<PAGE>
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [X] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
TIVOLI INDUSTRIES, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common stock
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(2) Aggregate number of securities to which transaction applies:
1,237,000 shares of common stock plus options to purchase 297,333
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shares of common stock and warrants to purchase 86,664 shares of
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common stock.
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
The filing fee was determined based upon: (a) the purchase of 1,237,000
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shares of common stock at a price of $4.50 per share; and (b) the
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cancellation of options to purchase an aggregate of 297,333 shares of
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common stock, in consideration for a payment equal to the excess of
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$4.50 over the exercise price per share of such options multiplied by
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the number of shares subject to such options; and (c) the cancellation
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of warrants to purchase an aggregate of 86,664 shares of common stock,
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in consideration for a payment equal to the excess of $4.50 over the
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exercise price per share of such warrants multiplied by the number of
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shares subject to such warrants.
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(4) Proposed maximum aggregate value of transaction:
$5,602,111.94
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(5) Total fee paid:
$1,120.43
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
TIVOLI INDUSTRIES, INC.
1513 EAST ST. GERTRUDE PLACE
SANTA ANA, CALIFORNIA 92705
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on November [11], 1999
TO THE SHAREHOLDERS OF TIVOLI INDUSTRIES, INC.:
You are cordially invited to attend a special meeting of shareholders of Tivoli
Industries, Inc. to be held on November [11], 1999, at 9:00 a.m., Pacific
Standard Time at the Sutton Place Hotel, 4500 MacArthur Blvd., Newport Beach,
CA, 92660, for the following purposes:
At the special meeting you will be asked to consider and vote upon a proposal to
approve a merger between Tivoli and a wholly owned subsidiary of Targetti Sankey
S.p.A. If the merger is completed, Tivoli will become a subsidiary of Targetti,
and you will receive $4.50 in cash for each of your shares of Tivoli common
stock.
Your Board of Directors has determined that the merger is advisable, fair to and
in the best interests of Tivoli and its shareholders. ACCORDINGLY, YOUR BOARD
HAS APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT YOU VOTE FOR THE APPROVAL
OF THE MERGER AT THE SPECIAL MEETING. Officers and directors have interests in
the merger that are different from, or in addition to, their interests as Tivoli
shareholders, including with respect to the receipt of certain payments, which
may create possible conflicts of interest. These interests are summarized in the
section entitled "The Merger -- Interests of Certain Persons in the Merger;
Possible Conflicts of Interest" in the accompanying proxy statement.
The accompanying notice of meeting and proxy statement explain the proposed
merger and provide specific information concerning the special meeting. Please
read these materials carefully.
We cannot complete the merger unless holders of a majority of the outstanding
shares of Tivoli common stock vote to approve it. Whether or not you plan to be
present at the special meeting, please sign and return your proxy as soon as
possible in the enclosed self-addressed envelope so that your vote will be
recorded. Details are outlined on the enclosed proxy card. Your vote is very
important.
/s/ Terrence C. Walsh
Terrence C. Walsh
Chairman of the Board of Directors and Chief
Executive Officer
This proxy statement and form of proxy is dated October [22], 1999 and is first
being mailed to shareholders on or about October [25], 1999.
<PAGE>
TIVOLI INDUSTRIES, INC.
1513 EAST ST. GERTRUDE PLACE
SANTA ANA, CALIFORNIA 92705
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on November [11], 1999
TO THE SHAREHOLDERS OF TIVOLI INDUSTRIES, INC.:
Notice is Hereby Given that the Special Meeting of Shareholders of Tivoli
Industries, Inc., a California corporation, will be held on November [11], 1999,
at 9:00 a.m. Pacific Standard Time at the Sutton Place Hotel, 4500 MacArthur
Blvd., Newport Beach, CA, 92660, for the following purposes:
- To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of September 17, 1999, among Tivoli, Targetti
Sankey S.p.A. and Florence Acquisition Corp., a California corporation,
and to approve the related merger, pursuant to which Florence Acquisition
Corp. will be merged into Tivoli and each share of Tivoli outstanding
common stock will be converted into the right to receive $4.50 in cash,
without interest; and
- To transact such other business as may properly come before the special
meeting or any adjournment or postponement of the special meeting.
Only those persons who were holders of record of Tivoli common stock at the
close of business on October 15, 1999, will be entitled to notice of, and to
vote at, the special meeting and any adjournment or postponement of the special
meeting.
Any shareholder of the Company has the right to dissent from the merger and to
obtain the "fair value" or such shareholder's shares of Tivoli common stock,
provided that such shareholder perfects his or her dissenter's rights in
accordance with Section 1300 of the California General Corporation Law (the
"CGCL"). Please see the discussion of dissenter's rights in the accompanying
proxy statement on page [___]. A copy of Section 1300 of the CGCL is attached as
Appendix C to the proxy statement.
By Order of the Board of Directors,
Terrence C. Walsh
Chairman and Chief Executive Officer
Santa Ana, California
October [22], 1999
All shareholders are cordially invited to attend the meeting in person. Whether
or not you expect to attend the meeting, please complete, date, sign and return
the enclosed Proxy as promptly as possible in order to ensure your
representation at the meeting. A return envelope (which is postage prepaid if
mailed in the United States) is enclosed for that purpose. Even if you have
given your proxy, you may still vote in person if you attend the meeting.
Please note, however, that if your shares are held of record by a broker, bank
or other nominee and you wish to vote at the meeting, you must obtain from the
record holder a proxy issued in your name.
<PAGE>
TABLE OF CONTENTS
PAGE
----
QUESTIONS AND ANSWERS ABOUT THE MERGER................................ 3
FORWARD-LOOKING STATEMENTS............................................ 5
SUMMARY............................................................... 6
The Companies....................................................... 6
The Special Meeting................................................. 6
The Merger.......................................................... 8
Dissenter's Rights.................................................. 10
Market Prices of Tivoli Common Stock................................ 10
Forward-Looking Statements..........................................
THE COMPANIES......................................................... 11
Tivoli Industries, Inc.............................................. 11
Targetti Sankey S.p.A............................................... 11
Florence Acquisition Corp........................................... 11
THE SPECIAL MEETING................................................... 12
General............................................................. 12
Record Date And Voting.............................................. 12
Required Vote....................................................... 12
Proxies; Revocation................................................. 13
Adjournments Or Postponements....................................... 13
THE MERGER............................................................ 14
Background of the Merger............................................ 14
Tivoli's Reasons for the Merger; Recommendation of the Tivoli
Board............................................................. 15
Opinion of Tivoli's Financial Advisor............................... 16
Material United States Federal Income Tax Consequences.............. 17
Regulatory Matters.................................................. 18
Accounting Treatment................................................ 18
Merger Financing.................................................... 18
Interests of Certain Persons in the Merger; Possible
Conflicts of Interest............................................. 18
THE MERGER AGREEMENT.................................................. 21
Structure And Effective Time........................................ 21
Merger Consideration................................................ 21
Payment Procedures.................................................. 21
Treatment of Tivoli Stock Options and Warrants...................... 21
Directors And Officers of the Surviving Corporation................. 21
Representations And Warranties...................................... 22
Covenants; Conduct of the Business of Tivoli Prior to the
Merger............................................................ 23
No Solicitation of Acquisition Transactions......................... 24
Employee Benefits................................................... 24
Compliance With Legal Requirements.................................. 25
Indemnification..................................................... 25
Conditions to the Merger............................................ 25
Termination......................................................... 26
Termination Fees.................................................... 26
Expenses............................................................ 26
Amendment........................................................... 26
Dissenter's Rights.................................................. 27
BUSINESS.............................................................. 29
i
<PAGE>
PROPERTIES............................................................ 37
LEGAL PROCEEDINGS..................................................... 37
HISTORICAL MARKET PRICE AND DIVIDEND DATA............................. 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................ 38
Overview............................................................ 38
Results of Operations............................................... 38
Financial Position, Capital Resources and Liquidity................. 40
"Year 2000" Requirements............................................ 40
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT....................................................... 41
INDEPENDENT PUBLIC ACCOUNTANTS........................................ 42
SHAREHOLDER PROPOSALS................................................. 42
WHERE YOU CAN FIND MORE INFORMATION................................... 42
FINANCIAL STATEMENTS.................................................. F-1
APPENDICES
Appendix A -- Agreement and Plan of Merger, dated as of
September 17, 1999.................................................... A-1
Appendix B -- Opinion of L.H. Friend, Weinress, Frankson & Presson,
Inc................................................................ B-1
Appendix C -- Section 1300 et seq. of the California General
Corporation Law....................................................... C-1
ii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
The following questions and answers are intended to address briefly some
commonly asked questions regarding the merger. These questions and answers may
not address all questions that may be important to you as a Tivoli shareholder.
Please refer to the more detailed information contained elsewhere in this proxy
statement, the appendices to this proxy statement and the documents referred to
or incorporated by reference in this proxy statement.
Q. WHAT IS THE PROPOSED TRANSACTION?
A. Targetti will acquire Tivoli by merging a wholly-owned subsidiary of
Targetti into Tivoli.
Q. WHY IS THE TIVOLI BOARD OF DIRECTORS RECOMMENDING THE MERGER?
A. The Tivoli Board believes that the merger is fair to and in the best
interests of Tivoli and its shareholders. The Tivoli Board received an
opinion from L. H. Friend, Weinress, Frankson & Presson, Inc. that, as of
September 17, 1999, and based on and subject to the matters set forth in that
opinion, the $4.50 per share in cash to be received by holders of Tivoli
common stock pursuant to the merger agreement was fair from a financial point
of view to such holders. To review the Tivoli Board's reasons for
recommending the merger, see page 15. Also, some members of the Tivoli Board
have additional interests in the merger which may create possible conflicts
of interest as discussed on pages 18 through 19.
Q. IF THE MERGER IS COMPLETED, WHAT WILL I RECEIVE FOR MY TIVOLI COMMON STOCK?
A. You will receive $4.50 in cash, without interest, for each share of Tivoli
common stock you own.
Q. WHO IS ENTITLED TO VOTE AT THE SPECIAL MEETING?
A. Holders of record of Tivoli common stock as of the close of business on
October 15, 1999 are entitled to vote at the special meeting. Each Tivoli
shareholder has one vote for each share of Tivoli common stock owned.
Q. WHAT VOTE IS REQUIRED FOR THE TIVOLI SHAREHOLDERS TO APPROVE THE MERGER?
A. In order for the merger to be approved, holders of a majority of the
outstanding Tivoli common stock must vote FOR the merger.
Q. WHAT DO I NEED TO DO NOW?
A. After carefully reading and considering the information contained in this
proxy statement, please vote your shares of Tivoli common stock as soon as
possible. You may vote your shares (1) by returning the enclosed proxy, or
(2) by appearing at the special meeting of shareholders. Your proxy materials
include detailed information on how to vote.
Q. IF MY SHARES ARE HELD FOR ME BY MY BROKER, WILL MY BROKER VOTE THOSE SHARES
FOR ME?
A. Your broker will vote your shares only if you provide instructions to your
broker on how to vote. You should instruct your broker on how to vote your
shares, using the instructions provided by your broker.
Q. CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY PROXY CARD?
A. Yes. You can change your vote at any time before your proxy is voted at
the special meeting. You may revoke your proxy by notifying the Secretary of
Tivoli in writing or by submitting a new proxy, in each case, dated after the
date of the proxy being revoked. In addition, your proxy may be revoked by
attending the special meeting and voting in person. However, simply attending
the special meeting will not revoke your proxy. If you have instructed a
broker to vote your shares, you must follow the instructions received from
your broker to change your vote.
3.
<PAGE>
Q. DO I NEED TO ATTEND THE SPECIAL MEETING IN PERSON?
A. No. It is not necessary for you to attend the special meeting in order to
vote your shares, although you are welcome to attend.
Q. WILL I HAVE THE RIGHT TO HAVE MY SHARES APPRAISED IF I DISSENT FROM THE
MERGER?
A. Yes, you will have dissenter's rights. If you wish to exercise your
dissenter's rights you must not vote in favor of the merger and you must
strictly follow the other requirements of California law. A summary
describing the requirements you must meet in order to exercise your
dissenter's rights is in the section entitled "Dissenter's Rights" on pages
27 through 28 of this proxy statement.
Q. WHEN IS THE MERGER EXPECTED TO BE COMPLETED?
A. We are working toward completing the merger as quickly as possible. The
merger cannot be completed until a number of conditions are satisfied. The
most important condition is approval of the merger and the transactions
contemplated thereby by Tivoli shareholders at the special meeting.
Q. SHOULD I SEND IN MY TIVOLI STOCK CERTIFICATES NOW?
A. No. After the merger is completed, representatives of Targetti will send
you written instructions for exchanging your Tivoli stock certificates. You
must return your Tivoli stock certificate as described in the instructions.
You will receive your cash payment as soon as practicable after
representatives of Targetti receive your Tivoli stock certificates, together
with the documents requested in the instructions.
Q. WILL I OWE TAXES AS A RESULT OF THE MERGER?
A. The merger will be a taxable transaction for all holders of Tivoli common
stock. As a result, the cash you receive in the merger for your shares of
Tivoli common stock and any cash you receive from exercising your dissenter's
rights will be subject to United States federal income tax and also may be
taxed under applicable state, local, and other tax laws. In general, you will
recognize gain or loss equal to the difference between (1) the amount of cash
you receive (other than cash that represents interest you receive in
connection with the exercise of dissenter's rights) and (2) the tax basis of
your shares of Tivoli common stock. Any cash you receive in connection with
the exercise of dissenters' rights that represents interest will generally be
taxable to you as ordinary interest income. Refer to the section entitled
"The Merger--Material United States Federal Income Tax Consequences" on page
17 of this proxy statement for a more detailed explanation of the tax
consequences of the merger. You should consult your tax advisor on how
specific tax consequences of the merger apply to you.
Q. WHAT OTHER MATTERS WILL BE VOTED ON AT THE SPECIAL MEETING?
A. Tivoli does not expect to ask shareholders to vote on any other matter at
the special meeting.
4.
<PAGE>
Q. WHERE CAN I FIND MORE INFORMATION ABOUT TIVOLI?
A. Tivoli files periodic reports and other information with the Securities
and Exchange Commission. You may read and copy this information
at the SEC's public reference facilities. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for information about these facilities.
This information is also available at the Internet site maintained by the SEC
at http://www.sec.gov and at the offices of the Nasdaq SmallCap Market. For a
------------------
more detailed description of the information available, please see page 42.
Q. WHO CAN HELP ANSWER MY QUESTIONS?
A. If you have questions about the merger after reading this proxy statement,
you should contact Charles Kimmel at (714) 957-6101.
5.
<PAGE>
SUMMARY
This summary highlights selected information from this proxy statement and may
not contain all of the information that is important to you as a Tivoli
shareholder. Accordingly, we encourage you to carefully read this entire
document and the documents to which we have referred you.
THE COMPANIES
Tivoli Industries, Inc.
1513 East St. Gertrude Place
Santa Ana, California 92705
(714) 957-6101
Tivoli designs, develops, manufactures, markets and sells specialty lighting and
related products designed for use in architectural applications where energy
efficient, economical, precision, decorative and high performance sources are
required. Tivoli also develops customized, engineered "to order" products for
its larger customers. Applications of Tivoli's products, both domestically and
internationally, are movie theater aisle and step lighting, marquees,
illuminated ceilings, architectural cove, and decorative highlighting in hotels,
restaurants, casinos, theaters, riverboat gaming vessels and cruise ships,
accent and display lighting in stores, malls and specialty retail, restaurants,
theme parks and high end residential.
Tivoli is a California corporation and was incorporated in 1967. Tivoli's
common stock is traded on the Nasdaq SmallCap Market under the symbol "TVLI."
Targetti Sankey S.p.A.
Via Pratese, 164
50145 Florence, Italy
011 39 055 37911
Targetti is an Italian corporation organized in 1928. Targetti manufactures and
sells electric lighting fixtures, technical lighting systems, table lamps,
standing lamps and suspended lamps, all types of light bulbs of different power,
electrical accessories and related items. Targetti's common stock is traded on
the Milan Stock Exchange under the symbol "TS."
Florence Acquisition Corp.
Via Pratese, 164
50145 Florence, Italy
011 39 055 37911
Florence is a wholly owned subsidiary of Targetti formed solely for the purpose
of effecting the merger with Tivoli.
THE SPECIAL MEETING
Date, Time and Place
The special meeting will be held on November [11], 1999, at 9:00 a.m., Pacific
Standard Time at the Sutton Place Hotel, 4500 MacArthur Blvd., Newport Beach,
CA, 92660, for the following purposes:
- To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of September 17, 1999, among Tivoli, Targetti
and Florence, and to approve the related merger, pursuant to which
Florence will be merged into Tivoli and each share of Tivoli outstanding
common stock will be converted into the right to receive $4.50 in cash,
without interest; and
- To transact such other business as may properly come before the special
meeting or any adjournment or postponement of the special meeting.
This proxy statement and the enclosed form of proxy are first being mailed to
Tivoli shareholders on or about October [25], 1999.
6.
<PAGE>
Purpose
You will be asked to consider and vote upon a proposal to approve the merger
agreement. The merger agreement provides that a wholly-owned subsidiary of
Targetti will be merged into Tivoli and each outstanding share of Tivoli common
stock will be converted into the right to receive $4.50 in cash, without
interest. However, you will have the right to demand dissenter's rights and
receive the fair market value of your shares of Tivoli common stock as
determined under California law. Shares of Tivoli common stock held by Tivoli as
treasury stock, and any shares of Tivoli common stock held by Targetti,
Florence or any other wholly-owned subsidiary will be cancelled and no
consideration of any kind shall be paid therefore.
The persons named in the accompanying proxy also will have discretionary
authority to vote upon other business, if any, that properly comes before the
special meeting and any adjournments or postponements of the special meeting,
including any adjournments or postponements for the purpose of soliciting
additional proxies to approve the merger.
Record Date and Voting Power
You are entitled to vote at the special meeting if you owned shares of Tivoli
common stock at the close of business on October 15, 1999, the record date for
the special meeting. You will have one vote for each share of Tivoli common
stock you owned on the record date. As of the record date, there are [1,237,000]
shares of Tivoli common stock entitled to be voted.
Vote Required
Approval of the merger requires the affirmative vote of the holders of a
majority of the outstanding shares of Tivoli common stock.
Share Ownership of Directors and Executive Officers
As of September 30, 1999, the directors and executive officers of Tivoli owned
approximately 34.9% of the shares of Tivoli common stock entitled to vote at the
special meeting. Each of them has advised us that he or she plans to vote all of
their shares in favor of approval of the merger.
In connection with, and concurrently with, the execution and delivery of the
merger agreement, Targetti and each of Terrence and Marilyn Walsh, Peter J.
Shaw, Gordon C. Westerling, Charles Kimmel, Vincent F. Monte, Gerald E. Morris,
Intalite International N.V. and Gordon C. Westerling, as trustee of the
Westerling Family Trust (collectively, the "Voting Agreement Parties") entered
into voting agreements, each dated September 17, 1999 (collectively, the "Voting
Agreements"). The Voting Agreements relate to an aggregate of 431,673 shares of
Tivoli common stock, which represents approximately 34.9% of the shares of
Tivoli common stock outstanding. Pursuant to the Voting Agreements, each of the
Voting Agreement Parties has agreed, among other things, that at any meeting of
the holders of Tivoli common stock, or in connection with any written consent of
the holders of Tivoli common stock, the Voting Agreement Parties will vote (or
cause to be voted) all shares of Tivoli common stock held of record or
beneficially owned by the Voting Agreement Parties, whether heretofore owned or
hereafter acquired: (i) in favor of the merger, the adoption of the merger
agreement by Tivoli, and each of the other transactions and actions contemplated
by the merger agreement and any actions required in furtherance thereof; and
(ii) against any action or agreement that would result in a breach in any
respect of any covenant, representation or warranty or any other obligation or
agreement of Tivoli under the merger agreement not being fulfilled. Each of the
Voting Agreements terminates upon the termination of the merger agreement or
upon the effective time of the merger.
Voting and Proxies
Any Tivoli shareholder entitled to vote may vote (1) by returning the enclosed
proxy, or (2) by appearing at the special meeting.
Revocability of Proxy
Any Tivoli shareholder who executes and returns a proxy may revoke that proxy at
any time before it is voted in any one of the following three ways:
- filing with the Secretary of Tivoli, at or before the special meeting, a
written notice of revocation which is dated a later date than the proxy;
- sending a later-dated proxy relating to the same shares to the Secretary
of Tivoli, at or before the special meeting; or
- attending the special meeting and voting in person by ballot.
Simply attending the special meeting will not constitute revocation of a proxy.
7.
<PAGE>
Tivoli's Recommendation to Shareholders
Your Board of Directors has approved the merger agreement, and determined that
the merger is advisable, fair to and in the best interests of Tivoli and its
shareholders. Your Tivoli Board recommends that shareholders vote FOR approval
of the merger at the special meeting. Officers and directors have interests in
the merger that are different from, or in addition to, their interests as Tivoli
shareholders, including with respect to the receipt of certain payments, which
may create possible conflicts of interest. These interests are summarized under
"The Merger -- Interests of Certain Persons in the Merger; Possible Conflicts of
Interest."
THE MERGER
Structure of the Merger
Upon the terms and conditions of the merger agreement, Florence, a wholly owned
subsidiary of Targetti, will be merged with and into Tivoli. Tivoli will remain
in existence as a wholly owned subsidiary of Targetti.
Merger Consideration
Upon completion of the merger, each issued and outstanding share of Tivoli
common stock will be converted into the right to receive $4.50 in cash, without
interest. Treasury shares, shares held by Tivoli's subsidiaries, Targetti,
Florence and Targetti's wholly-owned subsidiaries, and shares with respect to
which dissenter's rights are perfected will not be converted into the right to
receive $4.50 per share merger consideration.
Closing of the Merger
Before we can complete the merger, we must satisfy a number of conditions. These
include:
- approval of the merger agreement by holders of a majority of the
outstanding shares of Tivoli common stock;
- the absence of any legal prohibitions against the merger;
- material compliance with our representations and agreements under the
merger agreement; and
- receipt of material consents and approvals.
We expect to merge shortly after all of the conditions to the merger have been
satisfied or waived in accordance with the provisions of the merger agreement.
We expect to complete the merger prior to December 15, 1999, but we cannot be
certain when or if the conditions will be satisfied or waived.
Exchange Procedures
The exchange agent will mail a letter of transmittal with instructions to all
record holders of Tivoli common stock as of the time of the completion of the
merger. YOU SHOULD NOT SURRENDER YOUR CERTIFICATES UNTIL YOU HAVE RECEIVED THE
LETTER OF TRANSMITTAL AND INSTRUCTIONS.
Treatment of Tivoli Stock Options and Warrants
The merger agreement provides that all outstanding Tivoli stock options issued
pursuant to Tivoli's stock option plans, whether or not then vested or
exercisable, will be cancelled immediately before the effective time of the
merger. Each holder of an option will receive an amount in cash equal to the
excess of $4.50 over the exercise price for each share covered by an option,
less applicable withholding taxes. As of September 30, 1999, 297,333 shares of
Tivoli common stock were issuable upon exercise of outstanding Tivoli stock
options at a weighted average exercise price of approximately $6.854, of which
options to purchase approximately 24,167 shares have an exercise price per share
of less than $4.50 with a weighted average exercise price per share of
approximately $4.125.
All outstanding warrants to purchase Tivoli common stock will, following the
effective time of the merger, be exercisable only for an amount of cash equal to
the warrant consideration (defined as an amount, if any, per warrant equal to
the product of (i) the number of shares of Tivoli common stock issuable upon
exercise of such warrant and (ii) the difference between the $4.50 and the
exercise price per share of Tivoli common stock, without interest, which amount
shall be paid from and after the effective time of the merger), and the holders
of such warrants shall be entitled to receive, in cash, an amount, if any, equal
to the warrant consideration. None of the outstanding warrants have an exercise
price less than $4.50 per share.
Opinion of Financial Advisor
8.
<PAGE>
L.H. Friend, Weinress, Frankson & Presson, Inc. has delivered its opinion dated
September 17, 1999, to the Tivoli Board to the effect that, as of the date of
the opinion, and based on and subject to the matters set forth in that opinion,
the $4.50 per share in cash to be received by holders of Tivoli common stock
pursuant to the merger agreement was fair from a financial point of view to such
holders. The opinion is not a recommendation on how any Tivoli shareholder
should vote with respect to the approval of the merger. A copy of the opinion is
attached to this proxy statement as Appendix B. You are urged to read the L.H.
Friend fairness opinion in its entirety.
Merger Financing
It is expected that Targetti will need approximately $6.5 million in order to
complete the merger. This includes payments to be made to Tivoli shareholders
and holders of Tivoli stock options and warrants, and payment of fees and
expenses. Targetti has available to it cash, credit lines or other sources of
financing to provide the funds necessary for completion of the merger and the
transactions contemplated under the merger agreement.
Termination of the Merger Agreement
Tivoli and Targetti may agree in writing to terminate the merger agreement at
any time without completing the merger, even after the shareholders of Tivoli
have approved it. The merger agreement may also be terminated at any time prior
to the effective time of the merger, in certain circumstances, including:
- if the merger is not completed by December 15, 1999;
- if any court or governmental agency issues a final order, decree or
ruling or takes any other action permanently restraining, enjoining or
otherwise preventing the merger;
- if the other party to the merger agreement materially breaches its
representations or agreements and fails to cure its breach in five (5)
business days or if any representation of the non-terminating party
proves to be untrue in any material respect when made;
- if any material adverse effect on the business, assets, condition,
operating results or prospects of Tivoli (subject to certain
exceptions);
- if the Tivoli Board changes or withdraws its recommendation of the
merger agreement, resolves to enter into a letter of intent, agreement
in principle or similar agreement or enters into any definitive
agreement with respect to an alternative transaction with a third party,
or if we receive a written proposal from another third party regarding
the sale of the Company and the Tivoli Board takes a neutral position or
makes no recommendation with respect to such proposal after a reasonable
amount of time; and
- if Tivoli shareholders fail to approve the merger at the special
meeting.
Termination Fees If Merger Not Completed
Tivoli must pay Targetti a termination fee of $500,000 (plus reasonable costs
and expenses incurred by Targetti and Florence in connection with the
negotiation and performance of the merger agreement and the transactions
contemplated thereby) if the merger agreement is terminated because the Tivoli
Board changes or withdraws its recommendation of the merger agreement or
resolves to enter into a letter of intent, agreement in principle or similar
agreement or enters into a definitive agreement with respect to an alternative
transaction with a third party, or if Tivoli receives a written proposal from
another third party regarding the sale of Tivoli and the Tivoli Board takes
a neutral position with respect to such proposal or makes no recommendation with
respect to such proposal after a reasonable amount of time.
Interests of Certain Persons in the Merger; Possible Conflicts of Interest
Officers and directors have interests in the merger that are different from, or
in addition to, their interests as Tivoli shareholders. These interests include:
- many of our officers and directors hold vested and unvested Tivoli stock
options and warrants to acquire Tivoli common stock; the merger
agreement provides that all outstanding Tivoli stock options and
warrants will be cancelled at the effective time of the merger in
exchange for a cash payout equal to the difference between the $4.50
merger consideration and the exercise price of such stock options or
warrants;
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- the executive officers of Tivoli have each agreed to terminate their
respective existing employment agreement with Tivoli and enter into a
new employment agreement with the surviving corporation;
- under the terms of the merger agreement, certain officers of the Company
will be entitled to receive specified cash payments upon completion of
the merger and upon the first and second anniversary thereof; and
- under the merger agreement, our officers and directors will be
indemnified by Targetti and Tivoli against certain liabilities for six
years after the Merger, and Targetti will maintain in effect, to the
extent available, directors' and officers' liability insurance
maintained by Tivoli and its subsidiaries on behalf of those directors
and officers for such period.
Regulatory Matters
There are no federal or state regulatory requirements that must be complied
with or approvals that must be obtained in connection with the merger and the
transactions contemplated thereby.
Accounting Treatment
The merger will be treated as a "purchase" for accounting purposes.
Material Federal Income Tax Consequences
The merger will be a taxable transaction to you. For United States federal
income tax purposes, you will generally recognize gain or loss in the merger in
an amount equal to the difference between the cash you receive (other than cash
that represents interest you receive in connection with the exercise of
dissenter's rights) and your tax basis in your Tivoli common stock. Any cash you
receive in connection with the exercise of dissenter's rights that represents
interest will generally be taxable to you as ordinary interest income. Because
determining the tax consequences of the merger can be complicated, you should
consult your own tax advisor in order to understand fully how the merger will
affect you.
DISSENTER'S RIGHTS
Under California law, Tivoli shareholders who do not vote for approval of the
merger and who comply with the other statutory requirements of the CGCL may
elect to receive, in cash, the judicially determined fair value of their shares
of Tivoli common stock in lieu of the $4.50 merger consideration.
MARKET PRICES OF TIVOLI COMMON STOCK
Tivoli common stock is traded on the Nasdaq SmallCap Market under the symbol
"TVLI." On September 17, 1999, the last full trading day prior to the public
announcement of the merger agreement, the closing price of Tivoli common stock
was $3.3125. On October [21], 1999, the last full trading day prior to the date
of this proxy statement, the closing price for Tivoli common stock was $[___].
FORWARD-LOOKING STATEMENTS
This proxy statement includes statements that are not historical facts. These
statements are "forward-looking statements" (as defined in the Private
Securities Litigation Reform Act of 1995) based on our current plans and
expectations relating to analyses of value, expectations for anticipated growth
in the future and future success under various efforts, and, as such, these
forward-looking statements involve uncertainty and risk. These forward-looking
statements are contained in the sections entitled "Summary," "The Merger,"
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations," and other sections of this proxy statement. In addition, actual
results could differ materially from the forward-looking statements contained in
this proxy statement because of many factors, such as the completion and impact
of the merger on operating results and capital resources, the impact on
profitability from economic and market conditions, and the impact on cash
requirements and liquidity.
Other factors and assumptions not identified above could also cause the actual
results to differ materially from those set forth in the forward-looking
statements. We do not undertake any obligation to update the forward-looking
statements contained or incorporated in this proxy statement to reflect actual
results, changes in assumptions, or changes in other factors affecting these
forward-looking statements.
All information contained in this proxy statement with respect to Targetti,
Florence, and the financing for the merger has been supplied by Targetti.
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THE COMPANIES
TIVOLI INDUSTRIES, INC.
Tivoli designs, develops, manufactures, markets and sells specialty lighting and
related products designed for use in architectural applications where energy
efficient, economical, precision, decorative and high performance sources are
required. Tivoli also develops customized, engineered "to order" products for
its larger customers. Applications of Tivoli's products, both domestically and
internationally, are movie theater aisle and step lighting, marquees,
illuminated ceilings, architectural cove, and decorative highlighting in hotels,
restaurants, casinos, theaters, riverboat gaming vessels and cruise ships,
accent and display lighting in stores, malls and specialty retail, restaurants,
theme parks and high end residential.
Tivoli is a California corporation and was incorporated in 1967. Tivoli's common
stock is traded on the Nasdaq SmallCap Market under the symbol "TVLI."
TARGETTI SANKEY S.P.A.
Targetti manufactures and sells electric lighting fixtures, technical lighting
systems, table lamps, standing lamps and suspended lamps, all types of light
bulbs of different power, electrical accessories and related items. Targetti
operates directly and through sole distributor in more than 90 countries
worldwide, and employs approximately 350 people. Targetti is an Italian
corporation that was formed in 1928. Targetti's common stock is traded on the
Milan Stock Exchange under the symbol "TS." Targetti's executive offices are
located at Via Pratese, 164, 50145 Firenze, Italia, telephone 011 39 055 37911.
FLORENCE ACQUISITION CORP.
Florence is a California corporation formed by Targetti in 1999 solely for the
purpose of merging into Tivoli. Florence Acquisition Corp. is a wholly owned
subsidiary of Targetti. The mailing address of Florence's principal executive
offices is c/o Targetti Sankey S.p.A., Via Pratese, 164, 50145 Firenze, Italia,
telephone 011 39 055 37911.
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THE SPECIAL MEETING
GENERAL
This proxy statement is being furnished to Tivoli shareholders as part of the
solicitation of proxies by the Tivoli Board for use at a special meeting to be
held on November [11], 1999, starting at 9:00 a.m., local time, at the Sutton
Place Hotel, 4500 MacArthur Blvd., Newport Beach, CA, 92660. The purpose of the
special meeting is for the Tivoli shareholders to consider and vote upon a
proposal to approve the merger agreement, by and among Tivoli, Targetti, and
Florence and the related merger of Florence into Tivoli. A copy of the merger
agreement is attached to this proxy statement as Appendix A. This proxy
statement and the enclosed form of proxy are first being mailed to Tivoli
shareholders on or about October [25], 1999.
Unless otherwise noted, all share numbers and percentages with respect to Tivoli
common stock have been adjusted to reflect a one-for-three reverse stock split
effective as of March 26, 1999.
RECORD DATE AND VOTING
The holders of record of Tivoli common stock as of the close of business on
October 15, 1999 are entitled to receive notice of, and to vote at, the special
meeting. On the record date, there were 1,237,000 shares of Tivoli common stock
outstanding.
The holders of a majority of the outstanding shares of Tivoli common stock on
October 15, 1999, represented in person or by proxy, will constitute a quorum
for purposes of the special meeting. A quorum is necessary to hold the special
meeting. Any shares of Tivoli common stock held in treasury by Tivoli or by any
of its subsidiaries are not considered to be outstanding for purposes of
determining a quorum. Once a share is represented at the special meeting, it
will be counted for the purpose of determining a quorum at the special meeting
and any adjournment or postponement of the special meeting, unless the holder is
present solely to object to the special meeting. However, if a new record date
is set for the adjourned special meeting, then a new quorum will have to be
established.
REQUIRED VOTE
Each outstanding share of Tivoli common stock on October 15, 1999 entitles the
holder to one vote at the special meeting. Completion of the merger requires the
approval of the merger agreement and the transactions contemplated thereby by
the affirmative vote of the holders of a majority of the outstanding shares of
Tivoli common stock. You must vote your shares of Tivoli common stock (1) by
returning the enclosed proxy, or (2) by appearing at the special meeting in
order for your shares of Tivoli common stock to be included in the vote. As of
September 30, 1999, the directors and executive officers of Tivoli owned, in the
aggregate, 431,673 shares of Tivoli common stock, which represents approximately
34.9% of the outstanding shares of Tivoli common stock on that date. The
directors and executive officers have informed Tivoli that they intend to vote
all of their shares of Tivoli common stock FOR the merger proposal.
In connection with, and concurrently with, the execution and delivery of the
merger agreement, Targetti and each of Terrence and Marilyn Walsh, Peter J.
Shaw, Gordon C. Westerling, Charles Kimmel, Vincent F. Monte, Gerald E. Morris,
Intelite International N.V. and Gordon C. Westerling, as trustee of the
Westerling Family Trust entered into voting agreements, each dated September 17,
1999. The Voting Agreements relate to an aggregate of 431,673 shares of Tivoli
common stock, which represents approximately 34.9% of the shares of Tivoli
common stock outstanding. Pursuant to the Voting Agreements, each of the Voting
Agreement Parties has agreed, among other things, that at any meeting of the
holders of Tivoli common stock, or in connection with any written consent of the
holders of Tivoli common stock, the Voting Agreement Parties will vote (or cause
to be voted) all shares of Tivoli common stock held of record or beneficially
owned by the Voting Agreement Parties, whether heretofore owned or hereafter
acquired: (i) in favor of the merger, the adoption of the merger agreement by
Tivoli, and each of the other transactions and actions contemplated by the
merger agreement and any actions required in furtherance thereof; and (ii)
against any action or agreement that would result in a breach in any respect of
any covenant, representation or warranty or any other obligation or agreement of
Tivoli under the merger agreement not being fulfilled. Each of the Voting
Agreements terminates upon the termination of the merger agreement or upon the
effective time of the merger.
Under the rules of the Nasdaq SmallCap Market, brokers who hold shares in street
name for customers have the authority to vote on "routine" proposals when they
have not received instructions from beneficial owners. Under the rules of the
Nasdaq SmallCap Market, brokers are precluded from exercising their voting
discretion with respect to the approval of non-routine matters such as the
merger proposal and thus, absent specific instructions from the beneficial owner
of such shares, brokers are not empowered to vote such shares with respect to
the approval of such proposals (i.e., "broker non-votes"). Abstentions and
properly executed broker non-votes
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will be treated as shares that are present and entitled to vote at the special
meeting for purposes of determining whether a quorum exists and will have the
same effect as votes against approval of the merger proposal.
PROXIES; REVOCATION
If you vote your shares of Tivoli common stock by signing a proxy, your shares
will be voted at the special meeting as you indicate on your proxy card. If no
instructions are indicated on your signed proxy card, your shares of Tivoli
common stock will be voted FOR the approval of the merger agreement and the
transactions contemplated thereby.
You may revoke your proxy at any time before the proxy is voted at the special
meeting. A proxy may be revoked prior to the vote at the special meeting by
submitting a written revocation to the Secretary of Tivoli at 1513 East St.
Gertrude Place, Santa Ana, California 92705 or by submitting a new proxy, in
either case, dated after the date of the proxy that is being revoked. In
addition, a proxy may also be revoked by voting in person at the special
meeting. However, simply attending the special meeting will not revoke a proxy.
Your Tivoli Board is not currently aware of any other business to be brought
before the special meeting. If, however, other matters are properly brought
before the special meeting or any adjournment or postponement of the special
meeting regarding which the Board of Directors was not aware would be presented
at the meeting a reasonable time before the solicitation, the persons appointed
as proxies will have discretionary authority to vote the shares of Tivoli common
stock represented by duly executed proxies in accordance with their discretion
and judgment.
Tivoli and Targetti will share the costs associated with printing and filing
this proxy statement. Officers and employees of Tivoli may solicit proxies by
telephone or in person. However, they will not be paid for soliciting proxies.
In addition, although it is not expected, Tivoli may elect to retain a proxy
solicitor to help assist it in the solicitation of proxies at a cost of up to
approximately $10,000, plus reasonable expenses. Tivoli also will request that
persons and entities holding shares in their names or in the names of their
nominees that are beneficially owned by others send proxy materials to and
obtain proxies from those beneficial owners, and will reimburse those holders
for their reasonable expenses in performing those services.
ADJOURNMENTS OR POSTPONEMENTS
Although it is not expected, the special meeting may be adjourned or postponed
for the purpose of soliciting additional proxies. Any adjournment or
postponement may be made without notice, other than by an announcement made at
the special meeting, by approval of the holders of a majority of the outstanding
shares of Tivoli common stock present in person or represented by proxy at the
special meeting, whether or not a quorum exists. Any signed proxies received by
Tivoli will be voted in favor of an adjournment or postponement in these
circumstances unless a written note on the proxy by the shareholder directs
otherwise. Any adjournment or postponement of the special meeting for the
purpose of soliciting additional proxies will allow Tivoli shareholders who have
already sent in their proxies to revoke them at any time prior to their use.
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THE MERGER
BACKGROUND OF THE MERGER
The relationship between Targetti and Tivoli began in November 1994 when Tivoli
entered into a reciprocal license and distribution agreement with Targetti.
Approximately three years later, Tivoli and Targetti expanded the scope of their
joint venture with the formation of a jointly owned company in the United
States, Targetti USA, LLC. Tivoli and Targetti each own 50% of Targetti USA.
In February 1999, Lorenzo Targetti, Executive Director of Targetti, approached
Gerald E. Morris, a director of Tivoli, and raised the possibility of a business
combination between Tivoli and Targetti. Mr. Morris advised Terrence Walsh,
Chairman of the Board and Chief Executive Officer of Tivoli, of his discussions
with Mr. Targetti.
On March 1, 1999, Mr. Targetti phoned Mr. Walsh to discuss several business-
related projects. In the course of the discussion, Mr. Targetti and Mr. Walsh
casually discussed the possibility of a business combination. Mr. Walsh and Mr.
Targetti spoke again the next day concerning the possibility of a business
combination and agreed to meet in New York over the upcoming weekend. On March
5, 1999, Mr. Walsh advised Mr. Morris of his discussions and upcoming meeting
with Mr. Targetti.
On March 6, 1999, Mr. Walsh met with Mr. Targetti in New York. At this meeting,
Mr. Targetti discussed the possibility of employment contracts and incentive
compensation for key members of management. Mr. Targetti also expressed the need
for Mr. Walsh to continue as a member of the board of directors of the surviving
corporation. Mr. Walsh responded that he would need to notify and discuss the
matter with the Tivoli Board.
