company's
patent or trademarks.
Through Targetti USA the Company also has an exclusive license for all
Targetti products and technologies for the U.S. market.
Government Approval
Many of the Company's products have received approval from UL and from ETL,
both of which are federally accredited by OSHA, as Nationally Recognized Testing
Laboratories (NRTL's). The Company has applied for UL or ETL approval for a
number of additional task, accent and cove lighting fixtures. Through its
joint venture with Targetti, the Company has also submitted and received UL and
ETL approval on recently introduced products through Targetti USA. Products
sold for use in marine vessels must adhere to Coast Guard approval standards,
while those sold for use in aircraft must have FAA approval. UL recently
drafted a code on low voltage lighting products - UL 2081, which is being
reviewed by industry trade professionals prior to formal adoption. The National
Electric Code adopted Article 411 dealing with guidelines for use and approval
of low voltage lighting systems. The Company is continually evaluating these
new requirements for UL and ETL for low voltage lighting products. The Company
anticipates that approval from an appropriate NRTL will be obtained for the
Company's existing and planned low voltage and standard products, although there
can be no assurance that such approval will be granted.
Product Development
The Company maintains an engineering department to support its product
development efforts and to produce custom products for special applications as
well as develop enhancements, improvements and modifications to standard product
configurations. The Company maintains an on-going effort to develop lighting and
related products that can utilize new methods, materials and technology.
Examples of such technology evaluation include analysis and evaluation of lamp
reflectance, low voltage transmission, fiberoptic light development,
electroluminescences, LED's, digital electronic controls, sensors and solid
state circuit protection devices. Management believes that these type of
developing technologies, combined with the Company's existing products, customer
and market base, can provide the Company with the potential for significant
growth. In order to keep abreast of these technologies, and to augment
engineering resources, management actively seeks and evaluates potential product
and technological opportunities that may be available from other companies,
through a variety of potential strategic transactions, such as development
agreements, acquisitions or joint ventures. The Companys' joint venture with
Targetti has been very beneficial in supplementing and expanding engineering
development opportunities. Targettis' maintenance of a state of the art research
facility is available to the Company and access to its experienced personnel
assists the Companys' own development effort. Through Targetti USA, the Company
expects to continue to expand and develop its access to Targettis' research
facility.
Research and Development
During the last three fiscal years, the Company did not incur any material
research and development expenses.
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Environmental Matters
During the last three fiscal years, compliance with environmental laws and
regulations did not have a significant impact on the Company's capital
expenditures, earnings or competitive position. The Company does not anticipate
that it will incur any material capital expenditures for environmental control
facilities during the next fiscal year.
Employees
As of September 30, 1997, the Company had 47 full-time employees, of which 2
were engaged in product development and engineering, 25 were engaged in
manufacturing and assembly operations, 10 were engaged in marketing and sales,
and 10 were employed in finance and administrative positions. None of the
Company's employees are represented by a labor union, and the Company believes
it generally has good relations with its employees. The Company also hires
temporary labor personnel to accommodate special requirements for large projects
and seasonal increases in production. The temporary labor pool represents an
experienced base of people which can be drawn upon as permanent requirements
evolve.
Item 2. DESCRIPTION OF PROPERTY
The Company's main facility and headquarters is a leased building with
approximately 20,000 square feet of warehouse, assembly and office space,
located in Santa Ana, California. The Company recently re-negotiated a six year
extension to September 30, 2001 of its existing one year lease which expired on
September 30, 1995. The Company has the option to terminate the lease at any
time after September 30, 1997 for a one time payment of $12,500. The monthly
rent is $7,037 per month in fiscal 1997 (with an annual 4% increase each October
1st for the term of the lease) on a "triple net" basis. The Company believes
that this current facility will satisfy its needs for manufacturing and
administrative space through the end of 1998, but will consider leasing
additional space in other geographic locations as the need for regional
marketing, sales or distribution capabilities continues to materialize.
The Company has a Las Vegas showroom and demonstration center. The facility
is approximately 3,200 square feet. The lease is a five year lease, with
approximate costs of $3,200 per month on a triple net basis. The office
showroom is intended to support the Company's marketing and sales strategy in
the growing casino/gaming and hospitality market, both in the U.S. and
internationally.
The Company has leased two additional warehouse facilities located close to
their main manufacturing facility in Santa Ana, California. The two warehouses
are approximately 1,540 square feet and 3,740 square feet, and are leased for
six months ending March 15, 1998 and March 31, 1998, respectively. The monthly
rent for these units is $770 and $1,870, respectively.
Item 3. LEGAL PROCEEDINGS
A lawsuit was brought against the Company in May 1994 by Lighting World, Inc.
("Lighting World") in United States District Court for the Central District of
California alleging infringement of a patent held by Lighting World on a
fluorescent lighting fixture. The company settled this lawsuit in June, 1997.
As part of the settlement the Company entered into a licensing agreement with
Lighting World requiring the Company to pay an initial license fee which as of
September 30, 1997 has been paid. In addition, the agreement requires the
Company to pay royalties based on the sale of products using the licensed
technology.
The Company is occasionally involved in lawsuits with respect to product
liability claims by third parties. The Company maintains product liability
insurance to cover these type of claims. The Company believes that its
insurance is adequate to cover known existing claims.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The Company's Common Stock is listed on the NASDAQ "Small Cap" Market
System under the symbol "TVLI". The Company's Class A Warrants to Purchase
Common Stock were listed under the symbol "TVLI-WA," and the Company's Class B
Warrants to Purchase Common Stock were listed under the symbol "TVLI-WB". Both
the Class A and the Class B warrants expired on September 21, 1997 and were
subsequently delisted at the Company's request. The Company's Common Stock also
listed under the Boston Stock Exchange as "TVI". At the Company's request, the
common stock was delisted from the Boston Stock Exchange on September 5, 1997.
The following table reflects the high and low sales prices of the common stock
reported by the NASDAQ small cap market, for the last two fiscal years.
<TABLE>
<CAPTION>
Quarter Ending: 12/31/95 3/31/96 6/30/96 9/30/96 12/31/96 3/31/97 6/30/97 9/30/97
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common Stock
High 4 3/32 3 3/16 2 1 11/16 2 3/16 2 11/32 1 15/16 2 1/8
Low 2 3/8 2 1/8 1 5/8 1 1 1 5/8 1 1/2 1 3/8
</TABLE>
(b) The number of holders of record of the Securities was approximately 1,530
on December 5, 1997.
(c) The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain future earnings, if any,
to finance the growth and development of its business.
Recent Sales of Unregistered Securities
In March 1997, and June 1997 the Company issued warrants for the purchase of
the Company's Common Stock to Hill Thompson Capital Markets, Inc. as partial
compensation for investment banking services performed by Hill Thompson Capital
Markets, Inc. The first warrant for 75,000 was issued on February 27, 1997 and
is exercisable at any time until December 31, 2003 at an exercise price of $1.78
per share. The second warrant for 25,000 was issued on June 30, 1997 and is
exercisable at any time until December 31, 2003 at an exercise price of $1.78
per share.
On December 6, 1996, the Company issued two warrants for the purchase of the
Company's Common Stock to Gerald E. Morris in consideration for services
performed as a Director of the Company. The first warrant for 12,500 is
exercisable at any time between December 6, 1997 and December 5, 2001 at an
exercise price of $1.56 per share. The second warrant for 12,500 is exercisable
at any time between December 6, 1998 and December 5, 2001 at an exercise price
of $1.56 per share.
On January 8, 1997, the Company issued two warrants for the purchase of the
Company's Common Stock to Vincent F. Monte in consideration for his services as
a Director of the Company. The first warrant for 12,500 is exercisable at any
time between February 5, 1998 and February 4, 2002 at an exercise price of $1.75
per share. The second warrant for 12,500 is exercisable at any time between
February 5, 1999 and February 4, 2002 at an exercise price of $1.75 per share.
Also, on January 8, 1997, the Company issued two warrants for the purchase of
the Company's Common Stock to Steven J. Goodman in consideration for his
services as a Director of the Company. The first warrant for 12,500 is
exercisable at any time between February 5, 1998 and February 4, 2002 at an
exercise price of $1.75 per share. The second warrant for 12,500 is exercisable
at any time between February 5, 1999 and February 4, 2002 at an exercise price
of $1.75 per share.
Each of the above transactions was made in reliance on Section 4(2) of the
Securities Act of 1933, as amended. No underwriter or placement agent was
involved in any of the issuances.
16
<PAGE>
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
The Company, since its founding in 1967, has established a reputation as an
innovator and supplier of miniature and low voltage lighting products. From
1991 onward the Company expanded its product range and is now regarded as a
designer, developer, manufacturer and supplier of specialty lighting and related
products, both domestically and internationally. Applications of the Company's
products, globally, are movie theater aisle, step, marquee and concession
lighting, illuminated ceiling systems, architectural cove, miniature lighting in
cabinetry, decorative, accent, task and energy efficient lighting in casinos,
hotels, restaurants, gaming vessels, cruise ships, specialty retail, themed
venues and high end residential.
In 1991, the Company was acquired by its present management who implemented a
strategy to revitalize and expand the Company's market position through product
line expansion and aggressive market penetration programs. The Company
completed a successful public offering in September of 1994, and continued to
focus, refine and implement its strategic business plan which encompassed new
product and patent development, market penetration, literature and catalog
development and an international reciprocal joint venture with Targetti of
Florence, Italy. The original joint venture, announced in November of 1994,
consisted of a reciprocal license and distribution agreement between the Company
and Targetti in the U.S. market, and provided the Company's products to
Targetti's global network of 66 representatives, distributors and sales offices.
In November 1997, the scope of the joint venture was expanded with the formation
of a jointly owned Company in the U.S. - Targetti USA, LLC ("Targetti USA").
Through this joint venture, Targetti offers a wide range of product families,
developed by Targetti, which broadens and complements the Company's products.
In North America and Mexico, the Company's products are sold through 69
independent marketing representatives, and directly by the Company's personnel
to a large customer base consisting of electrical distributors, contractors,
owner representatives, hotels, showrooms, theater distributors and other end
users. The Company has an international subsidiary, Tivoli de Mexico, S.A. de
C.V., in Mexico City, Mexico, to support the Company's sales in Mexico and
Central America. The Company also has opened a sales support office and
demonstration center in Las Vegas, Nevada, to support the growth of the
casino/gaming and hospitality markets in North America and internationally.
The Company currently holds eight U.S. patents on mechanical features and
three U.S. patents on design features. The Company's product families lines
include low voltage tube lighting, linear lighting systems, accent and task
lighting, chandelier and light curtains, decorative ceiling systems, specialized
vehicular, marine and aircraft lighting, long life, low voltage lamps, energy
efficient fluorescent cove, low voltage linear cove, illuminated surveillance
system, electronic transformers, dimmers and circuit protection devices, and
furniture, cabinet and kiosk lighting. The products offered through the
Targetti USA joint venture include low voltage track lighting, low voltage open
frame and open conductor systems, illuminated sky lights, low voltage recessed
lighting fixtures, precision adjustable projectors, energy efficient compact
fluorescent ("CF") downlights, decorative wall sconces, and a variety of
lighting accessories and options.
Since the acquisition of the Company in 1991, sales have consistently trended
upward, with sales of $2,529,053 in fiscal 1992, $2,974,819 in fiscal 1993,
$3,544,533 in fiscal year 1994, $4,518,502 in fiscal 1995, $6,638,063 in fiscal
1996 and $9,846,174 in fiscal 1997. Management believes that the growth
strategies and expenditures made from acquisition through the 1997 fiscal year
account for the strong annual growth rate and provide an expanded foundation to
support future Company growth.
Results of Operations
Net sales of $9,846,174 for the fiscal year 1997 were 48.3% above the net
sales of $6,638,063 in the fiscal year 1996. This substantial increase followed
a growth rate of 46.9% in fiscal 1996 net sales over fiscal year 1995 net sales.
This sustained performance was the result of strong marketing programs and
expanded Tivoli and Targetti product families.
17
<PAGE>
The gross profit for the fiscal year 1997 was $4,160,039 or 42.3% of net sales
as compared to $2,858,193 or 43.1% of net sales for the 1996 fiscal year. This
decrease in the gross profit percentage of sales was due primarily to the
competitive pricing related to several large project related orders.
Selling, general and administrative expenses for fiscal 1997 decreased to
36.4% of net sales or $3,581,453 as compared to 40.9% or $2,713,264 in the 1996
fiscal year. This decrease in SG&A expenses as a percentage of sales was
related to the increase in sales volume described above and a continuing
emphasis on control of major SG&A expense items.
Operating profits for the fiscal year 1997 increased to $578,586 or 5.9% of
net sales as compared to $144,929 or 2.2% net sales in the fiscal year 1996.
Other expense for fiscal year 1997 was $10,228 and consisted of interest
income of $74,925 on the investment of the proceeds of IPO funds, less interest
expense on the bank loan and capital leases of $85,153. Other income for the
fiscal year 1996 was $19,071 and was derived from interest income of $83,176 on
the investment of IPO funds less interest expense on the bank loan of $64,105.
The provision for income tax in the fiscal year 1997 was $56,593 and
represented state income tax requirements. Federal income tax provisions were
covered by net operating loss carry forwards. See Financial Statement Notes #6.
In the fiscal year 1996 net operating loss carry forwards covered both the
federal and state income tax provisions.
As a result of the above factors, net income for the fiscal year 1997 improved
to $511,765 or $0.13 per share as compared to net income of $166,200 or $0.04
per share in the 1996 fiscal year.
Seasonality
In the theater industry the release of new films has historically peaked in
the summer and fall. Similarly, new theater openings and remodeling tend to be
scheduled for completion just prior to these associated summer and holiday
seasons. Therefore, sales of the Company's theater related products peak in the
first and third quarters of the Company's fiscal year. Some landscape products,
such as twilights for tree lighting, are sold in high volumes in the holiday
season corresponding with the Company's first fiscal year quarter. However, in
fiscal years 1997 and 1996, new product, international and large project sales,
in general, offset these cyclical forces and induced a somewhat smoother pattern
of quarterly sales. In the future these influences are expected to continue to
have a counter effect on seasonal sales patterns.
Inflation
The modest rate of inflation in recent years has had no significant impact on
the Company's sales and profitability.
Financial Position, Capital Resources and Liquidity
The Company financed its working capital and capital investment requirements
in the fiscal year 1997 from funds generated by operations and capital leases.
The Company's primary sources of cash during the fiscal year 1997 were funds
generated through operations of $675,543 which consisted of net income of
$511,765 and depreciation and amortization of $163,778.
Working capital increased to $3,725,303 at September 30, 1997, as compared to
$2,745,385 at September 30, 1996. A portion of this increase was due to the
change in the classification of the Notes payable to the Bank of $667,500 from
current to long term liabilities. See Financial Statements Note #3.
18
<PAGE>
Accounts receivable as of September 30, 1997, increased to $1,615,561 from
$1,348,484 at September 30, 1996. This increase was related to the increase in
sales volume. The days sales outstanding in accounts receivable decreased to 59
days at September 30, 1997, as compared to 62 days at September 30, 1996.
Inventories as of September 30, 1997, increased to $1,691,943 as compared to
$1,048,400 at September 30, 1996. The number of months material costs of sales
in inventory at September 30, 1997, increased to 3.6 months as compared to 3.3
months at September 30, 1996. The inventory increase was primarily related to a
build in material components to support new product programs such as the
Minicove line, which was related to a large customer demand, our expanding aisle
and step lighting line and the Lumitred, LED and Electroluminescence sources.
Accounts payable as of September 30, 1997, increased to $1,129,405 as compared
to $971,913 at September 30, 1996. The number of days in accounts payable
decreased to 56 days at September 30, 1997, as compared to 67 days as of
September 30, 1996.
Capital expenditures in the fiscal year 1997 totaled $360,583 and consisted of
Manufacturing Resources Planning System hardware and software $203,701, Las
Vegas showroom $82,324, new product tooling $57,508 and related
machinery/equipment $17,050. New product patent expenditures in the fiscal year
1997 totaled $36,428.
On July 20, 1995, the Company obtained a new $750,000 line of credit, secured
by accounts receivable, inventory, and assets of the company with Union Bank,
Laguna Hills, CA. This line of credit was used to pay off the former bank debt
on July 31, 1995, as negotiated with the FDIC and to provide additional working
capital resources. This agreement expired on February 28, 1997, and was
subsequently renewed with an expiration date of March 1, 1999. The renewal
agreement contains interest at the banks prime rate (8.5% at September 30, 1997)
plus 1% per annum. The terms of the agreement provide for borrowings of up to
the lesser of $750,000 or the aggregate of 80% of eligible accounts receivable
plus 50% of eligible inventory up to $300,000. This arrangement is secured by
substantially all of the Company's assets. The agreement contains certain
restrictive covenants which require the Company to maintain certain financial
ratios, among other restrictions. At September 30, 1997, the Company was in
compliance with all covenants and restrictions of this agreement. See Financial
Statement Note #3.
New Accounting Pronouncements
See Footnote #1 to the financial statement, organization and summary of
significant accounting policies, for the Company's treatment of new accounting
pronouncements.
Factors Affecting Growth and Profitability
The growth and profitability of the Company's business will be dependent upon
a number of factors beyond the control of the Company. For example, economic
conditions adversely affecting movie theater construction or remodeling by major
motion pictures distributors, could in turn adversely impact the Company's
growth and profitability. During the fiscal year ended September 30, 1997,
aggregate sales to the motion picture industry accounted for approximately 30%
of the Company's net sales. In addition, the Company's strategy for sales
growth to the casino and gaming industry is based upon the premise that these
will be continued expansion of major venues in the U.S. and overseas, as to
which there can be no assurance. Moreover, since the lighting industry
generally is directly affected by new construction, building permits, housing
starts and energy considerations, the Company's growth and profitability can be
affected by adverse developments in those areas.
Penny Stock Regulations
The Common Stock is traded on the Nasdaq SmallCap Market. Class A warrants
and Class B warrants were traded on the NASDAQ SmallCap Market until September
21, 1997, at which time they expired and were subsequently delisted at the
request of the Company. In order to maintain its listing on the Nasdaq SmallCap
Market, the Company must maintain total assets, capital and public float at
specified levels, and generally must maintain a minimum bid price of $1.00 per
share. Under current rules, the Company may remain listed on the Nasdaq
SmallCap Market even if the bid price for the Common stock falls below $1.00 per
share, provided it meets certain alternative
19
<PAGE>
tests. However, Nasdaq has recently proposed the elimination of these
alternative tests. If the Company fails to maintain the standard necessary to be
quoted on the Nasdaq SmallCap Market, the Company's securities could become
subject to delisting. If the securities are delisted, trading in the securities
could be conducted on the OTC Bulletin Board or in the over-the-counter market
in what is commonly referred to as the "pink sheets." If this occurs, a security
holder will find it more difficult to dispose of the securities or to obtain
accurate quotations as to the price of the securities. In addition, the Common
Stock could become subject to the "penny stock" regulations promulgated under
the Securities Exchange Act of 1934, as amended, which impose additional
restrictions on broker-dealers who trade in such stock and could severely limit
the market liquidity of the Company's securities.
Item 7. FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report......................................... F-2
Balance Sheet As Of September 30, 1997............................... F-3
Statements Of Operations For Each Of The Years
In The Two-Year Period Ended September 30, 1997..................... F-4
Statements Of Stockholders' Equity (Capital Deficiency)
For Each Of The Years In The Two-Year Period Ended
September 30, 1996 and 1997......................................... F-5
Statements of Cash Flows For Each Of The Years In
The Two-Year Period Ended September 30, 1996 and 1997............... F-6
Notes To Financial Statements........................................ F-7
</TABLE>
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
20
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
(a) The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name(1) Age Position
------- --- --------
<S> <C> <C>
Terrence C. Walsh 51 Chairman, Chief Executive Officer and
Director
Charles Kimmel 47 President, Chief Operations Officer and
Chief Financial Officer
Vincent F. Monte 70 Director
Steven J. Goodman 57 Director
Gerald E. Morris 67 Director
</TABLE>
________________
Terrence C. Walsh is an established lighting industry professional with 25
years experience within the industry in manufacturing, materials management,
information systems, marketing, sales, operations management, acquisitions and
international market development. Since the acquisition of the Company in July
1991, Mr. Walsh has served as Chairman, and Chief Executive Officer of the
Company. In November 1997, he became Chairman of the Board of Directors of
Targetti USA LLC. From 1989 through 1991, Mr. Walsh was President and Chief
Executive Officer of Integrated Lighting Industries, and from 1986 to 1989 he
served as Executive Vice President and General Manager of Jac Jacobsen
Industries in Greenwich, Connecticut.
Charles Kimmel has over 25 years experience in financial and operations
management. Mr. Kimmel joined the Company as President, Chief Operating Officer
and Chief Financial Officer in June 1997. In November 1997, he also became Chief
Financial Officer of Targetti USA LLC. Prior to joining the Company, Mr. Kimmel
was the Director of Worldwide Operations for Cupertino, CA - based NetManage,
Inc., a publicly traded software company. From 1990 to 1995, he was CFO and a
Director of San Diego, CA - based AGE Logic, Inc., where he was directly
involved with the financial stewardship of the company until AGE Logic was
merged with NetManage in 1995. From 1988 to 1990, Mr. Kimmel was Executive Vice
President, CFO and a Director of Irvine, CA - based True Data Corporation,
overseeing all financial, administrative and manufacturing functions of the
company. Earlier in his career, Mr. Kimmel spent six years as a Division
Controller and Operations Manager with various divisions of New York - based US
Industries, including Prescolite, a leading lighting manufacturer.
Vincent F. Monte, a Director of the Company since July 1991, has over 30 years
experience as a chief financial officer in the lighting industry involving
financial planning and activity based accounting systems. Mr. Monte served as
the Company's Chief Financial Officer from July 1991 to June 1997. From 1989 to
1991, he was the Vice President of Finance for Integrated Lighting Industries.
From 1986 to 1989 Mr. Monte served as the Vice President of Finance of DATA 3,
Inc., a manufacturing application software developer, which was sold to a
publicly traded company. Previously Mr. Monte was, for several years, Vice
President Finance of Prescolite Inc., a subsidiary of U.S. Industries, Inc.
Steven J. Goodman, a Director of the Company since December, 1994, has an
extensive background in business management and currently advises a number of
companies. In July 1995, Mr. Goodman joined Tessa
21
<PAGE>
Financial Group, Inc. a regional investment banking firm as a consultant. From
November 1991, through March 1995, Mr. Goodman was West Coast Managing Director
of Creative Business Strategies, Inc., a financial corporate consulting firm.
From 1975 to 1981, Mr. Goodman was president of Tempo Industries, Inc., a Los
Angeles based consumer products manufacturer. Mr. Goodman was responsible for
operations, business development, marketing, sales and finance. He has
experience in corporate finance, merger, acquisitions and restructuring. Mr.
Goodman currently is a director of Javelin Systems, Inc., a publicly-held
corporation.
Gerald E. Morris, a Director of the Company since February, 1995, has for over
30 years been President and CEO of Intalite International N.V., a company
engaged in the manufacture of metal ceilings for commercial use. Mr. Morris, a
CPA, has extensive experience in the field of mergers and acquisitions and
serves on the board of several companies, including Rexel, Inc., an electrical
products distributor with U.S. sales in excess of $1 billion, and Beacon Trust
Company, a company engaged in the trust and asset management business. Mr.
Morris is also Chairman of the Board of Alumet Building Products, Inc., a
company engaged in the manufacture of home improvement products.
Subject to the terms of applicable employment agreements, officers are
appointed by and serve at the discretion of the Board of Directors. The
Directors are elected by shareholders for a one-year term.
In addition, the Company may designate "Advisors to the Board" to augment its
strategic and operational plans.
No family relationships exist between any of the officers or directors of the
Company.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company, during the fiscal year ended September 30,
1997, all Section 16(a) filing requirements applicable to its officers,
directors and greater than 10 percent beneficial owners were complied with,
except that Mr. Kimmel inadvertently filed his initial transaction report on
Form 3 late upon joining the Company.
Item 10. EXECUTIVE COMPENSATION
The following table summarizes the annual and long term compensation paid by
the Company during the last three fiscal years to its Chief Executive Officer.
No other compensated executive officers of the Company had total salary and
bonus exceeding $100,000 during any of the three years in the three year period
ending September 30, 1997.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------------------
Annual Compensation Awards Payouts
- - ----------------------------------------------------------------------------------------------------------
(1) Restricted
Stock All
Salary Bonus Other Awards Options LTIP Other
Name and Principal Position Year $ $ $ $ # Payouts
- - ----------------------------- ---- -------- ----- ------- ---------- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Compensation 1997 124,647 11,143
- - --------------
Terrence C. Walsh, CEO 1996 103,788 -- 11,143 -- -- --
1995 110,000 -- 10,925 -- -- --
</TABLE>
_________________________________
(1) Represents Automobile allowance & reimbursements.
22
<PAGE>
The Company entered into a new employment agreement with Terrence C. Walsh
on May 1, 1997 for a term of three years. Under the employment agreement, the
annual base salary of Mr. Walsh is $140,000. The base salary is to be increased
by not less than 5% a year, and Mr. Walsh is entitled to receive such bonuses,
if any, as are determined each year by the Company's Compensation Committee.
Mr. Walsh's employment agreement provides that in the event of a voluntary
termination of employment for "good reason" (defined as constructive termination
of employment by the Company due to a substantial, detrimental alteration in the
officer's duties, a failure to pay or maintain agreed upon compensation or
benefits or requiring the officer to relocate to a location more than fifty
miles from the Company's current headquarters), or an involuntary termination of
employment without cause, such officer will receive a lump sum in cash equal to
(a) the amount of the base salary that would have been payable over the
remainder of the term of the agreement had such officer not been terminated
(subject to minimum amount equal to twenty four months' base salary; such twenty
four month period being a "Minimum Severance Period"); and (b) the amount of
annual bonus that would have been payable for the Minimum Severance Period for
such officer, which is deemed to be equal to the average annual bonus received
by such officer during the three years preceding the date of termination in
which a bonus was paid.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of shares of the Company's Common Stock as of November 30, 1997, by
(i) each of the Company's directors and each executive officer, (ii) each person
known to the Company to beneficially own more than 5% of the outstanding shares
of Common Stock, and (iii) all directors and officers of the Company as a group.
<TABLE>
<CAPTION>
Number of Shares Percent
Name and Address Beneficially Owned (1) Of Class
---------------- ---------------------- --------
<S> <C> <C>
Terrence C. Walsh c/o Tivoli Industries 1,106,900 28.1%
1513 E. Saint Gertrude Place
Santa Ana, CA 92705
Alva L. Stevens (2) 267,450 6.8%
2552 Caballo Ranchero
Diablo, CA 94528
Steven J. Goodman (3) 105,115 2.7%
Revocable Living Trust
24843 Del Prado #536
Dana Point, CA 92629
Vincent F. Monte (4) 98,100 2.5%
561 St. George Road
Danville, CA 94526
Gerald E. Morris (5) 31,926 *
437 Madison Avenue, 39th Floor
New York, NY 10022
Charles E. Kimmel c/o Tivoli Industries 2,000 *
1513 E. Saint Gertrude Place
Santa Ana, CA 92705
All directors and executive 1,344,041 33.5%
officers, a group (5 persons)
</TABLE>
* Less than one percent.
23
<PAGE>
1) This table is based upon information supplied by officers, director and
principal stockholders and Schedule 13Gs filed with the Securities and
Exchange Commission ("SEC"). Unless otherwise indicated in the footnotes to
this table and subject to community property laws where applicable, each of
the shareholders named in this table has sole voting and investment power
with respect to the shares indicated as beneficially owned. Applicable
percentages are based on 3,937,881 shares outstanding at December 5, 1997,
adjusted as required by rules promulgated by the SEC.
2) Includes 6,250 options, exercisable within 60 days of November 30, 1997.
3) Includes 30,000 options, exercisable within 60 days of November 30, 1997.
4) Includes 36,000 options, exercisable within 60 days of November 30, 1997.
5) Includes 22,500 options, exercisable within 60 days of November 30, 1997.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a description of the employment agreement between the Company and Mr.
Walsh, see "Item 10 - Executive Compensation." For a description of warrants
granted to certain directors during the fiscal year, see "Recent Sales of
Unregistered Securities."
In September 1996, the Company extended a loan of $50,000 to Terrence C.
Walsh, President and Chief Executive Officer. The loan bears interest at a 6%
annualized rate, and is due and payable in September 1999. The loan is
collateralized by 70,000 shares of the Company's Common Stock owned by Mr.
Walsh.
Management of the Company believes that the foregoing transactions were in
the Company's best interests. As a matter of policy, all future transactions
between the Company and any of its executive officers, directors, or principal
shareholders, or any of their affiliates, will be on terms that a majority of
the independent, disinterested members of the Company's Board of Directors
believe to be no less favorable to the Company than those that could have been
obtained from an unaffiliated third party in an arms-length transaction, and
will be approved by such majority.
Item 13. EXHIBITS AND REPORTS
<TABLE>
<CAPTION>
Exhibit No. Description
<C> <S>
3.1 Articles of Incorporation, as amended (1)
3.2 Bylaws, as amended (1)
4.1 Form of common stock warrant
10.1 Line of credit agreement with Union Bank (1)
10.2 Lease of the Company's principal executive offices at
1513 East St. Gertrude Place, Santa Ana, California
92705 (1)
*10.3 Employment Agreement between the Company and Terrence
C. Walsh
*10.4 1994 Stock Option Plan (1)
</TABLE>
24
<PAGE>
<TABLE>
<C> <S>
*10.5 1995 Stock Option Plan (2)
*10.6 1995 Non-Employee Director's Stock Option Plan (2)
*10.7 1997 Equity Incentive Plan (3)
10.8 Master Agreement between the Company, Targetti Sankey,
S.p.A. and Targetti USA LLC dated as of November 1,
1997
**10.9 Operating Agreement of Targetti USA LLC, dated as of
November 1, 1997
**10.10 Amended and Restated License and Distribution Agreement
Between the Company and Targetti Sankey, S.p.A., dated
as of November 1, 1997
**10.11 Manufacturing Agreement between the Company and
Targetti USA LLC, dated as of November 1, 1997
22 Power of Attorney. See Signature Page.
23 Consent of Corbin & Wertz
27 Financial Data Schedule
</TABLE>
* Indicates management contract or compensatory plan or agreement.