On March 16, 1999, Mr. Walsh informed the Tivoli Board and Charles F. Kimmel,
the President, Chief Operating Officer and Chief Financial Officer of Tivoli, of
his discussions with Mr. Targetti. Mr. Walsh noted that the discussions were
still in a relatively early phase and that no actual offer, verbal or written,
had yet been received by Tivoli from Targetti. At the regularly scheduled Tivoli
Board meeting held on March 17, 1999, the Tivoli Board discussed the possibility
of a business combination with Targetti. The Tivoli Board noted that an
independent investment banker should be engaged to review the transaction from a
financial point of view in the event that negotiations with Targetti continued
to progress and the economics of the proposed transaction were more certain.
During the course of the Tivoli Board's discussion, it was also agreed that a
special committee should be established to review, evaluate and make
recommendations to the Tivoli Board regarding the Targetti proposal as well as
to handle any economic evaluations of the proposed merger. The Special Committee
consisted of Mr. Morris (Chairman of the Special Committee), Peter J. Shaw,
Vincent F. Monte and Gordon C. Westerling. The Tivoli Board agreed that Mr.
Morris should continue discussions with Mr. Targetti in connection with a
possible merger.
On April 9, 1999, Mr. Walsh discussed various issues with Mr. Targetti
concerning a potential business combination, including the importance of a
satisfactory share price and acceptable retention packages and employment
agreements for key employees of Tivoli, including Mr. Walsh.
At the regularly scheduled Tivoli Board meeting held on April 12, 1999, Mr.
Walsh updated the Tivoli Board on his discussions with Mr. Targetti, including
the possibility that Targetti may offer a premium over Tivoli's stock price and
Targetti's interest in retaining Mr. Walsh and other key members of Tivoli's
management. In view of the developments, the Tivoli Board asked the Special
Committee to begin interviews of various investment banking firms. Mr. Walsh
called Mr. Targetti several days later to further discuss employee retention
matters in connection with a possible merger.
During the week of April 19, 1999, while Mr. Walsh was in Hannover, Germany to
participate in the annual Lighting Fair (part of the Hannover Fair), he met with
Mr. Targetti several times to discuss various matters relating to the potential
business combination, including employee retention matters and the role of
Tivoli's current management (including Mr. Walsh and Mr. Kimmel) in the combined
company.
On May 4, 1999, Mr. Walsh and Mr. Targetti discussed the possibility of an
exclusivity arrangement whereby Tivoli would not seek acquisition proposals from
other third parties for a specified period of time to allow Targetti to conduct
preliminary due diligence on Tivoli in consideration of a potential business
combination. During the discussion between Mr. Targetti and Mr. Walsh, the
issues of confidentiality, non-disclosure and "no shop" were all discussed. Both
Mr. Targetti and Mr. Walsh agreed to advise their respective counsels to work
together to prepare a preliminary due diligence schedule and finalize an
exclusivity arrangement. On May 19, 1999, after obtaining approval from Tivoli's
Special Committee, Mr. Morris executed an exclusivity agreement on behalf of
Tivoli with Targetti which provided that Tivoli would not seek other acquisition
proposals for a period of 30 days. Targetti also signed a similar exclusivity
agreement with Mr. Walsh. The exclusivity agreements were later extended several
times by mutual agreement between the parties. The exclusivity agreements
expired on July 30, 1999.
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Over the subsequent two weeks, Mr. Targetti met with Mr. Walsh and Mr. Kimmel to
continue discussions regarding the potential business combination. An initial
draft of the merger agreement was distributed to the parties on May 28, 1999.
On June 8, 1999, Mr. Walsh discussed a timetable with Mr. Morris and Cooley
Godward LLP, including the process for a fairness opinion. Mr. Walsh also
discussed the same issues with Mr. Targetti on June 22, 1999. Detailed
discussions between Tivoli and Targetti concerning the terms of the merger
continued through the middle of July.
On approximately June 24, 1999, after interviews and investigations by the
Special Committee, the investment banking firm of L.H. Friend, Weinress,
Frankson & Presson, Inc. was selected to serve as Tivoli's independent financial
advisor and to render a fairness opinion in connection with the proposed merger.
An engagement letter was subsequently executed.
At a meeting of the Special Committee held on July 13, 1999, Mr. Morris provided
an update with regard to the status of the negotiations with Targetti. The
following individuals also attended the meeting at the request of the Special
Committee: Andre Guardi and Nick Dauderman of L.H. Friend, Weinress, Frankson &
Presson, Inc., the investment banking firm engaged by Tivoli to review the terms
of the merger from a financial perspective, Mr. Walsh, Mr. Kimmel, and Andrei
Manoliu of Cooley Godward LLP, outside counsel to Tivoli. The Special Committee
also requested and received an update from L.H. Friend with regard to their
financial review of Tivoli to date. Questions were asked and full discussion
ensued at the meeting.
On July 16, 1999, Mr. Walsh and Mr. Kimmel met with Paolo Targetti, President of
Targetti, to discuss the terms of the business combination further, including
employment agreements between the combined company and each of Mr. Walsh and Mr.
Kimmel. Negotiations between the parties continued sporadically from the middle
of July through the middle of September.
On September 14, 1999, Mr. Morris, Chairman of the Special Committee, met with
Lorenzo Targetti in New York to discuss and negotiate the share price and other
economic issues. During the course of an extended discussion, Mr. Morris related
the position of the Company to establish a share price higher than the $4.00 per
share initially offered by Targetti. These negotiations concluded with an agreed
share price of $4.50 per share. Subsequently, Mr. Morris advised the Tivoli
Board and Special Committee of his discussions with Lorenzo Targetti. Later that
day, Mr. Walsh, Mr. Kimmel, Cooley Godward LLP, Lorenzo Targetti and outside
counsel to Targetti, met via telephone conference call to discuss other terms of
the merger.
On September 17, 1999, Tivoli's Special Committee held a special telephonic
meeting to discuss the merger and the terms of the merger agreement.
Representatives from Cooley Godward LLP and L.H. Friend also attended the
meeting. At the meeting, L.H. Friend delivered a verbal opinion to the Special
Committee that the merger was fair to Tivoli and its shareholders from a
financial point of view. L.H. Friend subsequently provided a written opinion to
the Tivoli Board memorializing their verbal opinion. (See "-- Opinion of
Tivoli's Financial Advisor.") The Special Committee approved the merger
agreement and the transactions contemplated thereby. The parties executed the
merger agreement on September 17, 1999.
Tivoli and Targetti issued a joint press release regarding the merger on the
next business day, September 20, 1999.
TIVOLI'S REASONS FOR THE MERGER; RECOMMENDATION OF THE TIVOLI BOARD
At a special board meeting on September 17, 1999, the Tivoli Board determined
that the merger is advisable, fair to, and in the best interests of Tivoli and
its shareholders. The Tivoli Board unanimously approved the merger. Accordingly,
the Tivoli Board recommends that Tivoli shareholders vote FOR approval of the
merger agreement and the merger at the special meeting.
In reaching its decision to approve the merger agreement and to recommend that
Tivoli shareholders vote to approve the merger agreement, the Tivoli Board
considered the following material factors:
- the current and historical market prices of Tivoli common stock relative
to those of other industry participants and general market indices, and
the fact that the $4.50 per share merger consideration represents a 35.9%
premium over the closing price of Tivoli common stock on the last trading
day prior to the public announcement of the merger agreement and a 98.2%
premium over the average price of Tivoli common stock for the one year
preceding the announcement of the merger agreement;
- the fact that the merger consideration is all cash, which provides
certainty of value to Tivoli's shareholders compared to a stock
transaction; the Tivoli Board was aware that an all cash transaction would
be taxable to Tivoli shareholders for federal income tax purposes whereas
an all stock transaction would not be taxable for federal income tax
purposes;
- the Tivoli Board's familiarity with, and presentation by Tivoli management
and Tivoli's financial and strategic advisors regarding, the business,
operations, properties and assets, financial condition, competitive
position, business strategy, and
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prospects of Tivoli (as well as the risks involved in achieving such
prospects), the nature of the lighting industry in which Tivoli competes,
and current industry, economic and market conditions, both on a historical
and on a prospective basis;
- the actions of Tivoli during the past five years to enhance shareholder
value, including (1) repurchasing approximately 227,700 shares of Tivoli
common stock for an aggregate purchase price of approximately $137,380,
(2) focusing on cost reductions through more efficient manufacturing
techniques, (3) development of new products, and (4) altering Tivoli's
organizational structure to increase efficiency;
- the presentations by L.H. Friend on July 13, 1999 and September 17, 1999
and its opinion that, as of September 17, 1999, and based on and subject
to the matters set forth in that opinion, the $4.50 per share in cash to
be received by holders of Tivoli common stock pursuant to the merger
agreement was fair from a financial point of view to such holders. L.H.
Friend advised the Tivoli Board that, in arriving at its fairness
determination, L.H. Friend considered the results of all of its analyses
and did not attribute any particular weight to any factor or analyses
considered by it (see "-- Opinion of Tivoli's Financial Advisor");
- the potential shareholder value that could be expected to be generated
from the various strategic alternatives available to Tivoli, including the
alternatives of (1) remaining independent and continuing Tivoli's
strategic plan set forth in its 1999 Annual Report, (2) selling Tivoli and
(3) pursuing other reorganization alternatives involving substantial
reductions in work force, incurrence of additional debt, and adoption of
more aggressive acquisition strategies, as well as the risks and
uncertainties associated with those alternatives;
- the terms of the merger agreement which provide that under certain
circumstances, and subject to certain conditions more fully described
under "The Merger Agreement -- No Solicitation of Acquisition
Transactions," "--Termination or Amendment" and "-- Termination Fees,"
Tivoli can furnish information to and conduct negotiations with a third
party, terminate the merger agreement, and enter into an agreement
relating to a superior proposal;
- the interests of Tivoli's officers and directors in the merger described
under "-- Interests of Certain Persons in the Merger; Possible Conflicts
of Interest;"
- the effects of the merger on Tivoli's employees and other constituencies,
and the terms of the merger agreement relating to such matters;
- the business, operations, financial condition, operating results and
prospects of Targetti, giving effect to the merger, and the potential for
cost savings and synergies that could be created by combining the two
companies; and
- the fact that on September 17, 1998 Tivoli received a letter from the
Listing Qualifications Panel of the Nasdaq SmallCap Market which stated
that Tivoli would be delisted from the National SmallCap Market if it was
unable to meet the minimum requirements for continued listing and the fact
that approximately five months later and after effecting a one-for-three
reverse stock split, the Listing Qualifications Panel determined to
continue listing Tivoli's common stock.
The foregoing discussion addresses the material information and factors
considered by the Tivoli Board in its consideration of the merger, including
factors that support the merger as well as those that may weigh against it. In
view of the variety of factors and the amount of information considered, the
Tivoli Board did not find it practicable to and did not make specific
assessments of, quantify or otherwise assign relative weights to the specific
factors and analyses considered in reaching its determination, nor did the
Tivoli Board specifically identify those factors and analyses that supported
fairness or its recommendation and those that may not. The determination to
approve the merger was made after consideration of all of the factors and
analyses as a whole. In addition, individual members of the Tivoli Board may
have given different weights to different factors.
OPINION OF TIVOLI'S FINANCIAL ADVISOR
L.H. Friend delivered a written opinion to the Tivoli Board that, as of
September 17, 1999, the merger was fair to Tivoli and its shareholders, from a
financial point of view. No limitations were imposed by the Tivoli Board upon
L.H. Friend with respect to the investigations made or procedures followed by
L.H. Friend in rendering its opinion.
The full text of the opinion of L.H. Friend, which sets forth the assumptions
made, matters considered and limits on the review undertaken, is attached as
Appendix B to this proxy statement. Tivoli shareholders are urged to read this
opinion in its entirety for information with respect to the procedures followed,
assumptions made and matters considered by L.H. Friend in rendering such
opinion. The summary of the opinion of L.H. Friend set forth below is qualified
in its entirety by reference to the full text of such opinion.
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In rendering its opinion, L.H. Friend, among other things, reviewed certain
reports filed by Tivoli with the SEC, examined certain operating information,
financial information and projections provided by the management of Tivoli,
reviewed the historical market prices and trading volume of Tivoli common stock,
analyzed publicly available financial and market data regarding certain
companies in the lighting fixture industry and compared them to Tivoli's
financial and market data, conducted limited interviews with certain members of
Tivoli management and performed such other studies, analyses, inquiries and
investigations as it deemed appropriate.
In the course of its review, L.H. Friend relied, without independent
verification, upon the accuracy and completeness of all the financial and other
information reviewed by it for purposes of the opinion.
L.H. Friend was not requested to, and did not, solicit any indications of
interest from third parties with respect to the sale of Tivoli. In addition,
L.H. Friend did not participate in the discussion or negotiations leading to
execution of the merger agreement, and its opinion is limited to the fairness
from a financial point of view of the consideration to be received for the
shares of Tivoli and does not address Tivoli's underlying business decision to
effect the merger. L.H. Friend assumed that Targetti and Tivoli will have the
financial capability to perform, and will perform, their obligations under the
merger agreement.
L.H. Friend is an investment banking firm specializing in institutional research
and investment banking services for middle market companies. The firm's focus is
on all aspects of traditional corporate finance transactions, including initial
and secondary public offering, institutional private placements, mergers and
acquisitions, evaluation and fairness opinions and related corporate advisory
services.
Tivoli has agreed to pay L.H. Friend a fee of $50,000. Tivoli has also agreed to
reimburse L.H. Friend for its reasonable out-of-pocket expenses, and to
indemnify L.H. Friend and certain related persons against certain liabilities
relating to or arising out of its engagement, including certain liabilities
under federal securities laws.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
General
The following is a summary of the material United States federal income tax
consequences of the merger to Tivoli shareholders. This summary is based upon
the provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable current and proposed United States Treasury Regulations, judicial
authority, and administrative rulings and practice. Legislative, judicial or
administrative rules and interpretations are subject to change, possibly on a
retroactive basis, at any time and, therefore, the following statements and
conclusions could be altered or modified. It is assumed that the shares of
Tivoli common stock are held as capital assets by a United States person (i.e.,
a citizen or resident of the United States or a domestic corporation). This
discussion does not address all aspects of United States federal income taxation
that may be relevant to a particular Tivoli shareholder in light of such Tivoli
shareholder's personal investment circumstances, or those Tivoli shareholders
subject to special treatment under the United States federal income tax laws
(for example, life insurance companies, tax-exempt organizations, financial
institutions, United States expatriates, foreign corporations, nonresident alien
individuals, and dealers in securities or foreign currencies or persons that
have a "functional currency" other than the U.S. dollar.), Tivoli shareholders
who hold shares of Tivoli common stock as part of a hedging, "straddle,"
"constructive sale," "conversion transaction" or other integrated transaction,
Tivoli shareholders who are subject to the U.S. federal alternative minimum tax,
or Tivoli shareholders who acquired their shares of Tivoli common stock through
the exercise of employee stock options or other compensation arrangements. In
addition, the discussion does not address any aspect of foreign, state or local
taxation or U.S. federal estate or gift taxation that may be applicable to a
Tivoli shareholder.
Consequences of the Merger to Tivoli Shareholders
The receipt of the merger consideration in the merger (including any cash
amounts received by Tivoli shareholders that exercise dissenter's rights) will
be a taxable transaction for United States federal income tax purposes (and also
may be a taxable transaction under applicable state, local and other income tax
laws). In general, for United States federal income tax purposes, a holder of
Tivoli common stock will recognize gain or loss equal to the difference between
his or her adjusted tax basis in Tivoli common stock converted in the merger or
subject to dissenter's rights, and the amount of cash received. Gain or loss
will be calculated separately for each block of shares converted in the merger
(i.e., shares acquired at the same cost in a single transaction). The gain or
loss will be capital gain or loss (other than, with respect to the exercise of
dissenter's rights, amounts, if any, which are or are deemed to be interest for
federal income tax purposes, which amounts will be taxed as ordinary income),
and will be short-term capital gain or loss if, at the effective time of the
merger, the shares of Tivoli common stock so converted were held for one year or
less. If the shares were held for more than one year, the gain or loss would be
long-term, subject (in the case of shareholders who are individuals) to tax at a
maximum United States federal income tax rate of 20%.
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Backup Tax Withholding
Under the United States federal income tax backup withholding rules, unless an
exemption applies, Targetti is required to and will withhold 31% of all payments
to which a Tivoli shareholder or other payee is entitled in the merger, unless
the Tivoli shareholder or other payee provides a tax identification number
(social security number, in the case of an individual, or employer
identification number in the case of other shareholders), and certifies under
penalties of perjury that such number is correct. Each Tivoli shareholder and,
if applicable, each other payee, should complete and sign the substitute Form
W-9 that will be part of the letter of transmittal to be returned to the
exchange agent (or other agent) in order to provide the information and
certification necessary to avoid backup withholding, unless an applicable
exemption exists and is otherwise proved in a manner satisfactory to the
exchange agent (or other agent). The exemptions provide that certain Tivoli
shareholders (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, however, he or she must submit a signed statement (such as a
Certificate of Foreign Status on Form W-8) attesting to his or her exempt
status. Any amounts withheld will be allowed as a credit against the holder's
United States federal income tax liability for such year.
TIVOLI SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE
UNITED STATES FEDERAL, STATE AND LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
MERGER TO THEM IN VIEW OF THEIR OWN PARTICULAR CIRCUMSTANCES.
REGULATORY MATTERS
There are no federal or state regulatory requirements that must be complied
with or approvals that must be obtained in connection with the merger and the
transactions contemplated thereby.
ACCOUNTING TREATMENT
The merger will be accounted for under the purchase method of accounting in
accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations," as amended. Under this method of accounting, the purchase price
will be allocated to assets acquired and liabilities assumed based on their
estimated fair values at the effective time of the merger (with the excess of
the purchase price after such allocations being recorded as goodwill).
MERGER FINANCING
It is expected that Targetti will require approximately $6.5 million in order to
complete the merger, including payments to be made to Tivoli shareholders and
holders of Tivoli stock options and warrants, and the payment of fees and
expenses. Targetti has available to it cash, credit lines or other sources of
financing to provide the funds necessary for completion of the merger and the
transactions contemplated under the merger agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER; POSSIBLE CONFLICTS OF INTEREST
General
Some members of Tivoli management and the Tivoli Board have certain interests in
the merger that are different from or in addition to the interests of Tivoli
shareholders generally. These interests may create potential conflicts of
interest. These additional interests relate to provisions in the merger
agreement and other arrangements regarding:
- termination of existing employment agreements (which contain, among other
things, certain change in control severance payments);
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- new employment agreements to be entered into between certain officers of
Tivoli and the surviving corporation;
- lump sum cash payments for all outstanding stock options (minus the
exercise price) under Tivoli's stock option plans;
- lump sum cash payments for all outstanding warrants (minus the exercise
price);
- cash bonuses to certain key employees; and
- the indemnification and provision of liability insurance for Tivoli
directors and officers.
All of these additional interests, to the extent material, are described below.
Except as described below, such persons have, to the knowledge of Tivoli, no
material interest in the merger apart from those of the Tivoli shareholders
generally. The Tivoli Board was aware of these interests and considered them,
among other matters, in approving the merger agreement and the transactions
contemplated thereby.
Employment and Severance Agreements
Tivoli has an employment agreement with each of Mr. Walsh and Mr. Kimmel which,
following a change in control of Tivoli, entitle each of them to certain
severance payments upon a termination of his employment, voluntary or otherwise,
without his express written consent. Pursuant to the terms of such employment
agreements, in the event of a change in control (without their express written
consent), Mr. Walsh and Mr. Kimmel may each elect to terminate his employment
and to receive a lump sum payment equal to the amount of his respective annual
salary and benefits (including a monthly auto allowance and standard company
benefits) that would have been payable for the remainder of the term of the
employment agreement (each of which expires September 30, 2002), subject to a
24 month minimum. The merger will constitute a change in control of Tivoli for
purposes of the employment agreements referred to above. As a condition of
Targetti's obligation to effect the merger, however, each of the existing
employment agreements between Tivoli and each of Mr. Walsh and Mr. Kimmel shall
have been terminated at no cost to Tivoli.
Targetti has agreed to cause the surviving corporation to enter into new
employment agreements with each of Mr. Walsh and Mr. Kimmel in the forms
attached to the merger agreement. Such agreements provide for, among other
things, an amount equal to two times such executive's annual salary plus health
insurance expenses for up to eighteen months after executive's date of
termination upon termination by the surviving corporation without cause or upon
termination by employee for good reason (including constructive termination or a
change in control of the surviving corporation or Targetti). The new employment
agreement with Mr. Walsh also provides that Mr. Walsh shall receive shares of
common stock of the surviving corporation equal to a 7.5% ownership interest. A
copy of the merger agreement, with the form of employment agreements attached as
exhibits thereto, is attached as Appendix A hereto.
Effect of the Merger on Stock Incentive Plans and Warrants
Immediately prior to completion of the merger, Tivoli will terminate the
following Tivoli stock option plans: 1994 Stock Option Plan, 1995 Stock Option
Plan, 1995 Non-Employee Director Stock Option Plan and the 1997 Equity Incentive
Plan. Upon a change in control, all unvested Tivoli stock options granted under
these plans vest and all restrictions attached to shares of restricted stock
lapse. The number of stock options which will become vested because of the
change in control of Tivoli with respect to Tivoli's chief executive officer and
the other executive officer of the Company who received compensation of more
than $100,000 in fiscal 1999 and its directors as a group, are approximately as
follows: Mr. Walsh, no outstanding options; Mr. Kimmel, 83,333 (none of which
have an exercise price per share less than $4.50); and directors as a group,
46,665 (16,666 of which have an exercise price per shares less than $4.50).
Upon completion of the merger, each outstanding stock option under these plans
will be cancelled, and Targetti or Tivoli will provide each holder of a Tivoli
stock option with a lump sum cash payment (less applicable withholding taxes)
equal to the excess, if any, of $4.50 over the exercise price per share of the
Tivoli stock option, multiplied by the number of shares of Tivoli common stock
subject to that Tivoli stock option. The payments to be made to Tivoli's chief
executive officer and the other executive officer of the Company who received
compensation of more than $100,000 in fiscal 1999 and its directors as a group,
are approximately as follows: Mr. Walsh, none (no outstanding options); Mr.
Kimmel, none (no outstanding options with an exercise price per share greater
than $4.50); and directors as a group, $26,498.94.
All outstanding warrants to purchase Tivoli common stock will, following the
effective time of the merger, be exercisable only for an amount of cash equal to
the warrant consideration (defined as an amount, if any, per warrant equal to
the product of (ii) the number of shares of Tivoli common stock issuable upon
exercise of such warrant and (ii) the difference between the $4.50 and the
exercise price per share of Tivoli common stock, without interest, which amount
shall be paid from and after the effective time of merger), and the holders of
such warrants shall be entitled to receive, in cash, an amount, if any, equal to
the warrant consideration. None of the outstanding warrants have an exercise
price per share less than $4.50.
Employee Retention Plan for Certain Key Employees
Pursuant to the terms of the merger agreement, certain key employees of Tivoli
(including Mr. Kimmel) shall be entitled to receive certain cash payments as of
the closing date and on each of the first and second anniversary thereof;
provided, that such employee continues to be employed by the surviving
corporation on a full-time basis on the payment date or if such employee was
terminated by
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the surviving corporation without cause within the previous 12 month period of
such payment date. The aggregate amount of all cash bonuses that may be paid to
all of the key employees as a group under such plan is $261,500, of which Mr.
Kimmel may receive up to $150,000.
Indemnification Of Directors And Officers
Targetti has agreed that the indemnification provisions of the articles of
incorporation and bylaws of Tivoli and indemnification agreements between the
Company and its officers and directors as in effect at the time of the
completion of the merger will not be amended, repealed or otherwise modified for
a period of six years from the effective time of the merger in any manner that
would adversely affect the rights thereunder of individuals who at the effective
time of the merger, were directors, officers, employees or agents of Tivoli.
The merger agreement requires that, for a period of six years after completion
of the merger, Targetti will maintain in effect the current policies of
directors' and officers' liability insurance maintained by Tivoli or policies of
at least the same coverage.
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THE MERGER AGREEMENT
The following is a summary of all the material terms of the merger agreement.
The summary is qualified in its entirety by reference to the merger agreement, a
copy of which is attached to this proxy statement as Appendix A.
STRUCTURE AND EFFECTIVE TIME
The merger agreement provides for the merger of Florence with and into Tivoli.
Tivoli will survive the merger and continue to exist after the merger as a
wholly-owned subsidiary of Targetti. The merger will become effective at the
time an agreement of merger is filed with the California Secretary of State (or
at a later time if agreed in writing by the parties and specified in the
agreement of merger). The parties will file the agreement of merger as soon as
practicable after the satisfaction or waiver of all conditions in the merger
agreement. We cannot assure you when, or if, all the conditions to completion of
the merger will be satisfied or waived. See "-- Conditions to the Merger." We
expect, however, to complete the merger prior to December 15, 1999.
MERGER CONSIDERATION
The merger agreement provides that each share of Tivoli common stock outstanding
immediately prior to the effective time of the merger will be converted at the
effective time of the merger into the right to receive $4.50 in cash from
Targetti, without interest. All treasury shares, shares of Tivoli common stock
owned by Tivoli's subsidiaries, Targetti, Florence or any other of Targetti's
wholly-owned subsidiaries will be cancelled at the effective time of the merger
and no payment will be made for those shares. If dissenter's rights for any
Tivoli shares are perfected by any Tivoli shareholders, then those shares will
be treated as described under "Dissenter's Rights."
PAYMENT PROCEDURES
Targetti will appoint an exchange agent that will make payment of the merger
consideration in exchange for certificates representing shares of Tivoli common
stock. Targetti will deposit sufficient cash with the exchange agent from time
to time in order to permit the payment of the merger consideration. Promptly
after the effective time of the merger, the exchange agent will send Tivoli
shareholders a letter of transmittal and instructions explaining how to send
their stock certificates to the exchange agent. The exchange agent will mail
checks for the appropriate merger consideration, minus any withholding taxes
required by law, to Tivoli shareholders promptly following the exchange agent's
receipt and processing of Tivoli stock certificates and properly completed
transmittal documents (including any other documents requested by the exchange
agent).
TREATMENT OF TIVOLI STOCK OPTIONS AND WARRANTS
The merger agreement provides that Tivoli will terminate Tivoli's 1994 Stock
Option Plan, 1995 Stock Option Plan, 1995 Non-Employee Director Stock Option
Plan and the 1997 Equity Incentive Plan immediately prior to the effective time
of the merger without prejudice to the rights of the holders of Tivoli stock
options awarded pursuant to such plans and, following that termination, grant no
additional Tivoli stock options under these option plans.
Tivoli has agreed to take all actions necessary prior to the effective time of
the merger to provide that, upon the effective time of the merger, each
outstanding option will automatically be cancelled and holders of each Tivoli
stock option will be paid the excess of $4.50 over the exercise price of the
Tivoli stock option multiplied by the number of shares of Tivoli common stock
subject to the option, less applicable withholding taxes.
All outstanding warrants to purchase Tivoli common stock will, following the
effective time of the merger, be exercisable only for an amount of cash equal to
the warrant consideration (defined as an amount, if any, per warrant equal to
the product of (i) the number of shares of Tivoli common stock issuable upon
exercise of such warrant and (ii) the difference between the $4.50 and the
exercise price per share of Tivoli common stock, without interest, which amount
shall be paid from and after the effective time of the merger), and the holders
of such warrants shall be entitled to receive, in cash, an amount, if any, equal
to the warrant consideration.
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
The merger agreement provides that Paolo Targetti, Alvaro Andorlini, Lorenzo
Targetti, Terrence Walsh and Charles Kimmel will be the directors of the
surviving corporation, and Lorenzo Targetti will serve as the surviving
corporation's chairman of the board; Terrence Walsh will serve as the surviving
corporation's chief executive officer and vice chairman of the board; and
Charles Kimmel will serve as president and chief financial officer.
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REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties made by Tivoli to
Targetti and Florence, including representations and warranties relating to:
- organization, existence, power and standing, and other corporate matters;
- authorization, execution, delivery and enforceability of the merger
agreement;
- capital structure;
- conflicts under charter documents, violations of any material instruments
or law, and required filings, consents and approvals;
- reports and financial statements filed with the SEC and the accuracy of
the information in those documents;
- absence of litigation;
- no violation of law;
- maintenance of permits, licenses, consents, approvals, etc. from
governmental authorities
- compliance with agreements;
- tax matters;
- retirement and other employee benefit plans;
- employment matters;
- environmental matters;
- title to property and assets;
- receipt of a fairness opinion;
- brokers' and finders' fees with respect to the merger;
- absence of changes having a material adverse effect on the business,
assets, condition (financial or other), operating results or prospects of
Tivoli and its subsidiaries taken as a whole; and
- absence of undisclosed liabilities;
- interested party transactions;
- intellectual property;
- information supplied; and
- insurance.
The merger agreement also contains representations and warranties made, jointly
and severally, by Targetti and Florence to Tivoli, including representations and
warranties relating to:
- due organization, existence, power and standing, and other corporate
matters;
- conflicts under charter documents, violations of any instruments or law,
and required consents and approvals;
- availability of financing;
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- brokers' and finders' fees with respect to the merger; and
- authorization, execution, delivery and enforceability of the merger
agreement.
The representations and warranties of each of the parties to the merger
agreement will expire upon completion of the merger.
COVENANTS; CONDUCT OF THE BUSINESS OF TIVOLI PRIOR TO THE MERGER
The Tivoli Board has agreed, subject to its fiduciary duties, to recommend that
Tivoli's shareholders vote to approve the merger, and to use reasonable
commercial efforts to solicit proxies in favor of the merger.
From the date of the merger agreement through the effective time of the merger,
Tivoli and its subsidiaries are required to comply with certain restrictions on
their conduct and operations. Tivoli has agreed (and has agreed to cause its
subsidiaries) to conduct their business in the ordinary and usual course of
business, consistent with past practice. Tivoli has also agreed that it shall
use reasonable commercial efforts (except as set forth below) to maintain its
relationships with its suppliers, customers and employees and, upon request by
Targetti and to the extent permitted by applicable law, use its reasonable
commercial efforts to make arrangements for representatives of Targetti to meet
with Tivoli's customers, suppliers and employees.
In addition, Tivoli has agreed that prior to the effective time of the merger,
except as provided under the merger agreement or with the prior written consent
of Targetti, Tivoli will not (and will cause its subsidiaries not to):
- amend its articles of incorporation or bylaws or reincorporate in any
jurisdiction;
- split, combine or reclassify its issued and outstanding capital stock;
- declare, set aside or pay any dividend or distribution with respect to
its shares;
- redeem, purchase, or acquire or offer to acquire any shares of its
capital stock or any options, warrants, or rights to acquire any of
its capital stock, or any security convertible into or exchangeable
for its capital stock other than in connection with the exercise of
outstanding Tivoli options pursuant to the terms of the Tivoli option
plans;
- issue, sell, pledge or dispose of any additional shares of, or any
options, warrants or rights of any kind to acquire any shares of their
capital stock or any debt or equity securities convertible into or
exchangeable for that capital stock;
- sell, pledge, dispose of or encumber any material assets except in the
ordinary course of business consistent with past practice;
- acquire any materials assets or businesses;
- enter into or modify any material contract except in the ordinary
course of business consistent with past practice;
- terminate, modify, assign, waive, release or relinquish any material
rights or claims except in the ordinary course of business consistent
with past practice;
- pay, discharge or satisfy any material claims, liabilities or
obligations, other than the payment, discharge or satisfaction of any
such claims, liabilities or obligations in the ordinary course of
business reflected or contemplated by the consolidated financial
statements of the Company included in the SEC reports;
- settle any material claim or proceeding pending or threatened against
Tivoli or any subsidiary, or, if Tivoli may be liable or obligated to
provide indemnification against Tivoli's or any subsidiary's directors
or officers;
- incur or adversely modify any material indebtedness or other
liability;
- assume, guarantee, endorse or otherwise become liable or responsible
for the obligations of another person;
- enter into or amend any employment, severance, or termination pay
arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers or employees
or with any other persons;
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- increase the salary or monetary compensation of any person;
- adopt, enter into or amend to increase benefits or obligations any
employee benefit arrangement;
- make any loan to or enter into any material transaction of any other
nature with any employee of Tivoli or any subsidiary, except in the
ordinary course of business consistent with past practice;
- knowingly permit any action that would make any representation or
warranty made by Tivoli under the merger agreement materially
inaccurate at and prior to the effective time of the merger;
- change any accounting methods without providing advance notice to
Targetti; or
- make any tax election (other than in the ordinary course of preparing
and filing tax returns) or settle any tax liability or investigation.
NO SOLICITATION OF ACQUISITION TRANSACTIONS
The merger agreement provides that Tivoli and its subsidiaries and any officer,
director, employee or representative, or any of their respective affiliates,
thereof will not initiate, solicit, negotiate, encourage or provide non-public
information to facilitate, any proposal to acquire all or any substantial part
of the business, properties or capital stock of Tivoli, whether by merger,
tender offer, purchase of assets or otherwise.
Tivoli may, prior to receipt of the Tivoli shareholders' approval of the merger,
furnish non-public information to and negotiate with any person who makes an
unsolicited bona fide written proposal or offer with respect to an acquisition
transaction which:
- the Tivoli Board determines that such proposal, if completed, would result
in an acquisition more favorable to Tivoli shareholders from a financial
point of view than the merger with Targetti, and
- the Tivoli Board determines, after consulting with its outside legal
counsel, that its fiduciary duties require it to consider such proposal.
If the Tivoli Board shall have resolved to enter into a letter of intent or
other agreement, whether or not legally binding, with respect to an Acquisition
Proposal or take a neutral position with respect to any such proposal after a
reasonable time or withdraw or adversely modify its recommendation of the merger
with Targetti, then Tivoli shall pay a termination fee of $500,000 (plus
reasonable costs and expenses incurred by Targetti in connection with this
transaction) to Targetti; provided, however, that Tivoli need not pay such
termination fee if any representation by Targetti shall prove to be untrue in
any material respect when made or if there has been an uncured material breach
by Targetti.
The merger agreement requires Tivoli to promptly notify Targetti after receipt
of any acquisition proposal, indication of interest or request for non-public
information relating to Tivoli or its subsidiaries in connection with an
acquisition proposal or for access to the properties, books or records of Tivoli
or any subsidiary by any person or entity that informs the Tivoli Board or such
subsidiary that it is considering making, or has made, an acquisition proposal.
EMPLOYEE BENEFITS
Except as expressly provided by the merger agreement, Targetti has no obligation
under the merger agreement to continue to provide benefits under such plans in
respect of periods following the effective time of the merger and is not
prevented by the merger agreement from terminating such plans.
With respect to Tivoli's management incentive plan, Tivoli and Targetti have
agreed that Targetti shall cause the surviving corporation to establish a plan
containing terms and conditions that are, in general, substantially similar to
those in the management incentive plan in effect for fiscal year 1999, covering
key employees with respect to fiscal years 2000 and 2001.
Tivoli and Targetti have agreed that, as soon as practicable after the closing
of the merger, Targetti shall cause the surviving corporation to establish a
defined contribution retirement plan which permits employees to make elective
"401(k)" contributions. Such plan shall also provide for, subject to U.S.
Internal Revenue Code requirements, employer matching contributions.
As a condition of Targetti's obligation to effect the merger, each of the
existing employment agreements between Tivoli and its executive officers shall
have been terminated at no cost to the Company. Targetti has agreed to cause the
surviving corporation to
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enter into new employment agreements with each of Mr. Walsh and Mr. Kimmel in
the forms attached to the merger agreement. A copy of the merger agreement, with
the form of employment agreements attached as exhibits thereto, is attached as
Appendix A hereto.
COMPLIANCE WITH LEGAL REQUIREMENTS
Targetti and Tivoli have agreed to take all reasonable actions necessary to
comply promptly with all legal requirements which may be imposed on it with
respect to the merger agreement and the transactions contemplated thereby,
including using all commercially reasonable efforts to obtain all necessary or
appropriate waivers, consents or approvals of, or provide notice to, any
governmental authority or other public or private third parties required to be
obtained in connection with the taking of any action contemplated in connection
with the merger.
INDEMNIFICATION
Targetti has agreed that the indemnification provisions of the articles of
incorporation and bylaws of Tivoli and indemnification agreements between the
Company and its officers and directors as in effect at the time of the
completion of the merger will not be amended, repealed or otherwise modified for
a period of six years from the effective time of the merger in any manner that
would adversely affect the rights thereunder of individuals who at the effective
time of the merger, were directors, officers, employees or agents of Tivoli.
The merger agreement requires that, for a period of six years after completion
of the merger, Targetti will maintain in effect the current policies of
directors' and officers' liability insurance maintained by Tivoli or policies of
at least the same coverage.
CONDITIONS TO THE MERGER
The obligations of Tivoli, Targetti and Florence to complete the merger are
subject to the satisfaction of the following conditions:
- the merger agreement and the merger have been approved by the holders of a
majority of the outstanding shares of Tivoli common stock;
- no provision of any applicable domestic -whether federal, state or local
or foreign law or regulation and no judgment, injunction, order or decree
of a court or governmental agency or authority of competent jurisdiction
is in effect that has the effect of making consummation of the merger
illegal; and
- all requirements of any applicable foreign competition and antitrust
statutes and regulations to the consummation of the merger shall have been
satisfied.
Unless waived by Tivoli, the obligation of Tivoli to complete the merger is
subject to the satisfaction of the following additional conditions:
- Targetti and Florence have performed and complied with in all material
respects each agreement, covenant and obligation required to be performed
on or prior to the effective time of the merger; and
- the representations and warranties of Targetti and Florence contained in
the merger agreement are true and correct in all material respects on and
as of the effective time of the merger, or in the case of representations
and warranties made as of a specified earlier date, as of such earlier
date.
Unless waived by Targetti and Florence, the obligations of Targetti and Florence
to complete the merger are subject to the satisfaction of the following
additional conditions:
- Tivoli have performed and complied with in all material respects each
agreement, covenant and obligation required to be performed on or prior to
the effective time of the merger;
- the representations and warranties of Tivoli contained in the merger
agreement are true and correct in all material respects on and as of the
effective time of the merger, or in the case of representations and
warranties made as of a specified earlier date, as of such earlier date;
- no injunction or other order, decree or ruling issued by any court of
competent jurisdiction, nor any statute, rule, regulation or order
entered, promulgated or enacted by any governmental, regulatory or
administrative agency shall be in effect that would restrain the effective
operation of Tivoli and its subsidiaries after the effective time of the
merger, and no proceeding
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challenging or seeking to prohibit, alter or materially delay the merger
shall be pending before any governmental authority; and
(-) Tivoli shall have obtained the following consents: (a) consent of Union
Bank of California, NA, and (b) the consents of certain employees of
Tivoli previously identified by Targetti to Tivoli.
TERMINATION
The merger agreement may be terminated and the merger may be abandoned at any
time prior to the effective time of the merger (notwithstanding any approval by
the shareholders of Tivoli):
(-) by mutual written consent of Tivoli and Targetti;
(-) by either Tivoli or Targetti (a) if the merger has not been completed by
December 15, 1999, and such failure to consummate the merger is not the
result of a breach of this merger agreement by the party seeking
termination, or (b) if, prior to the effective time of the merger, any
governmental authority shall have issued an order, decree or ruling or
taken any other action, in each case permanently restraining or otherwise
prohibiting all or any material part of the transactions contemplated by
the merger agreement and such order, decree, ruling or other action taken
shall have become final and non-appealable;
(-) by either Tivoli, Targetti or Florence if any representation of the other
party set forth in the merger agreement shall prove to be untrue in any
material respect when made or if there has been an uncured material breach
by the other party of any representation, warranty, covenant or agreement
set forth in the merger agreement;
(-) by Targetti if the Tivoli Board (a) shall have resolved to enter into an
agreement, whether or not legally binding, with respect to another
acquisition proposal from a third party; (b) receives a written proposal
with respect to another acquisition and takes a neutral position with
respect to such proposal after a reasonable amount of time (no more than
ten business days following such receipt) has elapsed for the Tivoli Board
to review and make a recommendation with respect to such proposal; or (c)
shall have withdrawn or adversely modified its recommendation of the
merger or recommended another acquisition proposal;
(-) by Targetti, if the shareholders of Tivoli fail to approve the merger
agreement and the transactions contemplated thereby at the special meeting
or any adjournment or postponement thereof; or
(-) by Targetti, if any material adverse effect shall have occurred with
respect to the business, assets, condition (financial or other), operating
results or prospects of Tivoli and its subsidiaries, taken as a whole,
other than the direct effects of (a) the announcement of the transactions
contemplated by the merger; (b) general economic conditions; or (c)
conditions that are generally applicable to the business segments in which
Tivoli and its subsidiaries conduct their business. For purposes of the
foregoing provision, "material adverse effect" shall not include the
effect on Tivoli of general business declines or reverses, such as a
slower than forecast revenues or booking, reductions in gross margins or
technical problems with product development, introduction or evaluation or
increases in operating expenses attributable to changes in product
shipment volumes or changes in supplier pricing.
TERMINATION FEES
The merger agreement obligates Tivoli to pay a fee to Targetti equal to
$500,000, plus the reasonable costs and expenses incurred by Targetti and
Florence in connection with the negotiation and performance of the merger
agreement and the transactions contemplated thereunder, if Tivoli terminates the
merger agreement because the Tivoli Board (a) shall have resolved to enter into
an agreement, whether or not legally binding, with respect to another
acquisition proposal from a third party; (b) receives a written proposal with
respect to another acquisition and takes a neutral position with respect to such
proposal after a reasonable amount of time (no more than ten business days
following such receipt) has elapsed for the Tivoli Board to review and make a
recommendation with respect to such proposal; or (c) shall have withdrawn or
adversely modified its recommendation of the merger or recommended another
acquisition proposal.
EXPENSES
The merger agreement provides that all costs and expenses incurred in connection
with the merger agreement and the transactions contemplated thereby will be paid
by the party incurring such expenses, except that those expenses incurred in
connection with printing and filing this proxy statement will be shared equally
by Targetti and Tivoli.
AMENDMENT
Provisions of the merger agreement may be amended or waived prior to the
effective time of the merger if the amendment or waiver is signed by the
respective parties to the merger agreement (and approved by their respective
Boards of Directors) in the case of an amendment, or by the party against whom
the waiver is to be effective in the case of a waiver.
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DISSENTERS' RIGHTS
Tivoli shareholders may exercise dissenters' rights under Chapter 13 of the
CGCL in connection with the merger. Any shares of Tivoli common stock as to
which dissenters' rights are properly exercised will be converted into the right
to receive such consideration as may be determined to be due with respect to
such dissenting shares pursuant to the laws of the State of California. The
following summary of the provisions of Chapter 13 is not intended to be a
complete statement of such provisions and is qualified in its entirety by
reference to the full text of Chapter 13, a copy of which is attached hereto as
Appendix C.
If the merger is approved by the required vote of the shareholders and is
not abandoned or terminated, any holder of Tivoli common stock outstanding as of
October 15, 1999 may, by complying with the provisions of Chapter 13 of the
CGCL, require Tivoli to purchase for cash at fair market value the shares owned
by such holder which were not voted in favor of the merger. The fair market
value shall be determined as of the day before the first announcement of the
terms of the proposed merger, excluding any appreciation or depreciation in
consequence of the proposed merger.
The dissenting shareholder wishing to require Tivoli to purchase his or her
shares of Tivoli common stock must:
(a) not vote or give its proxy with respect to any of the shares he or
she wishes to be dissenting shares in favor of the merger;
(b) make written demand upon Tivoli or its transfer agent to require
Tivoli to purchase such dissenting shareholders' capital stock not later than 30
days after the date on which the notice of approval by the outstanding shares
(which notice must be mailed within 10 days after the date of approval) was
mailed, setting forth in his or her demand, name and address, and the number and
class of shares which he or she demands that Tivoli purchase and a statement as
to what he or she believes the fair market value of such shares to have been,
based upon the standard set forth above; and
(c) submit for endorsement, within 30 days after the date on which the
notice of approval of the merger by the Shareholders described below is mailed
to such holder, at the principal office of Tivoli or at the office of the
transfer agent for the Tivoli common stock, the certificates representing any
shares in regard to which demand for purchase is being made, with a statement
regarding which of the shares are dissenting shares.
Failure to execute a proxy with respect to approval of the merger will not
be sufficient to constitute the demand described above. In addition, the
dissenting shareholder may not withdraw his or her demand for purchase of
dissenting shares without Tivoli's consent.
Within 10 days after the date of the approval of the merger, Tivoli will
mail to each shareholder who has not consented to the merger with respect to all
of his shares a notice of approval of the merger together with a statement of
the price determined by Tivoli to represent the fair market value of dissenting
shares, and a brief description of the procedure to be followed if the
shareholder desires to exercise dissenters' rights under the CGCL. The statement
of the price of the shares will constitute an offer by Tivoli to purchase at the
price stated therein any dissenting shares. If Tivoli and the dissenting
shareholder agree that the shares are dissenting shares and agree upon the price
of the shares, the dissenting shareholder will be entitled to the agreed price
plus interest thereon at the legal rate on judgments from the date of such
agreement. Subject to the provisions of the CGCL, payment of the fair market
value of the dissenting shares will be made within 30 days after such agreement
or after satisfaction of any statutory or contractual condition to the merger,
whichever is later, and upon surrender of the certificates therefor.
If Tivoli denies that the shares are dissenting shares or if Tivoli and the
dissenting shareholder fail to agree upon the fair market value of the shares,
then the dissenting shareholder, within six months after the date on which
notice of approval of the merger is mailed to such shareholder, and not
thereafter, may file a complaint in superior court, requesting the court to
determine whether the shares are dissenting shares, or the fair market value of
the dissenting shares, or both, or may intervene in any pending action for the
appraisal of any shares of Tivoli common stock.
IN VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF CALIFORNIA LAW,
SHAREHOLDERS WHO ARE CONSIDERING DISSENTING FROM THE MERGER SHOULD CONSULT THEIR
LEGAL ADVISORS. THIS DISCUSSION IS QUALIFIED IN ITS ENTIRETY BY CHAPTER 13 WHICH
IS ATTACHED AS APPENDIX C HERETO.
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Any demands, notices, certificates or other documents required to be delivered
to Tivoli may be sent to Tivoli Industries, Inc., 1513 East S. Gertrude Place,
Santa Ana, California, 92705, Attention: Chief Financial Officer.
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BUSINESS
Business Development
Tivoli designs, develops, manufactures, markets, sells and distributes specialty
lighting and related products globally. 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. Tivoli has expanded its product lines and markets to serve
general and specialized commercial and high end residential construction
projects and applications which require a combination of specialty lighting and
related product features. In addition, Tivoli 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 Tivoli's products, are casinos and gaming venues, movie theater
aisle and step lighting, illuminated ceilings, cove, soffit and valances, retail
accent and display, cabinet, and casegoods furniture, theme parks, high-end
residential, gaming vessel cruise ships, marquees, topiary, exterior building
accent, lighting truss and support systems, and integrated illuminated
surveillance systems.
Over 31 years ago, Tivoli introduced a series of low voltage miniature lamps
encased in a variety of plastic extrusions. These initial miniature products
established Tivoli 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, Tivoli currently holds sixteen (16) U.S. patents.
Tivoli'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, Tivoli
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", "Readi-Cove",
"Paravision" and tivoli, are registered trademarks of Tivoli.
Tivoli'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, long life energy efficient low-
voltage lamps, electronic transformers and lighting controllers, illuminated
surveillance systems and furniture, cabinet and kiosk lighting. Tivoli
originally formed a joint venture with Targetti of Florence, Italy and in
November of 1997, expanded its scope with the formation of a jointly owned
company in the U.S. - Targetti USA. Through this joint venture, Targetti USA
offers a wide range of product families which both broaden and complement
Tivoli'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 downlights, decorative wall sconces, pendants,
modular projector systems, open grid conductor systems and a variety of lighting
accessories, filters and options.
All Tivoli'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 ("SCA") and Canadian Underwriters
Laboratory ("CUL").
In North America, Tivoli's products are sold through 69 independent marketing
representatives, and directly by Tivoli to a large customer base consisting of
electrical distributors, contractors, owner representatives, hotels, showrooms,
theater distributors and other end users. In Mexico, Tivoli's products are sold
through its representatives and through Tivoli's Mexican subsidiary, Tivoli de
Mexico, S.A. Tivoli 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 Tivoli was acquired by its present management in July of 1991, a strategic
goal was developed to become a globally recognized supplier offering a broad
range of specialty lighting and related products. Management believes that this
strategy will position Tivoli to be a supplier of choice to a wide range of
customers where lighting requirements are becoming more diverse. The combined
strategies of offering a broad range of products to a diverse number of discrete
and/or unique markets allow Tivoli to be perceived as a one-source package to an
extensive group of customers. The key elements that are embodied in Tivoli's
strategic plan are: A) Expansion, strengthening and development of Tivoli's
existing product lines and market positions. B) The continued expansion of
Targetti USA with unique, highly designed, lighting products currently marketed
in Europe by Tivoli's joint venture partner, Targetti. The careful evaluation of
select acquisitions, strategic alliances and joint ventures of lighting
companies and technologies.
Management believes these strategies will establish Tivoli as a leading supplier
of specialty lighting and related products globally. Tivoli's comprehensive
product development programs and aggressive market penetration efforts have been
key to broadening Tivoli's appeal as a single source supplier of specialty
lighting equipment. Continuing trends in a number of the markets served by
Tivoli appear to provide additional opportunity for growth and penetration.
Among the markets which exhibit these trends are gaming, hospitality, specialty
retail, multi-national, multi-unit accounts, themed entertainment and high end
residential. The trends among
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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. In order to continue to address these developments, management has
positioned Tivoli to provide lighting fixture and services to fulfill
requirements of customers who wish to achieve ambiance and energy efficiency
while optimizing environmental and merchandise requirements.
Several of Tivoli'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, specialty retail, location based entertainment and cinemas
represent the leading edge of lighting design requirements. Tivoli believes that
the ability to provide both central design and local project support will
contribute to continued growth as global requirements continue. Shopping
centers, retail shops, theaters and restaurants have often collaborated around a
central theme to optimize development economics, increase customer traffic and
point of purchase support. 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.
Industry Overview
In the U.S. the domestic lighting fixture market is estimated to be between
$8.0-8.6 billion (source - Economic Industry Reports 1998). 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"). Although there is currently
no specific category for specialty lighting, management believes that specialty
lighting products 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.
There are a number of major characteristics of the U.S. domestic lighting
fixture industry that affect its growth and competitive market assessment. The
industry has approximately 10 large conglomerates that are estimated to control
less than half of U.S. lighting fixture sales. With over 500 other companies
supplying lighting fixtures, the industry remains highly fragmented despite
several major restructionings of these conglomerates during 1998.
Primary econometric trends which directly affect the lighting industry are
commercial and residential construction, housing starts, renovation and capital
expenditures. Despite strong export sales to NAFTA countries, imports into the
domestic market from Asia, particularly aided in 1998 by a strengthening U.S.
dollar, continue to increase.
In addition to a continued requirement for energy efficiency and product
differention, there have been many major commodity lighting manufacturers shifts
in distribution brought about by shifts to large national chains such as Wal-
Mart, True-Value and Home Depot which have expanded their focus beyond do-it-
yourself to the construction trades.
Tivoli presently serves international clients located in Europe, the Middle
East, Mexico, South America, the Far East and Pacific Rim. The characteristics
and trends of the international lighting industry are somewhat similar to those
of the U.S. market. Local customs, electrical codes and economic demographics
provide unique differentiations that require an adaptive strategy.
The European lighting industry is generally regarded to be more advanced,
relative to fixture design and technology than the U.S. lighting market. There
remains in Europe a high bias toward new technology accompanied by planned
obsolescence of products that occurs at a much faster rate than in the U.S.
Another factor that keeps European lighting manufacturers ahead of their U.S.
counterparts is that many of the major European companies embrace an aggressive
vertical and horizontal manufacturing strategy. For example, the simultaneous
development of lighting fixtures, reflector technology, lamps, power sources and
castings create a faster new product introduction cycle than in the U.S. The
conversion by the European Union to a common currency on January 1, 1999, may
have substantial economic impact on companies that can tailor products and
services to meet the requirements of a 'borderless' Europe. Tivoli's partner -
Targetti of Florence, Italy - is well positioned to provide Tivoli access
to those markets through its comprehensive network of sales and distribution
centers.
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. The
Asian economic crisis has added to the surge of imports. For example, China's
share of imports into the U.S. accounts for over 50% of all U.S. lighting
fixture imports. Regardless of the availability of low cost imports, these same
markets have niche segments that have increasing requirements for higher design
and performance products. 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 may provide Tivoli with opportunity for revenue growth. The
introduction of additional products has strengthened Tivoli's position as a
provider to these markets, while
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enabling Tivoli 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,
Tivoli also believes that trends affecting its customers within its served
markets are equally important. These trends include:
Gaming/Casino - Despite overall softness in the Casino/Gaming market, selective
-------------
expansion is forecast in Las Vegas during the next two years, coupled with
other jurisdictions in Detroit, Atlantic City and Native Indian Gaming venues
providing market opportunities for Tivoli.
Hospitality - The expansion of resort hotel properties in Las Vegas, Orlando,
-----------
Atlantic City, combined with development of newer, more tailored business
traveller hotels such as Hilton Garden Courts and Sofitel, provide opportunity
for the increasingly broad array of hospitality lighting products that Tivoli
offers.
Location Based Entertainment ("LBE") - Venues combining restaurants, themed
------------------------------------
experience, shopping and entertainment are projected to increase substantially
over the next 3-5 years according to the Themed Entertainment Association.
Large venues, both domestically and international, continue to require dramatic
decorative and accent lighting products.
Cinema Construction - in the U.S. continues the trend to build stadium type
-------------------
environments in multi-screen formats (multiplex) ranging in size from 8 to 23
screens. Combined with other LBE venues, Tivoli's unique array of both cinema
and specialty commercial lighting products position it as a supplier of total
lighting solutions to this market.
Global customers - with multi-unit, multi-location stores and restaurants, are
----------------
seeking long term strategic suppliers that can operate internationally.
Additionally, the global architectural profession, whether in New York or
Venice, Italy, has increasing requirements to satisfy global clients and
management believes that Tivoli's products, sales strategies and partnership
with Targetti provide a unique opportunity to address these trends.
Tivoli's Strategy
During the past four years, Tivoli has developed and focused on its strategic
plan which encompasses new product development, market penetration, and the
joint venture with Targetti. Management believes that its investments in product
development, literature, catalogs, systems and technology acquisitions continue
to establish the foundation for expanded growth and earnings. The key elements
of this plan include (1) the continued development and expansion of Tivoli's
products to meet both domestic and international market demands, and (2) the
expansion of its joint venture - Targetti USA. Tivoli is also interested in
pursuing selective acquisition of lighting products or companies that would
improve Tivoli's competitive position.
Products
Tivoli'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:
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, and 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. Tivoli 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. 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 Tivoli's innovations to these product families
is the use of electroluminescent ("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.
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Accent and Task Lighting. An array of aluminum channels with a wide variety of
specialized and general purpose 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 Tivoli'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 also includes a range of
specialized halogen lamps such as the MR11 and MR16 for accent lighting
applications. Optional accessories include reflectors, lenses, mounting clips
and flexibility. 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.
Readi Cove. A new product introduced in 1998 offers the ability to create a
lighted cove without field construction. Modules are available using Tivoli's
existing cove lighting options. Lighting integrated into a selection of
decorative hinged fascia moldings with easy accessibility to lamps for
maintenance.
Decorative Chandeliers. The chandelier product family consists 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 Tivoli 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 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.
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 Tivoli, such as its
"Lite-Bar" aluminum extrusion.
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 inside various sized
plastic extrusions to outline perimeters and buildings providing a variety of
weather-resistant multi-colored lens caps.
Parallax(TM). A patented 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 patented version of Parallax(TM), which offers integrated
surveillance systems with closed circuit television cameras combined with the
high performance halogen lighting line. Applications are for casino/gaming
installations, hospitality, banking, retail and high end residential market
segments. The award winning Paravision product was named one of the "Top 20 most
innovative gaming products".
Transformers and Controllers. Transformers and other specialized equipment
designed by Tivoli to provide power and safety when dealing with conversion from
primary (standard voltage) to secondary (low voltage). Tivoli offers
transformers for both Class 1 and Class 11 safety standards. 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, Tivoli offers custom capability to support larger
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electrical control requirements. Tivoli continues to expand 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 Tivoli with access to the complete Targetti product range.
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.
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 family of products,
---
offering high performance energy efficient compact fluorescent lamps 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. 'Spectra' offers
decorative halogen accent lighting with dichroic filters to achieve color
accents.
Mondial F1 - A modular, integrated framework and lighting system that
----------
optimizes high performance projector units for a variety of commercial,
institutional and specialty applications.
Marketing
The primary markets served by Tivoli and its joint venture partner, Targetti USA
are: Theater, Hospitality, Casino/Gaming, Retail, Commercial and Residential.
Tivoli believes it has a unique ability to be a one source supplier to lighting
projects in these markets due to their diverse product offerings. The primary
objective of our marketing approach 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 requirement of this marketing
strategy is that Tivoli maintain experienced and diverse representative and
distribution channels to support its sales objectives. Therefore, Tivoli
continually endeavors to strengthen and expand the effectiveness of its
manufacturer's representatives, both domestically and internationally. The
number of representatives covering the North American market is 69. Tivoli,
through its evaluation of representatives, performs regionally select territory
changes in the U.S. and Canada, designed to strengthen our local representation.
Tivoli's joint venture partner, Targetti USA, has over 50 representatives
covering the United States market.
Internationally, Tivoli's products are represented by a network of sales offices
and distributors of Targetti Sankey, Tivoli's international joint venture
partner. Tivoli periodically conducts formal training programs to increase the
effectiveness and revenue potential of the international Targetti network. Sales
managers from Tivoli also attend the annual training sessions on Targetti
products, while concurrently utilizing these training sessions to educate the
Targetti personnel on Tivoli's core products. Additionally, Tivoli's core
products are represented in the Targetti UNO catalog which has a world-wide
distribution of over 250,000 annually. Although the Targetti sales network
represents the major global representation of Tivoli, there are certain markets
in which Tivoli operates directly such as Mexico, Canada and Hong Kong. In
Mexico, Tivoli operates Tivoli de Mexico, S.A., a corporation that registers all
Tivoli's products and trade names in that country and provides further
opportunity to penetrate many growing South American markets.
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The primary purchasing influences for Tivoli's products are specification
professionals such as architects, lighting consultants, electrical engineers,
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 Tivoli'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 Tivoli's manufacturer
representatives, and directly to select corporate accounts by Company personnel.
Binders are registered to their end user, and a returned registration program
card is maintained on Tivoli's customer database. 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. Tivoli introduced seven new and expanded products and
literature in fiscal 1998. Tivoli introduced an updated and expanded price list
in fiscal 1998. An Illustrated Buyers Guide was also created as a tool for our
representative network and for use in other sales channels such as distributors.
Tivoli reinforces its market presence in its primary markets by selectively
exhibiting products at specialized trade shows. Among the major trade shows
Tivoli attended in fiscal 1998 were: Hospitality Design, "Lightfair
International", "World Gaming Congress", "ShoWest", "ShowEast", and "CinExpo".
Respectively, these trade shows deal with the hospitality industry, commercial
lighting industry, casino gaming industry, and global theater construction and
distribution industry. Tivoli also attends select shows on a regional basis for
specific territories and representatives.
Tivoli is active in certain professional trade organizations such as The
National Association of Concessionaires, National Association of Theater Owners,
Themed Entertainment Association and the Illuminating Engineering Society.
Sales and Distribution
Tivoli's products currently are sold through 69 independent manufacturers'
representatives in the U.S. and Canada and directly by Tivoli's own personnel to
a broad customer base consisting of electrical distributors, contractors,
showrooms, owner representatives and end users. Tivoli'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. The independent
manufacturers' representatives who market Tivoli'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.
Tivoli's national accounts have historically included a number of major
corporate customers within each of the market segments served by Tivoli. In many
cases, customers maintain their own internal design and development departments
that interface directly with Tivoli'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 Tivoli will experience continued growth in sales to
national and corporate accounts as Tivoli 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. Tivoli has developed a National
Account Strategy to manage programs, products and services for these accounts.
Tivoli's international sales represented 20% of total revenue for fiscal 1998.
These sales are served by three sales and distribution elements: 1) in Europe,
Eastern Europe, the Middle East, Far East, South America and Australia, Tivoli
is represented by Targetti Sankey's extensive network of over 50 representatives
and distributors. 2) in Hong Kong, Taiwan and Japan, Tivoli uses additional
independent representatives, and 3) Mexico and Central America are served by
Tivoli's subsidiary Tivoli S.A. de Mexico and its representatives in these
territories. International sales are subject to certain risks, including
foreign government regulation; longer payment cycles; unexpected changes in, or
imposition of, regulatory requirements, tariffs, import and export restrictions
and other barriers and restrictions; greater difficulty in accounts receivable
collection; the burdens of complying with a variety of foreign laws; possible
recessionary environments in economies outside the United States; and other
factors beyond the control of Tivoli. There can be no assurance that such
factors will not have a material adverse effect on Tivoli's international sales
and consequently, Tivoli's business, operating results and financial condition.
An increase in the relative value of the dollar against foreign currencies would
reduce Tivoli's revenues in dollar terms or make Tivoli's products more
expensive and, therefore, potentially less competitive in foreign markets.
Management believes that the combination of its representation, distribution and
product lines, has increased Tivoli's opportunity for success as a specialty
lighting supplier, with global growth. This belief is based on the worldwide
recognition of the Tivoli trademark, the extensive experience this Company has
obtained in low voltage lighting and the increase in multi-unit, multi-location
international customers.
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Competition
The lighting industry remains highly fragmented despite the presence of large
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 Tivoli. During fiscal 1998, there
was significant merger and consolidation amongst a number of the large companies
such as National Service Industries, Genlyte, Thomas Industries and Cooper
Industries. Nonetheless, there are a larger number of 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 that have greater financial
and other resources than those presently available to Tivoli. If Tivoli is not
able to compete successfully, its business, financial position and results of
operations will be materially adversely affected.
Tivoli's competition, within its served markets, is generally divided into two
categories. First there are a number of companies that sell products similar to
those offered by Tivoli that can be used as substitutions or replacements for
Tivoli's products. Although many of these products do not have all the features
of Tivoli's products, they are often sold at a lower price. Tivoli endeavors to
compete with the suppliers of these alternative products primarily on the basis
of quality, special features, service delivery and value pricing. The second
category of potential competitors consists of companies that offer products not
currently sold by Tivoli, and/or products that can be used in alternative
methods for achieving desired lighting effects. Management believes that the
joint venture with Targetti, offered exclusively through Targetti USA, greatly
enhances Tivoli's competitive position, by providing access to products and
technologies unavailable to Tivoli's competitors.
Assembly and Manufacturing Operations
Tivoli'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 Tivoli's facility in Santa Ana, California.
Tivoli operates one shift of production from this facility, but frequently
utilizes additional personnel to operate a second shift to support demand. The
growth of Tivoli over the past several years, combined with future products
being added from the Targetti USA joint venture, has required Tivoli to expand
its warehouse storage space. Quality and reliability are constantly emphasized
in the selection of components and in the assembly of finished products.
Tivoli 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 Tivoli's products are supplied
by companies located in Taiwan and China. However, Tivoli 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 supply of critical or proprietary
components. Tivoli maintains an inventory of items supplied by offshore
companies to minimize any potential disruption caused by an interruption of
shipments. Some of the vendors to Tivoli do require minimum order quantities. In
general Tivoli is able to purchase components at quantities that are consistent
with product demand. Tivoli'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 Tivoli's
operations management is to reduce the overall inventory levels and minimize the
number of unique parts. Management believes that the combination of minimizing
its finished goods inventory and maintaining an adequate component parts
inventory provides protection against unanticipated supply interruptions. With
this scheme, Tivoli does not maintain an extensive finished goods inventory.
Tivoli maintains a comprehensive state-of-the-art 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 -
inventory management, order entry, material requirements and purchasing,
forecasting, and financial reporting. This system has supported Tivoli'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 greatly enhances Tivoli's
ability to manage its growth more efficiently and allow the critical assets such
as inventory to be optimized.
Customers
Tivoli 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, Tivoli also sells to a number of specialized firms such
as cruise line shipbuilders, restaurant suppliers, furniture fixture
manufacturers, high end residential customers and commercial signage companies.
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 Tivoli for some of their lighting
requirements. The importance and influence of these types of account
constitutes an important
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market strategy for Tivoli. 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.
The established customers provide Tivoli with a diverse, broad and deep base
that represents continued opportunity for growth in revenues and profitability.
If Tivoli 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.
Tivoli strengthens relationships with certain key customers by working with them
on the development of lighting projects. Selectively, Tivoli provides the
services of a sales engineer trained on the use of Tivoli's computer aided
design systems to collaborate with the customer's architects in developing both
concept and specific design plans. Management believes that this service,
accompanied with pricing quotations for Tivoli's products that have been
specified, is a successful marketing practice that enhances customer loyalty.
Further, such custom development projects can benefit Tivoli by enabling it to
develop new products, often with a large portion of the cost of the development
effort paid for by the customer.
Patents and Trademarks
The performance of Tivoli 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.
Tivoli maintains, and relies on a combination of patents, trademarks, trade
secrets, nondisclosure agreements and licensing arrangements to establish and
protect its proprietary rights. Tivoli has received sixteen (16) United States
patents and has a number of patent applications pending. Tivoli 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
Tivoli's existing patents or additional patents are or will be of sufficient
scope or strength to provide meaningful protection or marketing advantage to
Tivoli. Tivoli is not aware of any pending or threatened claims against Tivoli
relating to its patents or trademarks.
Through Targetti USA Tivoli also has an exclusive license for all Targetti
products and technologies for the U.S. market.
Government Approval
Many of Tivoli'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). Tivoli has applied for UL or ETL approval for a number of
additional task, accent and cove lighting fixtures. Through its joint venture
with Targetti, Tivoli 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. The National Electric Code adopted
Article 411 dealing with guidelines for use and approval of low voltage lighting
systems. Tivoli is continually evaluating these new requirements for UL and ETL
for low voltage lighting products. Tivoli anticipates that approval from an
appropriate NRTL will be obtained for Tivoli's existing and planned low voltage
and standard products, although there can be no assurance that such approval
will be granted. If such approval is not obtained, Tivoli's business, financial
position and results of operations will be materially adversely affected.
Product Development
Tivoli 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. Tivoli maintains an on-going effort to develop lighting and
related products that can utilize new methods, materials and technology.
Tivoli's joint venture with Targetti has been very beneficial in supplementing
and expanding engineering development opportunities. Targetti's maintenance of
a state of the art research facility is available to Tivoli and access to its
experienced personnel assists Tivoli's own development effort. Through Targetti
USA, Tivoli expects to continue to expand and develop its access to Targetti's
research facility.
Research and Development
During the last three fiscal years, Tivoli did not incur any material research
and development expenses.
Environmental Matters
During the last three fiscal years, compliance with environmental laws and
regulations did not have a significant impact on Tivoli's capital expenditures,
earnings or competitive position. Tivoli does not anticipate that it will incur
any material capital expenditures for environmental control facilities during
the next fiscal year.
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Employees
As of September 30, 1999, Tivoli had 66 full-time employees, of which 3 were
engaged in product development and engineering, 40 were engaged in manufacturing
and assembly operations, 14 were engaged in marketing and sales, and 9 were
employed in finance and administrative positions. None of Tivoli's employees
are represented by a labor union, and Tivoli believes it generally has good
relations with its employees. Tivoli 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.
PROPERTIES
Tivoli'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 lease expires September 30, 2001. Tivoli 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 $7,318 per month in fiscal 1998 (with an annual
4% increase each October 1st for the term of the lease) on a "triple net" basis.
Tivoli believes that this current facility will satisfy its needs for
manufacturing and administrative space through the end of 1999, but will
consider leasing additional space in other geographic locations as the need for
regional marketing, sales or distribution capabilities continues to materialize.
Tivoli maintained a 3,200 square foot Las Vegas showroom and demonstration
center during fiscal 1998. 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 Tivoli's marketing and sales strategy in the growing
casino/gaming and hospitality market, both in the U.S. and internationally.
Tivoli, during September 1998, negotiated a sub-lease for this property to its
new distributor in Nevada - Integrated Luminary Alliance ("ILA"). Under the
terms of the agreement, ILA is responsible for all costs associated with the
lease of the office.
Tivoli has leased additional warehouse facilities located close to their main
manufacturing facility in Santa Ana, California. The warehouse is approximately
5000 square feet and is leased for one year ending April 30, 2000. The monthly
rent for these units is $4,910.
LEGAL PROCEEDINGS
Tivoli is occasionally involved in lawsuits with respect to product liability
claims by third parties. Tivoli maintains product liability insurance to cover
these type of claims. Tivoli believes that its insurance is adequate to cover
known existing claims.
HISTORICAL MARKET PRICES AND DIVIDEND DATA
Tivoli common stock is listed for trading on the Nasdaq SmallCap Market under
the symbol "TVLI." The table below sets forth, for the calendar quarters
indicated, the reported high and low sale prices of Tivoli common stock as
quoted on the Nasdaq SmallCap Market. As of the record date of the special
meeting, Tivoli had 1,237,000 holders of record of Tivoli common stock. The
closing market price for Tivoli common stock on September 17, 1999, the last
trading day prior to the announcement of the proposed merger, was $3.3125. On
October [21], 1999, the latest practicable trading day prior to the date of this
proxy statement, the closing market price for Tivoli common stock was $[___].
Upon consummation of the merger, Tivoli common stock will cease to be traded on
the Nasdaq SmallCap Market.
Tivoli has never paid any cash dividends on its shares of Tivoli common stock.
HIGH LOW
------- --------
YEAR ENDED SEPTEMBER 30, 1998
First Quarter.................. $ 7.50 $4.9686
Second Quarter................. 6.27 4.875
Third Quarter.................. 5.8125 3.5625
Fourth Quarter................. 3.75 1.3125
YEAR ENDED SEPTEMBER 30, 1999
First Quarter.................. $ 2.625 $0.8436
Second Quarter................. 2.5 1.125
Third Quarter.................. 3.625 2.1875
Fourth Quarter................. 4.25 2.625
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
This section as well as other sections in this document contains forward-looking
statements that are subject to risks and uncertainties. Forward-looking
statements include expectations concerning matters that are not historical
facts.
OVERVIEW
Tivoli, since its founding in 1967, has established a reputation as an innovator
and supplier of miniature and low voltage lighting products. From 1991 onward
Tivoli 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 Tivoli'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, Tivoli was acquired by its present management who implemented a
strategy to revitalize and expand Tivoli's market position through product line
expansion and aggressive market penetration programs. Tivoli 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. In
November 1997, the joint venture was expanded with the formation of a jointly
owned Company in the U.S. - Targetti USA. Through this joint venture, Targetti
offers a wide range of product families, developed by Targetti, which broadens
and complements Tivoli's products.
RESULTS OF OPERATIONS
Years Ended September 30, 1997 and 1998
Net sales of $9,578,681 for the fiscal year 1998 were 3% lower than the net
sales of $9,846,174 in the fiscal year 1997. Net sales in 1997 included
$1,272,113 attributed to the shipment of a large project order for a national
customer. Sales of products not related to this large project order increased
12% from $8,574,061 in 1997 to $9,578,681 in 1998 as a result of new product
introductions and successful implementation of market penetration programs in
the core markets of theater, retail and casino gaming.
The gross profit for the fiscal year 1998 was $3,925,230 or 40.9% of net sales
as compared to $4,160,039 or 42.3% of net sales for the 1997 fiscal year.
Selling, general and administrative expenses for fiscal 1998 increased to 49.3%
of net sales or $4,722,750 as compared to 36.4% or $3,581,453 in the 1997 fiscal
year. This increase in SG&A expenses was related to new product introductions
and heightened sales and marketing activities, incremental SG&A expenses of
Targetti USA and costs associated with the Manufacturing Resource Planning (MRP)
system which was installed in October 1997. A receipt of $250,000 from Tivoli
Systems, Inc. for the settlement of a trademark dispute, is included as a
reduction of SG & A expenses in fiscal year 1998.
Operating losses for the fiscal year 1998 were $797,250 or 8.3% of net sales as
compared to an operating profit of $578,586 or 5.9% of net sales in the fiscal
year 1997. This decrease was due primarily to higher SG&A expenses as mentioned
above, coupled with lower gross margins..
Other expense for fiscal year 1998 was $17,397 and consisted of interest income
of $63,503 on bank deposits, less interest expense on bank loans and capital
leases of $80,900. Other income for the fiscal year 1997 was $10,228 and was
derived from interest income of $74,925 on bank deposits less interest expense
on bank loans and capital leases of $85,153.
On November 1, 1997 Tivoli and Targetti Sankey S.P.A. formed a new company -
Targetti USA. The operating results of Targetti USA are consolidated with the
operating results of Tivoli. Operating losses of Targetti USA in fiscal year
1998 were $377,146, resulting in a Minority interest in net loss of $188,573.
The provision for state income taxes in fiscal year 1998 was $800 compared to
$56,593 in fiscal year 1997. Federal income tax provisions for both years were
covered by net operating loss carry forwards. See Financial Statement Notes #6.
As a result of the above factors, net losses for the fiscal year 1998 were
$627,144 or $0.48 per share as compared to net income of $511,765 or $0.37 per
share in the 1997 fiscal year.
Three Months Ended June 30, 1999 as Compared to Three Months Ended June 30, 1998
Net sales of $2,948,714 for the third quarter of fiscal year 1999 were 38%
higher than net sales of $2,138,021 in the same period of the prior year. This
increase was stimulated by new product introductions and increased market
penetration.
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Gross profit for the third quarter of fiscal year 1999 was $1,318,470 or 44.7%
of net sales compared to gross profit of $901,973 or 42.2% for the third quarter
of fiscal year 1998. This increase was due to cost-reduction programs
implemented during the three month period ending June 30, 1999.
Selling, general and administrative expenses for the third quarter of fiscal
1999 were 39.5% of net sales or $1,165,390 as compared to 56.7% or $1,213,225 in
the same quarter of the prior year.
Operating profits for the third quarter of fiscal year 1999 were $153,080 or
5.2% of net sales compared to an operating loss of $311,252 or 14.6% of sales in
the same quarter of fiscal year 1998.
Other income (expense) for the third quarter of fiscal year 1999 was $7,137 and
consisted of interest expense on the bank loan of $20,394 and capital lease
interest of $3,026. Interest income of $12,299 represents interest received on
bank deposits. Interest expense for the third quarter of fiscal year 1998 was
$20,447 and was derived from interest expense on the bank loan of $16,255 and
capital lease interest of $4,192. Interest income was $14,764 received on bank
deposits.
An unrealized foreign currency exchange gain of $18,258 was generated during
the third quarter of fiscal 1999 on an account payable balance denominated in
Italian Lire.
The provision for income tax in the third quarter of fiscal year 1999 was
$52,318. The third quarter net income was fully taxed, whereas prior quarters in
the fiscal year benefited from the use of tax loss carry forwards. The benefit
for income tax in the third quarter of fiscal year 1998 was $101,000 and
resulted from a reduction to the tax accrual due to operating losses.
Minority interest in net income of the consolidated subsidiary was $13,637 in
the third quarter of fiscal year 1999 compared to the minority interest in net
loss of the consolidating subsidiary of $29,358 in the third quarter of the
prior fiscal year. This minority interest represents 50% of the net income or
loss generated by Targetti USA, LLC.
As a result of the above factors, net income for the third quarter of fiscal
year 1999 was $94,262 or $0.08 per share as compared to net losses of $186,577
or $0.14 per share in the third quarter of fiscal year 1998.
Nine Months Ended June 30, 1999 as Compared to Nine Months Ended June 30, 1998
Net sales of $8,457,288 for the first nine months of fiscal year 1999 were 17%
higher than net sales of $7,250,942 in the same period of the prior year. This
increase was stimulated by continued strong demand for Tivoli's products across
all market segments.
The gross profit for the first nine months of fiscal year 1999 was $3,803,945 or
45.0% of net sales compared to gross profit of $3,014,712 or 41.6% for the same
period of the prior fiscal year. This increase was due to product cost reduction
programs implemented during the nine month period ending June 30, 1999.
Selling, general and administrative expenses for the first nine months of fiscal
1999 decreased to 38.9% of net sales or $3,286,734, as compared to 42.8% or
$3,101,588 in the same period of the prior year. Prior year SG & A included a
one-time payment to Tivoli of $250,000 for settlement of a trademark dispute.
Operating profits for the first nine months of fiscal year 1999 of $517,211 or
6.1% of net sales improved from operating losses of $86,876 or 1.2% of net sales
in the same period of fiscal year 1998.
Interest expense for the first nine months of fiscal year 1999 was $68,080 and
consisted of interest expense on the bank loan of $56,956 and capital lease
interest of $11,124. Interest income of $35,562 represents bank interest
received on investments. Interest expense for the same period of fiscal year
1998 was $58,958 and was derived from interest expense on the bank loan of
$46,660 and capital lease interest of $12,298. Interest income was $46,154 and
represents bank interest received on investments.
An unrealized foreign currency exchange gain of $ 59,836 was generated during
the first nine months of fiscal 1999 on an account payable balance denominated
in Italian Lire. This compares to an unrealized gain of $5,791 in the same
period of the prior fiscal year.
The provision for income tax in the first nine months of fiscal year 1999 was
$55,418 and represented 1997 LLC fees and tax of $3,100, and a tax provision of
$ 52,318 on current years income. Net operating loss carry forwards have now
been fully utilized during the first nine months. There were no provisions for
income tax in the same period of fiscal year 1998.
Minority interest in net income of the consolidated subsidiary was $54,377 in
the first nine months of fiscal year 1999 compared to the minority interest in
net loss of the consolidating subsidiary of $59,140 in the same period of the
prior fiscal year. This minority interest
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represents 50% of the net income or loss generated by Targetti USA LLC.
As a result of the above factors, net income for the first nine months of fiscal
year 1999 was $434,734 or $0.35 per share as compared to net losses of $34,749
or $0.03 per share in the same period of fiscal year 1998.
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY
Tivoli's primary source of cash during the first nine months of fiscal year 1999
were funds provided by operations of $554,885, which consisted of net income of
$434,734, depreciation and amortization of $188,275, and a decrease in
inventories of $163,284, offset by increased accounts receivables of $284,136
and decreased accounts payable of $298,871.
On August 6, 1998, Tivoli announced that its Board of Directors had approved the
repurchase of up to an aggregate of 83,333 shares of its common stock. During
the first nine months of fiscal 1999 Tivoli purchased 60,233 shares at a total
cost of $108,109. The total shares purchased to date at June 30, 1999 is 75,900
at a total cost of $137,380.
The above factors contributed to a net increase in cash of $ 362,791 during the
first nine months of fiscal year 1999.
Working capital increased by $489,238 during the first nine months of fiscal
year 1999 to $4,045,232 at June 30, 1999, as compared to $3,555,994 at September
30, 1998.
Accounts receivable as of June 30, 1999, increased to $1,709,419 from $1,438,036
at September 30, 1998. The days sales outstanding in accounts receivable
decreased to 55 days at June 30, 1999, which compared to 57 days at September
30, 1998. Additional resources have been applied to the cash collection activity
which has resulted in improved collections performance.
Inventories as of June 30, 1999, decreased to $1,694,581 as compared to
$1,857,865 at September 30, 1998. The number of months costs of sales in
inventory at June 30, 1999, decreased to 3.4 months as compared to 4.0 months at
September 30, 1998. The improvement is the result of inventory reduction
programs implemented in the latter quarters of the prior fiscal year.
Accounts payable as of June 30, 1999, decreased to $1,077,384 as compared to
$1,376,254 at September 30, 1998. The number of days in accounts payable
increased from 55 days at September 30, 1998, to 63 days at June 30,1999.
Capital expenditures in the first nine months of fiscal year 1999 totaled
$32,980 and consisted of new product tooling, and related machinery and
equipment.
"YEAR 2000" REQUIREMENTS
Tivoli is currently assessing computer hardware and software difficulties that
may be experienced in connection with the so-called "Year 2000" problems. Tivoli
has identified its' manufacturing and financial planning software as being most
critical. The manufacturing and financial planning software was purchased and
installed in fiscal year ending September 30, 1997. Tivoli has received
information from the vendor of this software indicating that the software will
properly handle dates for the year 2000 and beyond. In addition, Tivoli
currently relies upon computer hardware and software systems from various third
party vendors to manage other functions of Tivoli. Internally generated software
systems do not comprise a material element of Tivoli's information technology.
Tivoli is in the process of securing from third party software and hardware
vendors, including providers of telephone services, certificates of compliance
with Year 2000 issues for currently installed systems that are material to
Tivoli's operations. A failure by a third party vendor to adequately address the
Year 2000 issue could have a material adverse effect on Tivoli. In addition, the
magnitude of certain risks, for example those associated with embedded chips,
are unknown at this point, and could nevertheless have a material adverse impact
on Tivoli and other companies in its industry. Tivoli does not have more than
10% of its revenue with any one customer. Therefore, the financial exposure to
Tivoli of the failure of any one customer to be Year 2000 compliant is limited.