** Confidential treatment has been requested for portions of this agreement.
(1) Incorporated by reference to the Company's Registration Statement on Form
SB-2 (File No. 33-79322-L.A.).
(2) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended September 30, 1995 (File No. 0-24604)
(3) Incorporated by reference to Exhibit 99.1 to the Company's Registration
Statement on Form S-8, File No. 333-24795, filed April 9, 1997.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Tivoli Industries, Inc.
Dated: December 23, 1997 By: /s/ Terrence C. Walsh
--------------------------------------
Terrence C. Walsh
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Terrence C. Walsh, his attorney-in-fact, each with the
power of substitution, for him, in any and all capacities, to sign any
amendments to this Report, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and conforming all that each the attorney in-fact, or his
substitute may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- - --------- ----- ----
<S> <C> <C>
/s/ Terrence C. Walsh Chairman December 23, 1997
- - ------------------------ Chief Executive Officer and Director
Terrence C. Walsh
/s/ Charles Kimmel President December 23, 1997
- - ------------------------ Chief Operation Officer and Chief
Charles Kimmel Financial Officer
/s/ Vincent F. Monte Director December 23, 1997
- - ------------------------
Vincent F. Monte
/s/ Steven J. Goodman Director December 23, 1997
- - ------------------------
Steven J. Goodman
/s/ Gerald Morris Director December 23, 1997
- - ------------------------
Gerald Morris
</TABLE>
26
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................ F-2
Balance Sheet As Of September 30, 1996.................................. F-3
Statements Of Operations For Each Of The Years
In The Two-Year Period Ended September 30, 1997...................... F-4
Statements Of Stockholders' Equity (Capital Deficiency)
For Each Of The Years In The Two-Year Period Ended
September 30, 1996 and 1997.......................................... F-5
Statements Of Cash Flows For Each Of The Years In
The Two-Year Period Ended September 30, 1996 and 1997................ F-6
Notes To Financial Statements........................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Tivoli Industries, Inc.
We have audited the accompanying balance sheet of Tivoli Industries, Inc. (the
"Company") as of September 30, 1997, and the related statements of operations,
stockholders' equity and cash flows for each of the years in the two-year period
ended September 30, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tivoli Industries, Inc. as of
September 30, 1997, and the results of its operations and its cash flows for
each of the years in the two-year period ended September 30, 1997, in conformity
with generally accepted accounting principles.
CORBIN & WERTZ
Irvine, California
November 14, 1997
F-2
<PAGE>
TIVOLI INDUSTRIES, INC.
BALANCE SHEET
September 30, 1997
ASSETS (Note 3)
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents $1,389,720
Accounts receivable, less allowance for doubtful accounts of $87,000 1,615,561
Inventories 1,691,943
Prepaid expenses and other 423,685
----------
Total current assets 5,120,909
----------
Property and equipment (Note 4):
Machinery and equipment 294,040
Furniture and fixtures 334,165
Tooling 301,877
Computer equipment and software 525,257
----------
1,455,339
Less: accumulated depreciation (662,294)
----------
Net property and equipment 793,045
----------
Goodwill, net of accumulated amortization of $135,627 523,911
Patents, net of accumulated amortization of $164,152 242,399
Deferred tax asset (Note 6) 127,400
Deposits and other (Note 2) 80,486
----------
$6,888,150
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,129,405
Accrued expenses 182,160
Income taxes payable (Note 6) 35,885
Current maturities of obligations under a capital lease (Note 4) 47,213
Current portion of notes payable to bank (Note 3) 943
----------
Total current liabilities 1,395,606
Notes payable to bank, net of current portion (Note 3) 667,500
Obligations under a capital lease, net of current portion (Note 4) 168,525
Deferred tax liability (Note 6) 154,933
----------
Total liabilities 2,386,564
----------
Commitments and contingencies (Notes 5 and 9)
Stockholders' equity (Note 7):
Preferred stock, $.001 par value; 1,000,000 shares authorized,
none outstanding -
Common stock, $.001 par value; 10,000,000 shares authorized,
3,937,871 shares outstanding 3,938
Additional paid-in capital 4,391,747
Retained earnings 105,901
----------
Total stockholders' equity 4,501,586
----------
$6,888,150
==========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE>
TIVOLI INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
For Each of The Years In The Two-Year
Period Ended September 30, 1997
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Net sales $9,846,174 $6,638,063
Cost of sales 5,686,135 3,779,870
---------- ----------
Gross profit 4,160,039 2,858,193
Selling, general and administrative expenses (Note 5) 3,581,453 2,713,264
---------- ----------
Income from operations 578,586 144,929
---------- ----------
Other income (expenses):
Interest expense (Note 3) (85,153) (64,105)
Interest income 74,925 83,176
---------- ----------
Total other income (expense) (10,228) 19,071
---------- ----------
Income before benefit (provision) for income taxes 568,358 164,000
(Provision) benefit for income taxes (Note 6) (56,593) 2,200
---------- ----------
Net income $ 511,765 $ 166,200
========== ==========
Net income per share $ .13 $ .04
========== ==========
Weighted average shares outstanding 3,933,584 3,920,721
========== ==========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE>
TIVOLI INDUSTRIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For Each of The Years In The Two-Year
Period Ended September 30, 1997
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings
------------------------- Paid-in (Accumulated
Shares Amount Capital Deficit) Total
---------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balances, October 1, 1995 3,920,721 $3,921 $4,352,698 $(572,064) $3,784,555
Net income - - - 166,200 166,200
--------- ------ ---------- --------- ----------
Balances, September 30,
1996 3,920,721 3,921 4,352,698 (405,864) 3,950,755
Issuance of common stock
for services (Note 7) 17,150 17 22,478 - 22,495
Issuance of warrants for
services rendered (Note 7) - - 16,571 - 16,571
Net income - - - 511,765 511,765
--------- ------ ---------- --------- ----------
Balances, September 30,
1997 3,937,871 $3,938 $4,391,747 $ 105,901 $4,501,586
========= ====== ========== ========= ==========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
TIVOLI INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
For Each of The Years In The Two-Year
Period Ended September 30, 1997
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 511,765 $ 166,200
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 163,778 214,861
Change in allowance for doubtful accounts 71,401 1,919
Deferred income taxes 22,639 (8,259)
Common stock issued for services 22,495 -
Warrants for the purchase of common stock
issued for services 16,571 -
Changes in operating assets and liabilities:
Accounts receivable (338,478) (394,069)
Inventories (643,543) (119,232)
Prepaid expenses and other 1,994 (29,284)
Accounts payable 157,492 122,344
Accrued expenses and other current liabilities 112,675 66,471
---------- ----------
Net cash provided by operating activities 98,789 20,951
---------- ----------
Cash flows from investing activities:
Deposits and other 38,656 (91,804)
Capital expenditures (360,583) (215,098)
Patent expenditures (36,428) (111,816)
---------- ----------
Net cash used in investing activities (358,355) (418,718)
---------- ----------
Cash flows from financing activities:
Net borrowings under line of credit and notes payable
to bank (3,080) 118,917
Principal payments on capital lease obligations (40,562) -
---------- ----------
Net cash (used in) provided by financing activities (43,642) 118,917
---------- ----------
Net decrease in cash and cash equivalents (303,208) (278,850)
Cash and cash equivalents, beginning of year 1,692,928 1,971,778
---------- ----------
Cash and cash equivalents, end of year $1,389,720 $1,692,928
========== ==========
Supplemental disclosure of cash flow information -
Cash paid during the year for:
Interest $ 80,153 $ 64,105
========== ==========
Income taxes $ 3,133 $ 800
========== ==========
</TABLE>
Noncash investing and financing activities:
The Company acquired computer software under capital lease obligations totaling
$235,000 during the year ended September 30, 1997
See accompanying notes to financial statements
F-6
<PAGE>
TIVOLI INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
For Each of The Years In The Two-Year
Period Ended September 30, 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - --------------------------------------------------------------------
Organization
- - ------------
Effective July 31, 1991, Tivoli Lighting, Inc. acquired 100% of the outstanding
shares of Tivoli Industries, Inc. through a newly formed entity, Tivoli
Acquisition Subsidiary. The acquisition was consummated by a tax-free statutory
merger accounted for under the purchase method of accounting. The purchase
price was $772,852, including acquisition costs of $90,196. The excess of
$659,538 of the purchase price over the fair value of the assets acquired, net
of liabilities assumed, was allocated to goodwill (see below).
Effective June 1994, Tivoli Lighting, Inc. merged into Tivoli Industries, Inc.
with Tivoli Industries, Inc. (the "Company") becoming the surviving entity. The
stockholders of Tivoli Lighting, Inc. received 2,600 shares of Tivoli
Industries, Inc. common stock for each share exchanged. Upon consummation of
the merger, 2,600,000 shares were issued and outstanding. The net assets of
Tivoli Lighting, Inc. were transferred at their historical values upon the
consummation of the merger and the effects of the exchange of shares were
reflected as outstanding for all periods presented.
Business
- - --------
The Company manufactures and distributes a broad range of specialty, decorative
accent lighting products using both standard and low voltage electrical power.
The Company's products are primarily for commercial use. The Company's customer
base consists of thousands of clients (unaudited) is comprised of national
theater chains, specialty retail stores, casino and gaming establishments,
electrical distributors and wholesalers, hotels and restaurants, specialty
vehicular companies, marine ship-builders, sign manufacturers, and a specialized
group of representatives who resell the Company's products in some international
markets. To date, the Company's sales have been primarily to customers within
the United States.
Use of Estimates
- - ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reported periods.
Actual results could materially differ from those estimates. Significant
estimates made by management include, but are not limited to, the provision for
losses on uncollectible accounts receivable, the net realizability of inventory,
and the impairment of long-lived assets.
Fair Value of Financial Instruments
- - -----------------------------------
These historical financial statements contain financial instruments whereby the
fair market value of the financial instruments could be different than that
recorded on a historical basis in the accompanying historical financial
statements. The financial instruments consist of cash and cash equivalents,
accounts receivable, note receivable from related party, accounts payable and
notes payable to bank. The carrying amounts of the Company's financial
instruments generally approximate their fair values as of September 30, 1997.
In the case of the note receivable from related party, which is included in
deposits and other assets in the accompanying balance sheet (see Note 2), it was
not practical to determine the fair value due to the lack of a market for such
financial instrument.
F-7
<PAGE>
TIVOLI INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of The Years In The Two-Year
Period Ended September 30, 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- - -------------------------------------------------------------------------------
Concentrations of Credit Risk
- - -----------------------------
The Company maintains cash balances at a certain financial institution in excess
of amounts insured by Federal agencies. The potential uninsured amount
aggregates $1,289,221 as of September 30, 1997.
Management believes that the number and diversity of its customer base provides
two advantages: 1) avoiding undue concentration of its accounts on any one
customer, and 2) an increased opportunity to supply and distribute its
increasing number of products. The Company performs periodic credit evaluations
of its customers and does not require collateral; however, the Company does
require deposits for certain large projects and specialized products designed to
a customer's specification. The Company maintains reserves for potential credit
losses. Historically, such losses have been within management's expectations.
During the year ended September 30, 1997, one customer accounted for 14% of net
sales. As of September 30, 1997, no one customer accounted for greater than 10%
of total accounts receivable. During the year ended September 30, 1996, no one
customer accounted for greater than 10% of net sales.
The Company purchased certain products from one supplier which accounted for
27.6% and 23.3% of total purchases in 1997 and 1996, respectively. One supplier
accounted for 21.2% of total accounts payable as of September 30, 1997.
Cash and Cash Equivalents
- - -------------------------
Management considers highly liquid instruments with original maturities of 90
days or less when purchased to be cash equivalents. At September 30, 1997, cash
and cash equivalents included approximately $1,017,000 of U.S. Treasury bills.
Inventories
- - -----------
Inventories, consisting primarily of component parts, are valued at the lower of
cost (average cost method) or market.
Included in the accompanying balance sheet is inventory with a historical
carrying value of $1,691,943 which represents management's estimate of its net
realizable value. Such value is based or forecasts for sales of the Company's
products in ensuing years. Should demand for the Company's products prove to be
significantly less than anticipated, the ultimate realizable value of such
inventory could be substantially less than the amount shown in the balance
sheet. Management provides an allowance for excess and obsolete inventory which
it believes is adequate to cover such uncertainty.
Property and Equipment
- - ----------------------
Property and equipment are stated at cost. Depreciation is computed over the
estimated useful lives of the assets using the straight-line method. Repairs
and maintenance are charged to expense as incurred; replacements and betterments
are capitalized.
Useful lives for property and equipment are as follows:
Machinery and equipment 5 years Furniture and fixtures 1 to 5 years
Computer equipment and software 5 years Tooling 5 years
F-8
<PAGE>
TIVOLI INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of The Years In The Two-Year
Period Ended September 30, 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- - -------------------------------------------------------------------------------
Depreciation expense for the years ending September 30, 1997 and 1996 totaled
$98,064 and $157,510, respectively.
The Company assesses the impairment of property and equipment by comparing the
future undiscounted net cash flows from the use and ultimate disposition of such
assets with their carrying amounts. The amount of impairment, if any, is
measured based on fair value and is charged to operations in the period in which
such impairment is determined by the Company. No impairment of property and
equipment has been identified by the Company to date.
Goodwill
- - --------
Goodwill, which represents the excess of the purchase price over the fair value
of net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited. The Company amortizes the goodwill over a 30-year life.
The Company assesses the recoverability of goodwill periodically by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through projected undiscounted cash flows. The amount of goodwill
impairment, if any, is charged to operations in the period in which goodwill
impairment is determined by management. As of September 30, 1997, no impairment
of goodwill was determined by management. Amortization of goodwill for each of
the two years ended September 30, 1997 amounted to $21,985.
Patents
- - -------
The Company's proprietary products are protected by certain patents and
trademarks. The costs of developing and maintaining existing patents and the
research and development costs incurred in the generation of patents are
expensed as incurred. Costs of successful legal defenses of patents, as
determined by management, are capitalized. A substantial amount of the costs
capitalized in fiscal 1996 were patent defense related. To the extent that the
Company's use of such patents and trademarks is ever successfully challenged,
the Company's future results of operations would be materially adversely
affected. Patents are amortized on a straight-line basis over their respective
lives not to exceed 17 years. Amortization of patents for the years ended
September 30, 1997 and 1996 amounted to $43,729 and $35,366, respectively.
Income Taxes
- - ------------
The Company accounts for its income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("Statement 109"). Under Statement 109, an asset and liability method is used
whereby deferred tax assets and liabilities are determined based on temporary
differences between bases used for financial reporting and income tax reporting
purposes. Income taxes are provided based on the enacted tax rates in effect at
the time such temporary differences are expected to reverse. A valuation
allowance is provided for certain deferred tax assets if it is more likely than
not that the Company will not realize tax assets through future operations (see
Note 6).
Revenue Recognition
- - -------------------
Revenues from product sales are recognized upon shipment. The Company records a
provision for the effect of returned products at the time the units are shipped.
Historically, the Company has experienced minimal product returns.
Foreign Currency Transactions
- - -----------------------------
The Company obtains certain products from offshore facilities in Taiwan and
Italy. Foreign currency transaction gains or losses are included in operations
in the period in which the exchange rate changes or the underlying transaction
settles. To date, such transaction gains and losses have not been material.
F-9
<PAGE>
TIVOLI INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of The Years In The Two-Year
Period Ended September 30, 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- - -------------------------------------------------------------------------------
Product Development
- - -------------------
Product development expenditures are charged to operations as incurred.
Advertising
- - -----------
The Company reports the costs of all advertising as expense in the period in
which those costs are incurred. Advertising expense was approximately $82,000
and $54,000 for the years ended September 30, 1997 and 1996, respectively.
Per Share Information
- - ---------------------
Per share information is computed using the weighted average number of common
and common equivalent shares outstanding for the years presented. See "New
Disclosure Standards" below.
Stock-Based Compensation
- - ------------------------
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation", which defines a fair value based method of accounting for stock-
based compensation. However, SFAS 123 allows an entity to continue to measure
compensation cost related to stock and stock options issued to employees using
the intrinsic method of accounting prescribed by Accounting Principles Board
Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees". Entities
electing to remain with the accounting method of APB 25 must make pro forma
disclosures of net income and earnings per share, as if the fair value method of
accounting defined in SFAS 123 had been applied (see Note 7). The Company has
elected to account for its stock-based compensation to employees under APB 25.
New Disclosure Standards
- - ------------------------
In February 1997, Statement of Financial Accounting Standards ("SFAS") No. 128
("SFAS 128"), "Earnings per Share" was issued which establishes new standards
for computing and presenting earnings per share ("EPS"). Specifically, SFAS
128: (a) eliminates the presentation of primary EPS and replaces it with basic
EPS, (b) eliminates the modified treasury stock method and the three percent
materiality provision and (c) revised the contingent share provision and the
supplemental EPS data requirements. SFAS 128 also makes a number of changes to
existing disclosure requirements. SFAS 128 is effective for financial
statements issued for periods ending after December 15, 1997; early
implementation is not permitted. The Company does not expect that the effect of
adopting SFAS 128 will have a material effect upon the Company's financial
statements.
F-10
<PAGE>
TIVOLI INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of The Years In The Two-Year
Period Ended September 30, 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- - -------------------------------------------------------------------------------
In February 1997, the Financial Accounting Standards Board issued SFAS No. 129
("SFAS 129"), "Disclosure of Information about Capital Structure." SFAS 129
requires companies to disclose descriptive information about securities that is
not necessarily related to the computation of earnings per share. It also
requires disclosure of information about the liquidation preference of preferred
stock and redeemable stock. SFAS 129 is effective for financial statements for
periods ending after December 15, 1997. The Company does not expect that the
implementation of SFAS 129 will require signification revision of prior
disclosures.
In June 1997, SFAS No. 130 ("SFAS 130"), "Comprehensive Income" was issued which
becomes effective in 1998 and requires reclassification of earlier financial
statements for comparative purposes. SFAS 130 requires that changes in the
amounts of certain items, including foreign currency translation adjustments and
gains and losses on certain securities, be shown in the financial statements.
SFAS 130 does not require a specific format for the financial statement in which
comprehensive income is reported, but does require that an amount representing
total comprehensive income be reported in that statement. The Company does not
expect that the implementation of SFAS 130 will have a material effect upon the
Company's financial statements.
In June 1997, SFAS No. 131 ("SFAS 131"), "Disclosures about Segments of an
Enterprise and Related Information" was issued. This statement will change the
way public companies report information about segments of their business in
their annual financial statements and requires them to report selected segment
information in their quarterly reports issued to shareholders. It also requires
entity-wide disclosures about the products, services an entity provides, the
material countries in which it holds assets and reports revenues, and its major
customers. SFAS 131 is effective for fiscal years beginning after December 15,
1997. The Company does not expect that the implementation of SFAS 131 will have
a material effect upon the Company's financial statements.
NOTE 2 - NOTE RECEIVABLE FROM RELATED PARTY
- - -------------------------------------------
Included in deposits and other assets in the accompanying balance sheet is a
$50,000 note receivable due from the Company's Chief Executive Officer that
bears an interest rate of 6% per annum and is due on September 30, 1999. The
note is collateralized by 70,000 shares of the Company's common stock owned by
the Chief Executive Officer. No payments for principal or interest were made to
the Company during the periods presented, and no interest income has been
recorded in the accompanying consolidated statements of operations.
NOTE 3 - NOTES PAYABLE TO BANK
- - ------------------------------
Notes payable to bank at September 30, 1997 consist of:
<TABLE>
<S> <C>
Line of credit (see discussion below) $667,500
Note payable to bank in monthly installments of $274
plus interest at prime plus 1% per annum (9.25% at September 30,
1997), due January 13, 1998, collateralized by a light truck 943
--------
668,443
Less current maturities (943)
--------
$667,500
========
</TABLE>
F-11
<PAGE>
TIVOLI INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of The Years In The Two-Year
Period Ended September 30, 1997
NOTE 3 - NOTES PAYABLE TO BANK, continued
- - -----------------------------------------
The Company has a line of credit agreement (the "Agreement") with a financial
institution, bearing interest at the bank's prime rate (8.5% at September 30,
1997) plus 1.0% per annum, which expires on March 1, 1999. The terms of the
Agreement provide for borrowings of up to the lesser of $750,000 or the
aggregate of 80% of eligible accounts receivable plus 50% of eligible inventory
up to $300,000. Such arrangement is secured by substantially all of the
Company's assets. This Agreement contains certain restrictive covenants which
require the Company to maintain certain financial ratios, among other
restrictions.
NOTE 4 - CAPITAL LEASE OBLIGATIONS
- - ----------------------------------
On October 10, 1996, the Company entered into a capital lease agreement which
expire in 2002 whereby the Company will lease certain software and hardware in
connection with an integrated manufacturing resource planning system (the "MRP
System"). The present value of the minimum lease payments amounted to $235,000.
The Company, additionally, leases certain equipment under a capital lease which
expires in 2001. Included in the accompanying balance sheet under property and
equipment related to capital lease obligations is the following:
<TABLE>
<S> <C>
Equipment $258,236
Accumulated depreciation (6,196)
--------
$252,040
========
</TABLE>
Future minimum lease obligations pursuant to the capital leases are as follows:
<TABLE>
<CAPTION>
Fiscal Years Ending
-------------------
<S> <C>
1998 $ 62,523
1999 62,523
2000 62,523
2001 60,975
2002 4,823
--------
Total minimum lease obligations 253,367
Less interest, primarily at 8.5% per annum (37,629)
--------
Present value of future minimum lease obligations 215,738
Less current installments (47,213)
--------
Long-term obligations $168,525
========
</TABLE>
F-12
<PAGE>
TIVOLI INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of The Years In The Two-Year
Period Ended September 30, 1997
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Operating Leases
- - ----------------
The Company has two building leases which expire through the year 2001. The
Company also has equipment leases which will expire in 2001.
Future annual minimum rental commitments in the aggregate under these operating
leases are as follows:
<TABLE>
<CAPTION>
Years Ending
September 30,
-------------
<S> <C>
1998 $169,145
1999 150,622
2000 140,984
2001 120,198
2002 3,390
--------
$584,339
========
</TABLE>
Total rent expense under operating leases amounted to $126,036 and $104,063 for
the years ended September 30, 1997 and 1996, respectively.
Employment Agreement
- - --------------------
On May 1, 1997, the Company entered into a three year employment agreement with
its Chief Executive Officer, requiring among other things, an annual base salary
of $140,000 in fiscal 1997 with increases of no less than 5% a year in
subsequent years.
Royalty Agreements
- - ------------------
The Company has certain royalty agreements in connection with various patents
and a license and distribution agreement which require royalties to be paid on
sales of specific products. For the years ended September 30, 1997 and 1996,
sales levels on those specific products have not been sufficient to require
material royalty payments.
Litigation
- - ----------
In the ordinary course of business, there are claims and lawsuits brought by or
against the Company. In the opinion of management, the ultimate outcome of
these matters will not materially affect the Company's operations or financial
position.
F-13
<PAGE>
TIVOLI INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of The Years In The Two-Year
Period Ended September 30, 1997
NOTE 6 - INCOME TAXES
- - ---------------------
The following summarizes the (provision) benefit for income taxes for the years
ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Current:
Federal $ - $ -
State (33,954) (6,059)
-------- -------
(33,954) (6,059)
-------- -------
Deferred:
Federal (20,013) (3,607)
State (2,626) 11,866
-------- -------
(22,639) 8,259
-------- -------
(Provision) benefit for income taxes $(56,593) $ 2,200
======== =======
</TABLE>
A reconciliation of the expected statutory Federal income tax provision to the
(provision) benefit for income taxes for the years ended September 30, 1997 and
1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
(Provision) for income taxes at a Federal
statutory rate of 34% $(193,242) $(55,760)
(Increase) reduction in income taxes resulting from:
Changes in the valuation allowance for deferred tax
assets allocated to income tax 101,502 76,424
Utilization of net operating loss carryforwards 130,126 -
State income taxes (34,790) 4,104
Depreciation and amortization primarily due to timing
differences 6,945 (7,475)
Other, net (67,134) (15,093)
--------- --------
(Provision) benefit for income taxes $ (56,593) $ 2,200
========= ========
</TABLE>
F-14
<PAGE>
TIVOLI INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of The Years In The Two-Year
Period Ended September 30, 1997
NOTE 6 - INCOME TAXES, continued
- - --------------------------------
At September 30, 1997, significant components of the Company's net deferred
taxes are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $ 89,514
Property and equipment 22,874
Reserves and allowances 107,962
---------
220,350
Less: valuation allowance (92,950)
---------
Total deferred tax assets 127,400
Deferred tax liabilities-
Computer Software (154,933)
---------
Net deferred tax liability $ (27,533)
=========
</TABLE>
The net change in the valuation allowance was a decrease of $173,657 for the
year ended September 30, 1997.
Because of the "change in ownership" provisions of the Tax Reform Act of 1986,
net operating loss carryforwards for Federal income tax reporting purposes can
be subject to annual limitation.
The Company has federal net operating loss carryforwards of approximately
$263,000 as of September 30, 1996 that expire through the year 2000 and are
subject to annual limitations of $50,000.
NOTE 7 - STOCKHOLDERS' EQUITY
- - -----------------------------
Preferred Stock
- - ---------------
The Company is authorized to issue up to 1,000,000 shares of preferred stock in
one or more series, the terms of which may be determined at the time of issuance
by the Board of Directors, without further action by the Company's stockholders,
and may include voting rights, preferences as to dividends and liquidation,
conversion and redemptive rights and sinking fund provisions. No shares of
preferred stock are currently outstanding.
Common Stock
- - ------------
Private Placement - In April and May of 1994, the Company issued 300,000 equity
units at $1.365 per unit ($409,500), net of offering costs of $13,675. Each
unit consists of one share of the Company's common stock, one redeemable Class A
warrant and one redeemable Class B warrant. The redeemable Class A and B
warrants entitle the holder to purchase one share of the Company's common stock
for $4.25 and $6.25 per share, respectively. Such warrants are redeemable for
$0.05 each, at the Company's option, in the event the Company's common stock
trades in excess of certain price levels, as defined, over 20 consecutive days.
The warrants are exercisable 180 days from the date of issuance and expire three
years from such date.
F-15
<PAGE>
TIVOLI INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of The Years In The Two-Year
Period Ended September 30, 1997
NOTE 7 - STOCKHOLDERS' EQUITY, continued
- - ----------------------------------------
Initial Public Offering - On September 21, 1994, the Company issued 925,000
equity units at a price of $3.50 per unit ($3,237,500), net of offering costs
of $783,671. Each unit consists of one share of the Company's common stock, and
one redeemable Class A and one redeemable Class B warrant. On October 21, 1994,
the underwriters exercised their "over-allotment" provision of the underwriting
agreement which resulted in the Company issuing an additional 137,150 units at a
price of $3.50 ($480,025), net of offering costs of $66,264. Class A and B
warrants expired on September 21, 1997 and were subsequently delisted at the
Company's request.
In addition, upon the consummation of the initial public offering, the Company
issued warrants to acquire 8,571 shares of restricted common stock at $0.01 per
share. On October 17, 1994 warrants for 8,571 shares were exercised at $0.01
per share which resulted in net proceeds to the Company of $86.
On August 15, 1996, the Company issued warrants to purchase 10,000 shares of its
common stock as compensation for certain marketing services performed. The
warrants were issued in consideration for $4,000 of services which would have
otherwise been paid in cash. The warrants are exercisable at any time until
their expiration on August 15, 1998 (the "Expiration Date") at an exercise price
of $1.75 per share. Such warrants are subject to, among other things,
adjustment and anti-dilution provisions as more thoroughly described in the
warrant agreement. The Company is obligated to register the warrants, on a best
efforts basis, beginning 30 days after either: (i) the date the warrant has been
fully exercised, or (ii) if the warrant has been exercised in part only, the
Expiration Date, and ending on the date the holder may sell warrant shares to
the public pursuant to Securities and Exchange Commission Rule 144 or, if
earlier, on the date the distribution described in the registration statement is
complete.
During fiscal 1997, the Company issued 17,150 shares of common stock for
services. The services were valued at $22,495.
On December 6, 1996, the Company issued warrants to purchase 12,500 shares of
its common stock as compensation for certain director fees. The warrants are
exercisable at any time after December 6, 1997 until their expiration on
December 4, 2001 (the "Expiration Date") at an exercise price of $1.56 per
share. Such warrants are subject to, among other things, adjustment and anti-
dilution provisions as more thoroughly described in the warrant agreement.
On December 6, 1996, the Company issued warrants to purchase 12,500 shares of
its common stock as compensation for certain director fees. The warrants are
exercisable at any time after December 6, 1998 until their expiration on
December 5, 2001 (the "Expiration Date") at an exercise price of $1.56 per
share. Such warrants are subject to, among other things, adjustment and anti-
dilution provisions as more thoroughly described in the warrant agreement.
F-16
<PAGE>
TIVOLI INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of The Years In The Two-Year
Period Ended September 30, 1997
NOTE 7 - STOCKHOLDERS' EQUITY, continued
- - ----------------------------------------
On January 7, 1997, the Company issued warrants to purchase 100,000 shares of
its common stock as compensation for certain professional services performed.
The warrants are exercisable at any time until their expiration on December 31,
2003 (the "Expiration Date") at an exercise price of $1.78 per share. Such
warrants are subject to, among other things, adjustment and anti-dilution
provisions as more thoroughly described in the warrant agreement. The Company
recorded $16,571 for the fair value of the warrants issued, based on an
independent appraisal obtained by the Company.