Should a number of customers not be Year 2000 compliant, or should a number
Tivoli's customers be negatively impacted by Year 2000 problems, the negative
consequences to Tivoli's customers could have a material adverse effect on
Tivoli's business, financial position, and results of operation. The costs to
become Year 2000 compliant and to obtain certificates from third party vendors
is not material to Tivoli. When its internal reviews and external surveys are
complete, Tivoli will prepare contingency plans to prepare for problems that may
reasonably be expected to arise. However, there can be no assurance that any
such plans will prevent Year 2000 problems which may have a material adverse
impact on Tivoli's business, financial position and results of operation.
40.
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of Tivoli's Common Stock as of September 30, 1999, by: (i) each of the executive
officers; (ii) all executive officers and directors of Tivoli as a group; and
(iii) all those known by Tivoli to be beneficial owners of more than five
percent (5%) of its common stock.
<TABLE>
<CAPTION>
Beneficial Ownership (1)
Beneficial Owner and Address Number of Shares Percent of Total
- - ---------------------------- ---------------- ----------------
<S> <C> <C>
Terrence C. Walsh................................................ 371,999 30.1%
1513 East St. Gertrude Place
Santa Ana, CA 92705
Charles F. Kimmel (2)............................................ 57,180 5.5%
1513 East St. Gertrude Place
Santa Ana, CA 92705
Vincent F. Monte (3)............................................. 49,699 3.9%
561 St. George Road
Danville, CA 94526
Gerald E. Morris (4)............................................. 21,474 1.7%
437 Madison Avenue
39th Floor
New York, NY 10022
Peter J. Shaw(5)................................................. 2,332 *
c/o Sitematic
3550 General Atomic Court, Bldg. 14
San Diego, CA 92121
Gordon C. Westerling............................................. 25,000 2.0%
951 Ocean Avenue
Penthouse D
Santa Monica, CA 90403
All executive officers and directors
as a group (6 persons) (6)....................................... 527,684 39.6%
</TABLE>
________________________
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal shareholders and Schedules 13D and 13G filed with the SEC. Unless
otherwise indicated in the footnotes to this table and subject to community
property laws where applicable, Tivoli believes that 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 1,237,000 shares outstanding on September 30,
1999, adjusted as required by rules promulgated by the SEC.
(2) Includes 50,347 shares subject to stock options exercisable within 60 days
of September 30, 1999.
(3) Includes 20,666 shares subject to stock options exercisable within 60 days
of September 30, 1999, and 8,333 shares subject to warrants exercisable
within 60 days of September 30, 1999.
(4) Includes 3,333 shares held by Intalite International N.V., a corporation of
which Mr. Morris is President and Chief Executive Officer, a director and
controlling shareholder, and, as such, he may be deemed to have sole voting
and investment power over all of such shares and therefore may be deemed a
beneficial owner of such shares. Includes 6,666 shares subject to stock
options
41.
<PAGE>
exercisable within 60 days of September 30, 1999, and 8,333 shares subject
to warrants exercisable within 60 days of September 30, 1999.
(5) Includes 1,666 shares subject to stock options exercisable within 60 days
of September 30, 1999.
(6) Includes 77,679 shares subject to stock options exercisable within 60 days
of September 30, 1999 and 16,666 shares subject to warrants exercisable
within 60 days of September 30, 1999.
INDEPENDENT PUBLIC ACCOUNTANTS
A representative from Corbin & Wertz, independent public auditors for Tivoli,
are expected to be present at the special meeting. The representatives will have
the opportunity to make a statement if they desire to do so and are expected to
be available to respond to appropriate questions.
SHAREHOLDER PROPOSALS
The deadline for submitting a shareholder proposal to Tivoli for inclusion in
Tivoli's proxy statement and form of proxy for the Company's 2000 annual meeting
of shareholders is October 30, 1999. Any Tivoli shareholder who intends to
present a proposal at the 2000 annual meeting of shareholders without inclusion
of such proposal in our proxy materials must deliver the proposal to us no later
than [November 30], 1999. If the merger is completed, there will be no 2000
annual meeting of shareholders.
WHERE YOU CAN FIND MORE INFORMATION
Tivoli files periodic reports and other information with the SEC. You may read
and copy such reports, proxy statements and other information at the SEC's
Public Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20549. You
may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website, located
at http://www.sec.gov, that contains reports, proxy statements and other
information regarding registrants that file electronically with the SEC.
WE HAVE AUTHORIZED NO ONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ABOUT THE PROPOSED MERGER OR TIVOLI THAT DIFFERS FROM OR ADDS TO
THE INFORMATION CONTAINED IN THIS DOCUMENT OR IN THE DOCUMENTS WE HAVE PUBLICLY
FILED WITH THE SEC. THEREFORE, IF ANYONE SHOULD GIVE YOU ANY DIFFERENT OR
ADDITIONAL INFORMATION, YOU SHOULD NOT RELY ON IT.
THE INFORMATION CONTAINED IN THIS DOCUMENT SPEAKS ONLY AS OF THE DATE INDICATED
ON THE COVER OF THIS DOCUMENT UNLESS THE INFORMATION SPECIFICALLY INDICATES THAT
ANOTHER DATE APPLIES.
42.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report........................................................................... F-2
Balance Sheet as of September 30, 1998................................................................. F-3
Statements Of Operations For Each Of The Years In The Two-Year Period Ended September 30, 1998......... F-4
Statements Of Stockholders' Equity For Each Of The Years In The Two-Year Period Ended
September 30, 1998..................................................................................... F-5
Statements Of Cash Flows For Each Of The Years In The Two-Year Period Ended September 30, 1998......... F-6
Notes To Financial Statements.......................................................................... F-7
Consolidated Balance Sheet at June 30, 1999 (Unaudited)................................................ F-21
Consolidated Statements of Operations for the Three Months Ended June 30, 1999 and 1998 (Unaudited).... F-22
Consolidated Statements of Operations for the Nine Months Ended June 30, 1999 and 1998 (Unaudited)..... F-23
Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 1999 and 1998 (Unaudited)..... F-24
Notes to Consolidated Financial Statements............................................................. F-25
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Tivoli Industries, Inc.
We have audited the accompanying consolidated balance sheet of Tivoli
Industries, Inc. and subsidiary (the "Company") as of September 30, 1998, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the two-year period ended September 30, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Tivoli
Industries, Inc. and subsidiary as of September 30, 1998, and the results of
their operations and their cash flows for each of the years in the two-year
period ended September 30, 1998, in conformity with generally accepted
accounting principles.
CORBIN & WERTZ
Irvine, California
October 30, 1998, except as to Note 9,
which is as of March 26, 1999
See accompanying notes to financial statements
F-2
<PAGE>
TIVOLI INDUSTRIES, INC.
BALANCE SHEET
September 30, 1998
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Current assets:
Cash and cash equivalents $1,362,639
Accounts receivable, less allowance for doubtful accounts of $37,721 1,438,036
Inventories 1,857,865
Prepaid expenses and other 608,215
----------
Total current assets 5,266,755
----------
Property and equipment:
Machinery and equipment 928,846
Furniture and fixtures 273,058
Tooling 329,708
----------
1,531,612
Less accumulated depreciation (843,388)
----------
Net property and equipment 688,224
----------
Goodwill, net of accumulated amortization of $157,612 501,926
Patents, net of accumulated amortization of $177,141 115,000
Deferred tax asset 105,518
Other assets 168,572
----------
$6,845,995
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,376,254
Accrued expenses 283,525
Current maturities of obligations under a capital lease 50,982
----------
Total current liabilities 1,710,761
Bank line of credit 833,677
Obligations under a capital lease, net of current portion 117,172
Deferred tax liability 133,051
Minority interest 119,531
----------
Total liabilities 2,914,192
----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value; 1,000,000 shares authorized,
none outstanding -
Common stock, $.001 par value; 10,000,000 shares authorized,
1,296,957 shares outstanding 1,313
Additional paid-in capital 4,481,051
Accumulated deficit (521,243)
Less: Treasury stock, 15,667 shares (29,318)
----------
Total stockholders' equity 3,931,803
----------
6,845,995
==========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE>
TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For Each of The Years In The Two-Year
Period Ended September 30, 1998
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 9,578,681 $ 9,846,174
Cost of sales 5,653,451 5,686,135
------------ ------------
Gross profit 3,925,230 4,160,039
Selling, general and administrative expenses 4,722,750 3,581,453
------------ ------------
(Loss) income from operations (797,520) 578,586
------------ ------------
Other income (expense):
Interest expense (80,900) (85,153)
Interest income 63,503 74,925
------------ ------------
Total other income (expense) (17,397) (10,228)
------------ ------------
(Loss) income before provision for income taxes (814,917) 568,358
Minority interest in net loss of consolidated subsidiary 188,573 -
------------ ------------
Income before provision for income taxes (626,344) 568,358
Provision for income taxes 800 56,593
------------ ------------
Net (loss) income $ (627,144) $ 511,765
============ ============
Per share data:
Net (loss) income (basic) $ (.48) $ .39
============ ============
Net (loss) income (diluted) $ (.48) $ .39
============ ============
Weighted average number of common and common
equivalent shares:
Basic 1,311,194 1,311,195
============ ============
Diluted 1,311,194 1,323,556
============ ============
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE>
TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERES' EQUITY
For Each of The Years In the Two-Year
Period Ended September 30, 1998
<TABLE>
<CAPTION>
Retained
Common Stock Treasury Stock Additional Earnings
-------------------- ---------------------- Paid-in (Accumulated
Shares Amount Shares Amount Capital Deficit) Total
--------- --------- --------- --------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, October 1, 1996 1,306,907 $ 1,307 - $ - $4,355,312 $ (405,864) $3,950,755
Issuance of common stock
for services 5,717 6 - - 22,489 - 22,495
Issuance of warrants for
services rendered - - - - 16,571 - 16,571
Net income - - - - - 511,765 511,765
--------- --------- --------- --------- ---------- ------------ ----------
Balances, September 30,
1997 1,312,624 1,313 - - 4,394,372 105,901 4,501,586
Issuance of warrants for
services rendered - - - - 86,679 - 86,679
Stock repurchase - - (15,667) (29,318) - - (29,318)
Net loss - - - - - (627,144) (627,144)
--------- --------- --------- --------- ---------- ------------ ----------
Balances, September 30,
1998 1,312,624 $ 1,313 (15,667) $(29,318) $4,481,051 $ (521,243) $3,931,803
========= ========= ========= ========= ========== ============ ==========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Each of The Years In The Two-year
Period Ended September 30, 1998
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (627,144) $ 511,765
Adjustment to reconcile net (loss) income to net cash
provided by operating activities:
Change in allowance for doubtful accounts (49,279) 71,401
Depreciation and amortization 294,373 163,778
Write-off of capitalized patent costs 65,382 -
Deferred income taxes - 22,639
Minority interest in net loss of consolidated subsidiary (188,573) -
Common stock issued for services - 22,495
Warrants for the purchase of common stock
issued for services 86,679 16,571
Changes in operating assets and liabilities:
Accounts receivable 226,804 (338,478)
Inventories (144,312) (643,543)
Prepaid expenses and other (184,530) 1,994
Accounts payable 246,849 157,492
Accrued expenses and other current liabilities 65,480 112,675
--------------- ---------------
Net cash (used in) provided by operating activities (208,271) 98,789
--------------- ---------------
Cash flows from investing activities:
Deposits and other (23,280) 38,656
Purchases of property and equipment (170,654) (360,583)
Proceeds from sales of property and equipment 298 -
Patent expenditures - (36,428)
--------------- ---------------
Net cash used in investing activities (193,636) (358,355)
--------------- ---------------
Cash flows from financing activities:
Net borrowings under bank line of credit 165,234 (3,080)
Principal payments on capital lease obligations (47,584) (40,562)
Stock repurchase (29,318) -
Investment by minority interest 286,494 -
--------------- ---------------
Net cash provided by (used in) financing activities 374,826 (43,642)
--------------- ---------------
Net decrease in cash and cash equivalents (27,081) (303,208)
Cash and cash equivalents, beginning of year 1,389,720 1,692,928
--------------- ---------------
Cash and cash equivalents, end of year $ 1,362,639 $ 1,389,720
=============== ===============
Supplemental disclosure of cash flow information -
Cash paid during the year for:
Interest $ 80,723 $ 80,153
=============== ===============
Income taxes $ 40,423 $ 3,133
=============== ===============
</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. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For Each Of The Years In The Two-year
Period Ended September 30, 1998
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 867 shares of Tivoli Industries,
Inc. common stock for each share exchanged. Upon consummation of the merger,
866,667 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.
Principles of Consolidation
- - ---------------------------
The consolidated financial statements include the accounts of Tivoli Industries,
Inc. and Targetti USA, LLC. On November 1, 1997, the Company and Targetti Sankey
S.P.A, a corporation organized under the laws of Italy, formed Targetti USA, LLC
("Targetti USA") for the purpose of engaging in the marketing and sale of
lighting products. The Company contributed approximately $476,000 of certain
assets and $168,000 of related liabilities to Targetti USA. Targetti Sankey
S.P.A. contributed approximately $286,000 of cash and $22,000 of inventories to
Targetti USA. All significant intercompany balances and transactions have been
eliminated in consolidation.
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 numbers approximately 6,000 (unaudited) accounts and 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 consolidated 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 consolidated
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.
F-7
<PAGE>
TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For Each Of The Years In The Two-year
Period Ended September 30, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- - -------------------------------------------------------------------------------
Fair Value of Financial Instruments
- - -----------------------------------
These historical consolidated 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
consolidated financial statements. The financial instruments consist of cash and
cash equivalents, accounts receivable, note receivable from related party,
accounts payable and the bank line of credit. The carrying amounts of the
Company's financial instruments generally approximate their fair values as of
September 30, 1998. In the case of the note receivable from related party, which
is included in other assets in the accompanying consolidated balance sheet (see
Note 2), it was not practical to determine the fair value due to the lack of a
market for such financial instruments.
Concentrations of Credit Risk
- - -----------------------------
The Company maintains cash balances at a certain financial institution in which
amounts up to $100,000 are insured by the Federal Deposit Insurance Corporation
("FDIC"). During the year ended September 30, 1998, the Company had cash
balances at the financial institution which exceeded the FDIC limit.
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, 1998, no one customer accounted for greater
than 10% of net sales. As of September 30, 1998, no one customer accounted for
greater than 10% of total accounts receivable. During the year ended September
30, 1997, one customer accounted for 14% of net sales.
The Company purchased certain products from one nonaffiliated supplier which
accounted for 30.3% and 27.6% of total purchases in 1998 and 1997, respectively.
This nonaffiliated supplier accounted for 8.6% and 21.2% of total accounts
payable as of September 30, 1998 and 1997, respectively. Accounts payable to a
related party totaled 23.6% of total accounts payable as of September 30, 1998.
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, 1998, cash
and cash equivalents included approximately $851,000 of U.S. Treasury bills.
Inventories
- - -----------
Inventories, consisting primarily of component parts, are valued at the lower of
cost (average cost method) or market.
F-8
<PAGE>
TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For Each Of The Years In The Two-year
Period Ended September 30, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- - -------------------------------------------------------------------------------
Included in the accompanying consolidated balance sheet is inventory with a
historical carrying value of $1,857,865 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
consolidated 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
Tooling 5 years
Included within machinery and equipment is the Company's manufacturing resource
planning system.
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.
Depreciation expense for the years ending September 30, 1998 and 1997 totaled
$210,371 and $98,064, respectively.
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. Management of 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, 1998,
no impairment of goodwill was determined by management. Amortization of goodwill
for each of the two years ended September 30, 1998 amounted to $21,985.
F-9
<PAGE>
TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For Each Of The Years In The Two-year
Period Ended September 30, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- - -------------------------------------------------------------------------------
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, 1998 and 1997 amounted to $62,017 and $43,729, respectively.
During fiscal 1998, the Company wrote-off $65,382 of capitalized patent costs.
Selling, general and administration ("SG&A") expenses for the fiscal year ended
September 30, 1998 includes a payment of $250,000 for the settlement of a
trademark dispute. The payment of $250,000 is included as a reduction to SG&A
expenses in the fiscal year ended September 30, 1998.
Minority Interest
- - -----------------
Minority interest represents the minority stockholders proportionate share of
the equity of Targetti USA.
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 (loss) and income (loss) per share, as if the fair
value method of accounting defined in SFAS 123 had been applied (see Note 6).
The Company has elected to account for its stock-based compensation to employees
under APB 25.
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.
Product Development
- - -------------------
Product development expenditures are charged to operations as incurred.
F-10
<PAGE>
TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For Each Of The Years In The Two-year
Period Ended September 30, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- - -------------------------------------------------------------------------------
Advertising
- - -----------
The Company reports the costs of all advertising as expense in the period in
which those costs are incurred. Advertising expense was approximately $59,000
and $82,000 for the years ended September 30, 1998 and 1997, 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 7).
Earnings Per Share
- - ------------------
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share
("EPS"). SFAS No. 128 requires dual presentation of basic EPS and diluted EPS on
the face of all income statements issued after December 15, 1997 for all
entities with complex capital structures. Basic EPS is computed as net income
divided by the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur from common
shares issuable through stock options, warrants and other convertible
securities. Both years presented have been restated to adopt the provisions of
SFAS No. 128. The weighted average number of common shares outstanding have been
restated to adopt the provisions of SFAS No. 128. The effects of common stock
equivalents were not included in the per share calculations of net loss per
common share for fiscal 1998, as their effects would be antidilutive.
The following table illustrates the required disclosure of the reconciliation of
the numerators and denominators of the basic and diluted EPS computations.
<TABLE>
<CAPTION>
For The Year Ended September 30, 1997
-----------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
-------------------- -------------------- ---------------
<S> <C> <C> <C>
Basic EPS -
Income available to common
stockholders $511,765 1,311,195 $ 0.39
======
Effect of dilutive securities -
Options - 12,361
-------- ---------
Diluted EPS -
Income available to common
stockholders plus assumed
conversions $511,765 1,323,556 $ 0.39
======== ========= ======
</TABLE>
F-11
<PAGE>
TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For Each Of The Years In The Two-year
Period Ended September 30, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- - -------------------------------------------------------------------------------
Limitations on Dividends
- - ------------------------
Pursuant to various state laws, the Company is currently restricted, and may be
restricted for the foreseeable future, from making dividends to its stockholders
as a result of an accumulated deficit as of September 30, 1998.
New Accounting Pronouncements
- - -----------------------------
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income, and
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 130 requires that an enterprise report, by major
components and as a single total, the change in its net assets during the period
from nonowner sources; and SFAS No. 131 establishes annual and interim reporting
standards for an enterprise's operating segments and related disclosures about
its products, services, geographic areas and major customers. Adoption of these
statements is not expected to impact the Company's financial position, results
of operations or cash flows and any effect will be limited to the form and
content of its disclosures. Both statements are effective for fiscal years
beginning after December 15, 1997, with earlier application permitted.
Year 2000
- - ---------
The Company is currently assessing computer hardware and software difficulties
that may be experienced in connection with the so-called "Year 2000" problems.
The Company currently relies upon computer hardware and software systems from
various third party vendors to manage critical functions of the Company.
Internally generated software systems do not comprise a material element of the
Company's information technology. The Company is in the process of securing from
third party software and hardware vendors, including providers of telephone
services, certificates of compliance with Year 2000 issues for currently
installed systems that are material to the Company's operations. At this time,
the Company expects that its key information technology vendors will be
compliant with Year 2000 requirements. A failure by a third party vendor to
adequately address the Year 2000 issue could have a material adverse effect on
the Company. In addition, the magnitude of certain risks, for example those
associated with embedded chips, are unknown at this point, and could
nevertheless have a material adverse impact on the Company and other companies
in its industry.
NOTE 2 - OTHER ASSETS
- - ---------------------
Other assets consist of the following at September 30, 1998:
Note receivable from related party $ 50,000
Note receivable - other 64,806
Deposits and other 53,766
--------
$168,572
========
Note receivable from related party 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 23,333 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.
F-12
<PAGE>
TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For Each Of The Years In The Two-year
Period Ended September 30, 1998
NOTE 2 - OTHER ASSETS, continued
- - --------------------------------
During fiscal 1998, the Company sold certain of its property and equipment,
which had a net book value of $64,806, in exchange for a note receivable of the
same amount. The note bears interest at 6% per annum payable over 60 months
beginning March 1, 1999.
NOTE 3 - CAPITAL LEASE OBLIGATIONS
- - ----------------------------------
On October 10, 1996, the Company entered into a capital lease agreement which
expires in 2002 whereby the Company will lease certain software and hardware in
connection with an integrated manufacturing resource planning 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:
Equipment $258,236
Accumulated depreciation (57,844)
--------
$200,392
========
Future minimum lease obligations pursuant to the capital leases are as follows:
Fiscal Years Ending
-------------------
1999 $ 62,523
2000 62,523
2001 60,271
2002 4,823
--------
Total minimum lease obligations 190,140
Less interest, primarily at 8.5% per annum (21,986)
--------
Present value of future minimum lease obligations 168,154
Less current installments (50,982)
--------
Long-term obligations $117,172
========
NOTE 4 - BANK LINE OF CREDIT
- - ----------------------------
The Company has a line of credit agreement (the "Agreement") with a financial
institution, bearing interest at the bank's public reference rate (8.25% at
September 30, 1998) plus 1.0% per annum, which expires on March 1, 2000. The
terms of the Agreement provide for borrowings of up to the lesser of $1,250,000
or the aggregate of 80% of eligible accounts receivable plus 50% of eligible
inventory up to $400,000. At September 30, 1998, $717,500 was outstanding and
$532,500 was available pursuant to the Agreement. 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.
F-13
<PAGE>
TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For Each of The Years In The Two-Year
Period Ended September 30, 1998
NOTE 4 - BANK LINE OF CREDIT, CONTINUED
- - ---------------------------------------
The Company has an equipment line of credit agreement (the "Equipment Line")
with a financial institution, bearing interest at the bank's public reference
rate (8.25% at September 30, 1998) plus 1.0% per annum, which expires on
February 3, 2003. The terms of the Equipment Line provide for purchase advances
of up to $250,000, secured by the related equipment purchased. At September
30, 1998, $106,177 was outstanding pursuant to the Equipment Line.
Targetti USA has a line of credit agreement (the "Line") with a financial
institution, bearing interest at the bank's prime rate (8.25% at September 30,
1998) plus 1.0% per annum, which expires on March 1, 1999. The terms of the
Line provide for borrowings of up to $150,000. At September 30, 1998, $10,000
was outstanding and $140,000 was available pursuant to the Line. Such
arrangement is secured by substantially all of Targetti USA's assets.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
- - --------------------------------------
Operating Leases
- - ----------------
The Company has two building leases which expire through fiscal 2001 and four
building leases which expire through fiscal 1999. The Company also has equipment
leases which will expire through fiscal 2003.
Future annual minimum rental commitments in the aggregate under these operating
leases are as follows:
Years Ending
September 30,
----------------
1999 $196,491
2000 159,089
2001 132,170
2002 8,863
2003 1,477
--------
$498,090
========
Total rent expense under operating leases amounted to $175,516 and $126,036 for
the years ended September 30, 1998 and 1997, 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, 1998 and 1997,
sales levels on those specific products have not been sufficient to require
material royalty payments.
F-14
<PAGE>
TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For Each of The Years In The Two-Year
Period Ended September 30, 1998
NOTE 5 - COMMITMENTS AND CONTINGENCIES, continued
- - -------------------------------------------------
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.
NOTE 6 - 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.
F-15
<PAGE>
TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For Each of The Years In The Two-Year
Period Ended September 30, 1998
NOTE 6 - STOCKHOLDERS' EQUITY, continued
- - ----------------------------------------
Common Stock
- - ------------
During fiscal 1997, the Company issued 5,717 shares of common stock for
services. The services were valued at $22,495.
On December 6, 1996, the Company issued warrants to purchase 4,167 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 $4.68 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 4,167 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 $4.68 per
share. Such warrants are subject to, among other things, adjustment and anti-
dilution provisions as more thoroughly described in the warrant agreement.
On January 7, 1997, the Company issued warrants to purchase 33,333 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 $5.34. 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 16,667 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 $5.25. Such warrants are subject to,
among other things, adjustment and anti-dilution provisions as more thoroughly
described in the warrant agreement. During fiscal 1998, 4,167 warrants were
accelerated as to their exercise date (March 20, 1998). For financial statement
purposes, such warrants have been treated as cancelled and new warrants issued.
On January 7, 1998, the Company issued warrants to purchase 8,333 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 $5.34 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 $26,500
for the fair value of the warrants issued.
On July 7, 1998, the Company issued warrants to purchase 16,667 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 $5.34 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 $26,000
for the fair value of the warrants issued.
To date, no warrants have been exercised.
F-16
<PAGE>
TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For Each of The Years In The Two-Year
Period Ended September 30, 1998
NOTE 6 - STOCKHOLDERS' EQUITY, continued
- - ----------------------------------------
During 1998, the Board of Directors of the Company authorized the repurchase, in
the name and on behalf of the Company, of up to a maximum of 83,333 shares of
the common stock of the Company. As of September 30, 1998, the Company
repurchased and plans to retire 15,667 shares of its common stock for aggregate
consideration of $29,318.
Stock Option Plans
- - ------------------
In May 1994, the Board of Directors approved the 1994 nonqualified and qualified
stock option plan, and reserved a total of 123,333 shares of the Company's
common stock available for the plan. Options to purchase 35,000 shares were
granted during fiscal 1996 at the estimated fair value of the Company's common
stock of $9.93 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 23,333 shares were granted during fiscal 1997 at the estimated fair
value of the Company's common stock ranging from $4.14 to $5.25 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 December 1997, options to purchase 25,000 shares were granted at the
estimated fair value of the Company's common stock of $6.57 per share at the
time of grant. The options vest 25% annually, beginning on the date of grant
and expire in December 2007.
In February 1995, the Board of Directors approved the 1995 nonqualified and
qualified stock option plan, and reserved a total of 116,667 shares of the
Company's common stock available for the plan. Options to purchase 16,667
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 63,667 shares were
granted in fiscal 1996 at the estimated fair value of the Company's common stock
of $9.93 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 51,167 shares were granted during fiscal 1997 at the estimated fair
value of the Company's common stock ranging from $4.14 to $5.25 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 130,000 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 91,667 shares were
granted, 8,333 of which were to a non-employee, in June 1997 at the estimated
fair value of the Company's common stock of $4.875 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.
A summary of all employee stock option activity for the years ended September
30, 1998 and 1997 follows:
F-17
<PAGE>
TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For Each of The Years In The Two-Year
Period Ended September 30, 1998
NOTE 6 - STOCKHOLDERS' EQUITY, continued
- - ----------------------------------------
Price Range
Options Per Share
------------ ---------------
Balance, October 1, 1996 162,000 $ 8.40-$17.625
Granted 157,833 $ 4.125-$5.25
Canceled (46,944) $ 4.125-$9.93
--------
Balance, September 30, 1997 272,889 $ 4.125-$17.625
Granted 25,000 $ 6.57
Canceled (25,555) $ 4.125-$9.93
--------
Balance, September 30, 1998 272,334 $ 4.125-$17.625
========
Exercisable, September 30, 1998 109,800
========
SFAS 123 Pro Forma Information
- - ------------------------------
Pro forma information regarding net income (loss) and net income (loss) 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, 1998 and 1997; risk free interest rate 5.74% and
5.86%, respectively; dividend yield of 0%; expected life of the options of 1 and
2 years, respectively; and volatility factors of the expected market price of
the Company's common stock of 72% and 122%, respectively.
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.
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 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,
1998 and 1997, are as follows:
F-18
<PAGE>
TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For Each of The Years In The Two-Year
Period Ended September 30, 1998
NOTE 6 - STOCKHOLDERS' EQUITY, CONTINUED
- - ----------------------------------------
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Net income (loss), as reported $(627,144) $ 511,765
Adjustment to compensation expense under SFAS 123 (70,000) (130,000)
--------- ---------
Pro forma net (loss) income $(697,144) $ 381,765
========= =========
Pro forma net (loss) income per share - basic $ (.53) $ .29
========= =========
Pro forma net (loss) income per share - diluted $ (.53) $ .29
========= =========
</TABLE>
NOTE 7 - INCOME TAXES
- - ---------------------
The following summarizes the provision for income taxes for the years ended
September 30, 1998 and 1997:
1998 1997
-------- ---------
Current:
Federal $ - $ -
State 800 33,954
---- -------
800 33,954
---- -------
Deferred:
Federal - 20,013
State - 2,626
---- -------
- 22,639
---- -------
Provision for income taxes $800 $56,593
==== =======
A reconciliation of the expected statutory Federal income tax provision to the
(provision) benefit for income taxes for the years ended September 30, 1998 and
1997 is as follows:
1998 1997
-------- -------
(Benefit) provision for income taxes at $(212,957) $ 193,242
a Federal statutory rate of 34%
(Increase) reduction in income taxes
resulting from:
Changes in the valuation allowance for
deferred Tax-assets allocated to income tax 212,957 (173,229)
State income taxes 800 36,580
--------- ---------
Provision for income taxes $ 800 $ 56,593
========= =========
F-19
<PAGE>
TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For Each of The Years In The Two-Year
Period Ended September 30, 1998
NOTE 7 - INCOME TAXES, continued
- - --------------------------------
At September 30, 1998, significant components of the Company's net deferred
taxes are as follows:
Deferred tax assets:
Net operating loss carryforwards $ 259,881
Reserves and allowances 129,158
---------
389,039
Less valuation allowance (283,521)
---------
Total deferred tax assets 105,518
Deferred tax liabilities-
Computer software (133,051)
---------
Net deferred tax liability $ (27,533)
=========
The net change in the valuation allowance was a increase of approximately
$190,571 for the year ended September 30, 1998.
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
$764,000 as of September 30, 1998 that expire through the year 2001, of which
approximately $263,000 are subject to annual limitations of $50,000.
NOTE 8 - RELATED PARTY TRANSACTION
- - ----------------------------------
The Company made cash payments totaling $106,154 during fiscal 1997 to various
related parties of the Company for consulting services which were capitalized in
connection with the Company's manufacturing resource planning system.
During fiscal 1998, $24,000 was paid to a related party for consulting services.
NOTE 9 - SUBSEQUENT EVENT
- - -------------------------
On September 17, 1998, the Company received correspondence from the Nasdaq Small
Cap Market notifying the Company that its common stock will be subject to
delisting from the Nasdaq Small Cap Market if the minimum closing bid price of
its common stock does not close above $1.00 for ten consecutive days prior to
December 17, 1998. Tivoli has requested a hearing to appeal this proposed
action, which pursuant to Nasdaq rules will have the effect of postponing the
proposed delisting until the appeal is heard and considered by Nasdaq. As of
December 3, 1998, the stock failed to trade above $1.00 for ten consecutive days
since the receipt of the September 17, 1998 letter from the Nasdaq Small Cap
Market.
On March 17, 1999, the shareholders approved a one for three reverse split of
common stock, which was effected March 26, 1999. All information relating to the
number of shares and per share amounts of common stock has been adjusted to
retroactively reflect the reverse split.
F-20
<PAGE>
TIVOLI INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
JUNE 30,1999
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,725,430
Accounts receivable, less allowance for doubtful accounts of $57,466 1,709,419
Inventories 1,694,581
Prepaid expenses and other 471,231
--------------
Total current assets 5,600,661
--------------
Property and equipment :
Machinery and equipment 932,299
Furniture and fixtures 281,995
Tooling 356,878
--------------
Total property and equipment 1,571,172
Less: accumulated depreciation (998,526)
--------------
Net property and equipment 572,646
--------------
Goodwill, net of accumulated amortization of $174,100 485,438
Patents, net of accumulated amortization of $193,791 98,351
Deferred tax asset 105,518
Deposits and other 152,803
--------------
Total Assets $ 7,015,417
==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,077,384
Accrued expenses 370,230
Current maturities of obligations under a capital lease 54,029
Accrued income taxes 53,786
--------------
Total current liabilities 1,555,429
Bank line of credit 818,400
Obligations under a capital lease, net of current portion 76,201
Deferred tax liability 133,051
Minority Interest 173,908
--------------
Total liabilities 2,756,989
--------------
Shareholders' equity:
Preferred stock, $.001 par value; 1,000,000 shares authorized,
none outstanding -
Common stock, $.001 par value; 10,000,000 shares authorized,
1,236,723 shares outstanding 3,710
Additional paid-in capital 4,341,227
Retained earnings (86,509)
--------------
Total shareholders' equity 4,258,428
--------------
Total Liabilities and Shareholders Equity $ 7,015,417
==============
</TABLE>
<PAGE>
TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Net sales $ 2,948,714 $ 2,138,021
Cost of sales 1,630,244 1,236,048
--------------- ---------------
Gross profit 1,318,470 901,973
Selling, general and administrative expenses 1,165,390 1,213,225
--------------- ---------------
Income (loss) from operations 153,080 (311,252)
Other income (expense)
Interest expense (23,420) (20,447)
Interest income 12,299 14,764
Foreign currency exchange gain 18,258
Total other income (expense) 7,137 (5,683)
Minority interest in net (income) losses of consolidated subsidiary (13,637) 29,358
Income (loss) before provision for income taxes 146,580 (287,577)
Provision (benefit) for income taxes 52,318 (101,000)
---------------- ---------------
Net income (loss) $ 94,262 $ (186,577)
=============== ===============
Basic earnings per share (Note 2):
Earnings per share $ 0.08 $ (0.14)
Weighted average shares 1,236,724 1,312,624
Diluted earnings per share (Note 2):
Earnings per share $ 0.08 $ (0.14)
Weighted average shares 1,238,774 1,312,624
</TABLE>
<PAGE>
TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
--------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Net sales $ 8,457,288 7,250,942
Cost of sales 4,653,343 4,236,230
---------------- ----------------
Gross profit 3,803,945 3,014,712
Selling, general and administrative expenses 3,286,734 3,101,588
---------------- ----------------
Income (loss) from operations 517,211 (86,876)
Other income (expense)
Interest expense (68,080) (58,958)
Interest income 35,562 46,154
Foreign currency exchange gain 59,836 5,791
---------------- ----------------
Total other income (expense) 27,318 (7,013)
Minority interest in net (income) losses of consolidated subsidiary (54,377) 59,140
---------------- ----------------
Income (loss) before provision for income taxes 490,152 (34,749)
Provision for income taxes 55,418
---------------- ----------------
Net income (loss) $ 434,734 $ (34,749)
================ ================
Basic earnings per share (Note 2):
Earnings per share $ 0.35 $ (0.03)
Weighted average shares 1,255,887 1,308,856
Diluted earnings per share (Note 2):
Earnings per share $ 0.35 $ (0.03)
Weighted average shares 1,255,887 1,308.856
</TABLE>
<PAGE>
TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended June 30,
-----------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 434,734 $ (34,749)
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 188,275 223,512
Change in allowance for doubtful accounts 19,745 (3,588)
Minority Interest in net income / (losses)
of consolidated subsidiary 54,377 (59,140)
Warrants for the purchase of common stock
issued for services - 15,000
Changes in operating assets and liabilities:
Accounts receivable (284,136) 573,234
Inventories 163,284 (268,991)
Prepaid expenses and other 136,984 (304,733)
Accounts payable (298,871) (138,978)
Accrued expenses and other current liabilities 140,493 (25,207)
--------------- ---------------
Net cash (used in) provided by operating activities 554,885 (23,640)
--------------- ---------------
Cash flows from investing activities:
Deposits and other 8,777 (21,751)
Capital expenditures (39,560) (110,312)
Investment in minority interest 286,494
Net cash (used in) provided by investing activities (30,783) 154,431
--------------- ---------------
Cash flows from financing activities:
Net borrowings under line of credit and notes payable (15,277)
to bank (943)
Stock repurchase (108,109)
Principal payments on capital lease obligations (37,924) (35,382)
--------------- ---------------
Net cash used in financing activities (161,310) (36,325)
--------------- ---------------
Net increase in cash and cash equivalents 362,791 94,466
Cash and cash equivalents, beginning of period 1,362,639 1,389,720
--------------- ---------------
Cash and cash equivalents, end of period $ 1,725,430 $ 1,484,186
=============== ===============
</TABLE>
<PAGE>
TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
- - -------------------------------
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statement
presentation.
The Company, in its opinion, has included all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the results of
operations for the quarters ended June 30, 1999 and 1998. The financial
statements and notes thereto should be read in conjunction with the audited
financial statements and notes and form 10-KSB for the year ended September 30,
1998.
NOTE 2 - EARNINGS PER SHARE
- - ---------------------------
Effective December 31, 1997, the Company adopted statement of Financial
Accounting Standards No. ("Statement") No.128, "Earnings Per Share". In
accordance with Statement 128, primary earnings per share have been replaced
with basic earnings per share, and fully diluted earnings per share have been
replaced with diluted earnings per share which includes potentially dilutive
securities such as outstanding stock options and warrants. Prior periods have
been restated to conform to Statement 128.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
For the quarters ending June 30,
1999 1998
--------------------------- -----------------------------
Income Shares Per Share Income Shares Per Share
Amount Amount
------- ------- ----------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to
Shareholders $ 94,262 1,236,724 $0.08 $(186,577) 1,312,624 $(0.14)
Effect of Dilutive Securities
Warrants
Stock Options 2,050
Diluted EPS
Income available to
Shareholders $ 94,262 1,238,774 $0.08 $(186,577) 1,312,624 $(0.14)
-------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
For the nine month period ending June 30,
1999 1998
------------------------- ----------------------------
Income Shares Per Share Income Shares Per Share
Amount Amount
------ ------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to
Shareholders $434,734 1,255,887 $0.35 $ (34,749) 1,308,856 $(0.03)
Effect of Dilutive Securities
Warrants
Stock Options
Diluted EPS
Income available to
Shareholders $434,734 1,255,887 $0.35 $ (34,749) 1,308,856 $(0.03)
-------- --------- --------- --------- --------- ---------
</TABLE>
Options to purchase 350,667 shares of Common Stock at prices between $3.56 and
$11.25 per share were outstanding at June 30, 1999, but were not included in the
computation of diluted earnings per share. These options were excluded from the
computation of diluted EPS because the options' exercise price was greater than
the average market price of the common shares during the period, and therefore
the effect would be antidilutive. The effects of common stock equivalents were
not included in the per share calculations of net loss per
<PAGE>
common share for fiscal 1998, as their effects would be antidilutive.
NOTE 3 - NOTES PAYABLE TO BANK
- - --------------------------------
On May 10, 1999, the Company renewed its existing line of credit agreement with
Union Bank of California maintaining the borrowing base at $1,250,000. The
agreement has an expiration date of March 1, 2001. The renewal agreement
contains interest at the bank's Reference Rate (7.75% at June 30,1999) plus 1%
per annum. The terms of the new agreement provide for borrowings of up to the
lessor of $1,250,000 or the aggregate of 80% of eligible accounts receivable
plus 50% of eligible inventory up to $400,000. At June 30, 1999, the Company had
approximately $532,500 available under this line of credit.
The renewal agreement also provides an additional line of credit of $250,000 to
be used for fixed asset purchases. This part of the agreement contains interest
at the bank's Reference Rate (7.75% at June 30, 1999) plus 1.0% per annum. The
Company may borrow, repay and re-borrow amounts up to $250,000, at any time
prior to March 3, 2000. The Company will then repay the balance by monthly
installments through March 1, 2004. At June 30, 1999, the Company had not
borrowed any amounts under this agreement.
<PAGE>
APPENDIX A
MERGER AGREEMENT
<PAGE>
AGREEMENT AND PLAN OF MERGER
AMONG
TARGETTI SANKEY S.p.A.
FLORENCE ACQUISITION CORP.
AND
TIVOLI INDUSTRIES, INC.
DATED AS OF SEPTEMBER 17, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I................................................................................................THE MERGER 1
SECTION 1.1.....................................................................................THE MERGER 1
SECTION 1.2...........................................................................EFFECT OF THE MERGER 1
SECTION 1.3.....................................................................CONSUMMATION OF THE MERGER 2
SECTION 1.4......................................ARTICLES OF INCORPORATION; BYLAWS; DIRECTORS AND OFFICERS 2
SECTION 1.6..................................................................COMPANY STOCK PLANS; WARRANTS 3
SECTION 1.7.............................................................................PAYMENT FOR SHARES 3
SECTION 1.8..............................................................................DISSENTING SHARES 5
SECTION 1.9.............................................................................SUBSEQUENT ACTIONS 5
ARTICLE II............................................................REPRESENTATIONS AND WARRANTIES OF THE COMPANY 5
SECTION 2.1.................................................................ORGANIZATION AND QUALIFICATION 5
SECTION 2.2..............................................................................CHARTER DOCUMENTS 6
SECTION 2.3.................................................................................CAPITALIZATION 6
SECTION 2.4......................................................................AUTHORITY; BOARD APPROVAL 6
SECTION 2.5.....................................................NO CONFLICT; REQUIRED FILINGS AND CONSENTS 7
SECTION 2.6............................................................................COMPLIANCE; PERMITS 8
SECTION 2.7..............................................................SEC REPORTS; FINANCIAL STATEMENTS 8
SECTION 2.8...........................................................ABSENCE OF CERTAIN CHANGES OR EVENTS 9
SECTION 2.9.....................................................................NO UNDISCLOSED LIABILITIES 9
SECTION 2.10.........................................................................ABSENCE OF LITIGATION 9
SECTION 2.11.................................................EMPLOYEE BENEFIT PLANS; EMPLOYMENT AGREEMENTS 9
SECTION 2.12............................................................................EMPLOYMENT MATTERS 11
SECTION 2.13..........................................................................INFORMATION SUPPLIED 11
SECTION 2.14.............................................................................TITLE TO PROPERTY 11
SECTION 2.15.........................................................................................TAXES 12
SECTION 2.16.........................................................................ENVIRONMENTAL MATTERS 12
SECTION 2.17.......................................................................................BROKERS 13
SECTION 2.18..............................................................................FULL DISCLOSURE. 13
SECTION 2.19..................................................................OPINION OF FINANCIAL ADVISOR 13
SECTION 2.20.........................................................................INTELLECTUAL PROPERTY 13
SECTION 2.21.................................................................INTERESTED PARTY TRANSACTIONS 14
SECTION 2.22.....................................................................................INSURANCE 14
SECTION 2.23.................................................................................VOTE REQUIRED 14
ARTICLE III......................................................REPRESENTATIONS AND WARRANTIES OF PARENT AND NEWCO 15
SECTION 3.1................................................................ORGANIZATION AND QUALIFICATION. 15
SECTION 3.2......................................................................................AUTHORITY 15
SECTION 3.3..............................................................................NON-CONTRAVENTION 15
SECTION 3.4.........................................................................GOVERNMENTAL APPROVALS 16
SECTION 3.5........................................................................................BROKERS 16
SECTION 3.6.....................................................................................FINANCING. 16
SECTION 3.7...........................................................................INFORMATION SUPPLIED 16
ARTICLE IV........................................................................................CERTAIN COVENANTS 16
SECTION 4.1..............................................................CONDUCT OF THE COMPANY'S BUSINESS 16
SECTION 4.2.......................................................ACCESS, DISCLOSURE, PUBLIC ANNOUNCEMENTS 18
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 4.3.....................................................CONSENTS AND APPROVALS; FURTHER ASSURANCES 19
SECTION 4.4.....................................................................INQUIRIES AND NEGOTIATIONS 20
SECTION 4.5................................................................NOTIFICATION OF CERTAIN MATTERS 21
SECTION 4.6.............................................................................FIRPTA CERTIFICATE 21
SECTION 4.7.........................................................CERTAIN EMPLOYEE BENEFIT ARRANGEMENTS. 21
SECTION 4.8.........................................................................EMPLOYMENT AGREEMENTS. 22
ARTICLE V.....................................................................................ADDITIONAL AGREEMENTS 22
SECTION 5.3............................................................................CONSENTS; APPROVALS 22
SECTION 5.4................................................................................INDEMNIFICATION 23
SECTION 5.5............................................................................TARGETTI (USA), LLC 23
ARTICLE VI.................................................................................CONDITIONS TO THE MERGER 24
SECTION 6.1.....................................CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER 24
SECTION 6.2............................CONDITIONS TO PARENT'S AND NEWCO'S OBLIGATIONS TO EFFECT THE MERGER 24
SECTION 6.3....................................CONDITIONS TO THE COMPANY'S OBLIGATION TO EFFECT THE MERGER 25
ARTICLE VII.............................................................................TERMINATION AND ABANDONMENT 25
SECTION 7.1....................................................................TERMINATION AND ABANDONMENT 25
SECTION 7.2..........................................................................EFFECT OF TERMINATION 26
ARTICLE VIII..........................................................................................MISCELLANEOUS 26
SECTION 8.1..................................................NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES 26
SECTION 8.2.................................................................................EXPENSES, ETC. 26
SECTION 8.3......................................................................................PUBLICITY 27
SECTION 8.4......................................................................EXECUTION IN COUNTERPARTS 27
SECTION 8.5........................................................................................NOTICES 27
SECTION 8.6........................................................................................WAIVERS 28
SECTION 8.7...............................................................................ENTIRE AGREEMENT 28
SECTION 8.8.................................................................................APPLICABLE LAW 28
SECTION 8.9...........................................................................SPECIFIC PERFORMANCE 28
SECTION 8.10......................................................................BINDING EFFECT, BENEFITS 28
SECTION 8.11.................................................................................ASSIGNABILITY 29
SECTION 8.12....................................................................................AMENDMENTS 29
SECTION 8.13......................................................................................HEADINGS 29
ANNEX I DEFINED TERMS............................................................................................1
EXHIBIT A-1 to A-8 FORMS OF VOTING AGREEMENTS
EXHIBIT B......... FORM OF PRESS RELEASE
EXHIBIT C-1....... EMPLOYMENT AGREEMENT OF TERRENCE C. WALSH
EXHIBIT C-2....... EMPLOYMENT AGREEMENT OF CHARLES KIMMEL
</TABLE>
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of September
---------
17, 1999, is entered into by and among Targetti Sankey S.p.A., an Italian
corporation ("Parent"), Florence Acquisition Corp., a California corporation and
------
a wholly-owned subsidiary of Parent ("Newco"), and Tivoli Industries, Inc., a
-----
California corporation (the "Company" and, collectively with Parent and Newco,
-------
the "Parties"). The Company and Newco are hereinafter sometimes referred to as
-------
the "Constituent Corporations." Certain capitalized terms used herein are
------------------------
defined in Annex I hereto.
RECITALS:
WHEREAS, the Boards of Directors of Parent, Newco and the Company have each
determined that it is advisable and in the best interests of their respective
stockholders to consummate, and have approved, the business combination
transaction provided for herein in which Newco would merge with and into the
Company and the Company would become a wholly-owned subsidiary of Parent (the
"Merger"); and
------
WHEREAS, concurrently herewith Parent has entered into voting agreements in
the forms attached hereto as Exhibits A-1 through A-8 (collectively, the "Voting
------------------------ ------
Agreements"), with each of Terrence C. Walsh and Marilyn Walsh, Charles F.
- - ----------
Kimmel, Vincent F. Monte, Gerald E. Morris, Intelite International N.V., Peter
J. Shaw, Gordon C. Westerling and Gordon C. Westerling and Cherry L. Westerling,
as trustees for the benefit of the Westerling Family Intervivos Trust, pursuant
to which such persons have agreed, subject to certain conditions, to vote the
shares of Company Common Stock owned by them in favor of the Merger.
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants, agreements and conditions contained herein, and in order to set forth
the terms and conditions of the Merger and the mode of carrying the same into
effect, the Parties hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. THE MERGER.
Subject to the terms and conditions of this Agreement, at the Effective
Time, as defined below, in accordance with this Agreement and the California
General Corporation Law (the "CGCL"), Newco shall be merged with and into the
----
Company. Effective upon the Merger, the separate existence of Newco (except as
it may be continued by operation of law) shall cease, and the Company shall
continue as the surviving corporation (the "Surviving Corporation").
---------------------
SECTION 1.2. EFFECT OF THE MERGER.
Upon the effectiveness of the Merger, the Surviving Corporation shall
succeed to and assume all the rights and obligations of the Company and Newco in
accordance with the CGCL, and the Merger shall otherwise have the effects set
forth in Section 1107 of the CGCL.
<PAGE>
SECTION 1.3. CONSUMMATION OF THE MERGER.
The closing (the "Closing") of the Merger will take place as soon as
-------
practicable after the satisfaction or waiver of the conditions to the
obligations of the parties to effect the Merger set forth herein, provided that
this Agreement has not been terminated previously, at the offices of Rogers &
Wells LLP, 200 Park Avenue, New York, New York, or such other location as the
Parties may agree. On the date of the Closing (the "Closing Date"), the Parties
------------
will cause the Merger to be consummated by filing with the Secretary of State of
the State of California a properly executed agreement of merger in accordance
with the CGCL which shall be effective upon filing or on such later date as may
be specified therein (the time of such effectiveness being the "Effective
---------
Time").
- - ----
SECTION 1.4. ARTICLES OF INCORPORATION; BYLAWS; DIRECTORS AND OFFICERS.
The Articles of Incorporation of Newco in effect at the Effective Time
shall be the Articles of Incorporation of the Surviving Corporation, until
thereafter amended in accordance with the provisions thereof and as provided by
the CGCL. The Bylaws of Newco in effect at the Effective Time shall be the
Bylaws of the Surviving Corporation, until thereafter amended in accordance with
the provisions thereof and the Articles of Incorporation of the Surviving
Corporation and as provided by the CGCL. From and after the Effective Time and
until their respective successors are duly elected or appointed and qualified,
(a) the persons listed on Schedule 1.4(a) shall be the directors of the
---------------
Surviving Corporation and (b) the persons listed on Schedule 1.4(b) shall be the
---------------
officers of the Surviving Corporation.
SECTION 1.5. EFFECT ON SECURITIES.
At the Effective Time, by virtue of the Merger and without any action on
the part of the holder thereof:
(a) Capital Stock of Newco. Each issued and outstanding share of common
----------------------
stock, par value $0.001 per share, of Newco ("Newco Common Stock") shall be
------------------
converted into and become one fully paid and nonassessable share of common
stock, par value $0.001 per share, of the Surviving Corporation ("Surviving
---------
Corporation Common Stock"). Each certificate representing outstanding shares of
- - ------------------------
Newco Common Stock shall at the Effective Time represent an equal number of
shares of Surviving Corporation Common Stock.
(b) Cancellation of Treasury Stock and Stock Owned by Parent and
------------------------------------------------------------
Subsidiaries. All shares of common stock, par value $0.001 per share, of the
- - ------------
Company ("Company Common Stock") that are owned by the Company as treasury stock
--------------------
and any shares of Company Common Stock owned by any Subsidiary of the Company,
Parent, Newco or any other wholly-owned Subsidiary of Parent shall be canceled
and retired and shall cease to exist and no stock of Parent or other
consideration shall be delivered in exchange therefor.
(c) Exchange Ratio for Company Common Stock. Each issued and outstanding
---------------------------------------
share of Company Common Stock (other than shares to be canceled in accordance
with Section 1.5(b) and other than Dissenting Shares) shall be converted into
the right to receive Four Dollars and Fifty Cents ($4.50) in cash (the "Merger
------
Consideration"). All such shares of Company Common Stock shall no longer be
- - -------------
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall cease
to have any rights with respect thereto, except the right
<PAGE>
to receive the Merger Consideration, upon the surrender of such certificate in
accordance with Section 1.7, without interest.
-----------
SECTION 1.6. COMPANY STOCK PLANS; WARRANTS.
(a) All outstanding Company Stock Options, whether or not then vested or
exercisable, shall be made fully vested and exercisable and canceled by the
Company immediately before the Effective Time, and thereafter, the holders' sole
right shall be to, and the holders thereof shall, receive from the Company, for
each share of Company Common Stock subject to such Company Stock Option, an
amount, if any, in cash equal to the difference between the Merger Consideration
and the exercise price per share of such Company Stock Option, which amount,
shall be paid by the Company at the time such option is canceled. The Company
will use its reasonable commercial efforts to obtain any necessary consents and
make any amendments to the terms of the Option Plans to the extent such consents
or amendments are necessary to give effect to the foregoing. All applicable
withholding taxes attributable to the payments made hereunder shall be deducted
from the amounts payable under this Section 1.6(a).
--------------
(b) All outstanding warrants to purchase Company Common Stock shall,
following the Effective Time, be exercisable only for an amount of cash equal to
the Warrant Consideration and the holders of such warrants shall be entitled to
receive, upon surrender to the Paying Agent of the warrant certificates for
cancellation, cash in an amount, if any, equal to the Warrant Consideration. The
Company shall take all actions necessary to ensure that following the Effective
Time (i) the warrants shall represent only the right to receive the Warrant
Consideration in lieu of shares of Company Common Stock issuable upon exercise
thereof, (ii) all warrant agreements and warrant certificates shall be
terminated and cancelled, and (iii) no party to any warrant agreement or holder
of a warrant certificate shall have the right to acquire any capital stock of
the Company, Parent, the Surviving Corporation or any of their respective
Subsidiaries. As used herein "Warrant Consideration" means an amount, if any,
---------------------
per warrant equal to the product of (i) the number of shares of Company Common
Stock issuable upon exercise of such warrant and (ii) the difference between the
Merger Consideration and the exercise price per share of Company Common Stock,
without interest, which amount shall be paid from and after the Effective Time.
SECTION 1.7. PAYMENT FOR SHARES.
(a) Paying Agent. Prior to the Effective Time, Parent shall designate a
------------
bank or trust company to act as paying agent (the "Paying Agent") for the
------------
purpose of exchanging certificates representing issued and outstanding shares of
Company Common Stock and warrants (each, a "Certificate") for the Merger
-----------
Consideration or the Warrant Consideration, as the case may be. Parent or Newco
shall, from time to time, make available or cause to be made available to the
Paying Agent funds in such amounts and at times necessary for the payment of the
Merger Consideration and the Warrant Consideration, in the manner provided
herein. The Paying Agent shall invest portions of the Merger Consideration and
the Warrant Consideration, as Parent directs (it being understood that any and
all interest earned on funds made available to the Paying Agent pursuant to this
Agreement shall be the property of, and shall be turned over to, Parent),
provided that such investments shall be in obligations of or guaranteed by the
United States of America or of any agency thereof and backed by the full faith
and credit of the United States of America, in commercial paper obligations
rated A-1 or P-1 or better by Moody's Investors Services, Inc. or Standard &
Poor's Corporation, respectively, or in deposit accounts, certificates of
deposit or banker's acceptances of, repurchase or reverse repurchase agreements
with, or Eurodollar time deposits purchased from, commercial banks with capital,
surplus and undivided profits aggregating in excess of US$100 million (based on
the most recent financial statements of such bank which are then publicly
available at the Securities and Exchange Commission (the "SEC") or otherwise).
---
<PAGE>
(b) Letter of Transmittal. Promptly after the Effective Time, the
---------------------
Surviving Corporation shall instruct the Paying Agent to mail to each holder of
record of one or more shares of Company Common Stock or warrant certificates,
(i) a letter of transmittal, which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
proper delivery of the Certificates to the Paying Agent, and which shall have
such other provisions as Parent shall specify, and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration or the Warrant Consideration, as the case may be.
(c) Entitlement of Shares. Upon surrender of a Certificate for
---------------------
cancellation to the Paying Agent, together with such letter of transmittal, duly
executed and completed in accordance with the instructions thereto, and such
other documents as may reasonably be required by the Paying Agent, the holder of
such Certificate shall be entitled to receive in exchange therefor the Merger
Consideration or the Warrant Consideration, as the case may be, payable in
respect of shares of Company Common Stock or warrants previously represented by
such Certificates, after giving effect to any withholding tax required by
Applicable Law, and the Certificates so surrendered shall forthwith be canceled.
Until surrendered as contemplated by this Section 1.7, each Certificate shall be
-----------
deemed at any time after the Effective Time to represent only the right to
receive the Merger Consideration or the Warrant Consideration, as the case may
be. No interest will be paid or accrued on the Merger Consideration or Warrant
Consideration.
(d) Payments to Other Persons. If Merger Consideration or Warrant
-------------------------
Consideration is to be paid to any person other than the person in whose name
the Certificates for shares of Company Common Stock or warrants surrendered for
conversion are registered, it shall be a condition of the payment that such
Certificates be properly endorsed and the signatures thereon properly guaranteed
and otherwise in proper form for transfer and that the person requesting such
payment shall have paid to the Paying Agent any transfer or other taxes required
by reason of the delivery of Merger Consideration or Warrant Consideration to a
person other than the registered holder of such Certificate, or shall have
established to the satisfaction of the Surviving Corporation that such tax has
been paid or is not applicable.
(e) Termination. Any portion of the exchange funds held by the Paying
-----------
Agent for delivery pursuant to this Section 1.7 and unclaimed at the end of six
-----------
months after the Effective Time shall be paid or delivered to the Surviving
Corporation, upon demand, and any holders of Certificates who have not
theretofore complied with this Section 1.7 shall, subject to Applicable Law,
-----------
thereafter look only to the Surviving Corporation for payment of the Merger
Consideration or the Warrant Consideration, as the case may be, in respect of
shares of Company Common Stock or warrants. Notwithstanding the foregoing, none
of Parent, the Surviving Corporation or the Paying Agent shall be liable to any
holder of shares of Company Common Stock or warrants for any amount paid to any
Governmental Authority pursuant to any applicable abandoned property, escheat or
similar law. Any amounts unclaimed by holders of shares of Company Common Stock
or warrants two years after the Effective Time (or such earlier date immediately
prior to such time as such amounts would otherwise escheat to or become the
property of any Governmental Authority) shall, to the extent permitted by
Applicable Law, become the property of the Surviving Corporation free and clear
of any claims or interest of any person previously entitled thereto.
(f) Stock Transfer Books; No Further Ownership Rights. At and after the
-------------------------------------------------
Effective Time, the stock transfer books of the Company shall be closed, and
there shall be no further registrations of transfers of shares of Company Common
Stock thereafter on the records of the Company. From and after the Effective
Time, the holders of Certificates evidencing ownership of shares of Company
Common Stock issued and outstanding immediately prior to the Effective Time
shall cease to have any rights with respect to such shares, except as otherwise
provided for herein or by Applicable Law. If, after the Effective Time,
Certificates representing shares of Company Common Stock are presented to the
<PAGE>
Surviving Corporation, Parent or the Paying Agent for any reason, they shall be
canceled and exchanged for the Merger Consideration as provided in this
Section 1.7.
- - -----------
SECTION 1.8. DISSENTING SHARES.
(a) Notwithstanding any provisions of this Agreement to the contrary, any
shares of Company Common Stock held by a holder who has exercised such holder's
dissenters' rights in accordance with the CGCL and who, as of the Effective
Time, has not effectively withdrawn or lost such dissenters' rights ("Dissenting
----------
Shares"), shall not be converted into or represent a right to receive the Merger
- - ------
Consideration, but the holder of the Dissenting Shares shall only be entitled to
such rights as are granted by the CGCL.
(b) Notwithstanding the provisions of subsection (a) above, if any holder
of shares of Company Common Stock who demands dissenters' rights with respect to
such shares shall effectively withdraw or lose (through the failure to perfect
or otherwise) such holder's dissenters' rights under the CGCL, then, as of the
Effective Time or the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive the
Merger Consideration upon surrender of the applicable Certificate(s) as provided
herein.
(c) The Company shall give Parent (i) prompt written notice of any written
demands for payment with respect to any shares of Company Common Stock pursuant
to dissenters' rights, and any withdrawals of such demands or losses of such
rights, and any other instruments served pursuant to the CGCL, and (ii) the
opportunity to participate in all negotiations and proceedings with respect to
demands for dissenters' rights. The Company shall not, except with the prior
written consent of Parent, voluntarily make any payment with respect to demands
for dissenters' rights or offer to settle or settle any such demands.
SECTION 1.9. SUBSEQUENT ACTIONS.
If, at any time after the Effective Time, the Surviving Corporation shall
consider or be advised that any deeds, bills of sale, assignments, assurances or
any other actions or things are necessary or desirable to vest, perfect or
confirm of record or otherwise in the Surviving Corporation its right, title or
interest in, to or under any of the rights, properties or assets of either of
the Constituent Corporations acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger or otherwise to
carry out this Agreement, the officers and directors of the Surviving
Corporation are hereby authorized to execute and deliver, in the name and on
behalf of each of the Constituent Corporations or otherwise, all such deeds,
bills of sale, assignments and assurances and to take and do, in the name and on
behalf of each of the Constituent Corporations or otherwise, all such other
actions and things as may be necessary or desirable to vest, perfect or confirm
any and all right, title and interest in, to and under such rights, properties
or assets in the Surviving Corporation or otherwise to carry out this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Newco that, except as set
forth in the written Company Disclosure Schedule previously delivered by the
Company to Parent:
<PAGE>
SECTION 2.1. ORGANIZATION AND QUALIFICATION.
Each of the Company and its Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization and has the requisite corporate power and authority to own, lease
and operate the properties it purports to own and to carry on its business as it
is now being conducted. Each of the Company and its Subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in
each jurisdiction in which the character of the properties owned, leased or
operated by it or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified or in good standing,
individually or in the aggregate, is not reasonably expected to have a Material
Adverse Effect.
SECTION 2.2. CHARTER DOCUMENTS.
The Company has heretofore furnished to Parent a complete and correct copy
of the Company's Articles of Incorporation and Bylaws documents as in effect on
the date hereof. Each such charter document is in full force and effect. The
Company is not in violation of its charter documents.
SECTION 2.3. CAPITALIZATION.
The authorized capital stock of the Company consists of 10,000,000 shares
of Company Common Stock and 1,000,000 shares of preferred stock, par value
$0.001 per share ("Company Preferred Stock"). As of June 30, 1999, (i) 1,236,723
-----------------------
shares of Company Common Stock were issued and outstanding, all of which are
duly authorized, validly issued, fully paid and nonassessable, (ii) no shares of
Company Common Stock were held in the Company's treasury or by any Subsidiary,
(iii) no shares of Company Preferred Stock were issued and outstanding and (iv)
492,161 shares of Company Common Stock were reserved for future issuance
pursuant to outstanding warrants to purchase Company Common Stock and Company
Stock Options granted pursuant to the Option Plans. Except as set forth in
Section 2.3 of the Company Disclosure Schedule, no shares of Company Common
- - -----------
Stock or other securities of the Company have been issued between June 30, 1999
and the date hereof. Except as set forth in Section 2.3 or Section 2.11 of the
----------- ------------
Company Disclosure Schedule, there are no Company Stock Options, warrants or
other rights, agreements, arrangements or commitments of any character granted
by the Company relating to unissued shares of the Company or of any Subsidiary
or obligating the Company or any Subsidiary to issue or sell any shares of, or
other equity interests in, the Company or any Subsidiary. All shares of Company
Common Stock subject to issuance under the Option Plans and warrants to purchase
Company Common Stock, as aforesaid, upon issuance on the terms and conditions
specified in the applicable warrant agreement or Option Plans, shall be duly
authorized, validly issued, fully paid and nonassessable. There are no
obligations, contingent or otherwise, of the Company or of any Subsidiary to
repurchase, redeem or otherwise acquire any shares of Company Common Stock or
the shares of any Subsidiary or to provide funds to or make any investment (in
the form of a loan, capital contribution or otherwise) in any Subsidiary or any
other entity. None of the Company Stock Options, warrants, rights, agreements,
arrangements or commitments identified in Section 2.3 or 2.11 of the Company
----------- ----
Disclosure Schedule provide that, absent action by the Company's Board of
Directors (the "Company Board") or a committee thereof, upon exercise or
-------------
conversion the holder thereof
<PAGE>
shall receive cash, and no such action of the Company Board or a committee
thereof has been taken. Except as set forth in Section 2.3 of the Company
-----------
Disclosure Schedule, all of the outstanding shares of each Subsidiary (and all
shares to be issued prior to the Effective Time) are duly authorized, validly
issued, fully paid and nonassessable, and all such shares are owned by the
Company free and clear of all security interests, liens, claims, pledges,
agreements, limitations in the Company's voting rights, charges or other
encumbrances of any nature whatsoever (collectively, "Liens").
-----
SECTION 2.4. AUTHORITY; BOARD APPROVAL.
(a) The Company has full corporate power and authority to enter into this
Agreement and, subject to obtaining the Company Stockholders' Approval, to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Company and, subject to the obtaining of the Company
Stockholders' Approval constitutes a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
such enforceability may be subject to or limited by bankruptcy, insolvency,
reorganization, or other similar laws, now or hereafter in effect, affecting the
enforcement of creditors' rights generally, and except that the availability of
equitable remedies, including specific performance, may be subject to the
discretion of the court before which any proceeding therefor may be brought.
(b) The execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby have been duly and validly approved by the Company Board (including
approval by a Committee of the Company Board (the "Committee") consisting of the
Company's independent directors), the Company Board and the Committee have
recommended adoption of this Agreement by the stockholders of the Company and
directed that this Agreement be submitted to the stockholders of the Company for
their consideration, and no other corporate proceedings on the part of the
Company or its stockholders are necessary to authorize the execution, delivery
and performance of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby, other than obtaining the
Company Stockholders' Approval.
SECTION 2.5. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Section 2.5(a) of the Company Disclosure Schedule includes a list of
--------------
all of the material agreements and instruments to which the Company currently is
party or by which the Company currently is bound that either (i) have been or
were required to be filed as an exhibit to the Company's periodic reports under
the Exchange Act as "material contracts" or "instruments defining the rights of
security holders," (ii) were entered into by the Company after the date of the
periodic report most recently filed by the Company under the Exchange Act or
(iii) relate to any joint ventures or joint development projects involving the
Company, non-competition agreements, distribution agreements or employment or
termination of employment of any executive officers of the Company
(collectively, the "Material Contracts"). The Company has made available to
-------------------
Parent true, correct and complete copies in all material respects of each
Material Contract. There are no material agreements to which any Subsidiary is a
party or by which any Subsidiary is currently bound which has been or is
required to be filed as an exhibit to the Company's periodic reports under the
Exchange Act.
(b) Except as set forth in Section 2.5(b) of the Company Disclosure
--------------
Schedule, (i) the Company has not breached, is not in default under and has not
received written notice of any breach of or default under any Material Contract,
except for any such breach or default which is not reasonably expected to
<PAGE>
have a Material Adverse Effect, (ii) to the best knowledge of the Company, no
other party to any of the Material Contracts has breached or is in default of
any of its obligations thereunder, except for any such breach or default which
is not reasonably expected to have a Material Adverse Effect and (iii) each of
the Material Contracts is in full force and effect.
(c) Except as set forth in Section 2.5(c) of the Company Disclosure
--------------
Schedule, the execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company will not, and the
consummation of the transactions contemplated hereby will not, (i) conflict with
or violate the Articles of Incorporation or Bylaws of the Company or any
Subsidiary, (ii) subject to the obtaining of the Company Stockholders' Approval,
conflict with or violate any Applicable Law relating to the Company or any
Subsidiary, or by which any of their properties are bound or affected,
including, without limitation, any anti-takeover or similar law, or (iii) result
in any breach of or constitute a default (or an event that with notice or lapse
of time or both would become a default) under, or impair the Company's rights or
alter the rights or obligations of any third party under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any Material
Contract, or result in the creation of a lien or encumbrance on any of the
properties or assets of the Company or any Subsidiary.
(d) The execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company will not, require the
Company or any Subsidiary to obtain any consent, approval, authorization or
permit of, or to make any filing with or notification to, any governmental or
regulatory authority, domestic or foreign, except (i) for applicable
requirements, if any, of the Securities Act, the Exchange Act, the rules of the
National Association of Securities Dealers ("NASD"), and state securities laws
----
("Blue Sky Laws"), (ii) the rules and regulations thereunder, and the filing and
-------------
recordation of appropriate documents relating to the Merger as required by the
CGCL, (iii) for the filing of the Proxy Statement with the SEC pursuant to the
Exchange Act, (iv) the filing of reports with the U.S. Department of Commerce
regarding foreign direct investment in the United States, and (v) where the
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not prevent or delay consummation of
the Merger, or otherwise prevent or delay the Company from performing its
obligations under this Agreement and is not reasonably expected to have a
Material Adverse Effect.
SECTION 2.6. COMPLIANCE; PERMITS.
(a) Except as set forth in Section 2.6 of the Company Disclosure Schedule,
-----------
the Company and each Subsidiary holds all permits, licenses, franchises,
easements, variances, exemptions, consents, certificates, orders and approvals
from governmental authorities which are material to the operation of the
business conducted by them as it is now being conducted, except where failure to
obtain any of the aforementioned is not reasonably expected to have a Material
Adverse Effect on such entity (collectively, the "Company Permits"). The Company
---------------
and each Subsidiary are in compliance with the terms of the Company Permits.
(b) Except as set forth in Section 2.6 of the Company Disclosure Schedule,
-----------
the Company and each Subsidiary are not in conflict with, or in default or
violation of any Applicable Law relating to the Company or any Subsidiary, or by
which their properties are bound or affected other than any such conflict,
default or violation which is not reasonably expected to have a Material Adverse
Effect on such entity.
SECTION 2.7. SEC REPORTS; FINANCIAL STATEMENTS.
(a) The Company has filed all forms, reports and documents required to be
filed with the SEC since its initial public offering on September 21, 1994 and
has made available to Parent (i) its quarterly
<PAGE>
reports on Form 10-QSB for the periods ended June 30, 1999, March 31, 1999 and
December 31, 1998 and its annual report on Form 10-KSB for the fiscal years
ended September 30, 1998, 1997 and 1996, respectively, (ii) all proxy statements
relating to the Company's meetings of shareholders (whether annual or special)
held since its initial public offering, (iii) all other reports or registration
statements filed by the Company with the SEC since its initial public offering,
and (iv) all amendments and supplements to all such reports and registration
statements filed by the Company with the SEC (collectively, the "SEC Reports").
-----------
The SEC Reports (i) were prepared in accordance with the requirements of the
Securities Act or the Exchange Act, as the case may be, and (ii) did not at the
time they were filed (or if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such filing) contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. No Subsidiary is
required to file any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the SEC Reports was prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
----
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto) and each fairly presented the consolidated financial position
of the Company and its Subsidiaries as at the respective dates thereof and the
consolidated results of its operations and cash flows and shareholder equity for
the periods indicated, except that the unaudited interim financial statements
were or are subject to normal and recurring year-end adjustments which were not
or are not expected to be material in amount.
SECTION 2.8. ABSENCE OF CERTAIN CHANGES OR EVENTS.
Since September 30, 1998, except as set forth in Section 2.8 of the Company
-----------
Disclosure Schedule or the SEC Reports, the Company and each Subsidiary has
conducted its business in the ordinary course and there has not occurred: (a)
any Material Adverse Effect; (b) any amendments or changes in the Articles of
Incorporation or Bylaws of the Company or any Subsidiary; (c) any damage to,
destruction or loss of any asset of the Company (whether or not covered by
insurance) or any Subsidiary which damages, destruction or loss is reasonably
expected to have a Material Adverse Effect; (d) any change by the Company or any
Subsidiary in its accounting methods, principles or practices; (e) any
evaluation of any of the Company's or any Subsidiary's assets, including,
without limitation, writing down the value of inventory or writing off notes or
accounts receivable; (f) any other action or event that would have required the
consent of Parent pursuant to Section 4.1 had such action or event occurred
-----------
after the date of this Agreement, other than the one-for-three reverse stock
split which became effective March 26, 1999 and the Company's stockholders
approval of a reincorporation in the State of Delaware; or (g) any sale, pledge,
disposition of or encumbrance upon a material amount of property of the Company
or any Subsidiary, except in the ordinary course of business and consistent with
past practice.
SECTION 2.9. NO UNDISCLOSED LIABILITIES.
Except as is disclosed in Section 2.9 of the Company Disclosure Schedule or
-----------
the SEC Reports, neither the Company nor any Subsidiary has any liabilities
(absolute, accrued, contingent or otherwise) which are, in the aggregate,
material to the business, operations or financial condition of the Company and
its Subsidiaries taken as a whole, except liabilities (a) adequately provided
for in the Company's audited balance sheet (including any related notes
<PAGE>
thereto) for the fiscal year ended September 30, 1998 (the "1998 Company Balance
--------------------
Sheet"); or (b) incurred in the ordinary course of business and not-required
- - -----
under GAAP to be reflected on the 1998 Company Balance Sheet and liabilities
incurred in connection with this Agreement.
SECTION 2.10. ABSENCE OF LITIGATION.
Except as set forth in Section 2.10 of the Company Disclosure Schedule or
------------
the SEC Reports, (a) there are no claims, actions, suits, proceedings or
investigations pending or, to the best knowledge of the Company, threatened
against the Company or any Subsidiary, or any properties or rights of the
Company or any Subsidiary, before any court, arbitrator or administrative,
governmental or regulatory authority or body, domestic or foreign, and (b) there
is no judgment, decree, injunction, rule or order of any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign, outstanding against the Company or any Subsidiary.
SECTION 2.11. EMPLOYEE BENEFIT PLANS; EMPLOYMENT AGREEMENTS.
(a) Section 2.11 of the Company Disclosure Schedule lists all employee
------------
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) and all employment, bonus, incentive
-----
compensation, deferred compensation, pension, profit sharing, retirement, stock
purchase, stock option, stock ownership, stock appreciation rights, phantom
stock, equity (or equity-based), leave of absence, layoff, vacation, day or
dependent care, legal services, cafeteria, life, health, medical, accident,
disability, workmen's compensation or other insurance, severance, separation,
termination, change of control or other benefit plan, agreement (including any
collective bargaining agreement), practice, policy or arrangement of any kind,
whether written or oral, and whether or not subject to ERISA for the benefit of
or relating to any employee of the Company or any Subsidiary, any trade or
business (whether or not incorporated) which is a member of a controlled group
including the Company or which is under common control with the Company (a
"Company ERISA Affiliate"), as well as each plan with respect to which the
-----------------------
Company or a Company ERISA Affiliate could incur liability under applicable law
(if such plan has been or were terminated) (together, the "Company Employee
----------------
Plans"), excluding agreements under which the Company has no remaining monetary
- - -----
obligations. A copy of each such written Company Employee Plan has been made
available to Parent.
(b) Except as set forth in Section 2.11(b) of the Company Disclosure
---------------
Schedule, (i) none of the Company Employee Plans promises or provides retiree,
medical, life or other retiree welfare or superannuated benefits to any person
other than benefit continuation rights under the Consolidated Omnibus
Reconciliation Act of 1985, as amended; (ii) there has been no "prohibited
transaction" (as such term is defined in Section 406 or 407 of ERISA and Section
4975 of the Code) with respect to any Company Employee Plan, which could result
in any material liability of the Company or of any subsidiary; (iii) all Company
Employee Plans have been administered, are in compliance in all material
respects with the requirements prescribed by ERISA, the Code and any and all
statutes, orders, or governmental rules and regulations currently in effect with
respect thereto (including all other applicable requirements for notification to
participants or the Department of Labor, Pension Benefit Guaranty Corporation,
U.S. Internal Revenue Service (the "IRS") or Secretary of the Treasury), and the
---
Company and each subsidiary have performed all material obligations required to
be performed by them under, are not in any material respect in default under or
violation of, and have no knowledge of any default or violation by any other
party of, any of the Company Employee Plans; (iv) each Company Employee Plan
intended to qualify under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code is the subject of a favorable
determination letter from the IRS, and nothing has occurred which may reasonably
be expected to impair such determination; (v) to the knowledge of the
<PAGE>
Company and its Subsidiaries, there are no material pending, threatened or
anticipated claims involving any of the Company Employee Plans; (vi) there are
no material outstanding liabilities of any Company Employee Plan other than
liabilities for benefits to be paid to participants in such Company Employee
Plan and their beneficiaries in accordance with the terms of such Company
Employee Plan; (vii) full payment has been made of all amounts which the Company
or any of its Subsidiaries were required to have paid as a contribution to the
Company Employee Plans as of the last day of the most recent fiscal year of each
of the Company Employee Plans ended prior to the date of this Agreement, and
none of the Company Employee Plans has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, as of the last day of the most recent fiscal year of each
such Company Employee Plan ended prior to the date of this Agreement; (viii)
neither the Company nor any ERISA Affiliate has ever maintained, contributed to
or had a liability with respect to (A) any employee benefit plan subject to
Section 412 of the Code, (B) Title IV of ERISA or (C) any "multiemployer plan"
as defined in Section 3(37) of ERISA; and (ix) neither the execution and
delivery of this Agreement nor the consummation of the transaction contemplated
hereby constitutes a change in control or has or will accelerate benefits under
any Company Employee Plan.
(c) Section 2.11(c) of the Company Disclosure Schedule sets forth a true
---------------
and complete list of each current or former employee, consultant, vendor,
customer, officer or director of the Company or of any Subsidiary who holds any
Company Stock Option as of the date hereof, together with the number of shares
of Company Common Stock subject to such option, the date of grant of such
option, the extent to which such option is vested (or will become vested within
six months from the date hereof, or as a result of, the Merger), the option
price of such option and the expiration date of such option. Section 2.11(c) of
---------------
the Company Disclosure Schedule also sets forth the total number of such
options.
(d) Except as set forth in Section 2.11(d) of the Company Disclosure
---------------
Schedule, the Company has made available to Parent (i) copies of all employment
agreements with officers of the Company or any Subsidiary; (ii) copies of all
agreements with consultants who are individuals obligating the Company or any
Subsidiary to make annual cash payments in an amount exceeding $50,000; (iii) a
schedule listing all officers and employees of the Company or any Subsidiary who
have executed a non-competition agreement with the Company or any Subsidiary;
(iv) copies (or descriptions) of all severance agreements, programs and policies
of the Company and each Subsidiary with or relating to its employees, excluding
programs and policies required to be maintained by Applicable Law, and (v)
copies of all plans, programs, agreements and other arrangements of the Company
and any Subsidiary with or relating to its employees which contain change in
control provisions.
SECTION 2.12. EMPLOYMENT MATTERS.
Except as set forth in Section 2.12 of the Company Disclosure Schedule, (a)
------------
there are no controversies pending or, to the knowledge of the Company or any
Subsidiary, threatened, between the Company or any Subsidiary, on the one hand,
and any of its employees, on the other hand, which controversies are reasonably
expected to have a Material Adverse Effect; (b) neither the Company nor any
Subsidiary is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by the Company or any Subsidiary
nor does the Company know of any activities or proceedings of any labor union to
organize any such employees; and (c) the Company does not have any knowledge of
any strikes, slowdowns, work stoppages, lockouts, or threats thereof, by or with
respect to any employees of the Company or any Subsidiary.
<PAGE>
SECTION 2.13. INFORMATION SUPPLIED.
Subject to the accuracy of the representations of Parent in Article III,
-----------
the information supplied by the Company for inclusion or incorporation by
reference in the Proxy Statement will not, on the date the Proxy Statement (or
any amendment thereof or supplement thereto) is first mailed to shareholders, at
the time of the Company Stockholders' Meeting, or at the Effective Time, contain
any statement which, at such time and in light of the circumstances under which
it shall be made, is false or misleading with respect to any material fact, or
shall omit to state any material fact necessary in order to make the statements
made therein not false or misleading; or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Company Stockholders' Meeting which has
become false or misleading. If at anytime prior to the Effective Time any event
relating to the Company or any of its respective affiliates, officers or
directors should be discovered by the Company which should be set forth in an
amendment or supplement to the Proxy Statement, the Company shall promptly
inform Parent and Newco. The Proxy Statement shall comply in all material
respects as to form and substance with the requirements of the Securities Act,
the Exchange Act and the rules and regulations thereunder. Notwithstanding the
foregoing, the Company makes no representation or warranty with respect to any
information supplied by Parent or Newco which is contained in any of the
foregoing documents.
SECTION 2.14. TITLE TO PROPERTY.
The Company and each Subsidiary owns and leases only the real property set
forth on Section 2.14 of the Company Disclosure Schedule. Except as set forth in
------------
Section 2.14 of the Company Disclosure Schedule, the Company and each Subsidiary
- - ------------
has good and marketable title to all of its properties and assets, free and
clear of all Liens except Liens for taxes not yet due and payable and such Liens
or other imperfections of title, if any, as do not detract from the value of or
interfere with the present use of the property affected thereby and which,
individually or in the aggregate, are not reasonably expected to have a Material
Adverse Effect; and, to the knowledge of the Company, all leases pursuant to
which the Company or any Subsidiary leases from others material amounts of real
or personal property, are in good standing, valid and effective in accordance
with their respective terms, and there is not, to the knowledge of the Company,
under any of such leases, any existing material default or event of default (or
event which with notice or lapse of time, or both, would constitute a material
default and in respect of which the Company or any Subsidiary, as the case may
be, has not taken adequate steps to prevent such a default from occurring)
except where the lack of such validity and effectiveness or the existence of
such default or event of default is not reasonably expected to have a Material
Adverse Effect.
SECTION 2.15. TAXES.