On January 7, 1997, the Company issued warrants to purchase 50,000 shares of its
common stock as compensation for certain director fees. The warrants are
exercisable at any time until their expiration on February 4, 2002 (the
"Expiration Date") at an exercise price of $1.75 per share. Such warrants are
subject to, among other things, adjustment and anti-dilution provisions as more
thoroughly described in the warrant agreement.
To date, no warrants have been exercised.
Stock Option Plans
- - ------------------
In May 1994, the Board of Directors approved the 1994 nonqualified and qualified
stock option plan, and reserved a total of 370,000 shares of the Company's
common stock available for the plan. Options to purchase 105,000 shares were
granted during fiscal 1996 at the estimated fair value of the Company's common
stock of $3.31 per share at the time of grant. The options vest 20% annually,
beginning one year from the date of grant and expire in April 2004. Options to
purchase 70,000 shares were granted during fiscal 1997 at the estimated fair
value of the Company's common stock ranging from $1.38 to $1.75 per share at the
time of grant. The options vest in a range from 20% to 30% annually, beginning
one year from the date of grant and expire on various dates through October
2006.
In February 1995, the Board of Directors approved the 1995 nonqualified and
qualified stock option plan, and reserved a total of 350,000 shares of the
Company's common stock available for the plan. Options to purchase 50,000
shares were granted in fiscal 1995 at the estimated fair value of the Company's
common stock at the time of grant. Options to purchase 191,000 shares were
granted in fiscal 1996 at the estimated fair value of the Company's common stock
of $3.31 per share at the time of grant. The options vest 20% annually,
beginning one year from the date of grant and expire in April 2005. The
Company's stockholders approved this plan on April 21, 1995. Options to
purchase 153,500 shares were granted during fiscal 1997 at the estimated fair
value of the Company's common stock ranging from $1.38 to $1.75 per share at the
time of grant. The options vest in a range from 20% to 30% annually, beginning
one year from the date of grant and expire on various dates through October
2006.
In January 1997, the Board of Directors approved the 1997 nonqualified and
qualified stock option plan, and reserved a total of 390,000 shares of the
Company's common stock available for the plan. The Company's stockholders
approved this plan on March 21, 1997. Options to purchase 275,000 shares were
granted 25,000 of which were to a non-employee, in June 1997 at the estimated
fair value of the Company's common stock of $1.625 per share at the time of
grant. The options vest 25% to 50% annually, beginning one year from the date
of grant and expire in January 2007.
F-17
<PAGE>
TIVOLI INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of The Years In The Two-Year
Period Ended September 30, 1997
NOTE 7 - STOCKHOLDERS' EQUITY, continued
- - ----------------------------------------
A summary of all employee stock option activity for the years ended September
30, 1997 and 1996 follows:
<TABLE>
<CAPTION>
Price Range
Options Per Share
-------- ------------
<S> <C> <C>
Balance, October 1, 1995 315,000 $2.80-$5.875
Granted 296,000 $3.31
Canceled (125,000) $3.31-$5.875
Exercised -
--------
Balance, September 30, 1996 486,000 $2.80-$5.875
Granted 473,500 $1.375-$1.75
Canceled (140,834) $1.375-$3.31
Exercised -
--------
Balance, September 30, 1997 818,666 $1.375-$5.875
========
Exercisable, September 30, 1997 204,408
========
</TABLE>
SFAS 123 Pro Forma Information
- - ------------------------------
Pro forma information regarding net income and net income per share is required
by SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of SFAS 123. The fair value
for these options was estimated at the date of grant using the Black Scholes
option pricing model with the following assumptions for the years ended
September 30, 1997 and 1996; risk free interest rate 5.86%; dividend yield of
0%; expected life of the options of 2 years; and volatility factors of the
expected market price of the Company's common stock of 46-145%.
The Black Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
F-18
<PAGE>
TIVOLI INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For Each of The Years In The Two-Year
Period Ended September 30, 1997
NOTE 7 - STOCKHOLDERS' EQUITY, continued
- - ----------------------------------------
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the option vesting period. Adjustments are made
for options forfeited prior to vesting. The effect on compensation expense, net
income, and net income per common share had compensation cost for the Company's
stock option plans been determined based on a fair value of the date of grant
consistent with the provisions of SFAS 123, for the years ended September 30,
1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Net income, as reported $ 511,765 $166,200
Adjustment to compensation expense under SFAS 123 (130,000) (68,000)
--------- --------
Net income, pro forma $ 381,765 $ 98,200
========= ========
Net income per share, as reported $ .13 $ .04
========= ========
Net income per share, pro forma $ .10 $ .03
========= ========
</TABLE>
NOTE 8 - RELATED PARTY TRANSACTION
- - ----------------------------------
The Company made cash payments totaling $106,154 and $52,784 during fiscal 1997
and 1996, respectively, to various related parties of the Company for consulting
services which were capitalized in connection with the Company's manufacturing
resource planning system.
NOTE 9 - SUBSEQUENT EVENT
- - -------------------------
On November 1, 1997, the Company and Targetti Sankey S.P.A, a corporation
organized under the laws of Italy, formed a new company "Targetti USA LLC". The
purpose of the new company is to (a) engage in the marketing and sale of
lighting products and (b) engage in any lawful act or activity for which a
limited liability company may be organized under the laws of the State of
California. In connection with this new company the Company entered into an
operating agreement, which among other items outlines the various ownership,
officers, management, and capital contributions of the new company. The Company
is required to contribute a capital contribution of approximately $476,000 of
certain assets and $168,000 of related liabilities to this new company. As of
September 30, 1997, the Company owed Targetti Sankey S.P.A. approximately
$115,000 related to inventory purchases. The Company intends to consolidate the
operating results of Targetti USA LLC with the operating results of the Company.
F-19
<PAGE>
EXHIBIT 4.1
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE.
THESE SECURITIES ARE SUBJECT TO RESTRIC TIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
TIVOLI INDUSTRIES, INC.
Warrant for the Purchase of Shares of Common Stock
No. _______ 12,500 Shares
FOR VALUE RECEIVED, TIVOLI INDUSTRIES, INC., a California corporation (the
"Company"), with its principal office at 1513 East St. Gertrude Place, Santa
Ana, California 92705, hereby certifies that _____________ ("Holder"), or his
assigns, is entitled, subject to the provisions of this Warrant, to purchase
from the Company, at any time beginning 9:00 a.m. (Pacific Time) _______________
(the "Exercisability Date") and ending 5:00 p.m. (Pacific Time) on the
expiration date of ______________ (the "Expiration Date"), the number of fully
paid and nonassessable shares of Common Stock of the Company set forth above
subject to adjustment as hereinafter provided.
Holder may purchase such number of shares of Common Stock at a purchase
price per share (as appropriately adjusted pursuant to Section 6 hereof) of
__________________ (the "Exercise Price"). The term "Common Stock" shall mean
the aforementioned Common Stock of the Company, together with any other equity
securities that may be issued by the Company in addition thereto or in
substitution therefor as provided herein.
The number of shares of Common Stock to be received upon the exercise of
this Warrant and the price to be paid for a share of Common Stock are subject to
adjustment from time to time as hereinafter set forth. The shares of Common
Stock deliverable upon such exercise, as adjusted from time to time, are
hereinafter sometimes referred to as "Warrant Shares."
SECTION 1. EXERCISE OF WARRANT. This Warrant may be exercised in whole or
in part on any business day beginning on the Exercisability Date and ending on
the Expiration Date by presentation and surrender hereof to the Company at its
principal office at the address set forth in the initial paragraph hereof (or at
such other address as the Company may hereafter notify Holder in writing) with
the Purchase Form annexed hereto duly executed and accompanied
1.
<PAGE>
by proper payment of the Exercise Price in lawful money of the United States of
America in the form of a check, subject to collection, for the number of Warrant
Shares specified in the Purchase Form. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant, execute and
deliver a new Warrant evidencing the rights of Holder thereof to purchase the
balance of the Warrant Shares purchasable hereunder. Upon receipt by the
Company of this Warrant and such Purchase Form, together with proper payment of
the Exercise Price, at such office, Holder shall be deemed to be the holder of
record of the Warrant Shares, notwithstanding that the stock transfer books of
the Company shall then be closed or that certificates representing such Warrant
Shares shall not then be actually delivered to Holder. The Company shall pay
any and all documentary stamp or similar issue or transfer taxes payable in
respect of the issue or delivery of the Warrant Shares.
SECTION 2. RESERVATION OF SHARES. The Company hereby agrees that at all
times there shall be reserved for issuance and delivery upon exercise of this
Warrant all shares of its Common Stock or other shares of capital stock of the
Company from time to time issuable upon exercise of this Warrant. All such
shares shall be duly authorized and, when issued upon such exercise in
accordance with the terms of this Warrant, shall be validly issued, fully paid
and nonassessable, free and clear of all liens, security interests, charges and
other encumbrances or restrictions on sale (other than as provided in the
Company's articles of incorporation and any restrictions on sale set forth
herein or pursuant to applicable federal and state securities laws) and free and
clear of all preemptive rights.
SECTION 3. FRACTIONAL INTEREST. The Company will not issue a fractional
share of Common Stock upon exercise of a Warrant. Instead, the Company will
deliver its check for the current market value of the fractional share
determined by multiplying the Current Market Price of a full share by the
fraction and rounding the result to the nearest cent.
The Current Market Price of a share of Common Stock is the last reported
sales price of the Common Stock on the trading day prior to the exercise date,
as reported by the Nasdaq SmallCap Market, or the primary national securities
exchange on which the Common Stock is then quoted; provided, however, that if
the Common Stock is neither traded on the Nasdaq SmallCap Market nor on a
national securities exchange, the price referred to above shall be the price
reflected in the over-the counter market as reported by the National Quotation
Bureau, Inc. or any organization performing a similar function.
SECTION 4. ASSIGNMENT OR LOSS OF WARRANT.
(A) Except as provided in Section 9, Holder shall be entitled,
without obtaining the consent of the Company, to assign his interest in this
Warrant in whole or in part to any person or persons. Subject to the provisions
of Section 9, upon surrender of this Warrant to the Company or at the office of
its stock transfer agent or warrant agent, with the Assignment Form annexed
hereto duly executed and funds sufficient to pay any transfer tax, the Company
shall, without charge, execute and deliver a new Warrant or Warrants in the name
of the assignee or assignees named in such instrument of assignment (any such
assignee will then be a "Holder"
2.
<PAGE>
for purposes of this Warrant) and, if Holder's entire interest is not being
assigned, in the name of Holder, and this Warrant shall promptly be canceled.
(B) Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of indemnification satisfactory to the Company, and
upon surrender and cancellation of this Warrant, if mutilated, the Company shall
execute and deliver a new Warrant of like tenor and date.
SECTION 5. RIGHTS OF HOLDER. Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of Holder are limited to those expressed in this Warrant.
Nothing contained in this Warrant shall be construed as conferring upon Holder
hereof the right to vote or to consent or to receive notice as a stockholder of
the Company on any matters or with respect to any rights whatsoever as a
stockholder of the Company. No dividends or interest shall be payable or
accrued in respect of this Warrant or the interest represented hereby or the
Warrant Shares purchasable hereunder until, and only to the extent that, this
Warrant shall have been exercised in accordance with its terms.
SECTION 6. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The number
and kind of securities purchasable upon the exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time upon the
beginning of certain events, as follows:
(A) Adjustment for Change in Capital Stock. If at any time after
the date hereof the Company:
(A) pays a dividend or makes a distribution on its Common
Stock in shares of its Common Stock;
(B) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(C) combines its outstanding shares of Common Stock into a
smaller number of shares;
(D) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock; or
(E) issues by reclassification of its Common Stock any shares
of its capital stock;
then the number and kind of securities purchasable upon the exercise of this
Warrant and the Exercise Price in effect immediately prior to such action shall
be adjusted so that Holder may receive upon exercise of this Warrant and payment
of the same aggregate consideration the
3.
<PAGE>
number of shares of capital stock of the Company which Holder would have owned
immediately following such action if Holder had exercised this Warrant
immediately prior to such action.
The adjustment shall become effective immediately after the record date in
the case of a dividend or distribution and immediately after the effective date
in the case of a subdivision, combination or reclassification.
(B) Minimum Adjustment. No adjustment in the Exercise Price of this
Section 6 shall be required unless such adjustment would require an increase or
decrease of at least twenty-five cents ($.25) in such Exercise Price; provided,
however, that any adjustments which by reason of this subsection are not
required to be made, shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 6 shall be made to
the nearest cent or to the nearest share, as the case may be.
(C) Deferral of Issuance or Payment. In any case in which an event
covered by this Section 6 shall require that an adjustment in the Exercise Price
be made effective as of a record date, the Company may elect to defer until the
occurrence of such event (i) issuing to Holder, if this Warrant is exercised
after such record date, the shares of Common Stock and other capital stock of
the Company, if any, issuable upon such exercise over and above the shares of
Common Stock or other capital stock of the Company, if any, issuable upon such
exer cise on the basis of the Exercise Price in effect prior to such adjustment,
and (ii) paying to Holder by check any amount in lieu of the issuance of
fractional shares pursuant to Section 3.
(D) When No Adjustment Required. No adjustment need be made for a
change in the par value of the Common Stock. To the extent this Warrant becomes
exercisable into cash, no adjustment need be made thereafter as to the cash, and
interest will not accrue on the cash.
(E) Notice of Certain Actions. In the event that:
(A) the Company shall authorize the issuance to all holders of
its Common Stock of rights, warrants, options or convertible securities to
subscribe for or purchase shares of its Common Stock or of any other
subscription rights, warrants, options or convertible securities; or
(B) the Company shall authorize the distribution to all holders
of its Common Stock of evidences of its indebtedness or assets (other than
dividends paid in or distributions of the Company's capital stock for which the
Exercise Price shall have been adjusted pursuant to subsection (a) of this
Section 6 or cash dividends or cash distributions payable out of consolidated
current or retained earnings as shown on the books of the Company and paid in
the ordinary course of business); or
(C) the Company shall authorize any capital reorganization or
reclassification of the Common Stock (other than a subdivision or combination of
the outstanding Common Stock and other than a change in par value of the Common
Stock) or of any
4.
<PAGE>
consolidation or merger to which the Company is a party and for which approval
of any stockholders of the Company is required (other than a consolidation or
merger in which the Company is the continuing corporation and that does not
result in any reclassification or change of the Common Stock outstanding), or of
the conveyance or transfer of the properties and assets of the Company as an
entirety or substantially as an entirety; or
(D) the Company is the subject of a voluntary or involuntary
dissolution, liquidation or winding-up procedure; or
(E) the Company proposes to take any action that would require
an adjustment of the Exercise Price pursuant to this Section 6;
then the Company shall cause to be mailed by first-class mail to Holder, at
least ten (10) days prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date as of which the holders of Common Stock
of record to be entitled to receive any such rights, warrants or distributions
are to be determined, or (y) the date on which any such consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding-up is expected to
become effective, and the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their shares of Common Stock for
securities or other property, if any, deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding-up.
SECTION 7. OFFICERS' CERTIFICATE. Whenever the Exercise Price shall be
adjusted as required by the provisions of Section 6, the Company shall file in
the custody of its Secretary or an Assistant Secretary at its principal office
an officers' certificate showing the adjusted Exercise Price determined as
herein provided, setting forth in reasonable detail the facts requiring such
adjustment and the manner of computing such adjustment. Each such officers'
certificate shall be signed by the chairperson, president or chief financial
officer of the Company and by the secretary or any assistant secretary of the
Company. Each such officers' certificate shall be made available at all
reasonable times for inspection by Holder.
SECTION 8. RECLASSIFICATION, REORGANIZATION, CONSOLIDATION OR MERGER. In
the event of any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the Company (other than a subdivision or
combination of the outstanding Common Stock and other than a change in the par
value of the Common Stock) or in the event of any consolidation or merger of the
Company with or into another corporation (other than a merger in which the
Company is the continuing corporation and that does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the class issuable upon exercise of this Warrant) or in the
event of any sale, lease, transfer or conveyance to another corporation of the
property and assets of the Company as an entirety or substantially as an
entirety, the Company shall use its best efforts to cause effective provisions
to be made so that Holder shall have the right thereafter, by exercising this
Warrant, to purchase the kind and amount of shares of stock and other securities
and property (including cash) receivable upon such reclassification, capital
reorganization and other change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock that might
5.
<PAGE>
have been received upon exercise of this Warrant immediately prior to such
reclassification, capital reorganization, change, consolidation, merger, sale or
conveyance. Any such provision shall include provisions for adjustments in
respect of such shares of stock and other securities and property that shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Warrant. The foregoing provisions of this Section 8 shall similarly apply
to successive reclassifications, capital reorganizations and changes of shares
of Common Stock and to successive consolidations, mergers, sales or conveyances.
In the event that in connection with any such capital reorganization, or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for, or of, a security of the Company other than
Common Stock, any such issue shall be treated as an issue of Common Stock
covered by the provisions of subsection (a) of Section 6.
SECTION 9. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933. This
Warrant may not be exercised and neither this Warrant nor any of the Warrant
Shares, nor any interest in either, may be offered, sold, assigned, pledged,
hypothecated, encumbered or in any other manner transferred or disposed of, in
whole or in part, except in compliance with applicable United States federal and
state securities or Blue Sky laws and the terms and conditions hereof. The
Warrant shall bear a legend in substantially the same form as the legend set
forth on the first page of this Warrant. Each certificate for Warrant Shares
issued upon exercise of this Warrant, unless at the time of exercise such
Warrant Shares are acquired pursuant to a registration statement that has been
declared effective under the Act, and applicable blue sky laws shall bear a
legend substantially in the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE
AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN
COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
Any certificate for any Warrant Shares issued at any time in exchange or
substitution for any certificate for any Warrant Shares bearing such legend
(except a new certificate for any Warrant Shares issued after the acquisition of
such Warrant Shares pursuant to a registration statement that has been declared
effective under the Act) shall also bear such legend unless, in the opinion of
counsel for the Company, the Warrant Shares represented thereby need no longer
be subject to the restriction contained herein. The provision of this Section 9
shall be binding upon all subsequent holders of certificates for Warrant Shares
bearing the above legend and all subsequent holders of this Warrant, if any.
6.
<PAGE>
SECTION 10. MODIFICATION AND WAIVER. Neither this Warrant nor any term
hereof may be changed, waived, discharged or terminated other than by an
instrument in writing signed by the Company and by Holder.
SECTION 11. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to Holder or the Company shall be delivered
or shall be sent by certified mail, postage prepaid, to Holder at its address as
shown on the books of the Company or to the Company at the address indicated
therefor in the first paragraph of this Warrant.
SECTION 12. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description
headings of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of California, without
regard to its conflicts of laws principles.
IN WITNESS WHEREOF, the Company has duly caused this Warrant to be signed
by its duly authorized officer and to be dated as of _________________ .
TIVOLI INDUSTRIES, INC.
By:_______________________________________
Terrence C. Walsh
Chief Executive Officer
7.
<PAGE>
PURCHASE FORM
Dated ___________, 19____
The undersigned hereby irrevocably elects to exercise the within Warrant
No. __________ to purchase _________ shares of Common Stock and hereby makes
payment of $_____________ in payment of the exercise price thereof.
_______________________________
_____________
<PAGE>
ASSIGNMENT FORM
Dated _________, 19____
FOR VALUE RECEIVED,
________________ hereby sells, assigns and transfers unto
__________________________________________________ (the "Assignee"),
(please type or print in block letters)
________________________________________________________________________________
(insert address)
its right to purchase up to _______ shares of Common Stock represented by this
Warrant No. _________________ and does hereby irrevocably constitute and appoint
____________________________ attorney, to transfer the same on the books of the
Company, with full power of substitution in the premises.
___________________________________
__________
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
May 1, 1997, by and between TIVOLI INDUSTRIES, INC., a California corporation
whose principal place of business is located in Santa Ana, California 92705
("Employer"), and TERRENCE C. WALSH, an individual residing in the State of
California ("Executive").
WHEREAS, Employer desires to retain the services of Executive on the terms
and conditions herein provided, and Executive is willing to provide such
services on such terms and conditions;
NOW THEREFORE, in consideration of the foregoing premises and the mutual
covenants of the parties contained herein, the parties agree as follows:
1. Term. This Agreement shall continue in full force and effect for a
----
period which shall commence as of the date hereof and shall continue until April
30, 2000 (the "Term"), unless sooner terminated as hereinafter provided or
extended by the mutual agreement of the parties.
2. Employment. Executive shall serve as the Chief Executive Officer of
----------
Employer, subject to the reasonable directions of Employer's Board of Directors,
and as such shall have day-to-day responsibility for the management of all of
Employer's affairs and operations, subject to the reasonable directions of
Employer's Board of Directors. In addition, Executive shall serve as a member of
Employer's Board of Directors, and on one or more committees thereof, but
without compensation other than as provided for in paragraph 3 below. Executive
shall devote his full executive time, energies and abilities to the proper and
efficient performance of his duties provided herein.
Executive shall at all times perform his duties and obligations faithfully and
diligently and to the best of Executive's ability.
3. Compensation.
------------
(a) As compensation for the services provided by Executive
hereunder, during the Term of this Agreement Employer shall pay Executive an
annual salary of not less than $140,000 per year. Executives' salary shall be
reviewed by Employer's Board of Directors from time to time at its discretion
but not less often than annually, and Executive shall receive such salary
increases as Employer's Board of Directors shall determine; provided that
Employee's annual salary payable for the ensuing twelve (12) month period shall
in all events be increased at the end of each succeeding twelve (12) month
period at a rate equal to the greater of 5% per annum or the increase, if any,
in the Consumer Price Index for Urban Wage Earners and Clerical Workers (Los
Angeles-Long Beach-Anaheim), as published by the Bureau of Labor Statistics of
the U.S. Department of Labor, during the preceding twelve (12) months. All such
salary shall be payable in equal installments in conformity with Employer's
normal payroll period.
(b) In addition to the minimum salary payable to Executive as
provided in subparagraph 3(a) above, Executive shall be entitled to receive, for
each full or partial calendar year during the Term hereof, a bonus, if any, as
determined by Employer's Compensation Committee.
(c) In addition to salary and bonus payment (if any), Executive
shall be entitled to receive stock options and/or warrants, if any, as
determined by the Employer's Compensation Committee. Such awards will be awarded
on an annual basis.
4. Benefits and Vacations.
----------------------
(a) Executive shall be entitled to participate in or receive
benefits under Employer's health insurance plans or arrangements as in effect on
the date hereof for such period of time as such plans and arrangements shall
remain in effect. In addition, Executive shall be entitled to participate in or
receive benefits under any pension plan, profit-sharing plan, life insurance,
health-and-accident plan or arrangement made available in the future by Employer
to its executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. Nothing paid to Executive under any such plan or arrangement
presently in effect or made available in the future shall be deemed to be in
lieu of any compensation payable to Executive hereunder.
-1-
<PAGE>
(b) Executive shall be entitled to the number of paid vacation days
in each calendar year, and to compensation for earned but unused vacation days,
determined by Employer from time to time for its executives and key management
employees, but not less than four (4) weeks in each year of the Term hereof.
Executive shall also be entitled to all paid holidays given by Employer to its
executives and key management employees.
5. Expenses. During the Term hereof, Executive shall be entitled to
--------
receive prompt reimbursement of all reasonable expenses incurred by Executive
(in accordance with the policies and procedures from time to time adopted by
Board of Directors of Employer for its senior officers) in performing the
services contemplated hereunder, provided that Executive properly accounts
therefore in accordance with Employer's policy.
6. Termination.
-----------
(a) Executive's employment hereunder shall terminate immediately
upon death.
(b) In the event that Executive shall be unable to perform the
services contemplated hereunder by reason of disability, illness or other
incapacity, such failure to so perform such duties shall not be grounds for
terminating the employment of Executive by Employer; provided, however, that
-----------------
Employer may terminate Executive's employment hereunder should the period of
such incapacity exceed six (6) consecutive months. Any such termination shall
not be considered to be for "Cause" as defined in subparagraph (c) immediately
below.
(c) Executive's employment hereunder may be terminated by Employer
prior to the expiration of the Term with or without "Cause" (as defined in
subparagraph 6(e) below), immediately upon delivery by Employer of a written
notice of termination; provided, however, that if Employer shall not have Cause
-----------------
to terminate Executive's employment hereunder, then upon any such termination,
and as a condition of the effectiveness thereof, Employer shall pay to Executive
as severance pay, in one lump sum in cash, an amount equal to (i) the amount of
the base salary that would have been payable over the remainder of the term of
this Agreement had Executive not been terminated (subject to a minimum amount
equal to 24 months base salary, such 24 month period being a "Minimum Severance
Period"), and (ii) the amount of annual bonus that would have been payable for
the Minimum Severance for Executive, which is deemed to be equal to the average
annual bonus received by Executive during the last year(s) (up to a maximum of
three) preceding the date of termination in which a bonus was paid (collectively
the "Severance Amount"). Following payment of the Severance Amount, Employer
shall have no further obligation to Executive.
(d) In the event that Executive is terminated for Cause, Employer
shall pay Executive's salary through the date of termination, after deducting
any amounts lawfully owing from Executive to Employer, and shall thereafter have
no further obligation to Executive.
(e) For the purposes of this Agreement, "Cause" means (i) the
willful and continued failure by Executive to substantially perform Executive's
duties hereunder, other than any such failure resulting from Executive's
incapacity due to physical or mental illness, after a demand for substantial
performance is delivered to Executive by the Board of Directors of Employer (the
"Board") which specifically identifies the manner in which the Board believes
that Executive has not substantially performed such duties, or (ii) the willful
engaging by Executive in gross misconduct materially and demonstrably injurious
to Employer. For purposes of this subparagraph, no act, or failure to act, on
Executive's part shall be considered "willful" merely because it was the result
of bad judgment or negligence; rather, such act or failure to act must have been
done, or omitted to have been done, by Executive other than in good faith and
without reasonable belief that Executive's action or omission was in the best
interests of the Employer. Notwithstanding the foregoing, Executive's
employment shall not be deemed to have been terminated for "Cause" unless and
until there shall have been delivered to Executive a copy of a resolution duly
adopted by the affirmative vote of Employer's Board of Directors at a meeting of
the Board called and held for such purpose (after reasonable notice to Executive
and an opportunity for Executive, together with Executive's counsel, to be heard
before the Board), finding that in the good faith opinion of the Board Executive
was guilty of conduct described above in clauses (i) or (ii) of this
subparagraph and specifying the particulars thereof in detail. In the event
that Executive is terminated for cause, Employer shall pay Executive's salary
through date of termination, any bonuses which have been earned by Executive
through the date of termination after deducting any amounts lawfully owing from
Executive to Employer, and shall thereafter have not further obligation to
Executive, expect to the extent the Executive may be entitled to exercise any of
the options granted to Executive as contemplated in paragraph 3(c) above.
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<PAGE>
(f) Executive shall be entitled to terminate his employment with
Employer hereunder for "Good Reason." Within five (5) business days of such
termination, Employer shall pay Executive in one lump sum the Severance Amount
provided above. For purposes of this Agreement, any termination of employment
under any one or more of the following circumstances shall be for "Good Reason":
(i) Without Executive's express written consent, the assignment
to Executive of any duties inconsistent with Executive's positions, duties,
responsibilities and status with Employer, or a change in Executive's reporting
responsibilities, titles or offices as in effect upon the execution hereof, or
any removal of Executive from or any failure to re-elect Executive to any such
positions, except in connection with the termination of Executive's employment
for Cause, Disability, Retirement or as a result of death;
(ii) The reduction by Employer in Executive's base salary, as the
same may thereafter be increased from time to time, the failure by Employer to
increase such base salary each successive year, as specified in subparagraph
3(a) hereof, or the failure by Employer to otherwise pay Executive the base
salary provided for herein;
(iii) The failure by Employer to continue Executive's
participation in the bonus and other compensation plans and incentive plans
specified in subparagraph 3(b) hereof;
(iv) The failure by Employer to continue Executive's
participation in any benefit plan, pension plan, qualified retirement plan, life
insurance plan, vacation plan, holiday plan, car lease plan, medical expense,
health and accident plan or disability plan, or expense reimbursement
arrangement specified in paragraphs 4 and 5 hereof, or the taking of any action
by Employer (prompt notice of which shall be provided to Executive) which would
adversely affect Executive's participation in (including materially increasing
Executive's costs of such participation), or materially reduce Executive's
benefits under, any of such plans, or which would deprive Executive of any other
fringe or personal benefits under any of such plans; provided, however, that
-------- -------
notwithstanding the provisions of this subparagraph 6(f)(iv), Employer's
providing benefits of a type or amount different than as provided for
hereinabove shall not be deemed a violation of this subparagraph if required by
law;
(v) Any action by Employer that would require Executive to
relocate his principal residence or office to a location more than 50 miles from
Employer's current principal executive offices.
(g) Any termination of Executive's employment by Employer for
Disability, Retirement or Cause, or by Executive for Good Reason, shall be
communicated by Written Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provisions in this Agreement relied
upon, shall set forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of Executive's employment under the provision
so indicated, and shall set forth the date upon which such termination is to
become effective.
7. Proprietary Information. Executive acknowledges that certain
-----------------------
technological and other information may from time to time be disclosed to
Executive by Employer during the continuance hereof. Executive hereby
acknowledges that all such information and technology, whether currently
existing or hereafter developed by Employer through or involving the services
and efforts of Executive hereunder, shall at all times consist of and be
preserved by Executive as valuable trade secrets and confidential information
which is proprietary to and owned exclusively by Employer, and that Executive
does not have, and shall not have or hereafter acquire, any rights in or to any
such information and technology, including without limitation any patents,
inventions, discoveries, know-how, trademarks or tradenames used or adopted by
Employer in connection with the design, development, manufacture, marketing,
sale or installation of any products which at any time during the continuation
hereof may be offered or sold or licensed by Employer. Executive further
warrants and agrees that he shall not at any time, whether during the
continuance of this Agreement or after its expiration or earlier termination,
whether by Executive or by Employer, in any manner or form, directly or
indirectly, use, disclose, duplicate, license, sell, reveal, divulge, publish or
communicate any portion of any such information or technology nor use, disclose,
duplicate, license, sell, reveal, divulge, publish or communicate any other
confidential information concerning Employer, or any customers or other products
of Employer, to any person, firm or entity.