(a) For purposes of this Agreement, "Tax" or "Taxes" shall mean taxes,
--- -----
fees, levies, duties, tariffs, imposts and governmental impositions or charges
of any kind in the nature of (or similar to) taxes, payable to any federal,
state, local or foreign taxing authority, including (without limitation) (i)
income, franchise, profits, gross receipts, ad valorem, net worth, goods and
services, fringe benefits, withholding, sales, use, service, real or personal
property, special assessments, license, payroll, withholding, employment, social
security, accident compensation, unemployment compensation, utility, severance,
production, excise, stamp, occupation, premiums, windfall profits, transfer and
gains taxes and (ii)
<PAGE>
interest, penalties, additional taxes and additions to tax imposed with respect
thereto; and "Tax Returns" shall mean returns, reports and information
statements with respect to Taxes required to be filed with the IRS or any other
taxing authority, domestic or foreign, including, without limitation,
consolidated, combined and unitary tax returns.
(b) The Company has furnished to Parent all Tax Returns filed by the
Company and its Subsidiaries for all periods ending on or after December 31,
1995. Except as disclosed in Section 2.15(b) of the Company Disclosure Schedule,
------- -------
the Company and each Subsidiary has filed all United States federal income Tax
returns and all other material Tax Returns required to be filed by them, and
have duly paid or made adequate provision on their books for the payment of all
taxes which have been incurred or are due and payable. Except as disclosed in
Section 2.15(b) of the Company Disclosure Schedule (i) there are no pending
- - ---------------
audits, examinations or proposed audits or examinations of any tax returns filed
by the Company or by any Subsidiary, (ii) there are no other Taxes that would be
due if asserted by a taxing authority, except with respect to which the Company
or a Subsidiary, as the case may be, is maintaining reserves to the extent
currently required and (iii) neither the Company nor any Subsidiary has given or
been requested to give waivers or extensions of any statute of limitations
relating to the payment of Taxes for which the Company or any Subsidiary may be
liable. Except as set forth on Section 2.15(b) of the Company Disclosure
---------------
Schedule, as of the date of this Agreement the consolidated Tax Returns of the
Company have not been audited by the IRS (or the appropriate statute of
limitations has expired) in the last five fiscal years.
(c) Neither the Company nor any Subsidiary is a party to any agreement
providing for the allocation, payment or sharing of taxes among the Company and
any Subsidiary, on the one hand, and any third parties, on the other hand.
Neither the Company nor any Subsidiary has an application pending with respect
to any Tax requesting permission for a change in accounting method.
SECTION 2.16. ENVIRONMENTAL MATTERS.
Except as set forth in Section 2.16 of the Company Disclosure Schedule, the
------------
Company and each Subsidiary (a) obtained all applicable permits, licenses and
other authorizations which are required under federal, state, foreign or local
laws relating to pollution or protection of the environment, including laws
relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants or hazardous or toxic materials or wastes into ambient
air, surface water, ground water or land or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants or hazardous or toxic
materials or wastes ("Environmental Approvals"), (b) is in material compliance
-----------------------
with all terms and conditions of the Environmental Approvals, and also is in
compliance with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
such laws or contained in any regulation, code, plan, order, decree, judgment,
notice or demand letter issued, entered, promulgated or approved thereunder, (c)
as of the date hereof, is not aware of nor has it received notice of any past or
present violation relating to or any event, condition, circumstance, activity,
practice, incident, action or plan which is reasonably likely to interfere with
or prevent continued compliance with or which would give rise to any common law
or statutory liability, or otherwise form the basis of any claim, action, suit
or proceeding, based on or resulting from the Company's or any Subsidiary's
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling, or the emission, discharge or release into the
environment, of any pollutant, contaminant or hazardous or toxic material or
waste and (d) taken all actions necessary under applicable requirements of
federal,
<PAGE>
state, foreign and local laws, rules or regulations to register any products or
materials required to be registered by the Company or any Subsidiary thereunder.
SECTION 2.17. BROKERS.
Except as set forth in Section 2.17 of the Company Disclosure Schedule, no
------------
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated hereby
based upon arrangements made by or on behalf of the Company.
SECTION 2.18. FULL DISCLOSURE.
No statement contained in any certificate or schedule furnished or to be
furnished by the Company to Parent or Newco pursuant to the provisions of this
Agreement contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary, in the light of the
circumstances under which it was made, to make the statements herein or therein
not misleading.
SECTION 2.19. OPINION OF FINANCIAL ADVISOR.
The Company has received the opinion of its financial advisor, L.H. Friend,
Weinress, Frankson & Presson, Inc., to the effect that, as of September 17,
1999, the Merger Consideration to be received by holders of the Company Common
Stock is fair, from a financial point of view, to the Company's shareholders,
and the Company has delivered a written copy of such opinion to the Parent. L.H.
Friend, Weinress, Frankson & Presson, Inc. has consented to the use of its name
and its fairness opinion in the Proxy Statement.
SECTION 2.20. INTELLECTUAL PROPERTY.
(a) Except as set forth in Section 2.20(a) of the Company Disclosure
---------------
Schedule, the Company and each Subsidiary, directly or indirectly, owns, or
licenses or otherwise possesses legally enforceable rights to use, all patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor, technology, know-how and tangible or intangible proprietary
information or material that are used in any product or service of the Company
or any Subsidiary, previously sold or now being sold by the Company or any
Subsidiary, now in beta phase by the Company or any Subsidiary or otherwise in
or material to the business of the Company or any Subsidiary, as currently
conducted (the "Intellectual Property Rights").
----------------------------
(b) Section 2.20(b) of the Company Disclosure Schedule sets forth (i) each
---------------
patent owned by the Company and each Subsidiary and (ii) each license agreement
under which the Company or any Subsidiary licenses, either to or from a third
party, Intellectual Property Rights on an exclusive or non-exclusive basis.
Except as set forth in Section 2.20(b) of the Company Disclosure Schedule, the
---------------
Company or a Subsidiary, as the case may be, is the sole and exclusive owner of
the Intellectual Property Rights and has sole and exclusive rights (and is not
contractually obligated to pay any compensation to any third party in respect
thereof) to the use thereof or the material covered thereby in connection with
the services or products in respect of which the Intellectual Property Rights
are being used. Except as set forth in Section 2.20(b) of the Company Disclosure
---------------
Schedule, no claims with respect to the Intellectual Property Rights have been
asserted or, to the best knowledge of the Company, are threatened by any Third
Party: (i) to the effect that the manufacture, sale, licensing, or use of any of
the products or processes of the Company or any Subsidiary infringes on any
copyright, patent, trade mark, service mark or trade secret of
<PAGE>
such person; (ii) against the use by the Company or any Subsidiary of any
Intellectual Property Rights; or (iii) challenging the ownership by the Company
or any Subsidiary or the validity of any of the Intellectual Property Rights.
(c) Section 2.20(c) of the Company Disclosure Schedule sets forth all
---------------
registered trademarks, service marks and copyrights held by the Company or any
Subsidiary and each are valid and subsisting. To the knowledge of the Company,
there is no unauthorized use, infringement or misappropriation of any of the
Intellectual Property Rights by any third party, including any employee or
former employee of the Company or any Subsidiary. No Intellectual Property Right
or product or process of the Company or any Subsidiary is subject to any
outstanding decree, order, judgment, or stipulation restricting in any manner
the licensing thereof by the Company or any Subsidiary.
(d) Except as set forth in Section 2.20(d) of the Company Disclosure
---------------
Schedule, neither the Company nor any Subsidiary is bound by any agreement which
restricts the Company or any Subsidiary from selling, licensing or otherwise
distributing any of its products to any class of customers, in any geographical
area, during any period of time or in any segment of the market.
SECTION 2.21. INTERESTED PARTY TRANSACTIONS.
Except as set forth in Section 2.21 of the Company Disclosure Schedule or
------------
in the SEC Reports, since the date of the Company's most recent annual report on
Form 10-KSB for the fiscal year ended September 30, 1998, no event has occurred
that would be required to be reported as a Certain Relationship or Related
Transaction, pursuant to Item 404 of Regulation S-K promulgated by the SEC.
SECTION 2.22. INSURANCE.
The Company and each Subsidiary maintains fire and casualty, general
liability, business interruption, product liability and sprinkler and water
damage insurance with reputable insurance carriers that the Company believes to
be prudent for its business and are similar in character and amount to policies
carried by entities engaged in similar businesses. Except as set forth in
Section 2.22 of the Company Disclosure Schedule, there are no claims by the
- - ------------
Company or any Subsidiary under any such insurance as to which any insurance
company is denying liability or defending under a reservation of rights clause.
SECTION 2.23. VOTE REQUIRED.
The affirmative vote of the holders of at least a majority of the
outstanding shares of Company Common Stock is the only vote of the holders of
Company Common Stock necessary to approve the Merger and the other transactions
contemplated hereby.
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND NEWCO
Parent and Newco, jointly and severally, represent and warrant to the
Company as follows:
SECTION 3.1. ORGANIZATION AND QUALIFICATION.
(a) Organization. Parent is a business entity duly organized, validly
------------
existing and in good standing under the laws of the Republic of Italy. Newco is
a corporation duly organized, validly existing and in good standing under the
laws of the State of California. Each of the Parent and Newco has all requisite
corporate power and authority and is in possession of all franchises, grants,
authorizations, licenses. permits, easements, consents, certificates, approvals
and orders necessary to own, or lease and operate its properties and assets and
to carry on its business as it is now being conducted. Each of Parent and Newco
is duly qualified as a foreign corporation to do business, and is in good
standing, in each jurisdiction in which the character of the properties owned,
leased or operated by it, or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified is not
reasonably expected to have a material adverse effect on Parent's or Newco's
ability to perform its respective obligations hereunder.
(b) Newco Activities. Since the date of its incorporation, Newco has not
----------------
engaged in any activity other than in connection with or as contemplated by this
Agreement, the Offer and the Merger or in connection with arranging financing
required to consummate the transactions contemplated hereby.
SECTION 3.2. AUTHORITY.
Each of Parent and Newco has all requisite corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder. The
execution, delivery and performance of this Agreement by Parent and Newco and
the consummation by Parent and Newco of the transactions contemplated hereby
have been duly authorized by Parent and Newco, and no other corporate
proceedings on the part of Parent or Newco (including, without limitation, any
action by their respective shareholders) are necessary to authorize this
Agreement and the transactions contemplated hereby. This Agreement has been duly
executed and delivered by each of Parent and Newco and constitutes a legal,
valid and binding obligation of each of Parent and Newco, enforceable against
Parent and Newco in accordance with its terms, except as such enforceability may
be subject to or limited by bankruptcy, insolvency, reorganization, or other
similar laws, now or hereafter in effect, affecting the enforcement of
creditors' rights generally, and except that the availability of equitable
remedies, including specific performance, may be subject to the discretion of
the court before which any proceeding therefor maybe brought.
SECTION 3.3. NON-CONTRAVENTION.
The execution and delivery of this Agreement by Parent and Newco and the
consummation by Parent and Newco of the transactions contemplated hereby will
not (i) conflict with any provision of their respective Articles of
Incorporation or Bylaws or equivalent organizational documents or (ii) result
(with the giving of notice or the lapse of time or both) in any violation of or
default or loss of a benefit under, or permit the acceleration of any obligation
under, any mortgage, indenture, lease, agreement or other instrument, permit,
concession, grant,
<PAGE>
franchise or license or any Applicable Law applicable to Parent or Newco or any
of their respective properties, other than any such violation, default, loss or
acceleration that is not reasonably expected to materially adversely affect the
ability of Parent or Newco, as the case may be, to perform its respective
obligations hereunder.
SECTION 3.4. GOVERNMENTAL APPROVALS.
No filing, declaration or registration with, or permit, authorization,
consent or approval, of, any Governmental Authority is required to be made or
obtained by Parent or Newco in connection with the execution and delivery of
this Agreement by Parent or Newco or the consummation by Parent or Newco of the
transactions contemplated hereby, except for (i) the filing with the SEC of
such reports under the Exchange Act as may be required in connection with this
Agreement and the transactions contemplated hereby, (ii) the filing of the
applicable documents with the Secretary of State of the State of California, and
the filing of appropriate documents with the relevant authorities of other
states in which the Company is qualified to do business, (iii) as may be
required by any applicable Blue Sky Laws, (iv) the filing of reports with the
U.S. Department of Commerce regarding foreign direct investment in the United
States, and (v) such other consents, approvals, orders, authorizations,
registrations, declaration, filings and notices the failure of which to be
obtained or made would not prevent or materially delay the consummation of the
transactions contemplated by this Agreement or the performance by Parent or
Newco of any of their respective material obligations hereunder or thereunder.
SECTION 3.5. BROKERS.
No person is entitled to any brokerage or finder's fee or commission in
connection with the transactions contemplated hereby as a result of any action
taken by or on behalf of Parent or Newco.
SECTION 3.6. FINANCING.
Parent has available to it cash, credit lines or other sources of financing
to provide the funds necessary for completion of the transactions contemplated
hereby.
SECTION 3.7. INFORMATION SUPPLIED.
None of the information supplied or to be supplied by Parent or Newco for
inclusion in the Proxy Statement will, at the time the Proxy Statement is first
mailed to the Company's shareholders or at the time of the Company Stockholders'
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading.
<PAGE>
ARTICLE IV
CERTAIN COVENANTS
SECTION 4.1. CONDUCT OF THE COMPANY'S BUSINESS.
The Company covenants and agrees as to itself and its Subsidiaries that,
prior to the Effective Time, unless Parent shall otherwise consent in writing or
as otherwise expressly contemplated by this Agreement:
(a) the business of the Company and each Subsidiary shall be conducted
only in, and the Company shall not and shall cause each Subsidiary not to, take
any action except in, the ordinary course of business consistent with past
practice;
(b) the Company shall not, directly or indirectly, and the Company shall
cause each Subsidiary not to do any of the following: (i) amend or propose to
amend its Articles of Incorporation or Bylaws or reincorporate in any
jurisdiction; (ii) split, combine or reclassify any issued and outstanding
shares of its capital stock, or declare, set aside or pay any dividend or other
distribution (payable in cash, stock, property or otherwise) with respect to
such shares;(iii) redeem, purchase, acquire or offer to acquire (or permit any
Subsidiary to redeem, purchase, acquire or offer to acquire) any shares of its
capital stock; or (iv) issue, sell, pledge, accelerate, modify the terms of or
dispose of, or agree to issue, sell, pledge, accelerate, modify the terms of or
dispose of, any additional shares of, or securities convertible or exchangeable
for, or any options, warrants, calls, commitments or rights of any kind to
acquire any shares of, its capital stock of any class or other property or
assets;
(c) the Company shall not, and the Company shall cause each Subsidiary not
to: (i) transfer, lease, license, sell, mortgage, pledge, dispose of or encumber
any material assets, except in the ordinary course of business consistent with
past practice; (ii) acquire (by merger, consolidation or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof or any material assets; (iii) enter into or modify any Material
Contract, except in the ordinary course of business consistent with past
practice; (iv) terminate, modify, assign, waive, release or relinquish any
material rights or claims or amend any material rights or claims not in the
ordinary course of business consistent with past practice; (v) pay, discharge or
satisfy any material claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction of any such claims, liabilities or obligations, in the
ordinary course of business, reflected or reserved against in, or contemplated
by, the consolidated financial statements of the Company included in the SEC
Reports; or (vi) settle or compromise any material claim, action, suit or
proceeding pending or threatened against the Company or any Subsidiary, or, if
the Company or any Subsidiary may be liable or obligated to provide
indemnification, against the Company's or any Subsidiary's directors or
officers, before any court, governmental agency or arbitrator;
(d) except as provided in this Agreement the Company shall not, and the
Company shall cause each Subsidiary not to: (i) incur or adversely modify any
material indebtedness or other liability; (ii) assume, guarantee, endorse or
otherwise become liable or responsible (directly or indirectly, contingent or
otherwise) for the obligations of any other person; or (iii) make any loans,
advances or capital contributions to, or investments in, any other person (other
than loans from the Company to Subsidiaries or customary loans or advances to
employees in the ordinary course of business consistent with past practice);
<PAGE>
(e) the Company shall not, and the Company shall cause each Subsidiary not
to, grant any increase in the salary or other compensation of its employees, or
grant any bonus to any employee or enter into any employment agreement or make
any loan to or enter into any material transaction of any other nature with any
employee of the Company or any Subsidiary, except in the ordinary course of
business consistent with past practices, or as contemplated by Section 1.6;
-----------
(f) the Company shall not, and the Company shall cause each Subsidiary not
to, except as contemplated by this Agreement or as may be required by Applicable
Law or, in the case of employees who are not executive officers of the Company,
in the ordinary course of business consistent with past practices: (i) adopt,
increase, accelerate the vesting of or payment of any amounts in respect of, or
otherwise amend, in any respect, any collective bargaining, bonus, profit
sharing, incentive or other compensation, stock option, stock purchase or
restricted stock, insurance, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, fund, plan or
arrangement for the benefit or welfare of any directors, officers or employees
(including, without limitation, any such plan or arrangement relating to
severance or termination pay); or (ii) enter into any employment or severance
agreement with or grant any severance or termination pay to any officer or
director of the Company or any Subsidiary;
(g) the Company shall not, and the Company shall cause each Subsidiary not
to, take or knowingly permit any action that would make any representation or
warranty of the Company hereunder materially inaccurate at, or as of any time
prior to, the Effective Time, or omit to take any action reasonably necessary to
prevent any such representation or warranty from being materially inaccurate at
any such time;
(h) the Company shall not, and the Company shall cause each Subsidiary not
to, change any of the accounting methods used by it without providing advance
notice to Parent in writing;
(i) the Company shall not, and the Company shall cause each Subsidiary not
to, make any Tax election (other than in the ordinary course of preparing and
filing its Tax returns) or settle or compromise any Tax liability or
investigation;
(j) the Company shall not, and the Company shall cause each Subsidiary not
to, enter into any agreement, contract, commitment or arrangement to do, or to
authorize, recommend, propose or announce an intention to do, any of the actions
described in the above paragraphs of Section 4.1, other than paragraph (a); and
-----------
(k) the Company shall, and the Company shall cause each Subsidiary to, use
its reasonable commercial efforts, to the extent not prohibited by the foregoing
provisions of this Section 4.1, to maintain its relationships with its
-----------
suppliers, customers and employees, and, if and as requested by Parent or Newco,
(i) to the extent permitted by Applicable Law, the Company shall, and the
Company shall cause each Subsidiary to, use its reasonable commercial efforts to
make arrangements for representatives of Parent or Newco to meet with customers
and suppliers of the Company or any Subsidiary, and (ii) the Company shall
schedule, and the management of the Company shall participate to the extent
requested in, meetings of representatives of Parent or Newco with employees of
the Company or any Subsidiary.
SECTION 4.2. ACCESS, DISCLOSURE, PUBLIC ANNOUNCEMENTS.
(a) Access. Subject to any applicable limitations imposed by law, from
------
the date hereof to the Effective Time, the Company shall, and the Company shall
cause each Subsidiary to (and shall cause their respective officers, directors,
employees, representatives and agents to), afford the officers, employees,
counsel, representatives and agents of Parent reasonable access during regular
business hours to the
<PAGE>
Company's and each Subsidiary's officers, employees, agents, properties, books,
records and work papers, and shall promptly furnish Parent all financial,
operating and other information and data as Parent, through its officers,
employees or agents, may reasonably request, provided, that in the event such
access or the furnishing of such information is prohibited or limited due to
Applicable Law, the Company will so inform Parent and will upon request use its
reasonable commercial efforts to obtain any necessary consent to allow such
access or to provide such information. During such period, the Company shall
furnish promptly to Parent (i) a copy of each report, schedule, registration
statement or other document filed or received by it during such period pursuant
to the requirements of federal or state securities laws, and (ii) all other
information concerning its business, properties and personnel as Parent may
reasonably request. No investigation pursuant to this Section 4.2 (a) shall
-----------
affect, add to or subtract from any representations or warranties of the parties
hereto or the conditions to the obligations of the parties hereto to consummate
the Merger.
(b) Non-Disclosure. Parent, Newco and each of their respective
--------------
representatives agree that, from the date hereof to the Effective Time, (i) all
information regarding the Company and its Subsidiaries furnished to them,
whether prior to or after the date hereof, by the Company or any of its
representatives in connection with the Merger (such information, together with
notes, memoranda, summaries, analysis, compilations and other writings relating
thereto or based thereon prepared by the Company or its representatives being
referred to hereto as the "Materials") will be kept strictly confidential,
---------
provided, however, that Materials may be disclosed to any of Parent's
- - -------- -------
representatives who need to know such information for the purpose of assisting
Parent in consummating the Merger (it being understood that such representatives
will be informed by Parent of the contents of this Agreement and that, by
receiving such information such representatives are agreeing to be bound by this
Agreement). The term "Materials" does not include information which was or
---------
becomes available to Parent or Newco, or any of their respective representatives
on a non-confidential basis from a source other than the Company or its
representatives, provided that neither Parent, Newco nor any of their respective
representatives is aware that such source is under an obligations (whether
contractual, legal or fiduciary) to the Company to keep such information
confidential for purposes hereof.
(c) Press Releases. From the date hereof to the Effective Time, without
--------------
the prior written consent of the other, neither the Company, on the one hand,
nor Parent and Newco, on the other hand, will, and each of the Company, Parent
and Newco shall cause their respective representatives not to, make any release
to the press or other public disclosure, or make any statement to any employee
(other than those officers of the Company whose involvement is required in order
to consummate the Merger) competitor, customer, client or supplier of the
Company or any of its Subsidiaries to any other person, with respect to the
existence or contents of this Agreement, except for such public disclosure as
may be necessary, following consultation with legal counsel, for the party
proposing to make the disclosure not to be in violation of or default under any
Applicable Law, regulation or governmental order. If either party proposes to
make such disclosure, that party will discuss with the other party its rationale
for such disclosure and provide such party with the text of the proposed
disclosure, as far in advance of its disclosure as is practicable, and will in
good faith consult with and consider the suggestions of the other party
concerning the nature and scope of the information it proposes to disclose.
Attached as Exhibit B hereto is a form of the press release that the Parties
---------
have agreed to issue upon the execution of this Agreement.
SECTION 4.3. CONSENTS AND APPROVALS; FURTHER ASSURANCES.
(a) Consents and Approvals. Each of the Company, Parent and Newco will
----------------------
take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on it with respect to this Agreement and the
transactions contemplated hereby (which actions shall include, without
<PAGE>
limitation, furnishing all information, making all filings and taking all other
acts (i) required under the Exchange Act, the Securities Act and all other
federal or state securities laws, (ii) required under any applicable foreign
competition and antitrust statutes and regulations, or (iii) required or
requested by any bank, stock exchange, or by any other Governmental Authority)
and will cooperate promptly with and furnish information to each other in
connection with any such requirements imposed on any of them or their respective
subsidiaries in connection with this Agreement and the transactions contemplated
hereby. Each of the Company, Parent and Newco will, and will cause their
respective subsidiaries to, take all commercially reasonable action to obtain
(and will cooperate with each other in obtaining) any consent, authorization,
order or approval of, or any exemption by, or to provide any required notice to,
any Governmental Authority or other public or private third party required to be
obtained or made by Parent, Newco or the Company or any of their respective
subsidiaries in connection with the Merger or the taking of any action
contemplated in connection with the Merger or otherwise by this Agreement.
(b) Antitrust and Competition Filings. Without limiting the generality of
---------------------------------
sub-section (a) above, the Company and Parent shall, if required by Applicable
Law, take all reasonable actions necessary to file as soon as practicable
notifications under any applicable U.S. and foreign competition and antitrust
statutes and regulations, including, to respond in a commercially reasonable
manner to any inquiries received from any Governmental Authority for additional
information or documentation and to respond in a commercially reasonable manner
to all inquiries and requests received from any Governmental Authority in
connection with antitrust and competition matters.
(c) Further Assurances. Subject to the terms and conditions herein
------------------
provided, each of the Parties agrees to use all commercially reasonable efforts
to take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated hereby, including, without
limitation, using all commercially reasonable efforts to obtain all necessary
waivers, consents and approvals.
(d) Shareholder Litigation. The Company shall give Parent the opportunity
----------------------
to participate, at Parent's expense, in the defense and settlement of any
shareholder litigation against the Company or its directors or officers relating
to any of the transactions contemplated hereby and shall not enter into any such
settlement without Parent's consent, which consent shall not be unreasonably
withheld.
(e) Limits. Nothing in this Agreement shall require Parent or Newco to
------
agree to make, or to permit the Company to make, any divestiture of or grant any
rights to a significant asset in order to obtain any waiver, consent or
approval.
SECTION 4.4. INQUIRIES AND NEGOTIATIONS.
(a) Non-Solicitation. Neither the Company nor its Subsidiaries nor any of
----------------
their respective officers, directors or representatives, or any of their
respective affiliates shall initiate, solicit or encourage, directly or
indirectly, or take any action to facilitate inquiries or the making of any
proposal with respect to, or participate in negotiations concerning any proposal
with respect to, (i) any merger, consolidation, or business combination
involving the Company or any Subsidiary, (ii) any sale, dividend, split or other
disposition of Capital Stock or the equity interest of the Company or any
Subsidiary, or (iii) any sale, dividend or other disposition of all or
substantially all of the of the assets and properties of the Company or any
Subsidiary (an "Alternative Transaction"), except that the Company Board may
-----------------------
provide information to any third person making a bona fide, written and
unsolicited inquiry concerning an Alternative Transaction that would result in a
more favorable transaction to the Company's stockholders from a financial point
of view than the Merger (a "Superior Proposal"), provided that counsel to the
-----------------
Company has advised the Company Board that its fiduciary duties require it to
consider the Superior Proposal.
<PAGE>
(b) Notice. The Company shall immediately notify Parent if any proposal,
------
offer, inquiry or other contact is received by, any information is requested
from, or any discussions or negotiations are sought to be initiated or continued
with, the Company by or from any person, corporation, entity or "group" (as
defined in Section 13(d) of the Exchange Act) other than Parent and its
affiliates, representatives and agents (each, a "Third Party") in connection
-----------
with any Alternative Transaction, and shall, in any such notice to Parent,
indicate the identity of the Third Party and the terms and conditions of any
proposals or offers or the nature of any inquiries or contacts. If any such
Alternate Transaction would be a Superior Proposal, and the Company Board, in
accordance with Section 4.4(a), determines to provide the Third Party making
such Superior Proposal with information, the Company shall keep Parent informed,
on a current basis, of the status and terms of any such proposal and the status
of any such discussions or negotiations. Without limiting the generality of the
foregoing, the Company shall provide Parent with not less than two (2) Business
Days' notice prior to the execution by the Company of any definitive agreement
with respect to any Alternative Transaction or any public announcement relating
to any Alternative Transaction.
(c) Third Parties. Prior to furnishing any non-public information to, or
-------------
entering into negotiations or discussions with, any Third Party regarding a
Superior Proposal, the Company will obtain an executed confidentiality agreement
from such Third Party on terms substantially the same as, or no less favorable
to the Company in any material respect than, those contained in Section 4.2. The
------------
Company shall not release any Third Party from, or waive any provision of, any
such confidentiality agreement or any other confidentiality or standstill
agreement to which the Company is a party.
SECTION 4.5. NOTIFICATION OF CERTAIN MATTERS.
The Company shall give prompt notice to Parent and Newco, and Parent and
Newco shall give prompt notice to the Company, of (a) the occurrence, or failure
to occur, of any event that such Party believes would be likely to cause any of
its representations or warranties contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Effective Time and (b) any material failure of the Company, Parent or Newco, as
the case may be, or any officer, director, employee or agent thereof, to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder; provided, however, that the delivery of any such
-------- -------
notice shall not limit or otherwise affect the remedies available hereunder to
the Party receiving such notice.
SECTION 4.6. FIRPTA CERTIFICATE.
Prior to the Effective Time, the Company shall deliver to Parent a
certification that shares of Company Common Stock do not constitute U.S. real
property interests within the meaning of Section 897 of the Code, in form
satisfactory to Parent.
SECTION 4.7. CERTAIN EMPLOYEE BENEFIT ARRANGEMENTS.
(a) Key Employee Retention Program. The employees listed on Section
------------------------------ -------
4.7(a) of the Company Disclosure Schedule shall be eligible to receive bonuses
- - ------
payable on the dates and in the amounts set forth on Section 4.7(a) of the
--------------
Company Disclosure Schedule; provided, however, that each employee listed on
-------- -------
Section 4.7(a) of the Company Disclosure Schedule will be entitled to receive
- - --------------
such payments only if such employee is a full-time employee of the Surviving
Corporation on the applicable payment date; provided, further, that if an
-------- -------
employee's employment is terminated during the 12-month period occurring prior
to the date on which the bonus is payable for a reason other than by the
Surviving Corporation for cause or
<PAGE>
voluntarily by the employee, then the employee shall be entitled to receive the
bonus payable on such date.
(b) Retirement Plan. As soon as practicable after Closing, Parent shall
---------------
cause the Surviving Corporation to establish a defined contribution retirement
plan which permits employees to make elective "401(k)" contributions, and which
on the effective date thereof, subject to U.S. Internal Revenue Code
requirements, shall contain the terms and conditions provided for on Section
-------
4.7(b) Company Disclosure Schedule.
- - ------
(c) Management Incentive Plan. Parent shall cause the Surviving
-------------------------
Corporation to maintain the Company's current management incentive plan in
effect for the fiscal year ending September 30, 1999. Parent shall cause the
Surviving Corporation to establish a plan containing terms and conditions that
are, in general, substantially similar to those in the management incentive plan
in effect on the date hereof, covering key employees of the Company with respect
to the fiscal years ending September 30, 2000 and 2001.
SECTION 4.8. EMPLOYMENT AGREEMENTS.
Parent shall cause the Surviving Corporation to enter into employment
agreements in the forms attached hereto as Exhibits C-1 and C-2 with each of
------------ ---
Terrence C. Walsh and Charles Kimmel.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1. PROXY STATEMENT.
The Company shall prepare and file with the SEC, as soon as practicable
after the date hereof, and in no event later than twenty (20) days after the
date hereof, a proxy statement (the "Proxy Statement") to be sent to
---------------
stockholders of the Company in connection with the Company Stockholders'
Meeting, and shall use its reasonable commercial efforts to have the Proxy
Statement cleared as promptly as practicable by the SEC. If at any time prior
to the Effective Time any event shall occur that should be set forth in an
amendment of or a supplement to the Proxy Statement, the Company shall prepare
and file with the SEC such amendment or supplement as soon thereafter as is
reasonably practicable. Parent, Newco and the Company shall cooperate with each
other in the preparation of the Proxy Statement, and prior to filing the Proxy
Statement with the SEC, Rogers & Wells, LLP, counsel to Parent, shall have
approved of the form and substance of the Proxy Statement. The Company shall
notify Parent of the receipt of any comments of the SEC with respect to the
Proxy Statement and of any requests by the SEC for any amendment or supplement
thereto or for additional information, and shall provide to Parent promptly
copies of all correspondence between the Company or any representative of the
Company and the SEC with respect to the Proxy Statement. The Company shall give
Parent and its counsel the opportunity to review the Proxy Statement and all
responses to requests for additional information by and replies to comments of
the SEC before their being filed with, or sent to, the SEC. Each of the
Company, Parent and Newco agrees to use its reasonable commercial efforts, after
consultation with the other parties hereto, to respond promptly to all such
comments of and requests by the SEC and to cause the Proxy Statement to be
mailed to the
<PAGE>
holders of Company Common Stock entitled to vote at the Company Stockholders'
Meeting at the earliest practicable time.
SECTION 5.2. COMPANY STOCKHOLDERS' MEETING
The Company shall, through the Company Board, duly call, give notice of,
convene and hold a meeting of its stockholders (the "Company Stockholders'
---------------------
Meeting") for the purpose of voting on the adoption of this Agreement (the
- - -------
"Company Stockholders' Approval") as soon as reasonably practicable after the
- - -------------------------------
date hereof and, in any event, no later than November 18, 1999; provided,
however, that if on or before November 18, 1999, the SEC shall have commenced a
review of the Proxy Statement, the Company Stockholders' Meeting shall be held
as soon as reasonably practicable after the SEC has completed its review. The
Company shall, through the Company Board, include in the Proxy Statement the
recommendation of the Company Board that the stockholders of the Company adopt
this Agreement, and shall use its reasonable commercial efforts to obtain such
adoption; provided, however, that if the Company Board is advised by counsel
-------- -------
that its fiduciary duties require it to pursue a Superior Proposal, the Company
Board may modify or withdraw its recommendation of adoption of the Merger
(subject to the other terms and conditions hereof). At such meeting, Parent
shall, and shall cause its Subsidiaries to, cause all shares of Company Common
Stock then owned by Parent or any such Subsidiary to be voted in favor of the
adoption of this Agreement.
SECTION 5.3. CONSENTS; APPROVALS
The Company and Parent shall each use their reasonable efforts to obtain
all consents, waivers, approvals, authorizations or orders (including, without
limitation, all governmental and regulatory rulings and approvals), and the
Company and Parent shall make all filings (including, without limitation, all
filings with any Governmental Authority) required in connection with the
authorization, execution and delivery of this Agreement by the Company and
Parent and the consummation by them of the transactions contemplated hereby. If
required under Applicable Law, the Company and Parent shall furnish all
information required to be included in the Proxy Statement, or for any
application or other filing to be made pursuant to the rules and regulations of
any governmental body in connection with the transactions contemplated hereby.
Except where prohibited by applicable statutes and regulations, each Party shall
promptly provide the other (or its counsel) with copies of all filings made by
such party with any state or federal government entity in connection with this
Agreement or the transactions contemplated hereby.
SECTION 5.4. INDEMNIFICATION.
For six years after the Effective Time, Parent shall indemnify, defend and
hold harmless each person who was an officer, director or employee of the
Company or one of its Subsidiaries immediately prior to the Effective Time (each
an "Indemnified Party") against all losses, claims, damages, liabilities, fees,
-----------------
costs and expenses (including reasonable fees and disbursements of counsel
approved by Parent in advance of disposition of judgments, fines, losses,
claims, liabilities and amounts paid in settlement (provided that any such
settlement is effected with the written consent of Parent)) based in whole or in
part on the fact that such person is or was such a director, officer or employee
and arising out of actions or omissions occurring at or prior to the Effective
Time (including, without limitation, matters arising out of or pertaining to the
<PAGE>
transactions contemplated hereby) to the full extent provided under the terms of
the Company's Articles of Incorporation, Bylaws and indemnification agreements,
all as in effect at the date hereof, including provisions relating to
advancement of expenses incurred in the defense of any action or suit, and
subject to applicable law; provided, that, in the event any claim or claims are
asserted or made within such six year period, all rights to indemnification or
advancement of expenses in respect of such claim or claims shall continue until
disposition of any and all such claims; and provided, further, that nothing
herein shall impair any existing rights or obligations of any present or former
directors or officers of the Company. In the event of any threatened or actual
claim, suit, proceeding or investigation as to which an Indemnified Party is
entitled to indemnification or advancement of expenses hereunder (whether
asserted before, at or after the Effective Time), the Indemnified Party may
retain counsel satisfactory to Parent, but in no event shall Parent be required
to reimburse the costs of such counsel hereunder unless Parent shall have
declined to assume the defense of such claim within ten Business Days of a
written request for indemnification given in accordance with Section 8.5. The
-----------
Surviving Corporation shall, until the sixth anniversary of the Effective Time,
cause to be maintained in effect, to the extent available, the policies of
directors' and officers' liability insurance maintained by the Company and its
Subsidiaries as of the date hereof (or policies of at least the same coverage
and amounts containing terms that are no less advantageous to the insured
parties) with respect to claims arising from facts or events that occurred on or
prior to the Effective Time.
SECTION 5.5. TARGETTI (USA), LLC
The Company shall take all actions necessary to permit Parent to transfer
its interest in Targetti (USA), LLC to Newco prior to the Effective Time of the
Merger.
ARTICLE VI
CONDITIONS TO THE MERGER
SECTION 6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligation of each Party to effect the Merger shall be
subject, at its option, to the fulfillment at or prior to the Effective Time of
the following conditions:
(a) Shareholder Approval. This Agreement and the Merger shall have been
--------------------
approved and adopted by the requisite vote of the shareholders of the Company in
accordance with applicable provisions of the Company's Articles of Incorporation
and the CGCL.
(b) No Illegality. No Applicable Law shall prohibit consummation of the
-------------
Merger.
(c) Governmental Approvals. All requirements of any applicable foreign
----------------------
competition and antitrust statutes and regulations to the consummation of the
Merger shall have been satisfied.
<PAGE>
SECTION 6.2. CONDITIONS TO PARENT'S AND NEWCO'S OBLIGATIONS TO EFFECT THE
MERGER.
The obligation of each of Parent and Newco to effect the Merger in addition
shall be subject, at its option, to the fulfillment at or prior to the Effective
Time of the following conditions:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties made by the Company in this Agreement shall be true and correct in
all material respects (if not qualified by materiality) and in all respects (if
qualified by materiality) as of the Closing Date, as though made on and as of
the Closing Date or, in the case of representations and warranties made as of a
specified date earlier than the Closing Date, on and as of such earlier date,
and the Company shall have delivered to Parent a certificate, dated the Closing
Date and executed on behalf of the Company by its Chairman of the Board,
President or any Executive or Senior Vice President, to such effect.
(b) Performance of Obligations. The Company shall have performed and
--------------------------
complied with, in all material respects, each agreement, covenant and obligation
required by this Agreement to be so performed or complied with by the Company at
or prior to the Closing, and the Company shall have delivered to Parent a
certificate, dated the Closing Date and executed on behalf of the Company by its
Chairman of the Board, President or any Executive or Senior Vice President, to
such effect.
(c) No Governmental Actions. No preliminary or permanent injunction or
-----------------------
other order, decree or ruling issued by any court of competent jurisdiction nor
any statute, rule, regulation or order entered, promulgated or enacted by any
governmental, regulatory or administrative agency or authority shall be in
effect that would restrain the effective operation of the business of the
Company and the Subsidiaries from and after the Effective Time, and no
proceeding challenging this Agreement or seeking to prohibit, alter, prevent or
materially delay the Merger shall be pending before any Governmental Authority.
(d) Consents Obtained. The Company shall have obtained the following
-----------------
consents: (i) the consent of Union Bank of California, NA pursuant to the
Amended and Restated Line of Credit Agreement, dated May 10, 1999 and the
Promissory Note issued by the Company to Union Bank of California, NA dated
April 13, 1999; and (ii) the consents of those employees of the Company
previously identified by Parent to the Company.
(e) Employment Agreements. Each of the existing employment agreements
---------------------
between the Company and its executive officers shall have been terminated at no
cost to the Company.
SECTION 6.3. CONDITIONS TO THE COMPANY'S OBLIGATION TO EFFECT THE MERGER.
The obligation of the Company to effect the Merger in addition shall be
subject, at its option, to the fulfillment at or prior to the Effective Time of
the following conditions:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties made by Parent and Newco in this Agreement shall be true and correct
in all material respects (if not qualified by materiality) and in all respects
(if qualified by materiality) as of the Closing Date as though made on and as of
the Closing Date or, in the case of representations and warranties made as of a
specified date earlier than the Closing Date, on and as of such earlier date,
and each of Parent and Newco shall have delivered to the Company a certificate,
dated the Closing Date and executed on behalf of each of Parent and Newco by its
Chairman of the Board, President or any Executive or Senior Vice President, to
such effect.
<PAGE>
(b) Performance of Obligations. Each of Parent and Newco shall have
--------------------------
performed and complied with in all material respects each agreement, covenant
and obligation required by this Agreement to be so performed or complied with by
Parent and Newco at or prior to the Closing, and each of Parent and Newco shall
have delivered to the Company a certificate, dated the Closing Date and executed
on behalf of each of Parent and Newco by its Chairman of the Board, President or
any Executive or Senior Vice President, to such effect.
ARTICLE VII
TERMINATION AND ABANDONMENT
SECTION 7.1. TERMINATION AND ABANDONMENT.