-3-
<PAGE>
8. General Provisions.
------------------
(a) Any notice, request, demand or other communication required or
permitted hereunder shall be deemed to be properly given when personally served
in writing, when deposited in the United States mail, postage prepaid, or when
communicated to a public telegraph company for transmittal, addressed to
Employer or Executive at their respective last known address. Either party may
change its address by written notice given in accordance with this subparagraph.
(b) This Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective executors, administrators, successors
and assigns; provided, however, that Executive may not assign any or all of
-------- -------
Executive's rights or duties hereunder without the prior written consent of
Employer.
(c) This Agreement is made and entered into, is to be performed
primarily within, and shall be governed by and constructed in all respects in
accordance with the laws of the State of California.
(d) Captions and Paragraph headings used herein are for convenience
only and are not a part of this Agreement and shall be used in construing it.
(e) Should any provision of this Agreement for any reason be
declared invalid, void, or unenforceable by a court of competent jurisdiction,
the validity and binding effect of any remaining portions shall not be affected,
and the remaining provisions of this Agreement shall remain in full force as if
this Agreement had been executed with said provision eliminated.
(f) Employer shall indemnify Executive to the fullest extent
permitted by applicable law with respect to any claims arising from the
performance by Executive of his duties hereunder during the Term of this
Agreement.
(g) This Agreement contains the entire agreement of the parties, and
supersedes any and all other agreements, either oral or in writing, between the
parties hereto with respect to the employment of Executive of Employer. Each
party to this Agreement acknowledges that no representations, inducements,
promises or agreements, oral or otherwise, have been made by any party, or
anyone acting on behalf of any party, which are not embodied herein or therein,
and that no other agreement, statement or promise not contained herein or
therein shall be relied upon or be valid or binding. This Agreement may not be
modified or amended by oral agreements, but only by an agreement in writing
signed by Employer on the one hand, and by Executive on the other hand.
(h) In the event of any litigation between Executive and Employer
concerning the rights or obligations of any party under this Agreement, the
non-prevailing party shall pay the reasonable costs and expenses, including
attorneys' fees, of the prevailing party in connection therewith.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.
APPROVED:
"Employer"
TIVOLI INDUSTRIES, INC. TIVOLI INDUSTRIES, INC.
By: By:
------------------------------- -------------------------------
Stephen J. Goodman Gerald E. Morris
Director/Compensation Committee Director/Compensation Committee
"Executive"
----------------------------------
Terrence C. Walsh
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<PAGE>
EXHIBIT 10.8
MASTER AGREEMENT
BY AND BETWEEN
TIVOLI INDUSTRIES, INC.,
TARGETTI SANKEY S.P.A.,
AND
TARGETTI USA LLC
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. Closing.............................................................. 1.
1.1 Transactions at Closing......................................... 1.
1.2 Conditions to Tivoli's Obligations at the Closing............... 1.
1.3 Conditions to Targetti's Obligations at the Closing............. 2.
2. Representations and Warranties....................................... 2.
2.1 Representations and Warranties of Tivoli........................ 2.
(a) Organization............................................... 2.
(b) Corporate Authority; Authorization......................... 2.
(c) Governmental Consents; No Conflicts........................ 2.
2.2 Representations and Warranties of Targetti...................... 3.
(a) Organization............................................... 3.
(b) Corporate Authority; Authorization......................... 3.
(c) Governmental Consents; No Conflicts........................ 3.
2.3 Representations and Warranties of the LLC....................... 4.
(a) Organization............................................... 4.
(b) Authority; Authorization................................... 4.
(c) Governmental Consents; No Conflicts........................ 4.
3. Expenses............................................................. 4.
4. Arbitration.......................................................... 5.
5. Miscellaneous Provisions............................................. 5.
5.1 Notices......................................................... 5.
5.2 Application of California Law................................... 7.
5.3 Amendments...................................................... 7.
5.4 Execution of Additional Instruments............................. 7.
5.5 Construction.................................................... 7.
5.6 Headings........................................................ 8.
5.7 Waivers......................................................... 8.
5.8 Rights and Remedies Cumulative.................................. 8.
5.9 Severability.................................................... 8.
5.10 Heirs, Successors and Assigns................................... 8.
5.11 Creditors....................................................... 8.
5.12 Counterparts.................................................... 8.
5.13 No Third Party Beneficiaries.................................... 8.
</TABLE>
i
<PAGE>
MASTER AGREEMENT
THIS MASTER AGREEMENT (the "Agreement") is made as of this 1st day of
November 1997 (the "Effective Date") by and between TIVOLI INDUSTRIES, INC., a
California corporation ("Tivoli"), TARGETTI SANKEY S.P.A., a corporation
organized under the laws of Italy ("Targetti") and TARGETTI USA LLC, a
California limited liability company (the "LLC").
WHEREAS, Tivoli and Targetti propose to enter into on the date hereof (the
"Closing Date") an Operating Agreement (the "Operating Agreement"), under which
Tivoli and Targetti will contribute specified assets to the LLC and which will
set forth the respective ownership interests of Tivoli and Targetti in the LLC
and the principles by which the LLC will be operated and governed;
WHEREAS, Tivoli will assign all of its rights and obligations under an
Amended and Restated License and Distribution Agreement between Tivoli and
Targetti (the "License Agreement") to the LLC under which following such
assignment, Targetti will supply certain products and license certain technology
to the LLC, and the LLC will market and distribute such products; and
WHEREAS, the LLC and Tivoli propose to enter into, on or before the Closing
Date, a Manufacturing Agreement (the "Manufacturing Agreement") under which
Tivoli will complete the manufacture of certain products supplied by Targetti to
the LLC.
NOW, THEREFORE, in consideration of mutual covenants and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
1. CLOSING
1.1 TRANSACTIONS AT CLOSING. Subject to the terms and conditions hereof
and in reliance on the respective representations and warranties of Tivoli and
Targetti contained herein, on the Closing Date (a) Tivoli and Targetti shall
execute the Operating Agreement; (b) Tivoli shall assign all of its rights and
obligations under the License Agreement to the LLC pursuant to the form of
assignment attached as Exhibit 1.1 hereto (the "License Assignment"); and (c)
Tivoli and the LLC shall execute the Manufacturing Agreement.
1.2 CONDITIONS TO TIVOLI'S OBLIGATIONS AT THE CLOSING. The obligations of
Tivoli to execute the Operating Agreement and the Manufacturing Agreement on the
Closing Date are subject to the following conditions: (a) Targetti shall
contribute cash specified on Exhibit 1.2(a) hereto to the LLC; (b) Targetti
shall concurrently execute the Operating Agreement and License Agreement; (c)
Targetti shall concurrently execute a lending agreement in the form of Exhibit
1.2(c) hereto whereby it will agree to lend the LLC up to $250,000 on specified
terms and conditions; (d) the LLC shall reimburse Tivoli for the organizational
expenses of the LLC advanced to the LLC by Tivoli, as set forth on Exhibit
1.2(d) hereto; and (e) the representations
1.
<PAGE>
and warranties of Targetti contained herein and in the License Agreement shall
be true and correct, individually and in the aggregate, in all material respects
as of the Closing Date.
1.3 CONDITIONS TO TARGETTI'S OBLIGATIONS AT THE CLOSING. The obligations
of Targetti to execute the Operating Agreement and the License Agreement on the
Closing Date are subject to the following conditions: (a) Tivoli shall
contribute the assets specified on Exhibit 1.3(a) hereto to the LLC; (b) Tivoli
shall concurrently execute the Operating Agreement, the License Agreement and
Manufacturing Agreement; (c) Tivoli shall concurrently execute the License
Assignment; and (d) the representations and warranties of Tivoli contained
herein and in the Manufacturing Agreement shall be true and correct,
individually and in the aggregate, in all material respects as of the Closing
Date.
2. REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF TIVOLI. Tivoli represents and
warrants that:
(A) ORGANIZATION. Tivoli is a corporation duly organized, validly
existing and in good standing under the corporation laws of the state of
California, with corporate powers adequate for executing and delivering, and
performing its obligations under, this Agreement, the Operating Agreement and
the Manufacturing Agreement.
(B) CORPORATE AUTHORITY; AUTHORIZATION. Tivoli has full corporate
power and authority to execute, deliver and perform this Agreement, the
Operating Agreement, the License Agreement and the Manufacturing Agreement. The
execution and delivery of this Agreement, the Operating Agreement, the License
Agreement and the Manufacturing Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by the Board of Directors of Tivoli, and no other corporate
proceedings on the part of Tivoli are necessary for Tivoli to authorize this
Agreement, the Operating Agreement, the License Agreement and the Manufacturing
Agreement or to consummate the transactions contemplated hereby or thereby.
Upon execution and delivery, this Agreement, the Operating Agreement, the
License Agreement and the Manufacturing Agreement constitute legal, valid and
binding obligations of Tivoli in accordance with their terms (except as
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
or remedies in general from time to time in effect and the exercise by courts of
equity powers).
(C) GOVERNMENTAL CONSENTS; NO CONFLICTS. There are no legal
requirements that require that Tivoli make a filing with, or obtain any permit,
authorization, consent or approval of, any governmental authority as a condition
to the lawful consummation by Tivoli of the transactions contemplated by this
Agreement, the Operating Agreement, the License Agreement and the Manufacturing
Agreement. Neither the execution and delivery of this Agreement, the Operating
Agreement, the License Agreement and the Manufacturing Agreement or the
consummation of the transactions contemplated hereby or thereby will (i)
conflict with or result in any material breach of the Articles of Incorporation
or Bylaws of Tivoli; (ii) result in a default (or give rise to any right of
termination, cancellation or acceleration) under any of the
2.
<PAGE>
terms, conditions or provisions of any note, bond, mortgage, indenture or other
evidence of indebtedness of Tivoli or any material license agreement, lease or
other material contract, instrument or obligation to which Tivoli is a party or
by which Tivoli or its assets are bound, or result in the creation of any
material (individually or in the aggregate) liens, charges or encumbrances on
any of the assets of Tivoli; or (iii) violate any legal requirement, writ,
order, injunction, decree or arbitration award applicable to Tivoli or the
assets of Tivoli, which violation would or would reasonably be expected to have
a material adverse effect on Tivoli.
2.2 REPRESENTATIONS AND WARRANTIES OF TARGETTI. Targetti represents and
warrants that:
(A) ORGANIZATION. Targetti is a corporation duly organized, validly
existing and in good standing under the corporation laws of Italy, with
corporate powers adequate for executing and delivering, and performing its
obligations under, this Agreement, the Operating Agreement and the License
Agreement.
(B) CORPORATE AUTHORITY; AUTHORIZATION. Targetti has full corporate
power and authority to execute, deliver and perform this Agreement, the
Operating Agreement and the License Agreement. The execution and delivery of
this Agreement, the Operating Agreement and the License Agreement and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by the Board of Directors of Targetti, and no other
corporate proceedings on the part of Targetti are necessary for Targetti to
authorize this Agreement, the Operating Agreement and the License Agreement or
to consummate the transactions contemplated hereby or thereby. Upon execution
and delivery, this Agreement, the Operating Agreement and the License Agreement
constitute legal, valid and binding obligations of Targetti in accordance with
their terms (except as enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights or remedies in general from time to time in
effect and the exercise by courts of equity powers).
(C) GOVERNMENTAL CONSENTS; NO CONFLICTS. There are no legal
requirements that require that Targetti make a filing with, or obtain any
permit, authorization, consent or approval of, any governmental authority as a
condition to the lawful consummation by Targetti of the transactions
contemplated by this Agreement, the Operating Agreement and the License
Agreement. Neither the execution and delivery of this Agreement, the Operating
Agreement and the License Agreement or the consummation of the transactions
contemplated hereby or thereby will (i) conflict with or result in any material
breach of the Articles of Incorporation or Bylaws of Targetti; (ii) result in a
default (or give rise to any right of termination, cancellation or acceleration)
under any of the terms, conditions or provisions of any note, bond, mortgage,
indenture or other evidence of indebtedness of Targetti or any material license
agreement, lease or other material contract, instrument or obligation to which
Targetti is a party or by which Targetti or its assets are bound, or result in
the creation of any material (individually or in the aggregate) liens, charges
or encumbrances on any of the assets of Targetti; or (iii) violate any legal
requirement, writ, order, injunction, decree or arbitration award applicable to
Targetti or
3.
<PAGE>
the assets of Targetti, which violation would or would reasonably be expected to
have a material adverse effect on Targetti.
2.3 REPRESENTATIONS AND WARRANTIES OF THE LLC. The LLC represents and
warrants that:
(A) ORGANIZATION. The LLC is a limited liability company duly
organized, validly existing and in good standing under the laws of the state of
California, with powers adequate for executing and delivering, and performing
its obligations under, this Agreement, the Operating Agreement, the License
Agreement and the Manufacturing Agreement.
(B) AUTHORITY; AUTHORIZATION. The LLC has full power and authority to
execute, deliver and perform this Agreement, the Operating Agreement and the
Manufacturing Agreement. The execution and delivery of this Agreement, the
Operating Agreement and the Manufacturing Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by the Board of Directors of the LLC, and no other proceedings on the
part of the LLC are necessary for the LLC to authorize this Agreement, the
Operating Agreement and the Manufacturing Agreement or to consummate the
transactions contemplated hereby or thereby. Upon execution and delivery, this
Agreement, the Operating Agreement and the Manufacturing Agreement constitute
legal, valid and binding obligations of the LLC in accordance with their terms
(except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights or remedies in general from time to time in effect and the
exercise by courts of equity powers).
(C) GOVERNMENTAL CONSENTS; NO CONFLICTS. There are no legal
requirements that require that the LLC make a filing with, or obtain any permit,
authorization, consent or approval of, any governmental authority as a condition
to the lawful consummation by the LLC of the transactions contemplated by this
Agreement, the Operating Agreement and the Manufacturing Agreement. Neither the
execution and delivery of this Agreement, the Operating Agreement and the
Manufacturing Agreement or the consummation of the transactions contemplated
hereby or thereby will (i) conflict with or result in any material breach of the
Articles of Organization of the LLC; (ii) result in a default (or give rise to
any right of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture or other
evidence of indebtedness of the LLC or any material license agreement, lease or
other material contract, instrument or obligation to which the LLC is a party or
by which the LLC or its assets are bound, or result in the creation of any
material (individually or in the aggregate) liens, charges or encumbrances on
any of the assets of the LLC; or (iii) violate any legal requirement, writ,
order, injunction, decree or arbitration award applicable to the LLC or the
assets of the LLC, which violation would or would reasonably be expected to have
a material adverse effect on the LLC.
3. EXPENSES
4.
<PAGE>
3.1 Whether or not the transactions contemplated by the Agreements shall
be consummated, and except as provided in Section 3.2 below, each party shall
pay its own expenses incurred in connection with the preparation of the
Agreements, the consummation of the transactions contemplated hereby and
thereby, and any waiver or amendment of, or consent under any of the Agreements.
3.2 The organizational costs of the LLC advanced to the LLC by Tivoli and
set forth on Exhibit 1.2(d) hereto shall be paid by the LLC.
4. ARBITRATION
4.1 All disputes, controversies or differences (collectively, a "Dispute")
in connection with this Agreement (each individually a "Dispute") are in
principle to be settled between both parties with sincerity and with mutual
understanding and reliance.
4.2 Any Dispute that has not been resolved after good faith negotiations
between the parties shall be referred to a mediator to be designated by the
parties (the "Designated Mediator") by delivery of written notice to such
Designated Mediator by any party. Upon receiving written notice of any such
Dispute, the Designated Mediator shall have 60 days to attempt to resolve such
Dispute. If the Dispute has not been resolved by the end of such 60 day
mediation period, the matter shall be referred to arbitration, as set forth
below.
4.3 In the event that mediated settlement is not possible, any such
Dispute shall be referred to and settled by arbitration in Orange County,
California, U.S.A., pursuant to the standard rules and procedures of
JAMS/Endispute, by which each party hereto is bound. Judgment upon the award
rendered may be entered in any court for judicial acceptance of the award and an
order of judgment of enforcement, as the case may be. Such proceedings shall be
conducted in the English language.
4.4 In any action or arbitration proceeding arising between the parties
hereto regarding this Agreement, the prevailing party shall be entitled to
recover reasonable attorneys' fees and costs. Further, the parties hereby agree
that Tivoli, Targetti and the LLC shall each deposit $20,000 into an escrow
account designated by the arbitrator upon commencement of any arbitration
between the parties in connection with a dispute arising from this Agreement.
Such amounts may be used by the prevailing party to offset legal fees or
attorney costs incurred during the proceedings or against the judgment. Any
unused amounts left in escrow after satisfaction of the prevailing party and
after the return of the prevailing party's deposit to the prevailing party shall
be returned to the other party.
5. MISCELLANEOUS PROVISIONS
5.1 NOTICES. Any notice or other communication required or which may be
given hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed or sent by facsimile, or sent by certified, registered or
express mail, postage prepaid and shall be deemed
5.
<PAGE>
given when so delivered personally, telegraphed or telexed or sent by facsimile
or computer transmission, or if mailed, five (5) days after the date of mailing,
as follows:
If to Tivoli to:
Tivoli Industries, Inc.
1513 East St. Gertrude Place
Post Office Box 15624
Santa Ana, CA 92705
ATTN: Terrence C. Walsh
Chairman and Chief Executive Officer
TELEPHONE: (714) 957-6101
FAX: (714) 957-0335
With a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
ATTN: Andrei Manoliu, Esq.
TELEPHONE: (650) 843-5000
FAX: (650) 857-0663
If to Targetti to:
Targetti Sankey S.p.A.
Via Pratese, 164
50145 Florence, Italy
ATTN: Paolo Targetti
President and Chief Executive Officer
and Lorenzo Targetti
Managing Director
TELEPHONE: 011-39-55-3791-273
FAX: 011-39-55-3791-255
6.
<PAGE>
With a copy to: Lorenzo Stanghellini
Viale Mazzini 35
50132 Florence ITALY
If to the LLC to:
Targetti USA LLC
c/o Tivoli Industries, Inc.
1513 East St. Gertrude Place
Post Office Box 15624
Santa Ana, CA 92705
ATTN: Robert Baker
President
TELEPHONE: (714) 957-6101
FAX: (714) 957-1501
With a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
ATTN: Andrei Manoliu, Esq.
TELEPHONE: (650) 843-5000
FAX: (650) 857-0663
5.2 APPLICATION OF CALIFORNIA LAW. This Agreement, and the application of
interpretation hereof, shall be governed exclusively by its terms and by the
laws of the State of California (without giving effect to principles of
conflicts of laws).
5.3 AMENDMENTS. An amendment shall become effective at such time as it
has been approved in writing by Tivoli, Targetti and the LLC.
5.4 EXECUTION OF ADDITIONAL INSTRUMENTS. Each of Tivoli, Targetti and the
LLC hereby agrees to execute such other and further statements of interest and
holdings, designations, powers of attorney and other instruments necessary to
comply with any laws, rules or regulations.
5.5 CONSTRUCTION. Whenever the singular number is used in this Agreement
and when required by the context, the same shall include the plural, and the
masculine gender shall include the feminine and neuter genders and vice versa.
This Agreement is prepared and executed in the English language only and any
translation of this Agreement into any other language shall have no effect.
7.
<PAGE>
5.6 HEADINGS. The headings in this Agreement are inserted for convenience
only and are in no way intended to describe, interpret, define, or limit the
scope, extent or intent of this Agreement or any provision hereof.
5.7 WAIVERS. The failure of any party to seek redress for violation of or
to insist upon the strict performance of any covenant or condition of this
Agreement shall not prevent a subsequent act, which would have originally
constituted a violation, from having the effect of an original violation.
5.8 RIGHTS AND REMEDIES CUMULATIVE. The rights and remedies provided by
this Agreement are cumulative, and the use of any one right or remedy by any
party shall not preclude or waive the right to use any or all other remedies.
Such rights and remedies are given in addition to any other rights the parties
may have by law, statute, ordinance or otherwise.
5.9 SEVERABILITY. If any provision of this Agreement or the application
thereof to any person or circumstance shall be invalid, illegal or unenforceable
to any extent, the remainder of this Agreement and the application thereof shall
not be affected and shall be enforceable to the fullest extent permitted by law.
5.10 HEIRS, SUCCESSORS AND ASSIGNS. Each and all of the covenants, terms,
provisions and agreements herein contained shall be binding upon and inure to
the benefit of the parties hereto and, to the extent permitted by this
Agreement, their respective heirs, legal representatives, successors and
assigns.
5.11 CREDITORS. None of the provisions of this Agreement shall be for the
benefit of or enforceable by any creditor of Tivoli, Targetti or the LLC.
5.12 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same instrument.
5.13 NO THIRD PARTY BENEFICIARIES. It is understood and agreed among
the parties that this Agreement and the covenants made herein are made expressly
and solely for the benefit of the parties hereto, and that no other person,
shall be entitled or be deemed to be entitled to any benefits or rights
hereunder, nor be authorized or entitled to enforce any rights, claims or
remedies hereunder or by reason hereof.
8.
<PAGE>
MASTER AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
TIVOLI INDUSTRIES, INC.
By: /s/ Terrence C. Walsh
-----------------------------------------
Terrence C. Walsh
Chairman and Chief Executive Officer
TARGETTI SANKEY, S.P.A.
By: _________________________________________
Paolo Targetti
President and Chief Executive Officer
TARGETTI USA LLC
By: /s/ Robert Baker
-----------------------------------------
Robert Baker
President
<PAGE>
MASTER AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
TIVOLI INDUSTRIES, INC.
By: _________________________________________
Terrence C. Walsh
Chairman and Chief Executive Officer
TARGETTI SANKEY, S.P.A.
By: /s/ Paolo Targetti
-----------------------------------------
Paolo Targetti
President and Chief Executive Officer
TARGETTI USA LLC
By: _________________________________________
Robert Baker
President
<PAGE>
EXHIBIT 1.1
FORM OF ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT is made and entered into as of this 1st day of
November, 1997 by and among TIVOLI INDUSTRIES, INC., a California corporation
("Tivoli"), TARGETTI USA LLC, a California limited liability company (the
"LLC"), and TARGETTI S.P.A. ("Targetti"), a corporation organized under the laws
of Italy.
WHEREAS, Tivoli has entered into an Amended and Restated License and
Distribution Agreement with Targetti, dated as of November 1, 1997 (the "License
Agreement"); and
WHEREAS, Tivoli now wishes to assign all of its rights and obligations
under the License Agreement to the LLC;
NOW, THEREFORE, in consideration of mutual covenants and other good
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
1. Effective as of the date hereof, Tivoli hereby assigns all its right,
title and interest in the License Agreement to the LLC, provided, however, that
Tivoli will retain the right to complete manufacture of Partially Complete
Assemblies, Components or Materials, and to manufacture Design Products, as set
forth in Section 1.4 of the License Agreement.
2. Effective as of the date hereof, the LLC agrees to be bound by the
License Agreement as Licensee.
3. Targetti confirms the assignment to the LLC, and waives any claims and
rights against Tivoli that it now has or may have in the future in connection
with the License Agreement.
4. Notices or other communications delivered to the LLC pursuant to
Section 20 of the License Agreement shall be delivered to the following address:
If to the LLC to:
Targetti USA LLC
c/o Tivoli Industries, Inc.
1513 East St. Gertrude Place
Post Office Box 15624
Santa Ana, CA 92705
ATTN: Robert Baker
President
<PAGE>
TELEPHONE: (714) 957-6101
(714) 957-1501
With a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
ATTN: Andrei Manoliu, Esq.
TELEPHONE: (650) 843-5000
FAX: (650) 857-0663
IN WITNESS WHEREOF, the parties hereto have this day caused this Assignment
Agreement to be executed by their duly authorized officers.
TIVOLI INDUSTRIES, INC. TARGETTI SANKEY S.P.A.
By:_______________________________ By:________________________________
Terrence C. Walsh Paolo Targetti
Chairman and Chief Executive President and Chief Executive
Officer Officer
TARGETTI USA LLC
By:_______________________________
Robert Baker
President
iii
<PAGE>
EXHIBIT 1.2(A)
TARGETTI ASSETS TO BE CONTRIBUTED
TO THE LLC
<TABLE>
<S> <C> <C>
A) Cash $286,493.60
B) Inventory 21,610.60
-----------
Total $308,104.20
-----------
</TABLE>
<PAGE>
EXHIBIT 1.2(C)
FORM OF LENDING AGREEMENT
THIS LENDING AGREEMENT (the "Agreement") is made as of this 1st day of
November 1997 by and between TARGETTI SANKEY S.P.A., a corporation organized
under the laws of Italy ("Targetti") and TARGETTI USA LLC, a California limited
liability company (the "LLC").
WHEREAS, Targetti and Tivoli Industries, Inc., a California corporation
("Tivoli") are concurrently entering into an Operating Agreement (the "Operating
Agreement") which will set forth the respective ownership interests of Tivoli
and Targetti with respect to the LLC; and
WHEREAS, under the terms of the Operating Agreement, Targetti has agreed to
loan up to $250,000 to the LLC;
NOW, THEREFORE, in consideration of mutual covenants and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
1. Upon receipt of a written notice from the LLC requesting a loan,
Targetti agrees to deliver the funds requested within 20 business days of the
date of such notice. Concurrently, the LLC agrees to execute a Promissory Note,
in the form attached, for the amount requested.
2. The LLC may make more than one request for a loan, provided, however,
that the aggregate amount of loan requests may not exceed $250,000.
3. Upon its initial request for funds pursuant to this Lending Agreement,
the LLC shall deliver a certificate of good standing of recent date from the
State of California. The LLC shall deliver an updated certificate with each
additional request for funds, provided, however, that no updated certificate
need be provided if the LLC has provided Targetti with a certificate dated
within six months of such additional request.
4. This Agreement may not be terminated by either party as long as the
Operating Agreement remains in force, and this Agreement will terminate
automatically, without any action on the part of either party, upon the
effective date of termination of the Operating Agreement.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written.
TARGETTI USA LLC TARGETTI SANKEY S.P.A.
By:________________________ By:____________________________
Robert Baker Paolo Targetti
President President and
Chief Executive Officer
vi
<PAGE>
EXHIBIT 1.2(D)
SCHEDULE OF ORGANIZATIONAL EXPENSES*
<TABLE>
<S> <C>
Legal $11,983.61
Travel 10,193.38
----------
Total $22,176.99
----------
</TABLE>
<PAGE>
EXHIBIT 1.3(A)
ASSETS TO BE CONTRIBUTED
TO THE LLC
Assets Contributed by Tivoli*:
<TABLE>
<S> <C>
Inventory $ 413,786.40
Catalogs 62,285.56
------------
Total $ 476,071.96
Less:
Accounts Payable to Targetti (167,967.76)
------------
Net Contribution $ 308,104.20
============
</TABLE>
* Amount includes on hand catalogs and unamortized development costs.
-----------
viii
<PAGE>
EXHIBIT 10.9
OPERATING AGREEMENT
OF
TARGETTI USA LLC
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I
DEFINITIONS ............................................................. 1.
1.1 Definitions.................................................. 1.
ARTICLE II
FORMATION OF COMPANY...................................................... 6.
2.1 Formation.................................................... 6.
2.2 Name......................................................... 6.
2.3 Principal Place of Business.................................. 6.
2.4 Registered Office and Registered Agent....................... 7.
2.5 Term......................................................... 7.
ARTICLE III
PURPOSES OF COMPANY....................................................... 7.
3.1 Company Purposes............................................. 7.
ARTICLE IV
MANAGEMENT OF COMPANY..................................................... 7.
4.1 Generally.................................................... 7.
4.2 Number of Directors.......................................... 7.
4.3 Tenure, Election and Qualifications.......................... 8.
4.4 Resignation.................................................. 8.
4.5 Removal...................................................... 8.
4.6 Vacancies.................................................... 8.
4.7 Meetings..................................................... 8.
4.8 Quorum and Transaction of Business........................... 9.
4.9 Directors Have No Exclusive Duty to Company.................. 10.
4.10 Effect of Exercise of Put or Call Rights..................... 10.
ARTICLE V
POWERS OF AND RESTRICTIONS ON THE DIRECTORS............................... 10.
5.1 Management................................................... 10.
5.2 Additional Capital........................................... 10.
5.3 Actions Requiring Board Approval............................. 10.
5.4 Reports to Members........................................... 11.
5.5 Independent Public Accountants............................... 11.
</TABLE>
i.
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE VI
OFFICERS; COMMITTEES...................................................... 11.
6.1 Appointment of Officers...................................... 11.
6.2 Tenure and Duties of Officers................................ 12.
6.3 Creation of Committees....................................... 13.
ARTICLE VII
RIGHTS AND OBLIGATIONS OF MEMBERS......................................... 13.
7.1 Limitation of Liability...................................... 13.
7.2 Nature of Rights and Obligations............................. 13.
7.3 Member Access to Records..................................... 13.
7.4 Right Of First Participation................................. 14.
7.5 Certain Actions Requiring Member Approval.................... 15.
7.6 Outside Activities........................................... 15.
7.7 Other Activities............................................. 15.
7.8 Put and Call Rights.......................................... 16.
ARTICLE VIII
CERTAIN MATTERS CONCERNING
MEMBERS, DIRECTORS AND EXECUTIVE OFFICERS................................. 19.
8.1 Liability of Members, Directors and Officers;
Indemnification.............................................. 19.
8.2 Other Matters Concerning the Members, Directors and
Officers of the Company...................................... 20.
ARTICLE IX
MEETINGS OF MEMBERS....................................................... 21.
9.1 Meetings..................................................... 21.
9.2 Place of Meetings............................................ 21.
9.3 Notice of Meetings........................................... 21.
9.4 Meeting of all Members....................................... 21.
9.5 Record Date.................................................. 21.
9.6 Quorum....................................................... 21.
9.7 Manner of Acting............................................. 22.
9.8 Proxies...................................................... 22.
</TABLE>
ii.
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
9.9 Action by Members Without a Meeting.......................... 22.
9.10 Waiver of Notice............................................. 22.
ARTICLE X
CONTRIBUTIONS TO THE COMPANY,
CAPITAL UNITS AND CAPITAL ACCOUNTS........................................ 22.
10.1 Capital Contributions........................................ 22.
10.2 Units; Unit Certificates..................................... 23.
10.3 Capital Accounts............................................. 23.
10.4 Withdrawal of Capital........................................ 24.
10.5 Resignation of Member........................................ 24.
ARTICLE XI
ALLOCATIONS, INCOME TAX, ELECTIONS AND REPORTS............................ 24.
11.1 Allocation of Profits and Losses............................. 24.
11.2 Special Allocations.......................................... 25.
11.3 Distributions................................................ 26.
11.4 Limitation Upon Distributions................................ 27.
11.5 Accounting Principles........................................ 27.
11.6 Interest on and Return of Capital Contributions.............. 27.
11.7 Records and Reports.......................................... 27.
11.8 Returns and Other Elections.................................. 28.
11.9 Tax Matters Partner.......................................... 28.
ARTICLE XII
TRANSFERABILITY........................................................... 29.
12.1 Restrictions on Transferability.............................. 29.
12.2 No Effect To Transfers In Violation Of Operating Agreement... 29.
ARTICLE XIII
ADDITIONAL AND SUBSTITUTE MEMBERS......................................... 30.
13.1 Admission of Additional Members and Substitute Members....... 30.
13.2 Allocations to Additional Members and Substitute Members..... 30.
</TABLE>
iii.
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE XIV
DISSOLUTION AND TERMINATION............................................... 30.
14.1 Dissolution.................................................. 30.
14.2 Effect of Filing of Certificate of Cancellation.............. 30.
14.3 Distribution of Assets Upon Dissolution...................... 30.
14.4 Winding Up................................................... 31.
14.5 Filing of Certificate of Cancellation........................ 31.
31.
ARTICLE XV
MERGER.................................................................... 31.
15.1 Merger....................................................... 31.
15.2 Vote Relating to Merger or Consolidation..................... 31.
15.3 Exchange Relating to Merger.................................. 31.
15.4 Filing and Effect of Certificate of Merger................... 32.
15.5 Amendment of Old or Adoption of New Operating Agreement...... 32.
15.6 Assumption of Assets and Liabilities......................... 32.
32.
ARTICLE XVI
ARBITRATION............................................................... 32.
ARTICLE XVII
MISCELLANEOUS PROVISIONS.................................................. 33.
17.1 Notice....................................................... 33.
17.2 Application of California Law................................ 33.
17.3 Waiver of Action for Partition............................... 35.
17.4 Amendments................................................... 35.
17.5 Execution of Additional Instruments.......................... 35.
17.6 Construction................................................. 35.
17.7 Headings..................................................... 35.
17.8 Waivers...................................................... 36.
17.9 Rights and Remedies Cumulative............................... 36.
17.10 Severability................................................. 36.
17.11 Heirs, Successors and Assigns................................ 36.
17.12 Creditors.................................................... 36.
17.13 Counterparts................................................. 36.
</TABLE>
iv.
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
17.14 No Third Party Beneficiaries................................. 36.
</TABLE>
v.
<PAGE>
TARGETTI USA LLC
OPERATING AGREEMENT
THIS OPERATING AGREEMENT (the "Agreement") is made and entered into as of
the 1st day of November 1997 (the "Effective Date"), by and between TIVOLI
INDUSTRIES, INC., a California corporation ("Tivoli") and TARGETTI SANKEY
S.P.A., a corporation organized under the laws of Italy ("Targetti"), with
respect to the operations of Targetti USA LLC, a California limited liability
company (the "Company").
WHEREAS, the Company was formed pursuant to the provisions of the
California Beverly-Killea Limited Liability Company Act (the "Act"), upon the
filing of Articles of Organization with the California Secretary of State on
September 18, 1997;
WHEREAS, Tivoli and Targetti (collectively, the "Members") desire to enter
into an Operating Agreement in order to set forth their respective ownership
interests in the Company and the principles by which the Company will be
operated and governed in carrying on such business.
NOW, THEREFORE, in consideration of mutual covenants and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. The following terms used in this Operating Agreement
shall have the following meanings (unless otherwise expressly provided herein):
(A) "ACCOUNTING PERIOD" shall be (i) the Company's Fiscal Year if
there are no changes in the Members' respective interests in Company income,
gain, loss or deductions during such Fiscal Year except on the first day
thereof, or (ii) any other period beginning on the first day of a Fiscal Year,
or any other day during a Fiscal Year, upon which occurs a change in such
respective interests, and ending on the last day of a Fiscal Year, or on the day
preceding an earlier day upon which any change in such respective interest shall
occur.
(B) "ACQUISITION" shall mean, with respect to any corporate Member,
any consolidation or merger of such Member with or into any other corporation or
entity or person, or any other corporate reorganization in which any single
stockholder of such Member immediately after such consolidation, merger or
reorganization, own 50% or more of such Member's voting power, thereby rendering
a change in control of such Member.
1.
<PAGE>
(C) "ACT" shall mean the California Beverly-Killea Limited Liability
Company Act, as amended.
(D) "ADDITIONAL MEMBER" shall mean any Person who or which is
admitted to the Company as an Additional Member pursuant to Article XII hereof.
(E) "ADJUSTED ASSET VALUE" with respect to any asset shall be the
asset's adjusted basis for federal income tax purposes, except as follows:
(1) The initial Adjusted Asset Value of any asset contributed by
a Member to the Company shall be the gross fair market value of such asset at
the time of contribution, as determined by the contributing Member and the Board
of Directors.
(2) The Adjusted Asset Values of all Company assets shall be
adjusted to equal their respective gross fair market values, as determined by
the Board of Directors, and the resulting unrecognized profit or loss allocated
to the Capital Accounts of the Members pursuant to Article X, as of the
following times: (i) the acquisition of an additional interest in the Company by
any new or existing Member in exchange for more than a de minimis capital
contribution; and (ii) the distribution by the Company to a Member of more than
a de minimis amount of Company assets, unless all Members receive simultaneous
distributions of either undivided interests in the distributed property or
identical Company assets in proportion to their interests in Company
distributions.
(3) The Adjusted Asset Values of all Company assets shall be
adjusted to equal their respective gross fair market values, as determined by
the Board of Directors, and the resulting unrecognized profit or loss allocated
to the Capital Accounts of the Members pursuant to Article X, as of the
following times: (i) the termination of the Company for federal income tax
purposes pursuant to Code Section 708(b)(1)(B); (ii) the termination of the
Company either by expiration of the Company's term or the occurrence of an event
of early termination; and (iii) the liquidation of the Company within the
meaning of Treasury Regulation (S)1.704-1(b)(2)(ii)(g).
(4) The Adjusted Asset Values of the Company assets shall be
increased (or decreased) to reflect any adjustments to the adjusted basis of
such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and subparagraph
(3) of the definition of "Net Profits" and "Net Losses" below.
(F) "ADJUSTED CAPITAL ACCOUNT" with respect to any Member, shall mean
the Member's Capital Account as adjusted by the items described in Sections
1.704-2(g)(1), 1.704-2(i)(5) and 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the
Treasury Regulations.
(G) "AFFILIATE" with respect to any Person, shall mean (i) any Person
which beneficially holds, directly or indirectly, or otherwise controls, ten
percent (10%) or more of such Person's outstanding securities, (ii) any Person,
ten percent (10%) or more of which
2.
<PAGE>
Person's outstanding securities are beneficially held, directly or indirectly,
or are otherwise controlled, by such a Person and (iii) any Person, ten percent
(10%) or more of which Person's outstanding securities are beneficially held,
directly or indirectly, or are otherwise controlled, by a Person described in
(i) above.
(H) "ASSET PURCHASE" shall mean a sale, lease or other disposition or
all or substantially all of the assets of any corporate Member.
(I) "BANKRUPTCY" of a Person shall mean (i) the filing by a Person of
a voluntary petition seeking liquidation, reorganization, arrangement or
readjustment, in any form, of its debts under the U.S. Bankruptcy Code (or
corresponding provisions of future laws) or any other federal, state or foreign
insolvency law, or a Person's filing an answer consenting to or acquiescing in
any such petition; (ii) the making by a Person of any assignment for the benefit
of its creditors or the admission by a Person of its inability to pay its debts
as they mature; or (iii) the expiration of 60 days after the filing of an
involuntary petition under the Bankruptcy Code (or corresponding provisions of
future laws) seeking an application for the appointment of a receiver for the
assets of a Person, or an involuntary petition seeking liquidation,
reorganization, arrangement or readjustment of its debts under any other
federal, state or foreign insolvency law, unless the same shall have been
vacated, set aside or stayed within such 60-day period.
(J) "BOARD OF DIRECTORS" shall have the meaning specified in Section
4.1.
(K) "CAPITAL ACCOUNT" as of any given date shall mean the Capital
Account of each Member as specified in Section 10.3.
(L) "CAPITAL CONTRIBUTION" shall mean the amount of money and the
fair market value of any property contributed to the Company by a Member
whenever made net of any liability of such Member assumed by the Company and any
liability secured by property contributed by such Member. Any reference to a
capital contribution of a Member shall include the Capital Contribution made by
a predecessor holder of any Units held by such Member with respect to such
Units.
(M) "CODE" shall mean the Internal Revenue Code of 1986, as amended,
or corresponding provisions of subsequent superseding federal revenue laws.
(N) "COMPANY" shall refer to Targetti USA LLC.
(O) "COMPANY PROPERTY" means any tangible and intangible personal
property now owned or hereafter acquired by the Company, including, without
limitation, all cash, cash equivalents, deposits, accounts receivable, work-in-
progress, inventory, equipment, materials, supplies, prototypes, vehicles, real
property, fixtures, permits, approvals, licenses, patents, consents, contracts,
agreements, applications for permits, approvals, licenses, development rights,
development agreements, trade names and warranties, or any other property.
3.
<PAGE>
(P) "DIRECTORS" shall mean the directors designated or elected by the
Members pursuant to the terms of this Operating Agreement. For purposes of the
Act and for all other purposes, the term "Director" as used in this Operating
Agreement shall mean "manager." Consequently the parties intend that any
restriction on the authority of a Director set forth in this Operating Agreement
shall also be read as a restriction on such person's authority as a manager.
(Q) "DISTRIBUTABLE CASH" shall mean Net Operating Cash Flow; where
"Net Operating Cash Flow" shall mean for any period the Operating Cash Flow for
such period plus depreciation and amortization to the extent reflected in
Operating Cash Flow for such period less (i) the capital expenditures of the
Company for such period determined in accordance with GAAP, (ii) any changes in
net working capital requirements to be met from Operating Cash Flow for such
period as determined by the Board of Directors, (iii) all amounts distributed by
the Company pursuant to Section 11.3(a) of this Operating Agreement and (iv)
required payments under Company indebtedness for such period; and where
"Operating Cash Flow" shall mean for any period the consolidated gross revenues
of the Company for such period less all operating and nonoperating expenses of
the Company for such period, including all charges of a proper character
(including provision for taxes, if any, and current additions to reserves), all
determined in accordance with GAAP applied on a basis consistent with the
Company's prior corresponding periods, if any.
(R) "ECONOMIC RISK OF LOSS" shall have the meaning defined in
Treasury Regulations Section 1.704-2(b)(4).
(S) "FISCAL YEAR" shall mean the Company's fiscal year. The Company's
fiscal year shall end on September 30 of each year.
(T) "FUNDS FROM OPERATIONS" means all Distributable Cash held by the
Company which results from the operation of the business of the Company from
whatever source, except for Funds From a Sale of the Company and Capital
Contributions.
(U) "FUNDS FROM A SALE OF THE COMPANY" means all Distributable Cash
held by the Company which results from a Sale of the Company.
(V) "INITIAL CAPITAL CONTRIBUTION" shall mean a Member's initial
contribution to the Capital of the Company pursuant to the Original Operating
Agreement or this Operating Agreement in connection with the initial issuance of
Units by the Company.
(W) "LENDING AGREEMENT" shall mean the agreement executed by Targetti
on September __, 1997, agreeing to lend up to $250,000 to the Company on
specified terms and conditions.
(X) "LICENSE AGREEMENT" shall mean the License and Distribution
Agreement between Targetti and the Company of even date herewith.
4.
<PAGE>
(Y) "MANUFACTURING AGREEMENT" shall mean the Manufacturing Agreement
between Tivoli and the Company of even date herewith.
(Z) "MASTER AGREEMENT" shall mean the Master Agreement between Tivoli
and Targetti of even date herewith.
(AA) "MEMBER" shall mean each of the Members listed on Schedule A
hereto, any Additional Member and any Substituted Member which is, as of a given
time, a member of the Company.
(AB) "NET PROFIT OR NET LOSS" shall be an amount computed for each
Accounting Period as of the last day thereof that is equal to the Company's
taxable income or loss for such Accounting Period, determined under the accrual
method of accounting in accordance with Section 703(a) of the Code (for this
purpose, all items of income, gain, loss, or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
(1) Any income of the Company that is exempt from federal income
tax and not otherwise taken into account in computing Net Profit or Net Loss
pursuant to this Section 1.1(z) shall be added to such taxable income or loss;
(2) Any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Treasury Regulations Section 1.704-1(b)(2)(iv)(i) and not otherwise taken into
account in computing Net Profit or Net Loss pursuant to this definition shall be
subtracted from such taxable income or loss;
(3) Gain or loss resulting from any disposition of a Company
asset with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Adjusted Asset Value of the asset
disposed of rather than its adjusted tax basis;
(4) In the event of a distribution in kind of Company Property
to the Members, the gain or loss that would result from a sale of such Company
Property at fair market value shall be added to such taxable income or loss; and
(5) Items that are specially allocated pursuant to Section 11.2
hereof shall not be taken into account in computing Net Profit or Net Loss.
(AC) "OPERATING AGREEMENT" shall mean this Operating Agreement as
originally executed and as amended in accordance with the terms of this
Operating Agreement from time to time.
(AD) "PERSON" shall mean any individual or corporation, partnership,
limited liability company, joint venture, association, joint stock company,
trust, unincorporated
5.
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organization or other entity, including any government or political subdivision
or any agency or instrumentality thereof and the heirs, executors,
administrators, legal representatives, successors, and permitted assigns of such
"PERSON" where the context so admits.
(AE) "RESERVES" shall mean, with respect to any Fiscal Year, funds set
aside or amounts allocated during such Fiscal Year to reserves that shall be
maintained in amounts deemed sufficient by the Board of Directors for working
capital and to pay taxes, insurance, debt service or other costs or expenses
incident to the ownership or operation of the Company's business.
(AF) "SALE OF THE COMPANY" shall mean the sale of all of substantially
all of the Company's assets.
(AG) "SUBSTITUTE MEMBER" shall mean any Person who or which is
admitted to the Company as a Substitute Member pursuant to Articles XII and XIII
of this Operating Agreement.
(AH) "TARGETTI" shall mean Targetti Sankey S.p.A., a corporation
organized under the laws of Italy.
(AI) "TIVOLI" shall mean Tivoli Industries, Inc., a California
corporation.
(AJ) "TREASURY REGULATIONS" shall mean the Income Tax Regulations,
including temporary regulations, promulgated under the Code, as amended from
time to time.
(AK) "TRIGGER DATE" shall mean the date either Tivoli or Targetti
delivers a Put Notice or a Call Notice, respectively, pursuant to Section 7.8
hereof.
(AL) "UNITS" shall mean the capital units issued by the Company to its
Members, in exchange for contributions, which represent the Member's interest in
the Company.
ARTICLE II
FORMATION OF COMPANY
2.1 FORMATION. On September 18, 1997, the Company was organized as a
California limited liability company under and pursuant to the Act.
2.2 NAME. The name of the Company is Targetti USA LLC.
2.3 PRINCIPAL PLACE OF BUSINESS. The principal place of business of the
Company shall be 1531 East St. Gertrude Place, Santa Ana, California, 92705.
The Company may locate
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its places of business and registered office at any other place or places as the
Board of Directors may from time to time deem advisable.
2.4 REGISTERED OFFICE AND REGISTERED AGENT. The Company's registered
office in the state of California shall be at the office of its registered agent
for service of process, and the name and address of its initial registered agent
for service of process shall be Terrence C. Walsh. The Board of Directors may
change the Company's agent for service of process from time to time.
2.5 TERM. The Company's existence commenced September 18, 1997 upon the
filing with the Secretary of the State of California of the Company's Articles
of Organization and shall continue until December 31, 2029, unless the Company
is earlier dissolved in accordance with either the provisions of this Operating
Agreement or the Act.
ARTICLE III
PURPOSES OF COMPANY
3.1 COMPANY PURPOSES. The purpose of the Company is to (a) engage in the
marketing and sale of lighting products and (b) engage in any lawful act or
activity for which a limited liability company may be organized under the laws
of the State of California, incident, necessary, advisable or desirable to carry
out the foregoing. The Company shall have all powers available to limited
liability companies under the Act to make and perform all contracts and to
engage in all actions and transactions necessary or advisable to carry out the
purposes of the Company.
ARTICLE IV
MANAGEMENT OF COMPANY
4.1 GENERALLY. Except as specifically set forth in this Operating
Agreement, the Members hereby delegate all power and authority to manage the
business and affairs of the Company to the Directors, who shall act as the
managers of the Company under the Act subject to and in accordance with the
terms of this Operating Agreement (including, without limitation, Section 5.1).
Such Directors shall constitute the "Board of Directors" and such term may be
used in this Operating Agreement to refer to such Directors. Such term is used
for convenience only and is not intended by the parties to confer to the Board
of Directors any additional power or authority other than that expressly and
specifically conferred pursuant to and in accordance with the terms of this
Operating Agreement. Any power not otherwise delegated pursuant to this
Operating Agreement or by the Board of Directors in accordance with the terms of
this Operating Agreement shall remain with the Board of Directors.
4.2 NUMBER OF DIRECTORS. The number of Directors of the Company shall be
fixed at three (3).
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4.3 TENURE, ELECTION AND QUALIFICATIONS.
(A) The Directors shall be elected at each annual meeting of the
Members to hold office until such next annual meeting, or as otherwise provided
below. One Director (the "Tivoli Director") shall be designated by Tivoli, by
Tivoli providing notice of designation in writing to Targetti. One Director (the
"Targetti Director") shall be designated by Targetti, by Targetti providing
notice of designation in writing to Tivoli. One Director (the "Tivoli Nominee
Director") shall be nominated by Tivoli, by Tivoli providing notice of
nomination in writing to Targetti. Each Director shall serve until the earlier
of (i) the election of such Director's successor, (ii) the removal of such
Director in accordance with the terms of this Operating Agreement, (iii) such
Director's resignation, and (iv) such Director's death. The initial Directors
are Terrence C. Walsh (the Tivoli Director), Lorenzo Targetti (the Targetti
Director) and Gerald R. Morris (the Tivoli Nominee Director).
(B) A Director may, but need not, be a Member.
4.4 RESIGNATION. A Director may resign at any time by giving written
notice to the Members. The resignation of a Director shall take effect upon
receipt of notice thereof or at such later time as shall be specified in such
notice; unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
4.5 REMOVAL.
(A) The Tivoli Director may be removed at any time, with or without
cause, by Tivoli.
(B) The Targetti Director may be removed at any time, with or without
cause, by Targetti.
(C) The Tivoli Nominee Director may be removed at any time, with or
without cause, by a majority vote of the Board of Directors.
4.6 VACANCIES.
(A) A vacancy in the office of Tivoli Director shall be filled by
Tivoli, by Tivoli providing notice of designation in writing to Targetti.
(B) A vacancy in the office of Targetti Director shall be filled by
Targetti, by Targetti providing notice of designation in writing to Tivoli.
(C) A vacancy in the office of Tivoli Nominee Director shall be
filled by Tivoli.
4.7 MEETINGS.
8.
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(A) Regular meetings of the Board of Directors shall be held at such
times, mutually convenient places and dates as determined by the Board of
Directors. The officers and other executives of the Company may attend meetings
of the Board of Directors with the prior approval of the Board of Directors.
(B) Directors may participate in a meeting through use of conference
telephone or similar communication equipment, so long as all Directors
participating in such meeting can hear one another. Such participation
constitutes presence in person at such meeting.
(C) Special meetings of the Board of Directors for any purpose may be
called by the President or by any Director.
(D) Each Director shall receive notice of the date, time and place of
all meetings of the Board of Directors at least ten (10) days (forty-eight (48)
hours if given personally or by facsimile or telegraph) before the meeting. Such
notice shall be delivered in writing (which may be by facsimile or by telegraph)
to each Director. Such notice may be given by the Secretary of the Company or by
the person or persons who called the meeting. Such notice shall specify the
purpose of the meeting. Notice of any meeting of the Board of Directors need not
be given to any Director who signs a waiver of notice of such meeting or a
consent to holding the meeting, either before or after the meeting, or who
attends the meeting without protesting prior to such meeting or at the
commencement thereof. All such waivers, consents and approvals shall be filed
with the corporate records of the Company.
(E) Meetings of the Board of Directors may be held at any place that
has been designated in the notice of the meeting.
(F) Any meeting of the Board of Directors, whether or not a quorum is
present, may be adjourned to another time and place by the affirmative vote of a
majority of the Directors present. If the meeting is adjourned for more than
twenty-four (24) hours, notice of such adjournment to another time or place
shall be given prior to the time of the adjourned meeting to the Directors who
were not present at the time of the adjournment.
(G) Any action required or permitted to be taken by the Board of
Directors may be taken without a meeting of the Board of Directors, if all the
Directors individually or collectively consent in writing to such action. Such
written consent or consents shall be filed with the corporate records of the
Company. Such action by written consent shall have the same force and effect as
a unanimous vote of the Directors.
4.8 QUORUM AND TRANSACTION OF BUSINESS. The number of Directors that
constitutes a quorum for the transaction of business at a properly noticed
meeting of the Board of Directors shall be three (3). Except as required by the
Act or as otherwise set forth in this Operating Agreement, every act or decision
done or made by three (3) Directors at a meeting duly held and at which a quorum
is present shall be the act of the Board of Directors.
9.
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4.9 DIRECTORS HAVE NO EXCLUSIVE DUTY TO COMPANY. The Directors shall not
be required to manage the Company as their sole and exclusive function, and,
subject to Section 7.8, the Directors may have other business interests and may
engage in other activities in addition to those relating to the Company.
Neither the Company nor any Member shall have any right, by virtue of this
Operating Agreement, to share or participate in such other investments or
activities of the Directors or to the income or proceeds derived therefrom.
4.10 EFFECT OF EXERCISE OF PUT OR CALL RIGHTS. In the event either Tivoli
or Targetti exercises its Put or Call rights as set forth in Section 7.8 hereof,
then following such exercise all Directors shall be elected or removed by a
majority vote of the Members.
ARTICLE V
POWERS OF AND RESTRICTIONS ON THE DIRECTORS
5.1 MANAGEMENT. Each Director shall participate in the direction,
management and control of the business of the Company to the best of such
Director's ability. The Directors shall in all cases act as a group and shall
have no authority to act individually. The Board of Directors may appoint one
(1) or more officers to manage the day-to-day operations of the Company. The
initial officers shall be as designated in Section 6.1 below and shall have the
respective duties set forth in Section 6.2 below. The Board of Directors may
adopt such rules and regulations for the management of the Company not
inconsistent with this Operating Agreement or the Act. Except as otherwise
provided in the Act or authorized pursuant to the terms of this Operating
Agreement, no debt shall be contracted or liability incurred by or on behalf of
the Company except by the Company's Board of Directors.
5.2 ADDITIONAL CAPITAL. The Company shall not raise additional capital
without the approval of the Board of Directors. Except for the Targetti Lending
Agreement, no Member shall be required to make any additional contribution to
the Company's capital. The raising of new capital shall be subject to the right
of first participation set forth in Section 7.4 of this Operating Agreement.
5.3 ACTIONS REQUIRING BOARD APPROVAL. Without limiting the generality of
Section 5.1, the Members desire to affirmatively set forth certain actions which
shall be subject to the approval of the Board of Directors in accordance with
Section 4.7. Such actions are as follows:
(A) Election of a chairman to preside at all meetings of the Board of
Directors;
(B) Approval of an annual operating plan;
(C) The appointment or removal of the President or other officers of
the Company other than the appointment of the initial officers specified in
Article VI hereof;
(D) The hiring, firing and compensation of the Company's senior
management;
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(E) Approval of distributions pursuant to Section 11.3 (other than
mandatory distribution pursuant to Section 11.3(a));
(F) Borrowing money if the borrowing is in excess of $50,000, unless
such borrowing was previously approved by the Board of Directors in connection
with an ongoing borrowing agreement.
(G) Drawdowns by the Company on the Lending Agreement;
(H) Granting any security interest in the assets of the Company in
connection with a borrowing of funds;
(I) Acquiring property from any Person;
(J) Acquiring or disposing of any Company real property; and
(K) Employing accountants, legal counsel, or other experts to perform
services for the Company and to compensate them from Company funds;
5.4 REPORTS TO MEMBERS. As soon as practicable after the end of any
Fiscal Year but in any event within ninety (90) days thereafter, the Board of
Directors shall provide to each of the Members (i) a balance sheet, statement of
income, statement of operations and statement of cash flows for such Fiscal
Year, prepared in accordance with generally accepted accounting principles and
accompanied by a report and opinion thereon by the Company's independent public
accountants, and (ii) a report setting forth the closing Capital Accounts of
each Member and a description of the manner of their calculation. The Board of
Directors shall also cause the Company to transmit within such ninety (90) day
period to each Member of the Company and to each Person (or such Member's or
Person's legal representative) who was a Member during any part of the Fiscal
Year in question, a copy of the Company's income tax return for such Fiscal
Year, together with a copy of the Member's Schedule K-1 thereto.
5.5 INDEPENDENT PUBLIC ACCOUNTANTS. Corbin & Wertz or such other
accounting firm selected by the Board of Directors shall be the Company's
independent public accountants.
ARTICLE VI
OFFICERS; COMMITTEES
6.1 APPOINTMENT OF OFFICERS. The Board of Directors may appoint officers
of the Company which may include, but shall not be limited to: (a) chairman of
the Board of Directors; (b) president; (c) one or more vice presidents; (d)
secretary; and (e) treasurer or chief financial officer. The Board of Directors
may delegate their day-to-day management responsibilities to any such officers,
and such officers shall have the authority to contract for, negotiate on behalf
of and otherwise represent the interests of the Company as authorized by the
Board of Directors
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in any job description created by the Board of Directors. As of the effective
date of this Operating Agreement, Terrence C. Walsh shall be designated Chairman
of the Board, Robert Baker shall be designated President, Charles Kimmel will be
designated Chief Financial Officer, and Joan Bandelin will be designated
Secretary.
6.2 TENURE AND DUTIES OF OFFICERS. All officers shall hold office at the
pleasure of the Board of Directors and until their successors shall have been
duly elected and qualified, unless sooner removed. Any officer may be removed
at any time by the Board of Directors. If the office of any officer becomes
vacant for any reason, the vacancy may be filled by the Board of Directors.
(A) DUTIES OF CHAIRMAN OF THE BOARD. The Chairman of the Board, if
there be such an officer, shall, if present, preside at all meetings of the
Board of Directors and shall exercise and perform such other powers and duties
as may be assigned from time to time by the Board of Directors. If no President
is appointed, the Chairman of the Board is the general manager and chief
executive officer of the corporation, and shall exercise all powers of the
President described in Section 6.2(b) below.
(B) DUTIES OF PRESIDENT. The President shall be the Chief Executive
Officer of the Company and shall, subject to the control of the Board of
Directors, have general supervision, direction and control of the business and
officers of the Company. The President shall preside at all meetings of the
Members, unless the Board of Directors shall have appointed another person to so
preside and such person is present. The President shall perform other duties
commonly incident to a president of a California corporation and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time.
(C) DUTIES OF VICE PRESIDENTS. The Vice Presidents, in the order of
their seniority, may assume and perform the duties of the President in the
absence or disability of the President or whenever the office of President is
vacant. The Vice Presidents shall perform other duties commonly incident to a
vice president of a California corporation and shall also perform such other
duties and have such other powers as the Board of Directors shall designate from
time to time.
(D) DUTIES OF SECRETARY. The Secretary shall attend all meetings of
the Members, and shall record all acts and proceedings thereof in the minute
book of the Company. The Secretary shall give notice in conformity with this
Operating Agreement of all meetings of the Members requiring notice. The
Secretary shall perform all other duties given him or her in this Operating
Agreement and other duties commonly incident to a secretary of a Delaware
corporation and shall also perform such other duties and have such other powers
as the Board of Directors shall designate from time to time. The President may
direct any Assistant Secretary to assume and perform the duties of the Secretary
in the absence or disability of the Secretary, and each Assistant Secretary
shall perform other duties commonly incident to the office of assistant
secretary in a California corporation and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
12.
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(E) DUTIES OF CHIEF FINANCIAL OFFICER OR TREASURER. The Chief
Financial Officer or Treasurer shall keep or cause to be kept the books of
account of the Company in a thorough and proper manner, and shall render
statements of the financial affairs of the Company in such form and as often as
required by this Operating Agreement, the Board of Directors or the President.
The Chief Financial Officer or Treasurer, subject to the order of the Board of
Directors, shall have the custody of all funds and securities of the
corporation. The Chief Financial Officer or Treasurer shall perform other duties
commonly incident to the office of Chief Financial Officer or Treasurer in a
California corporation and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct any Assistant Treasurer to assume and
perform the duties of the Chief Financial Officer or Treasurer in the absence or
disability of the Chief Financial Officer or Treasurer, and each Assistant
Treasurer shall perform other duties commonly incident to the office the Chief
Financial Officer or Treasurer of a California corporation and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
6.3 CREATION OF COMMITTEES. The Board of Directors may create committees
to assist the Board of Directors and the officers in the governance of areas of
importance to the Company. Subject to the terms of this Operating Agreement,
such committees shall have such powers and perform such duties as may be
prescribed by the resolution or resolutions creating such committees.