Any Party desiring to terminate this Agreement pursuant to this Section 7.1
-----------
shall give notice to the other party in accordance with Section 8.5. This
-----------
Agreement may be terminated and the Merger may be abandoned at any time prior to
the Effective Time, whether before or after approval by the shareholders of the
Company:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company, if (i) prior to the Effective Time,
any Governmental Authority shall have issued an order, decree or ruling or taken
any other action, in each case permanently restraining, enjoining or otherwise
prohibiting all or any material part of the transactions contemplated hereby and
such order, decree, ruling or other action shall have become final and non-
appealable; or (ii) the Merger shall not have been completed by December 15,
1999, and such failure to consummate the Merger is not the result of a breach of
this Agreement by the party seeking termination;
(c) by Parent if: (i) the Company Board shall have resolved to enter into
a letter of intent, agreement in principle or similar agreement, whether or not
legally binding, or into any definitive written agreement with respect to an
Alternative Transaction (including a Superior Proposal) with a Third Party; (ii)
if the Company Board receives a written proposal with respect to an Alternative
Transaction (including a Superior Proposal) and takes a neutral position or
makes no recommendation with respect to such proposal after a reasonable amount
of time (and in no event more than ten Business Days following such receipt) has
elapsed for the Company Board to review and make a recommendation with respect
to such proposal; (iii) the Company Board shall have withdrawn, or modified or
amended in a manner adverse to Parent or Newco, its approval or recommendation
of the Merger, or approved, recommended or endorsed any proposal for an
Alternative Transaction (including a Superior Proposal); or (iv) the required
approval of the shareholders of the Company shall not have been obtained by
reason of a failure to obtain the required vote at a duly held meeting of
shareholders (including any adjournment thereof);
(d) by either Parent or Newco, on the one hand, or the Company, on the
other hand, if any representation of the non-terminating party set forth in this
Agreement shall prove to be untrue in any material respect when made or if there
has been a material breach of any warranty, covenant or agreement on the part of
the non-terminating party set forth in this Agreement, which breach has not been
cured within five (5) business days following receipt by the non-terminating
party of notice of such breach from the terminating party or assurance of such
cure reasonably satisfactory to the terminating party shall not have been given
by or on behalf of the non-terminating party within such five business day
period; or
<PAGE>
(e) by Parent or Newco, if any Material Adverse Effect shall have occurred
with respect to the Company.
SECTION 7.2. EFFECT OF TERMINATION.
Except as provided in Section 4.2 and Section 8.2 hereof, in the event of
----------- -----------
the termination of this Agreement and the abandonment of the Merger all strictly
pursuant to Section 7.1, this Agreement shall thereafter become void and have no
-----------
effect, and no Party shall have any liability to any other Party or its
shareholders or directors or officers in respect hereof, except that nothing
herein shall relieve any Party from liability for any willful breach hereof.
Notwithstanding anything to the contrary set forth herein, if Parent terminates
this Agreement pursuant to Sections 7.1(c)(i), 7.1(c)(ii) or 7.1(c)(iii), then
------------------ ---------- -----------
Company shall pay to Parent, on the second U.S. Business Day following any such
termination, an amount equal to Five Hundred Thousand Dollars ($500,000), plus
the reasonable costs and expenses (including, without limitation, legal,
accounting and other professional fees) incurred by Parent and Newco in
connection with the negotiation, execution and performance of this Agreement and
the transactions contemplated hereby.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES.
None of the representations and warranties in this Agreement or in any
instrument delivered pursuant hereto shall survive the Effective Time, provided
that this Section 8.1 shall not limit any covenant or agreement of the Parties
-----------
that by its terms contemplates performance after the Effective Time.
SECTION 8.2. EXPENSES, ETC.
Except as contemplated by this Agreement, all costs and expenses incurred
in connection with this Agreement and the consummation of the transactions
contemplated hereby shall be paid by the Party incurring such costs and
expenses, except that Parent and the Company shall each pay one half of the
costs incurred in printing and distributing the Proxy Statement, if any.
SECTION 8.3. PUBLICITY.
The Company and Parent agree that they will not issue any press release or
make any other public announcement concerning this Agreement or the transactions
contemplated hereby without the prior consent of the other Party, except that
the Company or Parent may make such public disclosure that it believes in good
faith to be required by law (in which event such Party shall consult with the
other prior to making such disclosure).
<PAGE>
SECTION 8.4. EXECUTION IN COUNTERPARTS.
For the convenience of the Parties, this Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
SECTION 8.5. NOTICES.
All notices requests, claims, demands and other communications that are
required or may be given pursuant to the terms of this Agreement shall be in
writing and shall be deemed given on the day delivered personally or sent by
telecopy (with a confirmation copy by a means permitted hereunder), if delivered
or sent on a Business Day or on the first Business Day thereafter if not, and
one Business Day after consignment to an overnight courier (providing proof of
delivery), or mailed by registered or certified mail, postage prepaid, to the
respective parties at their addresses as follows:
If to Newco or Parent to:
Targetti Sankey S.p.A.
Via Pratese, 164
50145 Firenze, Italia
Attention: Mr. Lorenzo Targetti
with a copy to:
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
Attention: G. David Brinton, Esq.
Telecopy: (212) 878-8375
with a copy to:
Rogers & Wells LLP
City Tower
40 Basinghall Street
London EC2V 5DE, England
Attention: Michael S. Immordino, Esq.
Telecopy: 44-171-628-6111
If to the Company, to:
1513 E. Saint Gertrude Place
Santa Ana, California 92705
Attention: Terrence C. Walsh
<PAGE>
with a copy to:
Cooley Godward LLP
5 Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306
Attention: Andrei Manoliu
Telecopy: 650-857-0663
or such other address or addresses as any Party shall have designated by notice
in writing to the other parties hereto.
SECTION 8.6. WAIVERS.
The Company, on the one hand, and Parent and Newco, on the other hand, may,
by written notice to the other, at any time prior to the Effective Time (i)
extend the time for the performance of any of the obligations or other actions
of the other under this Agreement; (ii) waive any inaccuracies in the
representations or warranties of the other contained in this Agreement or in any
document delivered pursuant to this Agreement; (iii) waive compliance by the
other with any of the conditions contained in this Agreement; or (iv) waive
performance of any of the obligations of the other under this Agreement. Except
as provided in the preceding sentence, no action taken pursuant to this
Agreement, including, without limitation, any investigation by or on behalf of
any Party, shall be deemed to constitute a waiver by the Party taking such
action of compliance with any representations, warranties, covenants or
agreements contained in this Agreement. The waiver by any Party of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach.
SECTION 8.7. ENTIRE AGREEMENT.
This Agreement and the documents executed at the Effective Time in
connection herewith, constitute the entire agreement among the Parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral and written, among the Parties with respect to the subject
matter hereof. No representation, warranty, promise, inducement or statement of
intention has been made by any Party that is not embodied in this Agreement or
such other documents, and none of the Parties shall be bound by, or be liable
for, any alleged representation, warranty, promise, inducement or statement of
intention not embodied herein or therein.
SECTION 8.8. APPLICABLE LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of California.
SECTION 8.9. SPECIFIC PERFORMANCE.
The Parties agree that irreparable damage would occur in the event any
provision of this Agreement were not performed in accordance with the terms
hereof and that the Parties shall be
<PAGE>
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 8.10. BINDING EFFECT, BENEFITS.
This Agreement shall inure to the benefit of and be binding upon the
Parties and their respective permitted successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the Parties
or their respective permitted successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement; provided,
--------
however, that the provisions of Sections 5.4 hereof shall accrue to the benefit
- - ------- ------------
of, and shall be enforceable by, each of the current and former officers,
directors, employees and agents of the Company and its Subsidiaries and the
provisions of Section 4.7 hereof shall accrue to the benefit of, and shall be
-----------
enforceable by each active employee of the Company and its Subsidiaries as
provided in Section 4.7 hereof.
-----------
SECTION 8.11. ASSIGNABILITY.
Neither this Agreement nor any of the Parties' rights hereunder shall be
assignable by any Party without the prior written consent of the other Parties.
SECTION 8.12. AMENDMENTS.
This Agreement may be varied, amended or supplemented at any time before or
after the approval and adoption of this Agreement by the shareholders of the
Company, by action of the respective boards of directors of the Company and
Newco and by the proper officers of Parent, without action by the shareholders
thereof; provided that, after approval and adoption of this Agreement by the
--------
Company's shareholders, no such variance, amendment or supplement shall, without
consent of such shareholders, reduce the amount or alter the form of the
consideration that the holders of the capital stock of the Company shall be
entitled to receive following the Effective Time pursuant to Section 1.5 hereof.
-----------
Without limiting the generality of the foregoing, this Agreement may only be
amended, varied or supplemented by an instrument in writing, signed by the
Parties.
SECTION 8.13. HEADINGS.
The descriptive headings contained in this Agreement are included for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the Parties have caused their duly authorized
representatives to execute and deliver this Agreement as of the date first above
written.
TARGETTI SANKEY S.p.A.
By:________________________________
Name:
Title:
FLORENCE ACQUISITION CORP.
By:________________________________
Name:
Title:
TIVOLI INDUSTRIES, INC.
By:________________________________
Name:
Title:
ANNEX I
DEFINED TERMS
"Agreement" shall mean the Agreement and Plan of Merger to which this Annex
---------
I is attached. References in this Annex I to a "Section" shall mean a reference
-------
to the specified Section of the Agreement.
"Alternative Transactions" shall have the meaning ascribed to it in Section
------------------------
4.4(c).
"Applicable Law" shall mean any foreign or domestic, federal, state or
--------------
local, statute, law, ordinance, rule, administrative interpretation, regulation,
order, writ, injunction, directive, permit, judgment, decree or other
requirement of any Governmental Authority.
"Blue Sky" shall have the meaning ascribed to it in Section 2.5.
--------
"Business Day" shall mean a weekday other than a public holiday in the U.S.
------------
or the Republic of Italy, as the case may be. The term "U.S. Business Day"
-----------------
shall mean a business day for purposes of the Exchange Act.
"Certificate" shall have the meaning ascribed to it in Section 1.7(a).
-----------
<PAGE>
"CGCL" shall have the meaning ascribed to it in Section 1.1.
----
"Closing" shall have the meaning ascribed to it in Section 1.3.
-------
"Closing Date" shall have the meaning ascribed to it in Section 1.3.
------------
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Committee" shall have the meaning ascribed to it in Section 2.4(b).
---------
"Company" shall have the meaning ascribed to it in the Recitals to the
-------
Agreement.
"Company Board" shall have the meaning ascribed to it in Section 2.3.
-------------
"1998 Company Balance Sheet" shall have the meaning ascribed to it in
--------------------------
Section 2.9.
"Company Common Stock" shall have the meaning ascribed to it in Section
--------------------
1.5(b).
"Company Employee Plans" shall have the meaning ascribed to it in Section
----------------------
2.11(a).
"Company ERISA Affiliate" shall have the meaning ascribed to it in Section
-----------------------
2.11(a).
"Company Permits" shall have the meaning ascribed to it in Section 2.6.
---------------
"Company Preferred Stock" shall have the meaning ascribed to it in Section
-----------------------
2.3.
"Company Stock Option" shall mean options to purchase Company Common Stock
--------------------
held by current and former employees, consultants, vendors, customers, officers
and directors of the Company which were granted under the Option Plans.
"Company Stockholder Approval" shall have the meaning ascribed to it in
----------------------------
Section 5.2.
"Company Stockholders' Meeting" shall have the meaning ascribed to it in
-----------------------------
Section 5.2.
"Constituent Corporations" shall have the meaning ascribed to it in the
------------------------
Recitals to the Agreement.
"Dissenting Shares" shall have the meaning ascribed to it in Section 1.8.
-----------------
"Effective Time" shall have the meaning ascribed to it in Section 1.3.
--------------
"Encumbrance" shall mean any pledge, security interest, lien, claim,
-----------
encumbrance, mortgage, charge, hypothecation, option, right of first refusal or
offer, preemptive right, voting agreement, voting trust, proxy, power of
attorney, escrow, option, forfeiture, penalty, action at law or in equity,
security agreement, shareholder agreement or other agreement, arrangement,
contract, commitment, understanding or obligation, or any other restriction,
qualification or limitation on the use, transfer, right to vote, right to
dissent and seek appraisal, receipt of income or other exercise of any attribute
of ownership.
<PAGE>
"Environmental Approvals" shall have the meaning ascribed to it in Section
-----------------------
2.16 hereof.
"ERISA" shall have the meaning ascribed to it in Section 2.11(a).
-----
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
------------
"GAAP" shall have the meaning ascribed to it in Section 2.7(b).
----
"Governmental Authority" shall mean any: (a) nation, principality, state,
----------------------
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; (c) governmental or quasi-governmental authority of any nature
(including any governmental division, subdivision, department, agency, bureau,
branch, office, commission, council, board, instrumentality, officer, official,
representative, organization, unit, body or Entity and any court or other
tribunal); (d) multinational organization or body; or (e) individual, Entity or
body exercising, or entitled to exercise, any executive, legislative, judicial,
administrative, regulatory, police, military or taxing authority or power of any
nature.
"Indemnified Party" shall have the meaning ascribed to it in Section 5.4.
-----------------
"Intellectual Property Rights" shall have the meaning ascribed to it in
----------------------------
Section 2.20(b).
"IRS" shall have the meaning ascribed to it in Section 2.11(b).
---
"Knowledge" or "best knowledge" of the Company shall mean the knowledge of
--------- --------------
any of the executive officers of the Company (within the meaning of Section 16
of the Exchange Act) which they have or would have had if they had discharged
their obligations as such officers in a reasonably prudent and customary manner.
"Liens" shall have the meaning ascribed to it in Section 2.3.
-----
"Material" means material to the value of the Company and its Subsidiaries,
--------
taken as a whole.
"Materials" shall have the meaning ascribed to it in Section 4.2(b).
---------
"Material Adverse Effect" shall mean an effect on the business, assets,
-----------------------
condition (financial or other), operating results or prospects of the Company
that is material and adverse to the value of the Company and its Subsidiaries,
taken as a whole, other than the direct effects of (A) the announcement of the
transactions contemplated hereby, (B) general economic conditions or (C)
conditions that are generally applicable to the business segments in which the
Company or its Subsidiaries conducts business. In addition, and without limiting
the generality of the foregoing sentence, the term "Material Adverse Effect"
shall not include the effect on the Company of general business declines or
reverses, such a slower than forecast revenues or bookings (whether as a result
of economic conditions, actions of competitors or business interruptions),
reductions in gross margins or technical problems with product development,
introduction or evaluation or increases in operating expenses attributable to
changes in product shipment volumes or changes in supplier pricing.
<PAGE>
"Material Contracts" shall have the meaning ascribed to it in Section
------------------
2.5(a).
"Merger" shall have the meaning ascribed to it in the Recitals to the
------
Agreement.
"Merger Consideration" shall have the meaning ascribed to it in Section
--------------------
1.5(c).
"NASD" shall have the meaning ascribed to it in Section 2.5.
----
"Newco" shall have the meaning ascribed to it in the Recitals to the
-----
Agreement.
"Newco Common Stock" shall have the meaning ascribed to it in 1.5(a).
------------------
"Option Plans" shall mean the 1994 Stock Option Plan, 1995 Stock Option
------------
Plan, the 1995 Non-Employee Director Stock Option Plan and the 1997 Equity
Incentive Plan.
"Parent" shall have the meaning ascribed to it in the Recitals to the
------
Agreement.
"Paying Agent" shall have the meaning ascribed to it in Section 1.7(a).
------------
"Proxy Statement" shall have the meaning ascribed to it in Section 5.1.
---------------
"SEC" shall have the meaning ascribed to it in Section 1.7(a).
---
"SEC Reports" shall have the meaning ascribed to it in Section 2.7.
-----------
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Stock Purchase Agreement" shall have the meaning ascribed to it in the
------------------------
Recitals.
"Subsidiary" shall mean any corporation, partnership, joint venture or
----------
other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are at the time owned by the Company and/or one or
more other direct or indirect Subsidiaries.
"Superior Proposal" shall have the meaning ascribed to it in Section
-----------------
4.4(c).
"Surviving Corporation" shall have the meaning ascribed to it in Section
---------------------
1.2.
"Surviving Corporation Common Stock" shall have the meaning ascribed to it
----------------------------------
in Section 1.5(a).
"Tax" and "Taxes" shall have the meanings ascribed to it in Section
--- -----
2.15(a).
"Tax Returns" shall have the meaning ascribed to it in Section 2.15(a).
-----------
"Third Party" shall have the meaning ascribed to it in Section 4.4(a).
-----------
<PAGE>
"Transaction Expenses" shall mean all legal and accounting fees and
--------------------
expenses incurred by or on behalf of the Company in connection with the
transactions contemplated hereby and the preparation, execution and delivery of
this Agreement.
"Warrant Consideration" shall have the meaning ascribed to it in Section
---------------------
1.6(b).
<PAGE>
Schedule 1.4(a)
Paolo Targetti
Alvaro Andorlini
Lorenzo Targetti
Charles Kimmel
Terrence Walsh
Schedule 1.4(b)
Lorenzo Targetti, Chairman of the Board
Terrence Walsh, Chief Executive Officer and Vice Chairman of the Board
Charles Kimmel, President and Chief Financial Officer
<PAGE>
Schedule 4.7(a)
<TABLE>
<CAPTION>
Retention Plan
----------------------------------------------------------------
Closing Date 1/st/ 2/nd/ Total
of Merger Anniversary of Anniversary
Closing of Closing
$ $ $ $
<S> <C> <C> <C> <C>
Charles Kimmel 0 100,000* 50,000 150,000
Marie Paris 15,000 17,500 17,500 50,000
Nigel Coppins 2,500 2,500 2,500 7,500
Richard Call 2,500 2,500 2,500 7,500
Bert Stieg 5,000 6,250 6,250 17,500
Guillermo Briseno 4,500 5,000 5,000 14,500
Tom Nagano 4,500 5,000 5,000 14,500
----------------------------------------------------------------
34,000 138,750 88,750 261,500
================================================================
</TABLE>
* Charles Kimmel will be paid $50,000 on January 10, 2000 and $50,000 on the
second anniversary of the Closing Date.
Schedule 4.7(b)
Employer matching contributions with respect to each participant's account
at least equal to 50% of the employee's contribution up to 6% of the
employee's base salary.
<PAGE>
EXHIBIT A TO
------------
MERGER AGREEMENT
----------------
VOTING AGREEMENT
This Voting Agreement (the "Agreement") is made and entered into as of
---------
September ___, 1999, by and between Targetti Sankey S.p.A., an Italian
corporation ("Parent"), Terrence C. Walsh ("Walsh") and Marilyn Walsh ("Spouse,"
------ ----- ------
and together with Walsh, the "Shareholders"), as joint tenants.
------------
RECITALS:
WHEREAS, the Shareholders are the joint owners of 372,000 shares of common
stock, par value $0.001 per share (the "Common Stock") of the Company; and
------------
WHEREAS, in order to induce Parent and certain of its affiliates to enter
into an agreement and plan of merger (the "Merger Agreement") with Tivoli
----------------
Industries, Inc., a California corporation (the "Company"), the Shareholders
-------
have agreed to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
Definitions; Provisions Concerning Shares
SECTION 1.1. Definitions. Capitalized terms used and not defined herein have
-----------
the respective meanings ascribed to them in the Merger Agreement. For purposes
of this Agreement, "Beneficially Own" or "Beneficial Ownership" with respect to
---------------- --------------------
any securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), including pursuant to any agreement, arrangement
------------
or understanding, whether or not in writing.
SECTION 1.2. Provisions Concerning the Shares.
--------------------------------
(a) The Shareholders hereby agree that during the period commencing on the
date hereof and continuing until the first to occur of the Effective Time or the
date on which the Merger Agreement is terminated in accordance with its terms,
at any meeting of the holders of the Common Stock, however called, or in
connection with any written consent of the holders of Common Stock, the
Shareholders shall vote (or cause to be voted) all shares of Common Stock held
of record or Beneficially Owned by the Shareholders, whether heretofore owned or
hereafter acquired (collectively, the "Shares"), (i) in favor of the Merger, the
------
adoption of the Merger Agreement by the Company and the approval of the terms
thereof, and each of the other transactions and actions contemplated by the
Merger Agreement (and the matters related to the consummation thereof) and any
actions required in furtherance thereof; and (ii) against any action or
agreement that would result in a breach in any respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or that would result in any of the conditions to the
obligations of the Company under the Merger Agreement not being fulfilled.
Notwithstanding anything contained herein to the contrary, the Shareholders
shall not be
<PAGE>
required by this Agreement to exercise options for Shares if the exercise price
per Share pursuant to such option would exceed the fair market value of a Share.
(b) In the event of a stock dividend or distribution, or any change in
Common Stock by reason of any stock dividend, split-up, recapitalization,
combination, exchange of shares or the like, the term "Shares" shall be deemed
------
to refer to and include the Shares as well as all such stock dividends and
distributions and any shares into which or for which any or all of the Shares
may be changed or exchanged.
ARTICLE II
Representations and Warranties of the Shareholders
The Shareholders hereby represent and warrant jointly and severally to
Parent as follows:
<PAGE>
SECTION 2.1. Authority; Non-Contravention. Each of the Shareholders
----------------------------
has the legal right and power to execute, deliver and perform this Agreement,
and the execution, delivery and performance by each of the Shareholders of this
Agreement and any other agreements, certificates and instruments to be executed
by each of the Shareholders in connection with or pursuant to this Agreement and
the consummation of the transactions contemplated hereby and thereby (i) require
no action by or in respect of, consent, approval or authorization of, or filing
with, any governmental body, agency, official or authority or any other person
or entity, and (ii) do not and will not violate or constitute a default under
any provision of applicable law or regulation or of any agreement, judgment,
injunction, order, decree, or other instrument binding on either of the
Shareholders or result in the imposition of any lien on any asset of either of
the Shareholders.
SECTION 2.2. Binding Effect. This Agreement has been duly executed
--------------
and delivered by each of the Shareholders and is a valid and binding agreement
of each of the Shareholders, enforceable against each of the Shareholders in
accordance with its terms.
SECTION 2.3. Shares. The joint Shareholders are the joint record
------
owners and the joint Beneficial Owners of the Shares. Except as set forth on the
signature pages hereto, the Shareholders do not own any options to purchase or
rights to subscribe for or otherwise acquire any securities of the Company. The
Shareholders have joint voting power and joint power to issue instructions with
respect to the Shares, the joint power of disposition, the joint power of
conversion, the joint power to demand appraisal rights and the joint power to
agree to all of the matters set forth in this Agreement, in each case with
respect to all of the Shares beneficially owned by the Shareholders with no
limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement.
SECTION 2.4. Liens. Except as previously disclosed in writing by the
-----
Shareholders to Parent, the Shares are owned by the Shareholders free and clear
any Liens. As used herein "Lien" means any mortgage, pledge, assessment,
----
security interest, lease, lien, adverse claim, levy, charge or other encumbrance
of any kind.
SECTION 2.5. Finder's Fees. No investment banker, broker or finder is
-------------
entitled to a commission or fee from Parent or the Company in respect of this
Agreement based upon any arrangement or agreement made by or on behalf of either
of the Shareholders.
ARTICLE III
Representation and Warranty of Parent
Parent represents and warrants to the Shareholder:
SECTION 3.1. Corporate Power and Authority. Parent has all requisite
-----------------------------
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder. The execution, delivery and performance by Parent of this
Agreement and the consummation by Parent of the transactions contemplated hereby
have been duly authorized. This Agreement has been duly executed and delivered
by Parent and is a valid and binding agreement of Parent, enforceable against it
in accordance with its terms.
ARTICLE IV
Covenants and Agreements
The Shareholders hereby jointly and severally covenant and agree that:
<PAGE>
SECTION 4.1. No Proxies for or Encumbrance On Shares. Beginning on
---------------------------------------
the date hereof and continuing until this Agreement terminates pursuant to
Section 5.1, the Shareholders shall not, without the prior written consent of
- - -----------
Parent, directly or indirectly, (i) grant any proxies or enter into any voting
trust or other agreement or arrangement with respect to the voting of any Shares
or (ii) acquire, sell, assign, transfer, encumber or otherwise dispose of, or
enter into any contract, option or other arrangement or understanding with
respect to the direct or indirect acquisition or sale, assignment, transfer,
encumbrance or other disposition of, any Shares during the term of this
Agreement. The Shareholders shall not seek or solicit any such acquisition or
sale, assignment, transfer, encumbrance or other disposition or any such
contract, option or other arrangement or assignment or understanding and agrees
to notify Parent promptly and to provide all details requested by Parent if the
Shareholders shall be approached or solicited, directly or indirectly, by any
person with respect to any of the foregoing.
SECTION 4.2. No Shopping. The Shareholders shall not directly or
-----------
indirectly (i) solicit, initiate or encourage (or authorize any person to
solicit, initiate or encourage) any inquiry, proposal or offer from any person
to acquire the business, property or capital stock of the Company or any direct
or indirect subsidiary thereof, or any acquisition of a substantial equity
interest in, or a substantial amount of the assets of, the Company or any direct
or indirect subsidiary thereof, whether by merger, purchase of assets, tender
offer or other transaction or (ii) subject to the fiduciary duty under
applicable law of Walsh as an officer or director of the Company, participate in
any discussion or negotiations regarding, or furnish to any other person any
information with respect to, or otherwise cooperate in any way with, or
participate in, facilitate or encourage any effort or attempt by any other
person to do or seek any of the foregoing. The Shareholders shall promptly
advise Parent of the terms of any communications it may receive relating to any
of the foregoing.
SECTION 4.3. Conduct of Shareholder. The Shareholders will not (i)
-----------------------
take, agree or commit to take any action that would make any representation and
warranty of the Shareholders hereunder inaccurate in any respect as of any time
prior to the termination of this Agreement or (ii) omit, or agree or commit to
omit, to take any action necessary to prevent any such representation or
warranty from being inaccurate in any respect at any such time.
SECTION 4.4. Employment Agreement. Upon the closing of the Merger
--------------------
(as defined in the Merger Agreement), Walsh shall execute and deliver to the
Company an employment agreement, substantially in the form of Exhibit A hereto
---------
(the "Employment Agreement").
--------------------
SECTION 4.5. Update of SEC Filings. The Shareholders will update all filings
---------------------
made by them with the Securities and Exchange Commission (the "SEC") and file
---
all documents required to be filed with the SEC in compliance with the Exchange
Act as are necessary to consummate the transactions contemplated by this
Agreement.
SECTION 4.6. Disclosure. Without the prior written consent of the other,
----------
neither Parent nor the Shareholders will, and Parent and the Shareholders shall
cause their respective representatives not to, make any release to the press or
other public disclosure, or make any statement to any employee (other than those
officers of the Company whose involvement in the merger is required in order to
consummate the transaction), competitor, customer, client or supplier of the
Company or any of its subsidiaries to any other person with respect to the
existence or contents of this Agreement, except for such public disclosure as
may be necessary, following consultation with legal counsel, for the party
proposing to make the disclosure not to be in violation of or default under any
applicable law, regulation or governmental order. If either party proposes to
make such disclosure, that party will discuss with the other party its rationale
for such disclosure and provide such party with the text of this proposed
disclosure, as far in advance of its disclosure as is practicable, and will in
good faith consult with and consider the suggestions of the other party
concerning the nature and scope of the information it proposes to disclose.
Notwithstanding
<PAGE>
the foregoing, the Shareholders hereby permit their identity and ownership of
the Shares and the nature of the commitments, arrangements and understandings
under this Agreement to be disclosed by the Company in its Proxy Statement (and
all related documents) relating to the Merger.
ARTICLE V
Miscellaneous
SECTION 5.1. Termination. Except as otherwise provided in Section
----------- -------
1.2 of this Agreement, this Agreement shall terminate (a) in the event the
- - ---
Merger Agreement is terminated in accordance with its terms upon such
termination, and (b) in the event the Merger is consummated, upon the Effective
Time; provided, however, that no such termination shall relieve any party of
-----------------
liability for a breach hereof prior to termination.
SECTION 5.2. Specific Performance. The parties hereto agree that
--------------------
the Parent may be irreparably damaged if for any reason the Shareholders failed
to perform any of their other obligations under this Agreement, and that the
Parent would not have an adequate remedy at law for money damages in such event.
Accordingly, the Parent shall be entitled to specific performance and injunctive
and other equitable relief to enforce the performance of this Agreement by the
Shareholders. This provision is without prejudice to any other rights that the
Parent may have against Shareholders for any failure to perform its obligations
under this Agreement.
SECTION 5.3. Notices. All notices that are required or may be given
-------
pursuant to this Agreement must be in writing and delivered personally, by a
recognized courier service, by a recognized overnight delivery service, by
telecopy or by registered or certified mail, postage prepaid, to the parties at
the following addresses (or to the attention of such other person or such other
address as any Party may provide to the other parties by notice in accordance
with this Section 5.3):
-----------
if to Parent: with copies to:
------------- ---------------
Targetti Sankey S.p.A. Rogers & Wells LLP
Via Pratese, 164 200 Park Avenue
50145 Firenze, Italia New York, New York 10166
Attention: Lorenzo Targetti Attention: Michael S. Immordino, Esq.
G. David Brinton, Esq.
if to the Shareholder:
----------------------
To the address listed on the signature page hereto.
Any such notice or other communication will be deemed to have been given
upon actual receipt.
<PAGE>
SECTION 5.4. Further Assurances. Each party agrees to execute any
------------------
and all documents and to perform such other acts as may be necessary or
expedient to further the purposes of this Agreement and the transactions
contemplated hereby.
SECTION 5.5. Counterparts. This Agreement may be executed in one or
------------
more counterparts for the convenience of the parties hereto, all of which
together will constitute one and the same instrument.
Assignment. Neither this Agreement nor any of the rights, interests
----------
or obligations hereunder may be assigned or delegated by the Shareholders or
Parent without the prior written consent of the other party and any purported
assignment or delegation in violation hereof shall be null and void; except,
that Parent may assign all or any part of its rights, interests and obligations
hereunder to any affiliate (as such term is defined in Rule 144(a)(1) under the
Securities Act of 1933, as amended); provided, that no such assignment by Parent
--------
shall relieve Parent of its obligations hereunder. This Agreement is not
intended to confer any rights or benefits on any Person other than the parties
hereto.
Consent to Jurisdiction and Service of Process. Each party hereto
-----------------------------------------------
hereby irrevocably submits to the nonexclusive jurisdiction of the United States
District Court for the Central District of California in any such action, suit
or proceeding, and agrees that any such action, suit or proceeding shall be
brought only in such court (and waives any objection based on forum non
----- ---
conveniens or any other objection to venue therein), provided, however, that
- - ---------- -------- -------
such consent to jurisdiction is solely for the purpose referred to in this
Section 5.7 and shall not be deemed to be a general submission to the
- - -----------
jurisdiction of said courts or in the State of California other than for such
purpose. Nothing herein shall affect the right of any party to serve process in
any other manner permitted by law or to commence legal proceedings or otherwise
proceed against the other in any other jurisdiction. The parties hereby
irrevocably waive all right to a trial by jury in any action, proceeding or
counterclaim (whether based on contract, tort or otherwise) arising out of or
relating to this Agreement in the negotiation, administration, performance or
enforcement thereof.
Entire Agreement. This Agreement and the related documents contained
----------------
as Exhibits and Schedules hereto or expressly contemplated hereby contain the
entire understanding of the parties relating to the subject matter hereof and
supersede all prior written or oral and all contemporaneous oral agreements and
understandings relating to the subject matter hereof. This Agreement may not be
modified or amended except in writing signed by each party hereto. The Exhibits
and Schedules to this Agreement are hereby incorporated by reference into and
made a part of this Agreement for all purposes.
Governing Law. This Agreement will be governed by and construed and
-------------
interpreted in accordance with the substantive laws of the State of California,
without giving effect to any conflicts of law rule or principle that might
require the application of the laws of another jurisdiction.
SECTION 5.6. Neutral Construction. The parties to this Agreement agree that
--------------------
this Agreement was negotiated fairly between them at arm's length and that the
final terms of this Agreement are the product of the parties' negotiations.
Each party represents and warrants that it has sought and received legal counsel
of its own choosing with regard to the contents of this Agreement and the rights
and obligations affected hereby. The parties agree that this Agreement shall be
deemed to have been jointly and equally drafted by them, and that the provisions
of this Agreement therefore should not be construed against a party or parties
on the grounds that the party or parties drafted or was more responsible for
drafting the provision(s).
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
TARGETTI SANKEY S.P.A.
By________________________________________
Name:
Title:
SHAREHOLDERS:
__________________________________________
Terrence C. Walsh
__________________________________________
Marilyn Walsh
Address for Notices:
<PAGE>
EXHIBIT C-1 TO
--------------
MERGER AGREEMENT
----------------
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
__________ __, 1999, by and between TIVOLI INDUSTRIES, INC., a California
corporation whose principal place of business is located in Santa Ana,
California 92705 (the "Company"), and TERRENCE C. WALSH, an individual residing
in the State of California (the "Executive").
This Agreement is being executed simultaneously with the closing of the
merger (the "Merger") of Florence Acquisition Corp., a wholly owned subsidiary
of Targetti Sankey S.p.A., an Italian corporation ("Parent"), with and into the
Company pursuant to that certain Agreement and Plan of Merger dated as of
September 17, 1999, among Newco, Parent and the Company. In connection
therewith, the Executive, who has been employed by the Company prior to the
Merger, has agreed to become an executive of the Company as the surviving
corporation in the Merger.
Accordingly, 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
December 1, 2001 (the "Term"), unless sooner terminated as hereinafter provided.
This Agreement shall be automatically renewed for additional one year terms
unless either party delivers notice of termination (the "Termination Notice") to
the other party not later than 150 days prior to the scheduled expiration of the
then current Term. At any time after a Termination Notice has been delivered in
accordance with the preceding sentence, the Company shall have the option of
immediately terminating the Executive's employment hereunder by paying the
Executive in cash an amount equal to (A) the Executive's Annual Salary (as
hereinafter defined), divided by (B) 365, multiplied by (C) the number of days
from the date of termination of the Executive's employment until the expiration
of the then current Term.
2. Employment. Executive shall serve as the Chief Executive Officer of
----------
the Company and as Vice Chairman of the Board of Directors of the Company (the
"Board"), subject to the reasonable directions of the Board, and as such shall
have day-to-day responsibility for the management of all of the Company's
affairs and operations. In addition, the Executive shall serve as Vice Chairman
of the Board. 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) The Company shall pay the Executive during the Term a salary at the rate
of One Hundred Fifty Five Thousand Dollars ($162,750) per annum (the
"Annual Salary"). The Annual Salary shall be payable in equal semi-
monthly installments, less such deductions as shall be required to be
withheld by applicable law and regulations. Executive's salary shall be
reviewed by the Board annually not later than November 1, of each year
and Executive shall receive such salary increases as the Board shall
determine in its sole discretion.
(b) Executive shall be eligible to receive a bonus as provided in the
Company's Management Incentive Plan for Fiscal Year Ending September 30,
1999 and in any future incentive bonus plan hereafter adopted by the
Company in its discretion.
<PAGE>
(c) Contemporaneously with the execution of this Agreement, the Company will
issue shares of common stock of the Company, par value $0.001 per share,
representing, as of the Closing of the Merger, a 7.5% ownership interest
in the Company to the Executive for services to be rendered hereunder,
with such shares to be held and disposed of in accordance with the terms
of the Shareholders Agreement (the "Shareholders Agreement") dated the
date hereof, by and among the Company, the Executive and Parent attached
hereto as Exhibit A.
---------
(d) In addition to the above, Executive shall be entitled to receive an auto
allowance of $1,250 per month, payable monthly.
4. Benefits and Vacations.
----------------------
(a) Executive and his dependents shall be entitled to participate in or
receive benefits under the Company'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 the Company
to its executives and key management executives, subject to and on a
basis consistent with the terms, conditions and overall administration
of such plans and arrangements, for so long as such plans and
arrangements remain in effect. 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.
(b) Executive shall be entitled to the number of paid vacations days in each
calendar year and to compensation for earned but unused vacation days,
determined by the Board from time to time for its executives and key
management executives, 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 the Company to its executives and key management executives.
(c) Executive shall be entitled to receive reimbursement of Health Club
membership dues. Such membership dues are not to exceed $150 on a
monthly basis and should be fully supported by applicable receipts,
documenting the actual dues paid by the Executive.
5. Expenses. During the Term, 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 the
Board for its senior executive officers) in performing the services contemplated
hereunder, provided that Executive properly accounts therefore in accordance
with the Company'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 the Company, provided,
--------
however, that the Company 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 (e) immediately below.
(c) Executive's employment hereunder may be terminated by the Company prior
to the expiration of the Term with or without "Cause" (as defined in
subparagraph 6(e) below), immediately upon delivery by the Company of a
written Notice of Termination.
<PAGE>
(d) In the event that Executive is terminated without Cause, the Company
shall pay Executive's salary through the date of termination, after
deducting any amounts lawfully owing from Executive to the Company, plus
an amount (the "Severance Amount") equal to two times the Annual Salary
as determined in accordance with Section 3(a). The Company shall also
pay, when due, the Executive's C.O.B.R.A. health insurance expenses for
the period commencing on the date of termination and ending on the
earlier of (i) the Executive obtaining new employment which provides the
Executive with health insurance coverage or (ii) eighteen months after
the date of the Executive's termination hereunder. Upon payment of the
foregoing amounts to the Executive, the Company 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 form Executive's
incapacity due to physical or mental illness, after a demand for
substantial performance is delivered to Executive by the Board which
specifically identifies the manner in which the Board believes that
Executive has not substantially performed such duties, (ii) the
intentional engaging by Executive in conduct materially and demonstrably
injurious to the Company, or (iii) conviction of a felony. For purposes
of this subparagraph, no act, or failure to act, on the part of the
Executive shall be considered "intentional" merely because it was the
result of bad judgment or negligence; rather such act or failure 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 Company.
Notwithstanding the foregoing, Executive's employment shall not be
deemed to have been terminated for "Cause" pursuant to clauses (i) or
(ii) above unless and until there shall have been delivered to Executive
a copy of a resolution duly adopted by the affirmative vote of the Board
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, the Company shall pay
Executive's salary through date of termination after deducting any
amounts lawfully owing from Executive to the Company, and shall
thereafter have no further obligations to Executive except as may be
provided in the Shareholders Agreement with respect to the repurchase of
the Shares.
(f) Executive shall be entitled to terminate his employment with the Company
hereunder for "Good Reason." If the Executive terminates his employment
hereunder for Good Reason, the Company shall pay Executive's salary
through the date of termination, after deducting any amounts lawfully
owing from Executive to the Company, plus the Severance Amount. Upon
payment of such amounts, the Company shall thereafter have no further
obligation to Executive except as may be provided in the Shareholders
Agreement with respect to the repurchase of the Shares. 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 repeated
assignment to Executive of any duties inconsistent with Executive's positions,
duties, responsibilities and status with the Company, or a reduction 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 reelect
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) If the Company or the Parent experiences a change of
control via merger, consolidation, sales of all or substantially all the shares
or the assets or other transaction (or series of related
<PAGE>
transactions) following which the shareholders of the Company or the Parent
immediately prior to such transaction own less than 50% of the outstanding
voting shares of the Company or the Parent following such transaction;
(iii) The reduction by the Company in Executive's base salary,
as the same may be thereafter increased from time to time, or the failure by the
Company to otherwise pay Executive the base salary provided for herein;
(iv) The failure by the Company 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 paragraph 4 and 5 hereof (or a similar plan or
arrangement adopted by the Company for its executives), or the taking of any
action by the Company (prompt notice of which shall be provided to Executive)
which would materially 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 material fringe or personal benefits under any of such
plans;
(v) Any action by the Company that would require Executive to
relocate his principal residence or office to a location more than 50 miles from
the Company's current principal executive offices; and
(vi) Any action intended as its primary purpose to reduce the
amount of any payment due to the Executive under Sections 2.02(a) or 2.03(a) of
the Shareholders Agreement;
in each case after the Executive has given the Company and the Parent written
notice of any action that the Executive believes constitutes Good Reason under
any of the clauses set forth above and the Company has failed within 60 days
after its receipt of such notice to correct or rescind such action. Any failure
by the Executive to give notice that the taking of any action by the Company
constitutes Good Reason within 60 days after the date of the occurrence of such
action shall be deemed to be a waiver and consent by the Executive to the taking
of such action by the Company and shall not thereafter give rise to Good Reason
hereunder.
(g) Any termination of Executive's employment by the Company, 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 the Company during the continuance hereof. Executive hereby
acknowledges that all such information and technology, whether currently
existing or hereafter developed by the Company through or involving the services
and efforts of Executive hereunder, shall at all times consist of an be
preserved by Executive as valuable trade secrets and confidential information
which is proprietary to and owned exclusively by the Company, 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
the Company 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 the Company. 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 the Company, in any manner or form, directly or
indirectly, use, disclose, duplicate, license, sell, reveal, divulge, publish or
communicate any portion of any such information concerning the Company, or any
customers or other products of the Company, to any person, firm or entity.