ARTICLE VII
RIGHTS AND OBLIGATIONS OF MEMBERS
7.1 LIMITATION OF LIABILITY. Each Member's liability shall be limited as
set forth in the Act and other applicable law. Except as otherwise provided by
the Act, the debts, obligations and liabilities of the Company, whether arising
in contract, tort or otherwise, shall be the debts, obligations and liabilities
solely of the Company, and the Members of the Company shall not be obligated
personally for any of such debts, obligations or liabilities solely by reason of
being a Member of the Company.
7.2 NATURE OF RIGHTS AND OBLIGATIONS. Except as otherwise expressly
provided herein, nothing contained in this Operating Agreement shall be deemed
to constitute a Member an agent or legal representative of the other Members. A
Member shall not have any authority to act for, or to assume any obligation or
responsibility on behalf of, any other Member or the Company.
7.3 MEMBER ACCESS TO RECORDS. Upon written request of any Member, setting
forth the purpose for such request, each Member shall have the right, during
regular business hours, to inspect and copy such Company documents at the
Member's expense as set forth in Section 11.7.
13.
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7.4 RIGHT OF FIRST PARTICIPATION.
(A) Each Member shall have a right of first participation as set
forth in this Section 7.4. Such right shall not apply to any borrowing.
(B) In the event the Board of Directors determines in accordance with
the terms of this Operating Agreement that the Company should raise additional
capital, the Board of Directors shall notify each Member in writing (the
"Notice") of the class and number of Units to be sold, the total amount of
capital proposed to be raised through the sale of such new Units, the per Unit
price of such new Units and such Member's pro rata share (based on then
outstanding Units) of such number of new Units. For fifteen (15) days after
delivery of such notice, each Member may subscribe to such Member's pro rata
share (to the nearest whole number), or any lesser whole number, of such new
Units by delivering to the Board of Directors a written notice stating the
number of new Units which such Member (a "Participating Member") elects to
purchase. In the event and to the extent any Member fails to fully exercise its
right of first participation hereunder, the Board of Directors shall notify each
Participating Member which has elected to subscribe to its full share of Units
in writing of the number of unsubscribed Units. For ten (10) days after delivery
of such notice, each Participating Member may subscribe to such unsubscribed
Units by delivering to the Board of Directors a written notice stating the
number of new Units which such Participating Member elects to purchase;
provided, however, in the event that in such written notice the Participating
Members elect to purchase a greater number of Units than the number of
unsubscribed Units, such unsubscribed Units shall be allocated on a pro rata
basis (based on then outstanding Units of the Participating Members) to the
Participating Members requesting such additional subscription.
(C) By written notice to the Participating Members within ten (10)
days after completion of the applicable time periods in Section 7.5(b), the
Board of Directors shall set forth the number of new Units to be purchased by
each Participating Member pursuant to Section 7.5(b) and shall fix a time,
location and closing date for the closing of the sale of such subscribed new
Units to the Participating Members.
(D) In the event and to the extent the Members fail to fully exercise
their right of first participation as to all new Units, the Board of Directors
shall have ninety (90) days following the end of the period specified in Section
7.4(b) to offer the new Units with respect to which the Members' right of first
participation hereunder was not exercised to any Person or Persons at a price
not less than and upon general terms no more favorable to the offerees thereof
than those specified in Notice. If the Company does not enter into an agreement
for the sale of such Units within such period or if such agreement is not
consummated within thirty (30) days of the execution thereof, the right of first
participation provided to the Members hereunder shall be deemed to be revived
and such Units shall not be offered or sold unless first reoffered to the
Members in accordance herewith.
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7.5 CERTAIN ACTIONS REQUIRING MEMBER APPROVAL.
Notwithstanding any other provision in this Operating Agreement to the
contrary, the following shall require the approval of Members holding a majority
of the Units:
(A) Admitting any Additional Member and creating and issuing
additional Units to Members and Additional Members (subject to Section 7.4);
(B) Transfers and licenses of the Company's technology, including
transfers and licenses of any of the Company's trade secrets, know-how or other
proprietary information;
(C) Any redemption of any Unit or other interest in the Company
(other than a purchase of unvested Units from an employee or consultant upon
such person's termination, and other than any Units acquired by Targetti
pursuant to Section 7.8 hereof);
(D) Any amendment of this Operating Agreement;
(E) Any merger of the Company;
(F) A sale or other disposition of all or substantially all of the
assets of the Company as part of a single transaction or otherwise;
(G) Compensation of member of the Board of Directors; and
(H) Dissolution of the Company pursuant to Section 14.1(b).
7.6 OUTSIDE ACTIVITIES. Subject to the provisions of Sections 7.8 and
7.9, and the terms and provisions of the Master Agreement, the License
Agreement, and the Manufacturing Agreement, each Member and each Affiliate of
each Member shall be entitled to and may have business interests and engage in
business activities in addition to those relating to the Company, and may engage
in the ownership, operation and management of businesses and activities
including serving on one or more board of directors, for its own account and for
the account of others, and may own interests in the same properties as those in
which the Company or the other Members own an interest, without having or
incurring obligation to offer any interest in such properties, businesses or
activities to the Company or any other Member, and no other provision of this
Agreement shall be deemed to prohibit any such Person from conducting such other
businesses or activities.
7.7 OTHER ACTIVITIES. No provision of this Agreement shall be construed
to preclude any Member or any of their respective Affiliates from engaging in or
possessing an interest in any other business ventures of any nature or
description, independently or with others, whether presently existing or
hereafter created, and neither the Company nor any Member shall have any rights
in or to such independent ventures or the income or profits derived therefrom.
15.
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7.8 PUT AND CALL RIGHTS. Targetti shall have the right to call the Units
held by Tivoli, and Tivoli shall have the right to put its Units to Targetti, as
set forth in this Section 7.8.
(A) Tivoli shall provide written notice to Targetti of [*] at least
[*] prior to [*]. Upon receipt of such notice, Targetti shall have the right to
call [*] the Units held by Tivoli by delivering a written notice to Tivoli that
intends to exercise its call rights (such notice, together with similar notices
permitted under this Section 7.8, being referred to as a "Call Notice"). The
Call Notice must be delivered to Tivoli within [*] of Targetti's receipt of the
notice of [*].
In the event of such Call Notice, Tivoli shall be obligated to sell such Units
to an entity designated by Targetti (the "Targetti Designee") for the Repurchase
Price, determined pursuant to Section 7.8(c) (i) or (ii), as applicable. The
sale of such Units shall be effected upon payment by Targetti to Tivoli and
shall occur, unless otherwise agreed by Targetti and Tivoli, on the date [*]
following the date upon which the Repurchase Price is determined, provided,
however, that the date of such sale shall be extended for a reasonable period to
allow for the obtaining of any necessary consent or approval from a governmental
authority or to allow for the expiration of any governmental waiting period
applicable to the transaction.
(B) Targetti shall provide written notice to Tivoli of [*] at least
[*] prior to [*]. Upon receipt of such notice, Tivoli shall have the right to
put [*] the Units held by Tivoli by delivering a written notice to Targetti that
intends to exercise its put rights (such notice, together with similar notices
permitted under this Section 7.8, being referred to as a "Put Notice"). The Put
Notice must be delivered to Targetti within [*] of Tivoli's receipt of the
notice of [*].
In the event of such Put Notice, the Targetti Designee shall be obligated to
purchase such Units from Tivoli for the amount equal to the Repurchase Price,
determined pursuant to Section 7.8(c) (i) or (ii), as applicable. The sale of
such Units shall be effected upon payment by Targetti to Tivoli and shall occur,
unless otherwise agreed by Targetti and Tivoli, on the date [*] following the
date upon which the Repurchase Price is determined, provided, however, that the
date of such sale shall be extended to allow for the obtaining of any necessary
consent or approval from a governmental authority or to allow for the expiration
of any governmental waiting period applicable to the transaction.
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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(C) For purposes of Sections 7.8(a) and 7.8(b), the Repurchase Price
shall be determined as follows:
(I) If a Call Notice or Put Notice is delivered pursuant to
Section 7.8(a) or 7.8(b) and if [*] the Repurchase Price shall be equal to [*]
(II) If a Call Notice or Put Notice is delivered pursuant to
Sections 7.8(a) or 7.8(b) and if [*] the Repurchase Price shall be equal to [*]
(D) In the event that (i) the LLC has [*] and (ii) the capital
accounts of the Members are [*], then Targetti shall have the right to call [*]
the Units held by Tivoli, upon delivery of a Call Notice to Tivoli, and Tivoli
shall have the right to put [*] the Units held by Tivoli, upon delivery of a Put
Notice to Targetti. In the event of a Call Notice or Put Notice delivered in
accordance with this Section 7.8(d), the Targetti Designee shall be obligated to
purchase such Units within [*] of such Put Notice or Call Notice at the
Repurchase Price set forth in this Section 7.8(d), provided, however, that the
date of such purchase shall be extended for a reasonable period to allow for the
obtaining of any necessary consent or approval from a governmental authority or
to allow for the expiration of any governmental waiting period applicable to the
transaction. If the Call Notice or Put Notice is delivered pursuant to this
Section 7.8(d), then the Repurchase Price shall be [*]
(E) Either Targetti or Tivoli shall have the right to call or sell,
respectively, [*] the Units held by Tivoli, upon the delivery of a Call Notice
(in the case of Targetti) or a Put Notice (in the case of Tivoli), as follows:
(I) Targetti shall have the right to call [*] the Units held by
Tivoli, at any time after [*] upon delivery of a Call Notice to Tivoli. In the
event of a Call Notice delivered by Targetti pursuant to this Section 7.8(e),
Tivoli shall be obligated to sell such Units to Targetti within [*] of the date
of such Call Notice, at the Repurchase Price computed as set forth in Section
7.8(e)(iv) below.
(II) Tivoli shall have the right to put [*] the Units held by
Tivoli upon delivery of a Put Notice to Targetti. In the event of a Put Notice
delivered by Tivoli in accordance with this Section 7.8(e), Targetti shall be
obligated to purchase such Units within [*] of the date of such Put Notice, at
the Repurchase Price computed as set forth in Section 7.8(e)(iv) below.
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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(III) Neither Targetti nor Tivoli may exercise its call or put
option under this Section 7.8(e) if [*] at the time of such exercise. The
exercising party shall provide a representation to the other party at the time
of the delivery of the Call Notice or the Put Notice, as applicable, that [*]
Notwithstanding the above, in the event that either Targetti or Tivoli exercises
its option under this Section 7.8(e) and [*] then upon [*] a payment shall be
made to Tivoli that is equal to the difference between the Repurchase Price that
would have been payable under Section 7.8(c)(i) or (ii), as applicable, and the
Repurchase Price actually paid under Section 7.8(e)(iv).
(IV) For purposes of this Section 7.8(e) the Repurchase Price
shall be [*]
(F) In the event either Member exercises its Put or Call Rights
pursuant to this Section 7.8, no further action by the Board of Directors will
be required to complete the purchase or sale of Units provided for by this
Section.
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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ARTICLE VIII
CERTAIN MATTERS CONCERNING
MEMBERS, DIRECTORS AND EXECUTIVE OFFICERS
8.1 LIABILITY OF MEMBERS, DIRECTORS AND OFFICERS; INDEMNIFICATION.
(A) No Member, Director or officer of the Company shall be liable, in
damages or otherwise, to the Company or any Member for any act or omission
performed or omitted to be performed by it in good faith (except for intentional
misconduct or recklessness) pursuant to the authority granted to such Member,
Director or officer of the Company by this Operating Agreement or by the Act.
(B) To the fullest extent permitted by the laws of California, the
Company may, upon the consent of the Board of Directors, indemnify and hold
harmless each Member, Director and its respective officers, directors,
shareholders, members or partners and each Officer of the Company (each, an
"Indemnitee"), from and against any and all losses, claims, demands, costs,
damages, liabilities (joint or several), expenses of any nature (including
reasonable attorneys' fees and disbursements), judgments, fines, settlements and
other amounts ("Damages") arising from any and all claims, demands, actions,
suits or proceedings, whether civil, criminal, administrative or investigative,
in which an Indemnitee may be involved, or threatened to be involved, as a party
or otherwise, arising out of or incidental to the business of the Company,
regardless of whether an Indemnitee continues to be a Member, Director or an
officer, director, shareholder, member or partner of such Member or Director or
an officer of the Company at the time any such liability or expense is paid or
incurred, except for any Damages based upon, arising from or in connection with
any act or omission of an Indemnitee committed without authority granted
pursuant to this Operating Agreement or in bad faith or otherwise constituting
recklessness or willful misconduct.
(C) Expenses (including reasonable attorneys' fees and disbursements)
incurred in defending any claim, demand, action, suit or proceeding, whether
civil, criminal, administrative or investigative, subject to Section 8.1(b)
hereof, may be paid (or caused to be paid) by the Company in advance of the
final disposition of such claim, demand, action, suit or proceeding upon receipt
of an undertaking by or on behalf of the Indemnitee to repay such amount if it
shall ultimately be determined, by a court of competent jurisdiction from which
no further appeal may be taken or the time for any appeal has lapsed (or
otherwise, as the case may be), that the Indemnitee is not entitled to be
indemnified by the Company as authorized hereunder or is not entitled to such
expense reimbursement.
(D) The indemnification provided by Section 8.1(b) hereof shall be in
addition to any other rights to which an Indemnitee may be entitled under any
agreement or vote of the Members or Board of Directors, as a matter of law or
otherwise, both (i) as to action in the Indemnitee's capacity as a Member,
Director or as an officer, director, shareholder, member or partner of a Member
or Director or as an Officer of the Company, and (ii) as to action in
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another capacity, and shall continue as to an Indemnitee who has ceased to serve
in such capacity and shall inure to the benefit of the heirs, successors,
assigns, administrators and personal representatives of the Indemnitee.
(E) Any indemnification hereunder shall be satisfied only out of the
assets of the Company, and the Members shall not be subject to personal
liability by reason of these indemnification provisions.
(F) The indemnification provided by this Section 8.1 shall be in
addition to any other rights to which each Indemnitee may be entitled under any
agreement or vote of the Members, as a matter of law or otherwise, both as to
action in the Indemnitee's capacity as a Member or as an officer, director,
employee, shareholder, member or partner of a Member or of an Affiliate, and
shall inure to the benefit of the heirs, successors, assigns, administrators and
personal representatives of the Indemnitee.
(G) The Company may purchase and maintain insurance on behalf of one
or more Indemnitees and other Persons against any liability which may be
asserted against, or expense which may be incurred by, any such Person in
connection with the Company's activities, whether or not the Company would have
the power to indemnify such Person against such liability under the provisions
of this Agreement.
(H) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 8.1 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Operating Agreement.
(I) The provisions of this Section 8.1 are for the benefit of each
Indemnitee and its heirs, successors, assigns, administrators and personal
representatives, and shall not be deemed to create any rights for the benefit of
any other Persons.
8.2 OTHER MATTERS CONCERNING THE MEMBERS, DIRECTORS AND OFFICERS OF THE
COMPANY.
(A) Each Member, Director and officer of the Company may rely on, and
shall be protected in acting or refraining from acting upon, any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, bond, debenture or other paper or document reasonably believed by it to
be genuine and to have been signed or presented by the proper party or parties.
(B) For purposes of this Operating Agreement, each Member, Director
and officer of the Company may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers, other consultants and
advisers selected by it and any written advice or written opinion of any such
Person as to matters which such Member, Director and officer of the Company
reasonably believes to be within such Person's professional or expert
competence, and any act or omission, if done or omitted to be done in good faith
reliance upon
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any such advice or opinion, will be conclusively presumed not to constitute
fraud, gross negligence or willful or wanton misconduct.
ARTICLE IX
MEETINGS OF MEMBERS
9.1 MEETINGS. Meetings of the Members shall be held at such date and time
as the Board of Directors may fix from time to time. Additionally, unless
otherwise prescribed by statute, a special meeting may be called by any Member
or Members holding at least 50% of the Units. No annual or regular meeting of
Members are required.
9.2 PLACE OF MEETINGS. The Board of Directors may designate any place
either written or outside the State of California, as the place of meeting for
any meeting of the Members. If no designation is made, or if a special meeting
is called by any Member or Members pursuant to Section 9.1, the place of meeting
shall be the principal executive office of the Company.
9.3 NOTICE OF MEETINGS. Except as provided in Section 9.6, written notice
stating the place, day and hour of the meeting and the purpose or purposes for
which the meeting is called shall be delivered not less than five (5) nor more
than sixty (60) days before the date of the meeting, either personally or by
mail, by or at the direction of the Board of Directors or person calling the
meeting, to each Member entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered as provided in Section 16.1.
9.4 MEETING OF ALL MEMBERS. If all of the Members consent to the holding
of a meeting at such time and place, such meeting shall be valid without call or
notice, and at such meeting lawful action may be taken.
9.5 RECORD DATE. For the purpose of determining Members entitled to
notice of or to vote at any meeting of Members or any adjournment thereof, or
Members entitled to receive payment of any distribution, or in order to make a
determination of Members for any other purpose, the date on which notice of the
meeting is mailed or the date on which the resolution declaring such
distribution is adopted, as the case may be, shall be the record date for such
determination of Members. When a determination of Members entitled to vote at
any meeting of Members has been made as provided in this Section 9.5, such
determination shall apply to any adjournment thereof.
9.6 QUORUM. Members holding a majority of the Units, present in person or
represented by proxy, shall constitute a quorum at any meeting of Members. In
the absence of a quorum at any such meeting, Members holding a majority of the
Units so represented may adjourn the meeting from time to time for a period not
to exceed sixty (60) days without further notice. However, if the adjournment is
for more than sixty (60) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned
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meeting shall be given to each Member of record entitled to vote at the meeting.
At such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted that might have been transacted at the meeting as
originally noticed. The Members present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
during such meeting of Members holding Interests whose absence would cause less
than a quorum.
9.7 MANNER OF ACTING. The affirmative vote of Members entitled to vote
holding a majority of the Units shall be the act of the Members unless the vote
of a greater or lesser proportion or number is otherwise required by the Act or
this Operating Agreement.
9.8 PROXIES. At all meetings of Members, a Member may vote in person or
by proxy executed in writing by the Member or by a duly authorized attorney-in-
fact. Such proxy shall be filed with the Board of Directors of the Company
before or at the time of the meeting. No proxy shall be valid after eleven (11)
months from the date of its execution, unless otherwise provided in the proxy.
9.9 ACTION BY MEMBERS WITHOUT A MEETING. Action required or permitted to
be taken at a meeting of Members may be taken without a meeting if the action is
evidenced by one (1) or more written consents describing the action taken,
signed and delivered to the Board of Directors within sixty (60) days of the
record date for that action, by Members having not less than the minimum number
of votes that would be necessary to authorize or take that action at a meeting
at which all Members entitled to vote on that action were present and voted.
All such consents shall be delivered to the Board of Directors of the Company
for inclusion in the minutes or for filing with the Company records. Action
taken under this Section 9.9 is effective when such the number of consents
required to authorize the proposed action shall have been received by the Board
of Directors, unless the consent specifies a different effective date. Any
Member giving a written consent may revoke the consent by a writing received by
the Board of Directors before written consents representing the number of votes
required to authorize the proposed action have been received by the Board of
Directors. The record date for determining Members entitled to take action
without a meeting shall be the date the first Member signs a written consent.
9.10 WAIVER OF NOTICE. When any notice is required to be given to any
Member, a waiver thereof in writing signed by the person entitled to such
notice, whether before, at or after the time stated therein, shall be equivalent
to the giving of such notice.
ARTICLE X
CONTRIBUTIONS TO THE COMPANY,
CAPITAL UNITS AND CAPITAL ACCOUNTS
10.1 CAPITAL CONTRIBUTIONS. Concurrently with the execution and delivery
of the Operating Agreement each Member made an initial capital contribution to
the Company in the
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amount as shown on Schedule A hereto and shall receive the number of Units shown
opposite its name on Schedule A hereto.
Except as provided in Section 10.4 herein, no Member shall be required to
make an additional Capital Contribution.
10.2 UNITS; UNIT CERTIFICATES.
(A) As of the date hereof, each Member's interest in the Company
shall be represented by Units of membership interest. Additional Units may from
time to time be issued in accordance with Section 7.4.
(B) The Company shall issue certificates evidencing the Units issued
by the Company. Such certificates shall bear the following legends:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY
HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF AN AGREEMENT BETWEEN
THE COMPANY AND THE HOLDER HEREOF OR HIS PREDECESSOR IN INTEREST.
COPIES OF SUCH AGREEMENT MAY BE OBTAINED BY WRITTEN REQUEST MADE
BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF
THE COMPANY.
10.3 CAPITAL ACCOUNTS.
(A) A separate Capital Account will be maintained for each Member.
(1) To each Member's Capital Account there shall be credited (A) such
Member's Capital Contributions, (B) such Member's distributive share of Net
Profits and any items in the nature of income or gain which are specially
allocated pursuant to Section 11.2 hereof, and (C) the amount of any Company
liabilities assumed by such Member or which are secured by any Property
distributed to such Member. The principal amount of a promissory note which is
not readily traded on an established securities market and which is contributed
to the Company by the maker of the note (or a Member related to the maker of the
note within the meaning of Regulations Section 1.704-1(b)(2)(ii)(c)) shall not
be included in the Capital Account of any Member until the Company makes a
taxable disposition of the note or until (and to the
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extent) principal payments are made on the note, all in accordance with
Regulations Section 1.704-1(b)(2)(iv)(d)(2);
(2) To each Member's Capital Account there shall be debited (A)
the amount of money and the fair market value of any Property distributed to
such Member pursuant to any provision of this Agreement, (B) such Member's
distributive share of Net Losses and any items in the nature of expenses or
losses which are specially allocated pursuant to Section 11.2 hereof, and (C)
the amount of any liabilities of such Member assumed by the Company or which are
secured by any property contributed by such Member to the Company.
(B) In the event of a permitted sale or exchange of all or part of a
Member's interest in the Company, the Capital Account of the transferor shall
become the Capital Account of the transferee to the extent it relates to the
transferred interest.
(C) Immediately prior to any distribution described in Section 14.3,
there shall be allocated to the Capital Accounts of all Members amounts required
to be allocated pursuant to Section 10.3(a) and Article XI.
(D) The manner in which Capital Accounts are to be maintained
pursuant to this Section 10.3 is intended, and shall be construed so as, to
comply with the requirements of Code Section 704(b) and the Treasury Regulations
promulgated thereunder.
10.4 WITHDRAWAL OF CAPITAL. A Member shall not be entitled to demand or
receive from the Company the liquidation of his interest in the Company until
the Company is dissolved in accordance with the provisions hereof and other
applicable provisions of the Act.
10.5 RESIGNATION OF MEMBER. A Member may resign from the LLC pursuant to
California Corporations Code (S) 17252. However, such a resigning Member shall
have only the rights specified in such (S) 17252, and shall not be entitled to
any payment for its economic interest in the LLC upon such resignation. Such
resignation shall not impair the rights and obligations of either Member under
Section 7.8 hereof. In addition, such resignation shall not be effective until
the non-resigning Member has designated a replacement for the resigning Member.
ARTICLE XI
ALLOCATIONS, INCOME TAX, ELECTIONS AND REPORTS
11.1 ALLOCATION OF PROFITS AND LOSSES.
(A) ALLOCATION OF NET PROFITS. The Net Profits of the Company for
each Accounting Period shall be allocated among the Members in proportion to
their respective Units.
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(B) ALLOCATION OF NET LOSSES. The Net Losses of the Company for each
Accounting Period shall be allocated among the Members in proportion to their
respective Units.
11.2 SPECIAL ALLOCATIONS.
Notwithstanding Section 11.1,
(A) QUALIFIED INCOME OFFSET. In the event any Member unexpectedly
receives any adjustments, allocations or distributions described in Section
1.704-l(b)(2)(ii)(d)(4), (5) or (6) of the Treasury Regulations, items of
Company income and gain shall be specially allocated to each such Member in an
amount and manner sufficient to eliminate, to the extent required by the
Treasury Regulations, the deficit balance of the Adjusted Capital Account of
such Member as quickly as possible, provided that an allocation pursuant to this
Section 11.2(a) shall only be made if and to the extent such Member would have a
deficit balance in its Adjusted Capital Account after all other allocations
provided for in Section 11.1 and Section 11.2 have been made as if this Section
11.2(a) were not in this Operating Agreement.
(B) GROSS INCOME ALLOCATION. In the event any Member has a deficit
Capital Account at the end of any Accounting Period which is in excess of the
sum of (i) the amount such Member is obligated to restore pursuant to any
provision of this Operating Agreement, if any, and (ii) the amount such Member
is deemed to be obligated to restore pursuant to the penultimate sentence of
Treasury Regulations Sections l.704-2(g)(1) and 1.704-2(i)(5), each such Member
shall be specially allocated items of Company income and gain in the amount of
such excess as quickly as possible, provided that an allocation pursuant to this
Section 11.2(b) shall only be made if and to the extent that such Member would
have a deficit Capital Account in excess of such sum after all other allocations
provided for in Section 11.1 and Section 11.2 have been made as if Section
11.2(a) hereof and this Section 11.2(b) were not in this Operating Agreement.
(C) MINIMUM GAIN CHARGEBACK. This Section 11.2(c) hereby incorporates
by reference the "minimum gain chargeback" provisions of Treasury Regulation
Section 1.704-2. In general, upon a reduction of the Company's minimum gain,
the preceding sentence shall require that items of income and gain be allocated
among the Members in a manner that reverses prior allocations of nonrecourse and
Member nonrecourse deductions (as defined in such Treasury Regulations) as well
as reductions in the Members' Capital Account balances resulting from
distributions that are allocable to increases in the Company's minimum gain.
Subject to the provisions of Section 704 of the Code and the regulations
thereunder, if the Board of Directors determines at any time that operation of
such "minimum gain chargeback" provisions likely will not achieve such a
reversal by the conclusion of the liquidation of the Company, the Board of
Directors shall adjust the allocation provisions of this Section 11.2(c) as
necessary to preserve as best as possible the underlying economic objectives of
the Partners.
(D) CURATIVE ALLOCATIONS. The allocations set forth in Sections
11.2(a), (b) and (c) (the "Regulatory Allocations") are intended to comply with
certain requirements of the Regulations. It is the intent of the Members that,
to the extent possible, all Regulatory
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Allocations shall be offset either with other Regulatory Allocations or with
special allocations of other items of Company income, gain, loss or deduction
pursuant to this Section 11.2(d). Therefore, notwithstanding any other
provision of this Section 11 (other than the regulatory allocations), the
Company shall make such offsetting special allocations of Company income, gain,
loss or deduction in whatever manner the Board of Directors determines
appropriate so that, after such offsetting allocations are made, each Member's
Capital Account balance is, to the extent possible, equal to the Capital Account
balance such Member would have had the Regulatory Allocations not been part of
the Agreement and all Company items were allocated pursuant to Section 11.1.
(E) CODE SECTION 704(C) ALLOCATIONS. In accordance with Code Section
704(c) and the Regulations thereunder:
(I) Income, gain, loss, and deduction with respect to any
property contributed to the capital of the Company shall, solely for income tax
purposes, be allocated among the Members so as to take account of any variation
between the adjusted tax basis of such property to the Company and its initial
Adjusted Asset Value. Such allocation shall be made in accordance with the
traditional method with curative allocations described by (S) 1.704-3(c) of the
Regulations.
(II) In the event the Adjusted Asset Value of any Company asset
is adjusted pursuant to Section 1.1(c)(2) hereof, subsequent allocations of
income, gain, loss, and deduction with respect to such asset shall take account
of any variation between the adjusted basis of such asset for Federal income tax
purposes and its Adjusted Asset Value in the same manner as under Code Section
704(c) and the Regulations thereunder.
11.3 DISTRIBUTIONS.
(A) MANDATORY DISTRIBUTIONS. Subject to applicable law and any
limitations contained elsewhere in this Operating Agreement, the Board of
Directors shall distribute cash to the Members in an amount equal to the product
of (i) the Tax Percentage and (ii) the Company's taxable income for such Fiscal
Year determined in accordance with Section 703(a) of the Code as reflected on
the Schedule K-1's in respect of each Unit. For purposes hereof, "Tax
Percentage" shall mean initially forty percent (40%) and shall be adjusted from
time to time by the Board of Directors in response to changes in the tax rates
applicable to corporations under the Code and in response to any other factors
which cause the distributions under this Section 11.3(a) to be less than a
Member's tax liability in respect of each Unit.
(B) DISTRIBUTIONS OF FUNDS FROM OPERATIONS. Subject to applicable law
and any limitations contained elsewhere in this Operating Agreement, the Board
of Directors may elect from time to time to distribute Funds From Operations to
the Members pro rata in accordance with Units.
(C) DISTRIBUTIONS OF FUNDS FROM A SALE OF THE COMPANY. Subject to
applicable law and any limitations contained elsewhere in this Operating
Agreement, the Board
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of Directors shall distribute Funds From a Sale of the Company to the Members.
Any distribution of Funds From a Sale of the Company made under this Section
11.3(c) shall be made to the Members pro rata in accordance with their positive
Capital Account balances (after adjustment for all Net Profit and Net Loss
through the date of distribution.
(D) TAX WITHHOLDING. The Company shall comply with withholding
requirements under federal, state and local law and shall remit amounts withheld
to, and file required forms with, the applicable jurisdictions. To the extent
the Company is required to withhold and pay over any amounts to any authority
with respect to distributions or allocations to any Member, the amount withheld
shall be treated as a distribution in the amount of the withholding to that
Member. If the amount of withholding tax paid by the Company was not withheld
from actual distributions, the Company may, at its option, (i) require the
Member to promptly reimburse the Company for such withholding or (ii) reduce any
subsequent distributions by the amount of such withholding. Each Member agrees
to furnish the Company with any representations and forms as shall reasonably be
requested by the Company to assist it in minimizing or eliminating and in
determining the extent of, and in fulfilling, its withholding obligations.
11.4 LIMITATION UPON DISTRIBUTIONS.
(A) No distribution shall be declared and paid to a Member in
violation of the Act.
(B) A Member who receives a distribution in violation of the Act
shall be liable to the Company for the amount of the distribution to the extent
provided in the Act.
(C) No distribution shall be made to a Member to the extent such
distribution would create or increase a deficit in such Member's Capital
Account.
11.5 ACCOUNTING PRINCIPLES. For financial accounting purposes, the profits
and losses of the Company shall be determined in accordance with generally
accepted accounting principles applied on a consistent basis under the accrual
method of accounting.
11.6 INTEREST ON AND RETURN OF CAPITAL CONTRIBUTIONS. No Member shall be
entitled to interest on its Capital Contribution or to return of its Capital
Contribution. In addition, no Member shall have the right to withdraw any
portion of such member's Capital Account. Except as required by the Company, no
Member shall be personally liable to any other Member for the return of any
Capital Contributions (or any additions thereto), it being agreed that any
distribution as may be made from time to time shall be made solely from the
assets of the Company and only in accordance with the terms of this Operating
Agreement.
11.7 RECORDS AND REPORTS. At the expense of the Company, the Directors
shall maintain records and accounts of all operations and expenditures of the
Company for a period of five (5) years from the end of the Fiscal Year during
which the last entry was made on such
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record, the first two (2) years in the principal office of the Company. At a
minimum the Company shall keep the following records:
(A) A current list of the full name and last known business address
of each Director and each Member;
(B) A copy of the Articles of Organization and all amendments
thereto, together with executed copies of any written powers of attorney
pursuant to which the Operating Agreement and any certificate and all amendments
thereto have been executed;
(C) Copies of the Company's federal, foreign, state and local income
tax returns and reports, if any, for the three (3) most recent years;
(D) Copies of the Operating Agreement and all amendments thereto;
(E) True and full information regarding the status of the business
and financial condition of the Company, including financial statements of the
Company for the three (3) most recent years; and
(F) True and full information regarding the amount of cash and a
description and statement of the agreed value of any other property or services
contributed by each Member and which each Member has agreed to contribute in the
future, and the date on which each became a Member.
11.8 RETURNS AND OTHER ELECTIONS. The Board of Directors shall cause the
preparation and timely filing of all tax returns required to be filed by the
Company pursuant to the Code and all other tax returns deemed necessary and
required in each jurisdiction in which the Company does business. Copies of
such returns, or pertinent information therefrom, shall be furnished to the
Members within a reasonable time after the end of the Company's Fiscal Year.
All elections permitted to be made by the Company under federal or state laws
shall be made by the Board of Directors in its discretion.
11.9 TAX MATTERS PARTNER. Terrence C. Walsh is hereby designated the Tax
Matters Partner of the Company for purposes of Chapter 63 of the Code and the
Treasury Regulations thereunder. The Tax Matters Partner shall employ
experienced tax counsel to represent the Company in connection with any audit or
investigation of the Company by the Internal Revenue Service and in connection
with all subsequent administrative and judicial proceedings arising out of such
audit. If the Tax Matters Partner is required by law or regulation to incur
fees and expenses in connection with tax matters not affecting all the Members,
then the Tax Matters Partner may, in its sole discretion, seek reimbursement
from those Members on whose behalf such fees and expenses were incurred. The
Tax Matters Partner shall keep the Members informed of all administrative and
judicial proceedings, as required by Section 6223(g) of the Code, and shall
furnish to each Member, if such Member so requests in writing, a copy of each
notice or other communication received by the Tax Matters Partner from the
Internal Revenue Service, except such notices or communications as are sent
directly to such requesting Member
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by the Internal Revenue Service. The relationship of the Tax Matters Partner to
the Members shall be that of a fiduciary, and the Tax Matters Partner shall have
fiduciary obligations to perform its duties as Tax Matters Partner in such
manner as will serve the best interests of the Company and all of the Company's
Members. Except as set forth above, the Company will bear all expenses incurred
by the Tax Matters Partner in carrying out his duties as such. To the fullest
extent permitted by law, the Company agrees to indemnify the Tax Matters Partner
and its agents and save and hold them harmless, from and in respect to all (i)
fees, costs and expenses in connection with or resulting from any claim, action
or demand against the Tax Matters Partner or the Company that arise out of or in
any way relate to the Tax Matters Partner's status as Tax Matters Partner for
the Company, and (ii) all such claims, actions, and demands and any losses or
damages therefrom, including amounts paid in settlement or compromise of any
such claim, action or demand; provided that this indemnity shall not extend to
conduct by the Tax Matters Partner adjudged (i) not to have been undertaken in
good faith the Company or (ii) to have constituted recklessness, gross
negligence or intentional wrongdoing by the Tax Matters Partner. The Tax
Matters Partner may be changed by the Directors.
ARTICLE XII
TRANSFERABILITY
12.1 RESTRICTIONS ON TRANSFERABILITY.
(A) No Member shall sell, assign, pledge, mortgage, or otherwise
dispose of or transfer its interest in the Company without the prior written
consent of the Board of Directors.
(B) In addition to other restrictions on transfer contained herein,
each Member agrees that it will not make any disposition of all or any part of
its interest in the Company which will result in the violation by it or by the
Company of the Securities Act of 1933 or any other applicable securities laws.
12.2 NO EFFECT TO TRANSFERS IN VIOLATION OF OPERATING AGREEMENT. Any
purported transfer in violation of this Article XII shall be null and void and
the purported transferee shall become neither a Member nor a holder of any
interest in the Company whatsoever.
29.
<PAGE>
ARTICLE XIII
ADDITIONAL AND SUBSTITUTE MEMBERS
13.1 ADMISSION OF ADDITIONAL MEMBERS AND SUBSTITUTE MEMBERS. Any
Person acceptable to the Board of Directors may, subject to the terms and
conditions of this Operating Agreement (including Section 7.4), become an
Additional Member of the Company by the purchase of new Units for such
consideration as the Board of Directors shall determine in accordance with the
terms of this Operating Agreement.
13.2 ALLOCATIONS TO ADDITIONAL MEMBERS AND SUBSTITUTE MEMBERS. No
Additional Member or Substitute Member shall be entitled to any retroactive
allocation of losses, income or expense deductions incurred by the Company. The
Net Profits and Net Losses of the Company for each Accounting Period shall be
allocated among the Members in proportion to their respective interests, with
the Accounting Period being subject to adjustment pursuant to Section 1.1(a)
upon the addition of an Additional or Substitute Member.
ARTICLE XIV
DISSOLUTION AND TERMINATION
14.1 DISSOLUTION. The Company shall be dissolved upon the occurrence
of any of the following events (a "Dissolution Event"):
(A) the completion of the term of the Company specified in
Section 2.5;
(B) the written agreement of Members holding a majority of the
Units;
(C) the entry of a decree of judicial dissolution under the Act;
(D) the Bankruptcy or dissolution of any Member unless counsel
to the Company advises the Company in writing that this Section 14.1(d) is not
required in this Operating Agreement in order for the Company to be taxed as a
partnership and not as an association taxable as a corporation for federal and
California income tax purposes.
Notwithstanding the foregoing, upon the occurrence of a Dissolution Event, if
the business of the Company is continued by the consent of remaining Members
holding a Majority of the Units within ninety (90) days following the occurrence
of any such event (or, if later, within a reasonable time after the Company
becomes aware of such event), then the Company shall not be dissolved but shall
be continued.
14.2 EFFECT OF FILING OF CERTIFICATE OF CANCELLATION. The Company
shall cease to carry on its business, except insofar as may be necessary for the
winding up of its business, upon the occurrence of a final dissolution event,
but its separate existence shall continue until
30.
<PAGE>
a Certificate of Cancellation has been filed with the Secretary of State of
California or until a decree dissolving the Company has been entered by a court
of competent jurisdiction.
14.3 DISTRIBUTION OF ASSETS UPON DISSOLUTION. In settling accounts after
dissolution, the liabilities of the Company shall be entitled to payment in the
order of priority as provided by law in satisfaction of all liabilities and
obligations of the Company whether by payment or the establishment of reasonable
reserves therefor. The remaining assets of the Company shall be distributed to
the Members in accordance with Section 11.3(c).
14.4 WINDING UP. Except as provided by law, upon dissolution, each Member
shall look solely to the assets of the Company for the return of its Capital
Contribution. If the Company Property remaining after the payment or discharge
of the debts and liabilities of the Company is insufficient to return the
Capital Contribution of each Member, such Member shall have no recourse against
any other Member. The winding up of the affairs of the Company and the
distribution of its assets shall be conducted exclusively by the Board of
Directors, who subject to the terms of this Operating Agreement, are hereby
authorized to take all actions necessary to accomplish such distribution,
including without limitation, selling any Company assets the Board of Directors
deems necessary or appropriate to sell.
14.5 FILING OF CERTIFICATE OF CANCELLATION.
(A) When all debts, liabilities and obligations have been paid and
discharged or adequate provisions have been made therefor and all of the
remaining property and assets have been distributed to the Members, a
Certificate of Cancellation shall be executed and filed with the California
Secretary of State, which certificate shall set forth the information required
by the Act.
(B) Upon the acceptance of the Certificate of Cancellation, the
existence of the Company shall cease, except for the purpose of suits, other
proceedings and appropriate action as provided in the Act.
ARTICLE XV
MERGER
15.1 MERGER. The Company may, upon a vote of the Members of the Company
holding a majority of Units, merge pursuant to an agreement of merger with or
into one or more entities formed or organized under the laws of the State of
California or any other state of the United States or any foreign country or
other foreign jurisdiction to the extent permitted under the Act, with such
entity as the agreement shall provide being the surviving or resulting entity.
15.2 VOTE RELATING TO MERGER OR CONSOLIDATION. A merger by the Company and
any other entity must be approved by a majority vote of the Board of Directors.
31.
<PAGE>
15.3 EXCHANGE RELATING TO MERGER. Rights or securities of, or interests
in, the Company or other entity that is a constituent party to the merger or
consolidation may be exchanged for or converted into cash, property, rights or
securities of, or interests in, the surviving or resulting entity or, in
addition to or in lieu thereof, may be exchanged for or converted into cash,
property, rights or securities of, or interests in, an entity which is not the
surviving or resulting entity in the merger or consolidation.
15.4 FILING AND EFFECT OF CERTIFICATE OF MERGER. If the Company enters
into an agreement of merger, the surviving entity shall file a Certificate of
Merger in the Office of the Secretary of State of the State of California
containing the information required by the Act. Unless a future date is provided
for in such Certificate of Merger, the effective date shall be the date of
filing with the Secretary of State of the State of California.
15.5 AMENDMENT OF OLD OR ADOPTION OF NEW OPERATING AGREEMENT. An agreement
of merger approved in accordance with Section 15.3 may effect any amendment to
the Company's Operating Agreement or effect the adoption of a new Operating
Agreement for the Company or the surviving entity, as the case may be. Any
amendment of the Operating Agreement or adoption of a new Operating Agreement
shall be effective at the effective time or date of the merger.
15.6 ASSUMPTION OF ASSETS AND LIABILITIES. When any merger shall have
become effective under this Article XV, for all purposes of the laws of the
State of California, all of the rights, privileges and powers of the Company and
each of the other entities that have merged, and all property, real, personal
and mixed, and all debts due or incurred to or by any of the constituent
parties, as well as all other things and causes of action belonging to each of
such parties to the merger, shall be vested in the surviving or resulting
entity, and shall thereafter be the property or obligation of the surviving or
resulting entity, and the title to any real property vested by deed or otherwise
shall not revert or be in any way impaired.
ARTICLE XVI
ARBITRATION
16.1 All disputes, controversies or differences in connection with
this Agreement (each individually, a "Dispute") are in principle to be settled
between both parties with sincerity and with mutual understanding and reliance.
16.2 Any dispute that has not been resolved after good faith
negotiations between the parties shall be referred to a mediator to be designed
by the parties (the "Designated Mediator") by delivery of written notice to such
Designated Mediator by any party. Upon receiving written notice of any such
Dispute, the Designated Mediator shall have 60 days to attempt to resolve such
Dispute. If the Dispute has not been resolved by the end of such 60 day
mediation period, the matter shall be referred to arbitration, as set forth
below.
32.
<PAGE>
16.3 In the event that mediated settlement is not possible, any such
disputes shall be referred to and settled by arbitration in Orange County,
California, U.S.A., pursuant to the standard rules and procedures of
JAMS/Endispute, by which each party hereto is bound. Judgment upon the award
rendered may be entered in any court for judicial acceptance of the award and an
order of judgment of enforcement, as the case may be. Such proceedings shall be
conducted in the English language.
16.4 In any action or arbitration proceeding arising between the
parties hereto regarding this Agreement, the prevailing party shall be entitled
to recover reasonable attorneys' fees and costs. Further, both parties hereby
agree that Tivoli and Targetti shall each deposit $20,000 into an escrow account
designated by the arbitrator upon commencement of any arbitration between Tivoli
and Targetti in connection with a dispute arising from this Agreement. Such
amounts may be used by the prevailing party to offset legal fees or attorney
costs incurred during the proceedings or against the judgment. Any unused
amounts left in escrow after satisfaction of the prevailing party and after the
return of the prevailing party's deposit to the prevailing party shall be
returned to the other party.
ARTICLE XVII
MISCELLANEOUS PROVISIONS
17.1 NOTICE. Any notice or other communication required or which may
be given hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed or sent by facsimile, or sent by certified, registered or
express mail, postage prepaid and shall be deemed given when so delivered
personally, telegraphed or telexed or sent by facsimile or computer
transmission, or if mailed, five (5) days after the date of mailing, as follows:
If to Tivoli or the Company to:
Tivoli Industries, Inc.
1513 East St. Gertrude Place
Post Office Box 15624
Santa Ana, CA 92705
ATTN: Terrence C. Walsh
Chairman and Chief Executive Officer
TELEPHONE: (714) 957-6101
FAX: (714) 957-0335
33.
<PAGE>
With a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
ATTN: Andrei Manoliu, Esq.
TELEPHONE: (650) 843-5000
FAX: (650) 857-0663
If to the Company to:
Targetti USA LLC
c/o Tivoli Industries, Inc.
1513 East St. Gertrude Place
Post Office Box 15624
Santa Ana, CA 92705
ATTN: Robert Baker
President
TELEPHONE: (714) 957-6101
FAX: (714) 957-1501
With a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
ATTN: Andrei Manoliu, Esq.
TELEPHONE: (650) 843-5000
FAX: (650) 857-0663
34.
<PAGE>
If to Targetti to:
Targetti Sankey S.p.A.
Via Pratese 164
50145 Florence, Italy
ATTN: Paolo Targetti
President and Chief Executive Officer
and Lorenzo Targetti
Managing Director
TELEPHONE: 011-39-55-3791-273
FAX: 011-39-55-3791-255
With a copy to:
Lorenzo Stanghellini
Viale Mazzini 35
50132 Florence, Italy
17.2 APPLICATION OF CALIFORNIA LAW. This Agreement, and the application of
interpretation hereof, shall be governed exclusively by its terms and by the
laws of the State of California (without giving effect to principles of
conflicts of laws).
17.3 WAIVER OF ACTION FOR PARTITION. Each Member irrevocably waives during
the term of the Company any right that it may have to maintain any action for
partition with respect to the property of the Company.
17.4 AMENDMENTS. Any amendment to this Agreement may be proposed to the
Members by the Board of Directors or by Members holding at least ten percent
(10%) of the Units. A vote on an amendment to this Operating Agreement shall be
taken within sixty (60) days after notice thereof has been given to the Members
unless such period is otherwise extended by applicable laws, regulations, or
agreement of the Members. A proposed amendment shall become effective at such
time as it has been approved by Members holding a majority of the Units.
17.5 EXECUTION OF ADDITIONAL INSTRUMENTS. Each Member hereby agrees to
execute such other and further statements of interest and holdings,
designations, powers of attorney and other instruments necessary to comply with
any laws, rules or regulations.
17.6 CONSTRUCTION. Whenever the singular number is used in this Agreement
and when required by the context, the same shall include the plural, and the
masculine gender shall include the feminine and neuter genders and vice versa.
This Agreement is prepared and executed in the English language only and any
translation of this Operating Agreement into any other language shall have no
effect.
35.
<PAGE>
17.7 HEADINGS. The headings in this Agreement are inserted for convenience
only and are in no way intended to describe, interpret, define, or limit the
scope, extent or intent of this Operating Agreement or any provision hereof.
17.8 WAIVERS. The failure of any party to seek redress for violation of or
to insist upon the strict performance of any covenant or condition of this
Agreement shall not prevent a subsequent act, which would have originally
constituted a violation, from having the effect of an original violation.
17.9 RIGHTS AND REMEDIES CUMULATIVE. The rights and remedies provided by
this Operating Agreement are cumulative, and the use of any one right or remedy
by any party shall not preclude or waive the right to use any or all other
remedies. Such rights and remedies are given in addition to any other rights
the parties may have by law, statute, ordinance or otherwise.
17.10 SEVERABILITY. If any provision of this Agreement or the application
thereof to any person or circumstance shall be invalid, illegal or unenforceable
to any extent, the remainder of this Agreement and the application thereof shall
not be affected and shall be enforceable to the fullest extent permitted by law.
17.11 HEIRS, SUCCESSORS AND ASSIGNS. Each and all of the covenants,
terms, provisions and agreements herein contained shall be binding upon and
inure to the benefit of the parties hereto and, to the extent permitted by this
Agreement, their respective heirs, legal representatives, successors and
assigns.
17.12 CREDITORS. None of the provisions of this Agreement shall be for
the benefit of or enforceable by any creditor of the Company.
17.13 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same instrument.
17.14 NO THIRD PARTY BENEFICIARIES. It is understood and agreed among the
parties that this Agreement and the covenants made herein are made expressly and
solely for the benefit of the parties hereto, and that no other Person, other
than an Indemnitee under Article VIII hereof (but only in respect of the rights
under such Article VIII), shall be entitled or be deemed to be entitled to any
benefits or rights hereunder, nor be authorized or entitled to enforce any
rights, claims or remedies hereunder or by reason hereof.
36.
<PAGE>
OPERATING AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
TIVOLI INDUSTRIES, INC.
By:/s/ Terrence C. Walsh
-----------------------------------------
Terrence C. Walsh
Chairman and Chief
Executive Officer
TARGETTI SANKEY S.P.A.
By:_________________________________________
Paolo Targetti
President and Chief Executive Officer
<PAGE>
OPERATING AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
TIVOLI INDUSTRIES, INC.
By:_________________________________________
Terrence C. Walsh
Chairman and Chief
Executive Officer
TARGETTI SANKEY S.P.A.
By:/s/ Paolo Targetti
-----------------------------------------
Paolo Targetti
President and Chief Executive Officer
<PAGE>
SCHEDULE A
MEMBERS' NAMES AND ADDRESSES, CAPITAL CONTRIBUTIONS AND UNITS
<TABLE>
<CAPTION>
NAME & ADDRESS OF MEMBER CAPITAL NUMBER OF UNITS
CONTRIBUTION
================================================================================
<S> <C> <C> <C>
Tivoli Industries, Inc. $ 413,786.40 inventory
1513 East St. Gertrude Place 62,285.56 catalogs
P.O. Box 15624 (167,967.76) accounts payable
Santa Ana, CA 92705 $ 308,104.20 500
Targetti Sankey S.p.A $ 286,493.60 cash
Via Pratese, 164 21,610.60 inventory
50145 Florence, Italy
TOTALS $ 308,104.20 500
$ 616,208.40
</TABLE>
<PAGE>
EXHIBIT 10.10
AMENDED AND RESTATED
LICENSE AND DISTRIBUTION AGREEMENT
BY AND BETWEEN
TARGETTI SANKEY S.P.A.,
AND
TIVOLI INDUSTRIES, INC.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
1. DEFINITIONS......................................................... 1.
2. GRANT OF LICENSE.................................................... 2.
3. TECHNICAL ASSISTANCE................................................ 2.
4. NON-DISCLOSURE OF TECHNICAL INFORMATION............................. 3.
5. NEW DESIGNS, MODIFICATIONS AND IMPROVEMENTS......................... 3.
6. PURCHASES FROM LICENSOR............................................. 3.
7. ADVERTISING ASSISTANCE.............................................. 4.
8. LICENSOR TRADEMARK.................................................. 4.
9. LICENSOR REPRESENTATIONS AND WARRANTIES............................. 4.
10. RECORDS............................................................. 5.
11. QUALITY STANDARDS................................................... 6.
12. DURATION OF AGREEMENT............................................... 6.
13. OBLIGATIONS UPON TERMINATION........................................ 6.
14. FORCE MAJEURE....................................................... 6.
15. ARBITRATION......................................................... 7.
16. ASSIGNMENTS AND SUCCESSORS.......................................... 7.
17. RIGHTS AND REMEDIES CUMULATIVE...................................... 8.
18. GOVERNING LAW....................................................... 8.
19. LANGUAGE............................................................ 8.
20. NOTICES............................................................. 8.
21. AMENDMENT........................................................... 9.
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
22 WAIVER ......................................................... 9.
23. SEVERABILITY .................................................... 9.
</TABLE>
ii
<PAGE>
AMENDED AND RESTATED
LICENSE AND DISTRIBUTION AGREEMENT
THIS AMENDED AND RESTATED LICENSE AND DISTRIBUTION AGREEMENT (the
"Agreement") is made and entered into as of this 1st day of November, 1997 (the
"Effective Date"), by and between TARGETTI SANKEY S.P.A, a corporation under the
laws of Italy ("Licensor"), and TIVOLI INDUSTRIES, INC., a California
corporation ("Licensee").
RECITALS
WHEREAS, Licensor and Licensee entered into a License and Distribution
Agreement dated November 4, 1994 (the "Old Agreement"); and
WHEREAS, Licensor and Licensee now desire to amend and restate the Old
Agreement, pursuant to the terms set forth below;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereby agree as follows:
1. DEFINITIONS
1.1 DESIGNS. The lighting product designs which Licensor has created or
may create during the life of this Agreement, whether or not protected by
patents, patent applications, copyrights, trade secrets, know how or other forms
of proprietary confidential information or intellectual property protection.
1.2 TECHNOLOGY. All data, specifications, inventions, processes,
documents, drawings, knowledge and technical information related to the
manufacture, marketing, sale and/or use of the Products, whether or not
protected by patents, patent applications, copyrights, trade secrets, know how
or other forms of proprietary confidential information or intellectual property
protection.
1.3 LICENSED TECHNICAL INFORMATION. All Technology and Designs related to
the manufacture, marketing, sale and/or use of the Products.
1.4 PRODUCTS. The lighting products designed and manufactured by
Licensor, including product lines manufactured by its affiliates and
subsidiaries. Products are broken into three categories:
(A) COMPLETE OR FINISHED PRODUCTS. Licensee will not be required to
perform any assembly, wiring or value added manufacturing.
1.
<PAGE>
(B) PARTIALLY COMPLETE ASSEMBLIES, COMPONENTS OR MATERIALS. Licensee
will have to perform some assembly, wiring or value added manufacturing using
Licensed Technical Information provided by Licensor.
(C) DESIGN PRODUCTS. Licensee will have to completely manufacture
Products using Licensed Technical Information provided by Licensor.
1.5 OLD AGREEMENT SUPERSEDED. Upon the Effective Date hereof, the Old
Agreement is hereby amended and superseded in its entirety by this Agreement.
1.6 TERRITORY. The United States of America. Upon the expiration or
termination of the Licensor's license and distribution agreements with third
parties in Canada and Mexico, Licensor agrees to offer Licensee a right of first
refusal with respect to Canada or Mexico, as applicable. If Licensee agrees to
become a distributor in Canada or Mexico, Canada or Mexico, as applicable, will
automatically be added to and become part of the Territory.
1.7 MARKS. All trademarks owned or used by Licensor for Products licensed
or sold to Licensee hereunder, including but not limited to the product lines
identified on Exhibit A.
2. GRANT OF LICENSE
2.1 Licensor hereby grants to Licensee the exclusive right and license for
and during the life of this Agreement to import, manufacture, market and sell
the Products in the Territory, making full and exclusive use of the Licensed
Technical Information and Marks in the Territory, subject to all the terms and
conditions of this Agreement.
2.2 Except where otherwise provided for in this Agreement, the Licensor
shall not grant any rights to any person, firm or corporation to actively sell
the Products in the Territory, nor shall it sell the Products in the Territory
except to the Licensee; nor shall the Licensor sell or otherwise supply Products
to any third party outside the Territory if it has reason to believe that such
third party intends to actively resell Products within the Territory.
2.3 Licensor and Licensee shall periodically visit each other to
coordinate their activities in connection with the promotion and advertising of
the Products. Each party will provide all reasonable assistance and information
relevant to its distribution of the Products for the carrying out of the above
purpose.
2.4 Licensee shall manufacture or complete the manufacture of Partially
Complete Assemblies or Design Products consistent with Targetti's quality
standards.
3. TECHNICAL ASSISTANCE
3.1 Licensor shall provide Licensee with Licensed Technical Information
necessary for the manufacturing and marketing of the Products.
2.
<PAGE>
3.2 At the request of Licensee, technical assistance may include visits by
technical personnel of Licensor to the manufacturing plant of Licensee in the
U.S.A. or of Licensee to the manufacturing plant of Licensor in Italy.
4. NON-DISCLOSURE OF TECHNICAL INFORMATION
4.1 Licensee agrees to maintain in confidence and not to disclose to
others the Licensed Technical Information which is made available to Licensee
under the provisions of this Agreement. This non-disclosure obligation shall
not apply to:
(A) Licensed Technical Information which at the time of disclosure
hereunder is in the public domain or thereafter comes into the public domain
through no fault of Licensee; or
(B) Licensed Technical Information which must be disclosed to parties
with whom Licensee contracts to manufacture the Products or components of the
Products, provided, however, such parties shall be under an obligation not to
disclose the Licensed Technical Information to others.
5. NEW DESIGNS, MODIFICATIONS AND IMPROVEMENTS
Licensor shall disclose and make available to Licensee all new Products,
Designs and Technology developed by Licensor during the term of this Agreement.
Such disclosures shall be subject to the terms and conditions of this Agreement.
6. PURCHASES FROM LICENSOR
6.1 Pricing for Complete or Finished Products will be determined [*]
The parties agree that from time to time special pricing may be required, and
agree to negotiate such special pricing in good faith on a case-by-case basis.
6.2 Pricing for Partially Complete Assemblies, Components or Materials
will be priced as a combination of [*]
6.3 All amounts due and payable with respect to Complete or Finished
Products delivered by Licensor shall be paid in full within [*] after Licensee
receives the invoice covering such product. All amounts due and payable with
respect to Partially Complete Assemblies, Components or Materials delivered by
Licensor shall be paid in full within [*] after Licensee receives the invoice
covering such Product. All such amounts shall be paid in US Dollars by wire
transfer, to such bank or account as Licensor may from time to time designate in
writing. Whenever any amount hereunder is due on a day which is not a day on
which banks in Florence, Italy are open for business (a "Business Day"), such
amount shall be
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
3.
<PAGE>
paid on the next such Business Day. Amounts hereunder shall be considered to be
paid as of the day on which funds are received by Licensor bank.
6.4 Licensee may purchase components of Products directly from other
sources in Italy or other countries, provided that purchases directly from
Licensor's suppliers will be made only with the prior written approval of
Licensor, which will not be unreasonably withheld.
7. ADVERTISING ASSISTANCE
Licensor shall provide, at no cost to Licensee, for purposes of brochures
and advertising related to the Products, those photographs, drawings and other
graphic materials used by Licensor in its own brochures and advertising.
8. LICENSOR TRADEMARK
8.1 Licensee shall undertake to use the Marks in the Territory for the use
of Licensee in producing and marketing the Products. Licensor herein grants to
Licensee the exclusive right to the use of the Marks for all Products sold
within the Territory.
8.2 All Products manufactured by or on behalf of Licensee and bearing the
Marks shall be manufactured according to the samples approved in writing by
Licensor. Licensee shall permit representatives of Licensor to inspect samples
of the Products for approval thereof. Approval of Licensor shall not be
unreasonably withheld.
9. LICENSOR REPRESENTATIONS AND WARRANTIES
9.1 Licensor represents and warrants that:
(A) It is the sole and exclusive owner of the Licensed Technical
Information and Marks and has the full right and authority to give and grant
exclusive rights and licenses for the use of the Licensed Technical Information
and Marks in the Territory in connection with the manufacture and sale of the
Products, including without limitation the license granted to Licensee pursuant
to this Agreement.
(B) Licensor makes no representation or warranty in connection with
use of the Licensed Technical Information or Marks in any part of the world
except the Territory.
(C) Licensee shall immediately inform Licensor of any knowledge on
its part of infringement or threats of infringement of the Licensed Technical
Information and Marks or any other actions by third parties which may be
prejudicial to the Licensor's interests.
(D) Nothing contained in this Agreement shall be construed as
conferring upon Licensee any right or interest in the Licensed Technical
Information and Marks or in any application for registration thereof except that
contained in this Agreement. Licensee shall have the right to use, but only
during the term of this Agreement, and any renewal thereof, the
4.
<PAGE>
Licensed Technical Information and the Marks only in connection with the sale
and promotion of the Products pursuant to this Agreement and only subject to
Licensor's prior written approval as provided herein. Further, Licensee shall
not register nor cause a company to be registered using Targetti or a similar
name as the corporate name of said company.
9.2 As to all Designs, Technology and Products manufactured by Licensor,
Licensor makes the following warranties:
(A) Products will conform to their specifications at all times for
one year following sale by Licensee to its customers;
(B) Products will be free from defects in design, material and
workmanship under normal use and service at all times for one year following
sale by Licensee to its customers; and
(C) Products will perform substantially in accordance with the
Product's specifications when properly used pursuant to the applicable
instructions at all times for one year following sale by Licensee to its
customers.
The time and scope of the warranties described above shall not exceed the
time and scope of any warranties granted by Licensee to any purchaser of such
Product.
9.3 Licensor hereby warrants that it is aware of no patents, patent
applications, trademarks, copyrights, trade secrets, know how or other
proprietary information owned by third parties which would infringe upon the
Licensed Technical Information or Marks or prohibit the Licensee from
manufacturing or selling Products; and that if, during the terms hereof,
Licensor becomes aware of such conflicting third-party rights, Licensor shall
immediately notify Licensee thereof.
9.4 Licensor hereby indemnifies Licensee against any and all charges of
infringement which may be asserted by third parties alleging infringement of
such third parties' patents, patent applications, trademarks, copyrights, trade
secrets, know how or other proprietary information by the Licensee's use of the
Products, Licensed Technical Information or Marks supplied to Licensee
hereunder, including without limitation all damages, out-of-pocket expenses and
attorneys' fees.
10. RECORDS
10.1 Licensee shall keep full, true and accurate accounts in accordance
with United States' generally accepted accounting principles, showing the amount
of royalties payable to Licensor pursuant to this Agreement, and ensure such
accounts are made available at Licensor's request at Licensee's corporate
headquarters. Licensee shall retain the accounts for three years.
10.2 Licensee agrees that the relevant books and records of Licensee may
be audited on behalf of Licensor by an independent auditor no more frequently
than once per year and upon
5.
<PAGE>
reasonable notice to Licensee. Licensor will pay the fees and expenses
connected with such audit, unless such audit shows a discrepancy of more than
10% of royalty fees due, in which event Licensee will pay expenses and costs of
the audit, as well as the amounts overdue plus interest as determined below.
11. QUALITY STANDARDS
Licensee shall at all times use its best efforts to maintain the quality
standards established from time to time by Licensor in respect to the Products.
12. DURATION OF AGREEMENT
Concurrently with the execution of this Agreement, Licensor, Licensee, and
Targetti USA LLC, a California limited liability company (the "LLC"), will enter
into an Operating Agreement (the "Operating Agreement"). This Agreement may not
be terminated by either party as long as the Operating Agreement remains in
force, and this Agreement will terminate automatically, without any action on
the part of Licensor or Licensee, upon the effective date of termination of the
Operating Agreement.
13. OBLIGATIONS UPON TERMINATION
13.1 After termination of this Agreement, neither Licensee, nor any
subcontracted factory of Licensee shall manufacture or sell the Products. It is
provided, however, that Licensee shall be entitled to finish and sell Products
which are in the process of being manufactured or are completed at the time of
termination hereof.
13.2 Licensee shall return to Licensor immediately following completion of
those Products in the process of being manufactured, all Licensed Technical
Information connected with the manufacture of the Products.
14. FORCE MAJEURE
If the performance of this Agreement or any obligation hereunder is
prevented, restricted or interfered with by reason of fire or other casualty or
accident, strikes or labor disputes, inability to procure raw materials, power
or supplies, war or other violence, any law, order, proclamation, regulation,
ordinance, demand or requirement of any government agency, or other act or
condition whatsoever beyond the control of the parties hereto, the party so
affected, upon giving prompt notice to the other party, shall be excused from
such performance to the extent of such prevention, restriction or interference,
provided, however, that the party so affected shall use its best efforts to
avoid or remove such causes of nonperformance and shall continue performance
hereunder with the utmost dispatch whenever such causes are removed.
6.
<PAGE>
15. ARBITRATION
15.1 All disputes, controversies or difference in connection with this
Agreement each individually (a "Dispute") are in principle to be settled between
both parties with sincerity and with mutual understanding and reliance.
15.2 Any Dispute that has not been resolved after good faith negotiations
between the parties shall be referred to a mediator to be designated by the
parties (the "Designated Mediator") by delivery of written notice to such
Designated Mediator by any party. Upon receiving written notice of any such
Dispute, the Designated Mediator shall have 60 days to attempt to resolve such
Dispute. If the Dispute has not been resolved by the end of such 60 day
mediation period, the matter shall be referred to arbitration, as set forth
below.
15.3 In the event that mediated settlement is not possible, the Dispute
shall be referred to and settled by arbitration in Orange County, California,
U.S.A., pursuant to the standard rules and procedures of JAMS/Endispute, by
which each party hereto is bound. Judgment upon the award rendered may be
entered in any court for judicial acceptance of the award and an order or
judgment of enforcement, as the case may be. Such proceedings shall be
conducted in the English language.
15.4 In any action or arbitration proceeding arising between the parties
hereto regarding this Agreement, the prevailing party shall be entitled to
recover reasonable attorneys' fees and costs. Further, both parties hereby
agree that the Licensor and Licensee shall each deposit $20,000 into an escrow
account designated by the arbitrator upon commencement of any arbitration
between the Licensor and Licensee in connection with a dispute arising from this
Agreement. Such amounts may be used by the prevailing party to offset against
legal fees or attorney costs incurred during the proceedings or against the
judgment. Any unused amounts left in escrow after satisfaction of the
prevailing party and after the return of the prevailing party's deposit to the
prevailing party shall be returned to the other party.
16. ASSIGNMENTS AND SUCCESSORS
This Agreement shall be binding on the respective successors and assigns of
the parties. Licensee shall not assign this Agreement unless and until the
prior written consent of Licensor to such assignment has been obtained, which
consent shall not be unreasonably withheld; provided, however, that Licensor
acknowledges and agrees that Licensee may assign all of its rights or
obligations under this Agreement to the LLC. Notwithstanding the foregoing, no
consent shall be required in connection with the sale by Licensee of all or
substantially all of its assets or business operations by merger, stock
transaction or asset transaction or otherwise.
7.
<PAGE>
17. RIGHTS AND REMEDIES CUMULATIVE
Except as expressly provided herein, the rights and remedies provided in
this Agreement shall be cumulative and not exclusive of any other rights and
remedies provided by law or otherwise.
18. GOVERNING LAW
This Agreement shall be governed by, and interpreted and enforced in
accordance with the laws of the State of California, USA, excluding its conflict
of law provisions.
19. LANGUAGE
All actions or proceedings arising between the parties hereto shall be
conducted in the English language.
20. NOTICES
Any notice or other communication required or which may be given hereunder
shall be in writing and shall be delivered personally, telegraphed, telexed or
sent by facsimile, or sent by certified, registered or express mail, postage
prepaid and shall be deemed given when so delivered personally, telegraphed or
telexed or sent by facsimile or computer transmission, or if mailed, five (5)
days after the date of mailing, as follows:
If to Licensee to:
Tivoli Industries, Inc.
1513 East St. Gertrude Place
Post Office Box 15624
Santa Ana, CA 92705
ATTN: Terrence C. Walsh
Chairman and Chief Executive Officer
TELEPHONE: (714) 957-6101
FAX: (714) 957-0335
With a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
ATTN: Andrei Manoliu, Esq.
TELEPHONE: (650) 843-5000
FAX: (650) 857-0663
8.
<PAGE>
If to Licensor to:
Targetti Sankey S.p.A.
Via Pratese, 164
50145 Florence, Italy
ATTN: Paolo Targetti
President and Chief Executive Officer
and Lorenzo Targetti
Managing Director
TELEPHONE: 011-39-55-3791-273
FAX: 011-39-55-3791-255
With a copy to: Lorenzo Stanghellini
Viale Mazzini 35
50132 Florence, Italy
21. AMENDMENT
No amendment, modification or supplement of any provision of this Agreement
will be valid or effective unless made in writing and signed by a duly
authorized officer of each party.
22. WAIVER
No provision of the Agreement unless such provision otherwise provides will
be waived by any act, omission or knowledge of a party or its agents or
employees except by an instrument in writing expressly waiving such provision
and signed by a duly authorized officer of the waiving party.
23. SEVERABILITY
Whenever possible, each provision of the Agreement will be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of the Agreement is held to be prohibited by or invalid under
applicable law, such provision will be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of the Agreement.
9.
<PAGE>
AMENDED AND RESTATED
LICENSE AND DISTRIBUTION AGREEMENT
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written.
TARGETTI SANKEY S.P.A
By: /s/ Paolo Targetti
--------------------------------------------
Paolo Targetti
President and Chief Executive Officer
TIVOLI INDUSTRIES, INC.
By:_____________________________________________
Terrence C. Walsh
Chairman and Chief
Executive Officer
<PAGE>
AMENDED AND RESTATED
LICENSE AND DISTRIBUTION AGREEMENT
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written.
TARGETTI SANKEY S.P.A
By: ____________________________________________
Paolo Targetti
President and Chief Executive Officer
TIVOLI INDUSTRIES, INC.
By: /s/ Terrence C. Walsh
--------------------------------------------
Terrence C. Walsh
Chairman and Chief
Executive Officer
<PAGE>
EXHIBIT 10.11
MANUFACTURING AGREEMENT
BY AND BETWEEN
TIVOLI INDUSTRIES, INC.
AND
TARGETTI USA LLC
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. Definitions............................................................. 1.
1.1 Complete Products.................................................. 1.
1.2 Licensed Technical Information..................................... 1.
1.3 Products........................................................... 1.
1.4 Purchase Order..................................................... 2.
1.5 Specifications..................................................... 2.
2. Manufacture or Completion of Manufacture of Products.................... 2.
2.1 Obligation to Manufacture.......................................... 2.
2.2 Reduced Capacity................................................... 2.
2.3 Quality Standards.................................................. 2.
3. Purchase Orders......................................................... 2.
3.1 Purchase Orders by the LLC......................................... 2.
3.2 Changes to Purchase Orders......................................... 2.
4. Packaging............................................................... 3.
4.1 Packaging Requirements............................................. 3.
4.2 Labeling of Packages............................................... 3.
5. Delivery................................................................ 3.
6. Price; Payment.......................................................... 3.
6.1 Price.............................................................. 3.
6.2 Time of Payment.................................................... 3.
7. Representations And Warranties........................................... 3.
7.1 Warranty........................................................... 3.
7.2 Disclaimer......................................................... 4.
8. Indemnification by the LLC.............................................. 4.
9. Term.................................................................... 5.
10. Termination............................................................. 5.
10.1 Termination for Cause by the LLC.................................. 5.
10.2 Termination for Cause by Tivoli................................... 5.
10.3 Effect of Termination............................................. 5.
10.4 Survival of Rights................................................ 5.
10.5 Survival of Terms................................................. 5.
</TABLE>
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
11. Limitation Of Liability................................................. 5.
11.1 Consequential Damages............................................ 6.
11.2 Limitation of Liability.......................................... 6.
12. Arbitration............................................................. 6.
13. Miscellaneous Provisions................................................ 7.
13.1 Notice........................................................... 7.
13.2 Application of California Law.................................... 8.
13.3 Amendments....................................................... 8.
13.4 Execution of Additional Instruments.............................. 8.
13.5 Construction..................................................... 8.
13.6 Headings......................................................... 8.
13.7 Waivers.......................................................... 8.
13.8 Rights and Remedies Cumulative................................... 8.
13.9 Severability..................................................... 8.
13.10 Heirs, Successors and Assigns.................................... 9.
13.11 Creditors........................................................ 9.
13.12 Counterparts..................................................... 9.
13.13 No Third Party Beneficiaries..................................... 9.
13.14 Force Majeure.................................................... 9.
</TABLE>
ii.
<PAGE>
MANUFACTURING AGREEMENT
THIS MANUFACTURING AGREEMENT the ("Agreement") is made and entered into as
of this 15th day of November, 1997 (the "Effective Date") by and between TIVOLI
INDUSTRIES, INC., a California corporation ("TIVOLI"), and TARGETTI USA LLC, a
California limited liability corporation (the "LLC").
RECITALS
WHEREAS, the LLC is in the business of marketing lighting products in the
USA, and desires to find a manufacturer to produce or complete products, based
on partially completed assemblies or designs provided by the LLC; and
WHEREAS, Tivoli is willing to provide such manufacturing services;
NOW, THEREFORE, in consideration of the promises and covenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereby agree as follows:
AGREEMENT
1. DEFINITIONS
The following terms, in singular or plural forms of the same term as
and wherever used herein, shall have the meanings set forth in this Section 1.
1.1 COMPLETE PRODUCTS. Products for which Targetti has completed
manufacture, in accordance with the Licensed Technical Information and
Specifications provided by the LLC.
1.2 LICENSED TECHNICAL INFORMATION. Technology and designs related to
the manufacture of the Products, which the LLC has licensed from Targetti Sankey
S.p.A., a corporation organized under the laws of Italy under an Amended and
Restated License and Distribution Agreement of even date herewith (the "License
Agreement").
1.3 PRODUCTS. The lighting products supplied to Tivoli by the LLC.
Products fall into one of two categories:
(A) PARTIALLY COMPLETE ASSEMBLIES, COMPONENTS OR MATERIALS. Tivoli
will perform some assembly, wiring or value added manufacturing using Licensed
Technical Information and Specifications provided by the LLC.
(B) DESIGN PRODUCTS. Tivoli will completely manufacture Products
using Licensed Technical Information and Specifications provided by the LLC.
1.
<PAGE>
1.4 PURCHASE ORDER. Any purchase order issued by the LLC for the purpose
of manufacture of Products pursuant to this Agreement.
1.5 SPECIFICATIONS. The specifications for the manufacture or completion
of manufacture of Products provided by the LLC to Tivoli.
2. MANUFACTURE OR COMPLETION OF MANUFACTURE OF PRODUCTS
2.1 OBLIGATION TO MANUFACTURE. Tivoli shall manufacture or complete the
manufacture of Products as set forth in the LLC's Purchase Orders, subject to
the provisions of Section 3 hereunder. Tivoli shall manufacture or complete the
manufacture of such Products in accordance with the Specifications and such
performance, reliability and safety standards as may be promulgated or imposed
from time to time by relevant trade organizations and by laws, regulations and
rules of the United States of America and of each state and territory
thereunder .
2.2 REDUCED CAPACITY. The parties acknowledge that the production capacity
of Tivoli may be reduced from time to time as a result of unexpected occurrences
outside the control of Tivoli, as set forth in Section 13.14 hereof, and in
excess of the normal planning allowance of Tivoli. During such periods, for any
particular Purchase Order, Tivoli shall be entitled to reduce the number of
Products delivered to the LLC. Tivoli shall provide the LLC prompt notice of any
reduced capacity, and Tivoli will use its best efforts to remedy the condition
which caused the reduced capacity as quickly as possible.
2.3 QUALITY STANDARDS. Tivoli shall manufacture or complete the
manufacture of products consistent with Targetti's quality standards. Tivoli
shall provide samples of completed products to Targetti from time to time upon
the request of Targetti.
3. PURCHASE ORDERS
3.1 PURCHASE ORDERS BY THE LLC. This Agreement shall not be construed as a
Purchase Order or as authority to ship. Any such order or authority shall be
evidenced by specific and separate Purchase Orders issued by the LLC pursuant to
this Section 3. Each Purchase Order shall set forth the quantity of and type of
Products and the expected date of delivery for each such item. Any such Purchase
Orders issued by the LLC must be signed by an officer or authorized employee of
the LLC to be valid. All Purchase Orders shall be governed exclusively by the
terms and conditions of this Agreement, and any terms or provisions on the LLC's
Purchase Order forms or Tivoli acknowledgements thereto that are inconsistent
with those contained in this Agreement shall be of no force and effect.
3.2 CHANGES TO PURCHASE ORDERS.
(A) The LLC may reschedule any Purchase Orders more than 30 days from
a scheduled delivery date, upon written notice to Tivoli.
2.
<PAGE>
(B) Acceleration of the delivery date set forth in a Purchase Order
may be done with Tivoli's prior written approval.
(C) The LLC may, at any time prior to two business days before the
scheduled shipping date, by issuance of written notice, make changes to the
method of shipment or place of delivery of Products.
4. PACKAGING
4.1 PACKAGING REQUIREMENTS. All Products delivered by Tivoli shall be
packaged, labeled, packed, marked and otherwise prepared for shipment in such a
way as to be acceptable to carriers and in accordance with good commercial
practice and all regulations and to ensure safe arrival of the Products at the
place designated in the applicable Purchase Order. Tivoli shall provide storage
and protection prior to shipment against all reasonably anticipated weather
conditions .
4.2 LABELING OF PACKAGES. Tivoli will mark all containers with necessary
lifting, handling and shipping information as well as the Purchase Order number,
date of shipment and all other information reasonably necessary or customary
information. An itemized packing list shall accompany each shipment.
5. DELIVERY
Delivery shall be F.O.B. Tivoli's manufacturing facility on or before the
date stipulated in the applicable Purchase Order.
6. PRICE; PAYMENT
6.1 PRICE. The LLC hereby agrees to pay, and Tivoli hereby agrees to
accept as full compensation for value conferred, the price for the Completed
Products set forth in the Price Schedule attached hereto as Exhibit 6.1. All
prices set forth in the Price Schedule shall be F.O.B. Tivoli's manufacturing
facility, inclusive of all boxing, crating, containerizing, carting, drayage,
storage and other packaging requirements.
6.2 TIME OF PAYMENT. Payment for Completed Products will be made by the
LLC within 90 days following the LLC's receipt of goods. Payment for Allocated
Costs (as defined on Exhibit 6.1) will be made pursuant to payment terms to be
mutually negotiated by Tivoli and the LLC.
7. REPRESENTATIONS AND WARRANTIES
7.1 WARRANTY. Tivoli represents and warrants to the LLC that all
Completed Products supplied to the LLC shall be produced in accordance with and
will conform to the Specifications, and shall be free from defects in materials
and workmanship following delivery.
3.
<PAGE>
If any Completed Product delivered hereunder is found to have a manufacturing
defect or to not conform to the Specifications within one year of the delivery
of such Completed Product, then Tivoli shall:
(A) promptly correct, at no cost to the LLC, any such non-conforming
or defective Completed Product by repair or replacement at the corporate offices
of Tivoli; or
(B) if such repair or replacement has not been successfully completed
within 30 days of discovery of the defect or non-conformity, allow the LLC to
return such defective or non-conforming Completed Product, if not already
returned, at Tivoli's expense, to Tivoli and recover from Tivoli the purchase
price thereof together with all costs associated with making any such return.
7.2 DISCLAIMER. OTHER THAN AS EXPRESSLY PROVIDED IN THIS SECTION 7 OR
ELSEWHERE IN THIS AGREEMENT, TIVOLI MAKES NO WARRANTY, AND HEREBY EXPRESSLY
DISCLAIMS ANY WARRANTY, EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY OR THE
FITNESS OF ANY COMPLETED PRODUCT FOR ANY PARTICULAR PURPOSE.
8. INDEMNIFICATION BY THE LLC
8.1 The LLC hereby indemnifies, and agrees to defend and hold Tivoli, its
successors, affiliates and assigns harmless from and against any and all
expenses, costs, losses or damages incurred by Tivoli that arise out of any
claim or action brought against Tivoli which is based on any claim that the
Product or Licensed Technology misappropriate or infringe trade secrets,
patents, copyrights, trademarks or other proprietary rights of third parties (a
"Claim") provided that: (a) Tivoli notifies the LLC in writing within 30 days of
any Claim, and (b) Tivoli provides the LLC with the assistance, information and
authority necessary to perform the above. Reasonable out-of-pocket expenses
incurred by Tivoli in providing such assistance shall be reimbursed by the LLC.
Tivoli shall have the right to participate, at its own expense, in any the LLC
defense and/or settlement of any Claim.
8.2 In the event that any Product is held or is believed by the LLC to
infringe a third party's rights exclusively because of the Licensed Technology,
the LLC may at its option and at its expense (a) modify such Product to be
noninfringing so long as such modification meets the requirements of the
Specifications, or (b) obtain for Tivoli a license to continue using such
Licensed Technology in the Products at no additional cost to Tivoli. If the LLC
is unable to make such product modification or obtain such a license, Tivoli
shall be entitled to terminate this Agreement; such termination will be treated
as Termination for Cause, as defined in Section 10 herein.
4.
<PAGE>
9. TERM
This Agreement shall run from the Effective Date and shall continue as long
as the License Agreement remains in effect, unless terminated sooner as provided
in Section 10 hereof or by the mutual written consent of the parties, provided,
however, that in the event Targetti Sankey S.p.A., a corporation organized under
the laws of Italy ("Targetti") or its designee acquires the Units of the LLC
currently owned by Tivoli, pursuant to Section 7.8 of the Operating Agreement
between Tivoli and Targetti of even date herewith, then either Tivoli or the LLC
may terminate this Agreement for cause pursuant to Section 10 hereof.
10. TERMINATION
10.1 TERMINATION FOR CAUSE BY THE LLC. The LLC shall have the right to
terminate this Agreement for cause upon 60 days' written notice if (i) Tivoli
fails to manufacture Completed Products according to the Specifications, (ii)
Tivoli fails to meet the LLC's quantity or delivery requirements for the Product
for reasons that are due solely to factors within Tivoli's control, and Tivoli
does not cure such failure within such 60 day notice period or (iii) Targetti
acquires the Units of the LLC currently owned by Tivoli, pursuant to Section 7.8
of the Operating Agreement between Tivoli and Targetti of even date herewith. In
addition, the LLC may terminate this Agreement for cause if Tivoli breaches any
of the other terms and provisions of this Agreement in a manner that is
materially adverse to the LLC and fails to cure such breach within 60 days after
receiving notice from the LLC specifying the particulars of the breach.
10.2 TERMINATION FOR CAUSE BY TIVOLI. Tivoli shall have the right to
terminate this Agreement for cause if (i) the LLC breaches any of the terms and
provisions of this Agreement in a manner that is materially adverse to Tivoli
and fails to cure the breach within 30 days after receiving written notice from
Tivoli specifying the particulars of the breach, or (ii) Targetti acquires the
Units of the LLC currently owned by Tivoli, pursuant to Section 7.8 of the
Operating Agreement between Tivoli and Targetti of even date herewith.
10.3 EFFECT OF TERMINATION. Following the termination of this Agreement
for any reason, the LLC shall be entitled to place orders for the manufacture of
Products ordered before termination, for up to one year from the date of such
termination, and Tivoli shall receive full payment for the Completed Products
from the LLC.
10.4 SURVIVAL OF RIGHTS. Termination of this Agreement shall be without
prejudice to any rights or claims which the nonbreaching party may otherwise
have against the other party.
10.5 SURVIVAL OF TERMS. Sections 1, 6.2, 7.2, 8, 9, 10, and 11 hereof
shall survive any termination or expiration of this Agreement.
11. LIMITATION OF LIABILITY
5.
<PAGE>
11.1 CONSEQUENTIAL DAMAGES. EXCEPT AS EXPRESSLY SET FORTH HEREIN, TIVOLI
SHALL NOT BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL
DAMAGES, INCLUDING WITHOUT LIMITATION LOSS OF PROFITS, INCURRED BY the LLC OR A
THIRD PARTY, WHETHER IN AN ACTION IN CONTRACT OR TORT (INCLUDING STRICT
LIABILITY) OR BASED ON A WARRANTY, ARISING OUT OF, CONNECTED WITH, OR RESULTING
FROM THE SALE, DELIVERY, REPAIR, REPLACEMENT, MAINTENANCE OR OPERATION OF THE
PRODUCTS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, EVEN IF TIVOLI HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
11.2 LIMITATION OF LIABILITY. IN NO EVENT WILL TIVOLI'S LIABILITY TO the
LLC EXCEED THE AMOUNTS PAID OR PAYABLE BY TIVOLI TO THE LLC HEREUNDER.
12. ARBITRATION
12.1 All disputes, controversies or differences in connection with this
Agreement each individually (a "Dispute") are in principle to be settled between
both parties with sincerity and with mutual understanding and reliance.
12.2 Any Dispute that has not been resolved after good faith negotiations
between the parties shall be referred to a mediator to be designated by the
parties (the "Designated Mediator") by delivery of written notice to such
Designated Mediator by any party. Upon receiving written notice of any such
Dispute, the Designated Mediator shall have 60 days to attempt to resolve such
Dispute. If the Dispute has not been resolved by the end of such 60 day
mediation period, the matter shall be referred to arbitration, as set forth
below.
12.3 In the event that mediated settlement is not possible, the Dispute
shall be referred to and settled by arbitration in Orange County, California,
U.S.A., pursuant to the standard rules and procedures of JAMS/Endispute, by
which each party hereto is bound. Judgment upon the award rendered may be
entered in any court for judicial acceptance of the award and an order of
judgment of enforcement, as the case may be. Such proceedings shall be conducted
in the English language.
12.4 In any action or arbitration proceeding arising between the parties
hereto regarding this Agreement, the prevailing party shall be entitled to
recover reasonable attorneys' fees and costs. Further, both parties hereby agree
that Tivoli and the LLC shall each deposit $20,000 into an escrow account
designated by the arbitrator upon commencement of any arbitration between Tivoli
and the LLC in connection with a dispute arising from this Agreement. Such
amounts may be used by the prevailing party to offset legal fees or attorney
costs incurred during the proceedings or against the judgment. Any unused
amounts left in escrow after satisfaction of the prevailing party and after the
return of the prevailing party's deposit to the prevailing party shall be
returned to the other party.
6.
<PAGE>
13. MISCELLANEOUS PROVISIONS
13.1 NOTICE. Any notice or other communication required or which may be
given hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed or sent by facsimile, or sent by certified, registered or
express mail, postage prepaid and shall be deemed given when so delivered
personally, telegraphed or telexed or sent by facsimile or computer
transmission, or if mailed, five (5) days after the date of mailing, as follows:
If to Tivoli to:
Tivoli Industries, Inc.
1513 East St. Gertrude Place
Post Office Box 15624
Santa Ana, CA 92705
ATTN: Terrence C. Walsh
Chairman and Chief Executive Officer
TELEPHONE: (714) 957-6101
FAX: (714) 957-0335
With a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
ATTN: Andrei Manoliu, Esq.
TELEPHONE: (650) 843-5000
FAX: (650) 857-0663
If to the LLC to:
Targetti USA LLC
c/o Tivoli Industries, Inc.
1513 East St. Gertrude Place
Post Office Box 15624
Santa Ana, CA 92705
ATTN: Robert Baker
President
TELEPHONE: (714) 957-6101
FAX: (714) 957-1501
7.
<PAGE>
With a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
ATTN: Andrei Manoliu, Esq.
TELEPHONE: (650) 843-5000
FAX: (650) 857-0663
13.2 APPLICATION OF CALIFORNIA LAW. This Agreement, and the application of
interpretation hereof, shall be governed exclusively by its terms and by the
laws of the State of California (without giving effect to principles of
conflicts of laws).
13.3 AMENDMENTS. Any amendment to this Agreement shall become effective at
such time as it has been approved in unity by both parties hereto.
13.4 EXECUTION OF ADDITIONAL INSTRUMENTS. Each party hereto hereby agrees
to execute such other and further statements of interest and holdings,
designations, powers of attorney and other instruments necessary to comply with
any laws, rules or regulations.
13.5 CONSTRUCTION. Whenever the singular number is used in this Agreement
and when required by the context, the same shall include the plural, and the
masculine gender shall include the feminine and neuter genders and vice versa.
This Operating Agreement is prepared and executed in the English language only
and any translation of this Operating Agreement into any other language shall
have no effect.
13.6 HEADINGS. The headings in this Agreement are inserted for convenience
only and are in no way intended to describe, interpret, define, or limit the
scope, extent or intent of this Agreement or any provision hereof.
13.7 WAIVERS. The failure of any party to seek redress for violation of or
to insist upon the strict performance of any covenant or condition of this
Manufacturing Agreement shall not prevent a subsequent act, which would have
originally constituted a violation, from having the effect of an original
violation.
13.8 RIGHTS AND REMEDIES CUMULATIVE. The rights and remedies provided by
this Agreement are cumulative, and the use of any one right or remedy by any
party shall not preclude or waive the right to use any or all other remedies.
Such rights and remedies are given in addition to any other rights the parties
may have by law, statute, ordinance or otherwise.
13.9 SEVERABILITY. If any provision of this Agreement or the application
thereof to any person or circumstance shall be invalid, illegal or unenforceable
to any extent, the remainder of this Agreement and the application thereof shall
not be affected and shall be enforceable to the fullest extent permitted by law.
8.
<PAGE>
13.10 HEIRS, SUCCESSORS AND ASSIGNS. Each and all of the covenants, terms,
provisions and agreements herein contained shall be binding upon and inure to
the benefit of the parties hereto and, to the extent permitted by this
Agreement, their respective heirs, legal representatives, successors and
assigns.
13.11 CREDITORS. None of the provisions of this Agreement shall be for the
benefit of or enforceable by any creditor of Tivoli or the LLC.
13.12 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same instrument.
13.13 NO THIRD PARTY BENEFICIARIES. It is understood and agreed among the
parties that this Agreement and the covenants made herein are made expressly and
solely for the benefit of the parties hereto, and that no other person, shall be
entitled or be deemed to be entitled to any benefits or rights hereunder, nor be
authorized or entitled to enforce any rights, claims or remedies hereunder or by
reason hereof.
13.14 FORCE MAJEURE. Neither party shall be liable for delays in
performance of, or failure to perform, any of its obligations hereunder
occasioned by any cause beyond its reasonable control, including, but not
limited to, war, civil disturbance, labor difficulties, fire, flood, earthquake,
defaults or delays of common carriers, suppliers, or governmental laws, acts, or
occurrences. Any such delay shall effect a corresponding extension of
performance date.
9.
<PAGE>
MANUFACTURING AGREEMENT
IN WITNESS WHEREOF, the parties hereto have this day caused this Agreement
to be executed by their duly authorized officers.
TIVOLI INDUSTRIES, INC.
By:/s/ Terrence C. Walsh
------------------------
Terrence C. Walsh
Chairman and Chief
Executive Officer
TARGETTI USA LLC
By:/s/ Robert Baker
------------------------
Robert Baker
President
10.
<PAGE>
EXHIBIT 6.1
PRICE SCHEDULE
Pricing for Completed Products will be based on a combination of [*]
In addition, Tivoli will invoice LLC for certain allocated costs to be
mutually determined (the "Allocated Costs").
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
11.
<TABLE> <S> <C>
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