8. Agreement Not to Compete; Non-Solicitation.
------------------------------------------
<PAGE>
(a) Executive acknowledges that, by virtue of this position with the
Company, Executive will develop considerable expertise in the business
operations of the Company and will have access to extensive confidential
information with respect to the Company. Executive also acknowledges
that this is a personal services contract wherein Executive's services
are of a special, unique, unusual, extraordinary and intellectual
character. Executive further acknowledges that his services will have
peculiar value, the loss of which cannot be reasonably or adequately
compensated in damages in an action at law. Executive acknowledges that
the Company would be irreparably damaged, and its substantial investment
materially impaired, if Executive were to enter into an activity
competing with the Company's business in violation of the terms of this
Agreement or if Executive were to make unauthorized use or disclosure of
any confidential information concerning the business of the Company.
(b) In consideration of the terms and conditions of this Agreement,
including without limitation, this Section 8, Executive hereby agrees
that, during the period of his employment with the Company and for the
longer of (i) the remainder of the term of this Agreement had Executive
not been terminated, or (ii) a period of 24 months, he will not without
the Company's express written consent, (i) engage in any employment or
business activity which is competitive with, or would otherwise conflict
with, the business of the Company as is currently conducted or presently
under development as of the date of Executive's termination; or (ii)
solicit or attempt to solicit, either directly or through others, (A)
any executive, consultant, or independent contractor of the Company to
terminate his or her relationship with any other person or business
entity; or (B) the business of any customer, vendor, or distributor of
the Company. Executive further agrees to notify the Company, in writing,
before Executive obtains employment with, performs work for, or engages
in any professional activity on behalf of any company, person or entity
in the lighting industry.
(c) In the event that Executive engages in any such competitive activity in
breach of this Agreement, Executive hereby agrees that the Company shall
be entitled to equitable relief (e.g. injunctions) to prevent any such
competitive activity by Executive. The right and remedies hereof shall
be cumulative (and not alternative).
(d) Executive expressly acknowledges that he is voluntarily entering into
this Agreement, that the provisions in this Section 8 are a material
inducement to the Company in entering this Agreement, and that the terms
and conditions of this Agreement are fair and reasonable to Executive in
all respects.
9. 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 the Company or Executive at their respective last known
address. Either party may change its address by written notice give 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 the Company.
(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.
<PAGE>
(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) The Company 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
supercedes any and all other agreements, either oral or in writing,
between the parties hereto with respect to the employment of Executive
by the Company. 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 the Company on the one hand, and by Executive on the other hand.
(h) In the event of any litigation between Executive and the Company
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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.
APPROVED:
"The Company"
TIVOLI INDUSTRIES, INC.
By:________________________
"Executive"
By:________________________
Terrence C. Walsh
<PAGE>
EXHIBIT A TO
------------
EMPLOYMENT
----------
AGREEMENT
---------
SHAREHOLDERS AGREEMENT
THIS SHAREHOLDERS AGREEMENT is made as of this ____day of _______, 1999 by and
among Targetti Sankey S.p.A., an Italian corporation ("Targetti"), Terrence C.
--------
Walsh, an individual residing at 31 Ocean Vista, Newport Beach, California.
92660 ("Walsh"), and Tivoli Industries, Inc., a California corporation
-----
("Tivoli").
------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Targetti and Walsh own 92.5% and 7.5%, respectively, of the issued
and outstanding capital stock of Tivoli and together constitute all of the
holders of the capital stock of Tivoli; and
WHEREAS, Targetti and Walsh desire to promote their mutual interests and
the interest of Tivoli by imposing certain restrictions on the ownership and
transferability of the stock of Tivoli and by providing for certain put and call
options on Walsh's stock in Tivoli and for certain management and operational
matters, all as hereinafter provided.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. As used herein, the following terms
---------------------
have the respective meanings set forth below and the definitions of such terms
are applicable both to the singular and plural forms of such terms:
"Affiliate" means, when used with reference to a specified Person, (a) any
---------
Person that directly or indirectly through one or more intermediaries controls
or is controlled by or is under common control with the specified Person, (b)
any Person that is an officer of, partner in or trustee of, or serves in a
similar capacity with respect to, the specified Person or of which the specified
Person is an officer, partner or trustee, or with respect to which the specified
Person serves in a similar capacity, and (c) any Person that, directly or
indirectly, is the beneficial owner of 5% or more of any class of equity
securities of, or otherwise has a substantial beneficial interest in, the
specified Person or of which the specified Person is directly or indirectly the
owner of 5% or more of any class of equity securities or in which the specified
Person has a substantial beneficial interest. As used in this definition,
"control" (including its correlative meanings "controlled by" and "under common
control with") shall mean possession, directly or indirectly, of power to direct
or cause the direction of the management or policies of a person, whether
through ownership of voting securities, by contract or otherwise.
<PAGE>
"Agreement" means this Shareholders Agreement.
---------
"Applicable Law" means all applicable provisions of any constitution,
--------------
statute, rule, regulation or order of any governmental or non-governmental body,
all applicable Government Approvals and all applicable orders, judgments, writs
or decrees of any court or arbitrator of competent jurisdiction.
"Auditors" means a "big five" firm of auditors, selected by Targetti and
--------
reasonably acceptable to Walsh.
"Board of Directors" means the Board of Directors of Tivoli.
------------------
"Business Day" means any day which is not a Saturday, Sunday or other day
------------
on which banking institutions in Santa Ana, California or Florence, Italy are
not required or obligated by law or executive order to be closed.
"Disposition" or "Dispose" means, with respect to the Shares, any transfer,
----------- -------
conveyance, pledge, hypothecation, grant of a security interest, lien or other
encumbrance, gift, sale or assignment or any attempt to do any of the foregoing.
"Employment Agreement" means the Employment Agreement dated the date
--------------------
hereof, by and between Tivoli and Walsh.
"GAAP" means United States generally accepted accounting principles
----
consistently applied and maintained throughout the period indicated and with the
prior financial practice of Tivoli and any predecessor, except for changes
mandated by the Financial Accounting Standards Board or any similar accounting
authority of comparable standing.
"Government Approval" means any authorization, consent, approval, license,
-------------------
ruling, permit, tariff, rate, certification, exemption, filing or registration
of, by or with any governmental authority or judicial or administrative body,
domestic or foreign, federal, state or local, having competent jurisdiction.
"Income from Operations" means the income from operations of Tivoli and its
----------------------
consolidated subsidiaries before interest and federal and state income taxes
determined in accordance with GAAP, applied consistently with the past practices
of Tivoli.
"Net Income" means the net income of Tivoli determined in accordance with
----------
GAAP, consistently applied.
"Net Sales" means the net sales of Tivoli determined in accordance with
---------
GAAP, consistently applied.
"Notice Address" means
--------------
(a) as to Targetti:
Targetti Sankey S.p.A.
2
<PAGE>
Via Pratese, 164
50145 Firenze, Italia
Attention: Lorenzo Targetti
with a copy to:
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
Attention: Michael S. Immordino, Esq.
G. David Brinton, Esq.
(b) as to Walsh and Tivoli:
1513 E. Saint Gertrude Place
Santa Ana, California 92705
Attention: President
with a copy to:
Cooley Godward LLP
5 Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306
Attention: Andrei Manoliu
"Shareholders" means Targetti and Walsh.
------------
"Share Value" means the greater of (i) $417,000 or (ii) (x) Tivoli's Income
-----------
from Operations for the twelve (12) months prior to Walsh's termination of
employment or exercise of the Put (as hereinafter defined), as the case may be,
multiplied by four (4), plus (y) Tivoli's Net Sales for the twelve (12) months
prior to Walsh's termination of employment or exercise of the Put, as the case
may be, multiplied by .25, multiplied by (z) a fraction, the numerator of which
is the number of Shares owned by Walsh and the denominator of which is the
number of shares of common stock, par value $ 0.001 per share, of Tivoli
outstanding on the date upon which Walsh's employment with Tivoli terminates or
the Put is exercised, as the case may be..
"Shares" means, with respect to either Shareholder, all shares of common
------
stock, par value $0.001 per share, of Tivoli now or hereafter owned by such
Shareholder.
Section 1.02. Rules of Interpretation. Unless the context otherwise
-----------------------
requires, any reference in this Agreement to any other contract, agreement,
instrument or document shall mean such contract, agreement, instrument or
document as amended, supplemented or modified. The terms "hereof," "herein" and
"hereunder," unless otherwise modified by more specific reference, shall refer
to this Agreement in its entirety and, unless the context otherwise requires,
the term "Article" or "Section" shall refer to an article or Section of this
Agreement.
3
<PAGE>
ARTICLE II
DISPOSITION OF SHARES; OPTIONS TO PURCHASE AND SELL
Section 2.01. Voluntary Dispositions; Drag Along.
----------------------------------
(a) Without the prior written consent of Targetti, Walsh shall not Dispose
of any of the Shares owned by him at any time during the term of this Agreement,
except as hereinafter provided; provided, however, that Walsh may Dispose of his
-------- -------
Shares to a living trust controlled by Walsh which has agreed to be bound by the
terms and provisions of this Agreement pursuant to an instrument in a form
reasonably acceptable to Targetti.
(b) Subject to Walsh's right to require Targetti to purchase his Shares
pursuant to Section 2.03(a), Targetti may transfer its Shares to any Person,
including, without limitation, any Affiliate of Targetti, without first
obtaining the prior consent of Walsh, but shall give Walsh written notice of any
such transfer to a non-Affiliate at least 30 days prior to the closing thereof
and to an Affiliate as soon as practicable and in any event promptly thereafter.
In addition, if Targetti's proposed transferee is not an Affiliate of Targetti
and such transferee desires to purchase 100% of the Company's outstanding
capital stock, at the election of Targetti by written notice to Walsh (the "Sale
----
Notice") given at least 30 days prior to the proposed closing thereof, Walsh
- - ------
shall be required to sell all of his Shares to such transferee in such
transaction for the same price and on the same terms received by Targetti;
provided, however, that Walsh may elect to exercise the Put within 10 days after
- - -------- -------
receipt of the Sale Notice and that if the Put is exercised within such 10 day
period, he shall not be obligated to sell his Shares to such transferee.
(c) The parties acknowledge that the Shares have not been registered under
the Securities Act of 1933, as amended, and have not been registered or
qualified for sale under any state securities or "blue sky" laws. Accordingly,
offers and sales of the Shares are subject to restrictions under federal and
state securities laws. All voluntary Dispositions of the Shares may be made only
in accordance with the requirements of applicable federal and state securities
laws and Tivoli and any Shareholder selling Shares may require the purchaser to
provide such certificates and other materials as may reasonably be required to
ensure compliance with those laws. In addition, Dispositions of Shares are
subject to the applicable provisions of federal and state banking laws and no
Disposition of Shares shall be made which would cause or result in a violation
of those laws.
(d) All certificates representing Shares owned by Walsh will bear the
following legend on their face:
The shares represented by this certificate are subject to
restrictions on sale, assignment, transfer, conveyance, pledge,
hypothecation, grant of security interests and other encumbrance,
gift, or other disposition, or any attempt to do any of the foregoing,
as set forth in a Shareholders Agreement dated _________ ___, 1999 by
and among Targetti, Walsh and the issuer, a copy of which is
available for inspection at the offices of the issuer.
In addition, all certificates representing Shares owned by either
Shareholder shall bear such other or additional legends as Tivoli may deem
appropriate for compliance with the Securities Act of 1933, as amended,
applicable state corporation or securities laws or the Certificate of
Incorporation or By-Laws of Tivoli.
4
<PAGE>
(e) It shall be a condition precedent to any Disposition of the Shares to
any Person who is not a party to this Agreement that such Person agree in
writing to be bound by the terms of this Agreement.
(f) Tivoli shall not effect any issuance of certificates representing any
of the Shares upon any Disposition of such Shares or give any effect on its
stock transfer books to any such Disposition or otherwise take any action to
recognize such Disposition, unless evidence reasonably satisfactory to Tivoli is
presented demonstrating that such Disposition is and will be in accordance with
this Section 2.01. Any Person acquiring Shares in violation of this Section 2.01
shall have no rights as a shareholder of Tivoli.
Section 2.02. Targetti Options to Acquire Shares.
----------------------------------
(a) Targetti shall have the right (but not the obligation) to purchase all
of Walsh's Shares within 90 days after the termination of his employment with
Tivoli, whether such termination is for "Good Reason" (as defined in the
Employment Agreement), without Good Reason, with "Cause" (as defined in the
Employment Agreement), without "Cause" or the result of Walsh's death or
disability (a "Termination Event"). In the event Targetti exercises its rights
-----------------
under this Section 2.02(a), the purchase price for Walsh's Shares shall be equal
to their Share Value. The purchase price specified in this Section 2.02(a) shall
be determined as provided in Section 2.04.
(b) To exercise its rights under Section 2.02(a), Targetti shall deliver
to Walsh a written notice of its intention to exercise such rights. Delivery of
such notice by Targetti shall (unless such notice is withdrawn by Targetti in
accordance with the terms hereof) create a binding obligation on the part of
Targetti to purchase for cash, and a binding obligation on the part of Walsh to
sell, all of Walsh's Shares. Unless otherwise agreed between the parties, the
closing of the purchase and sale of Walsh's Shares shall take place at the
principal business office of Tivoli at 10:00 a.m. local time 30 days after the
date of determination (in accordance with Section 2.04) of the amount of the
purchase price (or, if the 30th day is not a Business Day, on the next
succeeding Business Day). At the closing, Walsh shall deliver stock
certificates, duly endorsed or with duly executed stock powers attached, all in
form and substance reasonably satisfactory to Targetti and its counsel,
conveying Walsh's Shares to Targetti or its nominee free and clear of all liens
and encumbrances. Payment of the purchase price shall be made by Targetti by
check drawn in New York Clearing House or similar funds payable to the order of
Walsh. At any time prior to the closing, Targetti shall have the right to
withdraw its election notice by delivering a written notice of such withdrawal
to Walsh. In the event Targetti withdraws its election notice, it shall be
liable for the payment of any fees and expenses of the Auditors which may have
been incurred in connection with the preparation of the purchase price
calculation statement referred to in Section 2.04(b). In addition, if the period
Walsh has to exercise his sale rights under Section 2.03(a) has or will sooner
expire, delivery of a withdrawal notice by Targetti shall give Walsh 30 Business
Days from the date of his receipt of such notice to exercise his rights under
Section 2.03(a). Provided the period Targetti has under Section 2.02(a), to
exercise its purchase rights has not expired, delivery of a notice of withdrawal
shall not preclude delivery of a subsequent notice re-electing to exercise its
purchase rights under the relevant section.
Section 2.03. Walsh Options to Sell Shares.
----------------------------
(a) Walsh shall have the right to require Targetti to purchase all of the
Shares owned by him at any time (the "Put"). In the event Walsh exercises the
---
Put, the purchase price payable by Targetti for Walsh's Shares shall be equal to
the Share Value and shall be determined as provided in Section 2.04.
(b) To exercise his rights under Sections 2.03(a), Walsh shall deliver to
Targetti a written notice of his intention to exercise such rights. Delivery of
such notice by Walsh shall (unless such notice is withdrawn by Walsh in
accordance with the terms hereof) create a binding obligation on his part to
sell, and a binding obligation on the part of Targetti to purchase for cash, all
of his Shares. Unless otherwise
5
<PAGE>
agreed between the parties, the closing of the purchase and sale shall take
place at the principal business office of Tivoli at 10:00 a.m. local time 30
days after the date of determination (in accordance with Section 2.04) of the
amount of the purchase price (or, if such day is not a Business Day, on the next
succeeding Business Day). At closing, Walsh shall deliver stock certificates
conveying his Shares, free and clear of all liens and encumbrances, to Targetti
or its nominee in the manner required under Section 2.02(c). Payment of the
purchase price shall be made by check drawn in New York Clearing House or
similar funds payable to the order of Walsh. At any time prior to the closing of
the sale, Walsh shall have the right to withdraw his election notice in the same
manner and subject to the same conditions (i.e., payment of Auditors' fees and
----
an additional 30 Business Days if needed for Targetti to exercise its purchase
rights under Section 2.02(a)) and rights of re-election as are applicable to
Targetti under Section 2.02(b); provided, however, that if Walsh exercises the
-------- -------
Put within 10 days after receipt of a Sale Notice, Walsh shall not be permitted
to withdraw his election notice.
Section 2.04. Calculation and Review of Purchase Price.
----------------------------------------
(a) In connection with any option exercise by Targetti or Walsh, the
notice delivered by the exercising party shall contain a calculation (which
shall be set forth in reasonable detail) of the purchase price. Such calculation
shall be subject to review in the manner provided in Section 2.04(b).
(b) Upon delivery of a calculation of the option purchase price pursuant
to Section 2.02(a), the nonexercising party shall promptly review the
calculation, including the computation (if it is part of the purchase price
calculation) of the Share Value. If any reviewing party disagrees with the
calculation of the purchase price, the objecting party shall deliver a written
notice of its or his objection to the other party stating the basis for the
objection and what it or he believes the correct purchase price to be. Any
objection to the calculation of the purchase price must be given not more than
30 days after the delivery to the objecting party of the purchase price
calculation. If a party has no objection to the purchase price calculation, such
party shall promptly notify the other party.
Upon delivering a notice of objection, the objecting party at its or his
own expense shall retain accountants to review the calculation of the purchase
price (including the calculation of the Share Value). In the event that the
accountants retained by the objecting party, after consulting with the Auditors,
disagree with the calculation of the purchase price and such disagreement cannot
be resolved by the parties, the dispute shall be presented to a third firm of
accountants. This third firm shall be one of the "big five" accounting firms
mutually acceptable to Walsh and Targetti. The expenses of such third firm shall
be borne equally by Walsh and Targetti. Any decision of such third firm shall be
binding on the parties.
ARTICLE III
MANAGEMENT
Section 3.01. Board of Directors. Targetti and Walsh shall vote their
------------------
Shares at all meetings of Shareholders and take all such other actions as may be
necessary or appropriate so as to maintain at all times a Board of Directors
consisting of five directors, three of whom shall be nominated by Targetti and
two of whom will be nominated by Walsh. Targetti and Walsh each agree to vote
for the directors nominated by the other.
Section 3.02. Accounting Policies. Tivoli shall not change any of its
-------------------
accounting policies or procedures after the date hereof unless required in order
to comply with rules promulgated by the Financial Accounting Standards Board.
In the event of any change in accounting policies or procedures pursuant to
6
<PAGE>
the preceding sentence, the calculations of Net Income, Net Sales and Share
Value to be made hereunder shall be made without regard to such changes, unless
both Walsh and Parent shall otherwise agree in writing.
Section 3.03. Common Stock Issuances. Tivoli shall notify Walsh in
----------------------
writing not later than 30 days prior to any issuance by Tivoli of additional
shares of common stock, par value $0.001 per share.
ARTICLE IV
MISCELLANEOUS
Section 4.01. Outstanding Loans. That certain promissory note executed by
-----------------
Walsh to Tivoli in the aggregate principal amount of $50,000, dated September
30, 1996 (the "1996 Note") shall be amended and restated in a form reasonably
---------
acceptable to Targetti and shall provide that Walsh will pay all outstanding
interest and principal thereon on the earlier to occur of (i) the second
anniversary of this Agreement, or (ii) the termination of Walsh's employment for
any reason. Walsh shall execute a promissory note in a form reasonably
acceptable to Targetti in an aggregate principal amount equal to the expense
advances owed by Walsh to Tivoli on the date hereof (the "New Note," and,
--------
together with the 1996 Note, the "Notes"). The New Note shall bear interest at
-----
a rate of six (6) percent per annum and shall provide that interest and
principal thereon shall be due and payable by Walsh to Tivoli on the earlier to
occur of (i) the second anniversary of this Agreement, or (ii) the termination
of Walsh's employment for any reason. It is understood and agreed that Tivoli
may offset any amounts not paid by Walsh pursuant to the Notes against any
payment owed by Tivoli to Walsh pursuant to the Employment Agreement. It is
also understood and agreed that Targetti may offset any amounts not paid by
Walsh to Tivoli pursuant to the Notes against any payment owed by Targetti to
Walsh pursuant to this Agreement.
Section 4.02. Costs and Expenses. In the event of any litigation between
------------------
Targetti, Walsh and the Tivoli 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.
Section 4.03. Binding Effect and No Assignment. This Agreement shall be
--------------------------------
binding upon and inure to the benefit of the parties and their respective heirs,
successors, legal representatives, executors and permitted assigns. This
Agreement may not be assigned by any party, except by operation of law, without
the written consent of the other parties hereto.
Section 4.04. Amendments. This Agreement may be amended, modified,
----------
superseded, canceled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by the parties or, in the
case of a waiver, by the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any party of any right,
power or privilege, nor any single or partial exercise of any right, power or
privilege, preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided are
cumulative and are not exclusive of any rights or remedies that any party may
otherwise have at law or in equity.
Section 4.05. Notices. All notices and other communications provided for
-------
hereunder shall be in writing and mailed or delivered, as to any party, at its
Notice Address or such other address as shall be designated by such party in a
written notice to the other parties hereto complying as to delivery with the
terms of this section. All such notices and communications shall, when mailed,
be effective when deposited in the mails addressed as aforesaid. Notices may be
given by telegram or by electronic facsimile
7
<PAGE>
transmission, but in such case will be deemed given only when the telegram or
transmission has been received by the addressee.
Section 4.06. Governing Law. The construction and interpretation of this
-------------
Agreement is and will be governed by the laws of the State of California.
Section 4.07. Severability. Whenever possible, each provision or portion
------------
of any provision of this Agreement will be interpreted in such a manner as to be
effective and valid under Applicable Law. If any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any Applicable Law, such invalidity, illegality or
unenforceability will not affect any other provision or portion of any provision
of this Agreement and this Agreement will be reformed, construed and enforced as
if such invalid, illegal or unenforceable provision or any portion of any
provision had never been contained herein.
Section 4.08. Counterparts. This Agreement may be executed in more than
------------
one counterpart, but the definitive copy of this Agreement will be the
counterpart held at the offices of Tivoli.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
TARGETTI SANKEY S.p.A.
By: ___________________________________
Name:
Title:
_______________________________________
Terrence C. Walsh
TIVOLI INDUSTRIES, INC.
By: ___________________________________
Name:
Title:
________________________________________________________________________________
SHAREHOLDERS AGREEMENT
by and among
TARGETTI SANKEY S.p.A.
TERRENCE C. WALSH
and
TIVOLI INDUSTRIES, INC.
Dated as of _________, 1999
________________________________________________________________________________
9
<PAGE>
EXHIBIT C-2 TO
--------------
MERGER AGREEMENT
----------------
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
__________ __, 1999, by and between TIVOLI INDUSTRIES, INC., a California
corporation whose principal place of business is located in Santa Ana,
California 92705 (the "Company"), and CHARLES KIMMEL, an individual residing in
the State of California ("Executive").
This Agreement is being executed simultaneously with the closing of the
merger (the "Merger") of Florence Acquisition Corp., a wholly owned subsidiary
of Targetti Sankey S.p.A., an Italian corporation ("Parent"), with and into the
Company pursuant to that certain Agreement and Plan of Merger dated as of
September 17, 1999, among Newco, Parent and the Company. In connection
therewith, the Executive, who has been employed by the Company prior to the
Merger, has agreed to become an executive of the Company as the surviving
corporation in the Merger.
Accordingly, the parties agree as follows:
10. 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
December 1, 2001 (the "Term"), unless sooner terminated as hereinafter provided.
This Agreement shall be automatically renewed for additional one year terms
unless either party delivers notice of termination (the "Termination Notice") to
the other party not later than 90 days prior to the scheduled expiration of the
then current Term. At any time after a Termination Notice has been delivered in
accordance with the preceding sentence, the Company shall have the option of
immediately terminating the Executive's employment hereunder by paying the
Executive in cash an amount equal to (A) the Executive's Annual Salary (as
hereinafter defined), divided by (B) 365, multiplied by (C) the number of days
from the date of termination of the Executive's employment until the expiration
of the then current Term.
11. Employment. Executive shall serve as the President and Chief
----------
Financial Officer of the Company, subject to the reasonable directions of the
Board of Directors of the Company (the "Board"), and as such shall have day-to-
day responsibility for the management of all of the Company's affairs and
operations. 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.
12. Compensation.
------------
(a) The Company shall pay the Executive during the Term a salary at the rate
of One Hundred Twenty Seven Thousand Dollars ($133,350) per annum (the
"Annual Salary"). The Annual Salary shall be payable in equal semi-
monthly installments, less such deductions as shall be required to be
withheld by applicable law and regulations. Executive's salary shall be
reviewed by the Board annually not later than November 1, of each year
and Executive shall receive such salary increases as the Board shall
determine in its sole discretion.
(b) Executive also shall be eligible to receive a bonus as provided by the
Company's Key Executive Retention Program as set forth in Section 4.7(a)
of the above referenced Agreement and Plan of Merger.
<PAGE>
(c) Executive also shall be eligible to receive a bonus as provided in the
Company's Management Incentive Plan for Fiscal Year Ending September 30,
1999 and in any future incentive bonus plan hereafter adopted instituted
by the Company in its discretion.
(d) In addition to the above, Executive shall be entitled to receive an auto
allowance of $600 per month, payable monthly.
13. Benefits and Vacations.
----------------------
(a) Executive and his dependents shall be entitled to participate in or
receive benefits under the Company'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 the Company
to its executives and key management executives, subject to and on a
basis consistent with the terms, conditions and overall administration of
such plans and arrangements, for so long as such plans and arrangements
remain in effect. 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.
(b) Executive shall be entitled to the number of paid vacations days in each
calendar year and to compensation for earned but unused vacation days,
determined by the Board from time to time for its executives and key
management executives, 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 the Company to its executives and key management executives.
14. Expenses. During the Term, 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 the
Board for its senior executive officers) in performing the services contemplated
hereunder, provided that Executive properly accounts therefore in accordance
with the Company's policy.
15. 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 the Company, provided,
--------
however, that the Company 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 (e) below.
(c) Executive's employment hereunder may be terminated by the Company prior
to the expiration of the Term with or without "Cause" (as defined in
subparagraph 6(e) below), immediately upon delivery by the Company of a
written Notice of Termination.,
(d) In the event that Executive is terminated without Cause, the Company
shall pay Executive's salary through the date of termination, after
deducting any amounts lawfully owing from Executive to the Company, plus
an amount (the "Severance Amount") equal to two times the Annual Salary
as determined in accordance with Section 3(a). The Company shall also
pay, when due, the Executive's C.O.B.R.A. health insurance expenses for
the period commencing on the date of termination and ending on the
earlier of (i) the Executive obtaining new employment which provides the
Executive with health insurance coverage or (ii) eighteen months after
the date of the Executive's termination
<PAGE>
hereunder. Upon payment of the foregoing amounts to the Executive, the
Company 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 form Executive's
incapacity due to physical or mental illness, after a demand for
substantial performance is delivered to Executive by the Board which
specifically identifies the manner in which the Board believes that
Executive has not substantially performed such duties, (ii) the
intentional engaging by Executive in conduct materially and demonstrably
injurious to the Company, or (iii) conviction of a felony. For purposes
of this subparagraph, no act, or failure to act, on the part of the
Executive shall be considered "intentional" 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 Company. Notwithstanding the
foregoing, Executive's employment shall not be deemed to have been
terminated for "Cause" pursuant to clauses (i) and (ii) above unless and
until there shall have been delivered to Executive a copy of a resolution
duly adopted by the affirmative vote of the Board 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,
the Company shall pay Executive's salary through date of termination
after deducting any amounts lawfully owing from Executive to the Company,
and shall thereafter have no further obligations to Executive.
(f) Executive shall be entitled to terminate his employment with the Company
hereunder for "Good Reason." If the Executive terminates his employment
hereunder for Good Reason, the Company shall pay Executives salary
through the date of termination, after deducting any amounts lawfully
owing from the Executive to the Company, plus an amount equal the
Severance Amount, and shall thereafter have no further obligation to the
Executive. 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 repeated
assignment to Executive of any duties inconsistent with Executive's positions,
duties, responsibilities and status with the Company, or a reduction 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 reelect
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) If the Company or the Parent experiences a change of
control via merger, consolidation, sales of all or substantially all the shares
or the assets or other transaction (or series of related transactions) following
which the shareholders of the Company or the Parent immediately prior to such
transaction own less than 50% of the outstanding voting shares of the Company or
the Parent following such transaction.
(iii) The reduction by the Company in Executive's base salary,
as the same may be thereafter increased from time to time, or the failure by the
Company to otherwise pay Executive the base salary provided for herein;
(iv) The failure by the Company 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 paragraph 4 and 5 hereof (or a similar plan or
arrangement adopted by the Company for its executives), or the
<PAGE>
taking of any action by the Company (prompt notice of which shall be provided to
Executive) which would materially 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 material fringe or personal benefits under any of
such plans; and
(v) Any action by the Company that would require Executive to
relocate his principal residence or office to a location more than 50 miles from
the Company's current principal executive offices;
in each case after the Executive has given the Company and the Parent written
notice of any action that the Executive believes constitutes Good Reason under
any of the clauses set forth above and the Company has failed within 60 days
after its receipt of such notice to correct or rescind such action. Any failure
by the Executive to give notice that the taking of any action by the Company
constitutes Good Reason within 60 days after the date of the occurrence of such
action shall be deemed to be a waiver and consent by the Executive to the taking
of such action by the Company and shall not thereafter give rise to Good Reason
hereunder.
(g) Any termination of Executive's employment by the Company 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.
16. Proprietary Information. Executive acknowledges that certain
-----------------------
technological and other information may from time to time be disclosed to
Executive by the Company during the continuance hereof. Executive hereby
acknowledges that all such information and technology, whether currently
existing or hereafter developed by the Company through or involving the services
and efforts of Executive hereunder, shall at all times consist of an be
preserved by Executive as valuable trade secrets and confidential information
which is proprietary to and owned exclusively by the Company, 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
the Company 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 the Company. 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 the Company, in any manner or form, directly or
indirectly, use, disclose, duplicate, license, sell, reveal, divulge, publish or
communicate any portion of any such information concerning the Company, or any
customers or other products of the Company, to any person, firm or entity.
17. Agreement Not to Compete; Non-Solicitation
------------------------------------------
(a) Executive acknowledges that, by virtue of this position with the
Company, Executive will develop considerable expertise in the business
operations of the Company and will have access to extensive confidential
information with respect to the Company. Executive also acknowledges
that this is a personal services contract wherein Executive's services
are of a special, unique, unusual, extraordinary and intellectual
character. Executive further acknowledges that his services will have
peculiar value, the loss of which cannot be reasonably or adequately
compensated in damages in an action at law. Executive acknowledges that
the Company would be irreparably damaged, and its substantial investment
materially impaired, if Executive were to enter into an activity
competing with the Company's business in violation of the terms of this
Agreement or if Executive were to make unauthorized use or disclosure of
any confidential information concerning the business of the Company.
<PAGE>
(b) In consideration of the terms and conditions of this Agreement,
including without limitation, this Section 8 and payment of Severance
Amount, Executive hereby agrees that, during the period of his
employment with the Company and for the longer of (i) the remainder of
the term of this Agreement had Executive not been terminated, or (ii) a
period of 24 months, he will not without the Company's express written
consent, (i) engage in any employment or business activity which is
competitive with, or would otherwise conflict with, the business of the
Company as is currently conducted or presently under development as of
the date of Executive's termination; or (ii) solicit or attempt to
solicit, either directly or through others, (A) any executive,
consultant, or independent contractor of the Company to terminate his or
her relationship with any other person or business entity; or (B) the
business of any customer, vendor, or distributor of the Company.
Executive further agrees to notify the Company, in writing, before
Executive obtains employment with, performs work for, or engages in any
professional activity on behalf of any company, person or entity in the
lighting industry.
(c) In the event that Executive engages in any such competitive activity in
breach of this Agreement, Executive hereby agrees that he shall return
to the Company the Severance Amount in full immediately following such
breach and that the Company shall be entitled to equitable relief (e.g.
injunctions) to prevent any such competitive activity by Executive. The
right and remedies hereof shall be cumulative (and not alternative).
(d) Executive expressly acknowledges that he is voluntarily entering into
this Agreement, that the provisions in this Section 8 are a material
inducement to the Company in entering this Agreement, and that the terms
and conditions of this Agreement are fair and reasonable to Executive in
all respects.
18. 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 the Company or Executive at their respective last known
address. Either party may change its address by written notice give 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 the Company.
(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) The Company 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
supercedes any and all other agreements, either oral or in writing,
between the parties hereto with respect to the employment of Executive
by the Company. Each party to this Agreement acknowledges that no
representations, inducements, promises or agreements, oral or otherwise,
have been made by any party, or anyone
<PAGE>
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 the Company on the one hand, and by
Executive on the other hand.
(h) In the event of any litigation between Executive and the Company
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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.
APPROVED:
"The Company"
TIVOLI INDUSTRIES, INC.
By:________________________
"Executive"
By:________________________
Charles Kimmel
<PAGE>
APPENDIX B
OPINION OF L. H. FRIEND, WEINRESS, FRANKSON & PRESSON
September 17, 1999
Board of Directors
Tivoli Industries, Inc.
1513 E. St. Gertrude Place
Santa Ana, CA 92705 HIGHLY CONFIDENTIAL
-------------------
Board Members:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders (other than Targetti Sankey S.p.A., an Italian Corporation
("Buyer") and its affiliates) of the outstanding shares of common stock, par
value $.001 per share (the "Shares"), of Tivoli Industries, Inc., a California
corporation (the "Company") of the $4.50 per share, in cash, to be paid by Buyer
to the Company's shareholders pursuant to the Agreement and Plan of Merger dated
September 17, 1999 (the "Agreement") between the Buyer, Targetti Sankey S.p.A.
Acquisition Corp., a California corporation and wholly owned subsidiary of the
Buyer and the Company (the "Transaction").
L. H. Friend, Weinress, Frankson & Presson, LLC ("Friend"), as part of its
investment banking business, is continually engaged in the evaluation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. We have been engaged to act as financial advisors to the Company's
Board of Directors in connection with the Transaction and to advise the Board of
Directors as to the fairness of the transaction. We have not participated in
the negotiations leading to the Agreement.
In connection with formulating our opinion, we have, among other things:
(a) Reviewed the Agreement;
(b) Reviewed the Company's Annual Report to Shareholders on Form 10-K for the
fiscal years ended September 30, 1998; September 30, 1997 and September 30,
1996; the Company's Quarterly Reports on Form 10-Q for the periods ended
December 31, 1998, March 31, 1999 and June 30, 1999; and the Company's
proxy statement dated January 27, 1999;
(c) Examined certain operating and financial information and financial
projections dated June 30, 1999, provided to us by the management of the
Company;
(d) Reviewed the historical market prices and trading volume of the Company's
Common Stock;
(e) Analyzed publicly available financial and market data regarding certain
companies that manufacture commercial lighting fixtures and compared them
to the Company's financial and market data;
(f) Conducted limited interviews with certain members of the Company's
management;
(g) Visited the Company's manufacturing headquarter facilities; and
(h) Performed such other studies, analyses, inquires and investigations as we
deemed appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably prepared
and reflect the best currently available estimates of the future financial
results and condition of the Company, and that there has been no material change
in the assets, financial condition and business prospects of the Company since
the date of the most recent financial statements made available to us.
1
<PAGE>
We have not independently verified the accuracy and completeness of the
information supplied to us and do not assume any responsibility with respect to
it. We have not made any independent appraisal of any of the properties or
assets of the Company, or conducted any independent inquiry or investigation
with respect to the Company or the Transaction. This opinion is necessarily
based on business, economic, market and other conditions as they exist and can
be evaluated by us at the date of this letter.
This opinion is furnished solely for the benefit of the Company, its Board of
Directors, and its shareholders in connection with the Transaction, and may not
be relied upon by any other person or for any other purpose without our express,
prior, written consent. This opinion is delivered to each recipient subject to
the conditions, scope of engagement, limitations and understandings set forth in
this opinion and our engagement letter dated June 23, 1999, and subject to the
understanding that the obligations of Friend in the Transaction are solely
corporate obligations, and no officer, director, employee, agent, shareholder or
controlling person of Friend shall be subjected to any personal liability
whatsoever to any person, nor will any such claim be asserted by or on behalf of
any recipient of this opinion. The Company has also agreed to indemnify Friend
for certain liabilities that may arise out of rendering this opinion.
Our opinion expressed herein is provided for the information and assistance of
the Board of Directors of the Company in connection with its consideration of
the Transaction contemplated by the Agreement and such opinion does not
constitute a recommendation as to whether or not any holder of Shares should
tender such Shares in connection with such Transaction.
As of the date hereof, based upon and subject to the foregoing, and based upon
such other matters as we deemed relevant, it is our opinion that the $4.50 per
share, in cash, to be received by the holders (other than Buyer and its
affiliates) of Shares in the Agreement is fair from a financial point of view to
such holders.
Very truly yours,
/s/ L.H. Friend, Weinress, Frankson & Presson, Inc.
L.H. FRIEND, WEINRESS, FRANKSON & PRESSON, INC.
2
<PAGE>
APPENDIX C
CALIFORNIA GENERAL CORPORATION LAW
CHAPTER 13 DISSENTERS' RIGHTS
SEC. 1300. CORPORATE PURCHASE OF DISSENTING SHARES.
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter,
require the corporation in which the shareholder holds shares to purchase for
cash at their fair market value the shares owned by the shareholder which are
dissenting shares as defined in subdivision (b). The fair market value shall
be determined as of the day before the first announcement of the terms of the
proposed reorganization or short-form merger, excluding any appreciation or
depreciation in consequence of the proposed action, but adjusted for any
stock split, reverse stock split, or share dividend which becomes effective
thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100
or (B) listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System, and the notice of meeting of
shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this
provision does not apply to any shares with respect to which there exists
any restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not
voted in favor of the reorganization or, (B) if described in subparagraph
(A) or (B) of paragraph (1) (without regard to the provisos in that
paragraph), were voted against the reorganization, or which were held of
record on the effective date of a short-form merger; provided, however,
that subparagraph (A) rather than subparagraph (B) of this paragraph
applies in any case where the approval required by Section 1201 is sought
by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for enforcement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the record holder
of dissenting shares and includes a transferee of record.
SEC. 1301. NOTICE TO DISSENTING SHAREHOLDERS; DEMAND FOR PURCHASE OF SHARES.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3)
and (4) of subdivision (b) thereof, to require the corporation to purchase
their shares for cash, such corporation shall mail to each such shareholder a
notice of the approval of the reorganization by its outstanding shares
(Section 152) within 10 days after the date of such approval, accompanied by
a copy of Sections 1300, 1302, 1303, 1304 and this section, a statement of
the price determined by the corporation to represent the fair market value of
the dissenting shares, and a brief description of the procedure to be
followed if the shareholder desires to exercise the shareholder's right under
such sections. The statement of price constitutes an offer by the corporation
to purchase at the price stated any dissenting shares as defined in
subdivision (b) of Section 1300, unless they lose their status as dissenting
shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance
with paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be
the fair market value of those shares as of the day before the announcement
of the proposed reorganization or short-form merger. The statement of fair
market value constitutes an offer by the shareholder to sell the shares at
such price.
SEC. 1302. SHAREHOLDER CERTIFICATES OR NOTICE; TIME LIMIT FOR SUBMISSION.
1
<PAGE>
Within 30 days after the date on which notice of the approval by the outstanding
shares or the notice pursuant to subdivision (i) of Section 1110 was mailed to
the shareholder, the shareholder shall submit to the corporation at its
principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SEC. 1303. AGREED PRICE; INTEREST; FILING OF AGREEMENTS; TIME FOR PAYMENT.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the
legal rate on judgments from the date of the agreement. Any agreements fixing
the fair market value of any dissenting shares as between the corporation and
the holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in
the case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
SEC. 1304. ACTION TO DETERMINE WHETHER SHARES ARE DISSENTING OR TO DETERMINE
FAIR MARKET VALUE.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of
the shares, then the shareholder demanding purchase of such shares as
dissenting shares or any interested corporation, within six months after the
date on which notice of the approval by the outstanding shares (Section 152)
or notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the superior court
of the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both
or may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SEC. 1305. APPRAISER'S REPORT.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed
by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of
any party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time
as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market
value of each dissenting share multiplied by the number of dissenting shares
which any dissenting shareholder who is a party, or who has intervened, is
entitled to require the corporation to purchase, with interest thereon at the
legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for
the shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and
interest at the legal rate on judgments from the date of compliance with
Sections 1300, 1301 and 1302 if the value awarded by the court for the shares
is more than 125 percent of the price offered by the corporation under
subdivision (a) of Section 1301).
SEC. 1306. HOLDERS OF DISSENTING SHARES AS CREDITORS.
2
<PAGE>
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
SEC. 1307. DIVIDENDS ON DISSENTING SHARES AFTER APPROVAL DATE.
Cash dividends declared and paid by the corporation upon the dissenting shares
after the date of approval of the reorganization by the outstanding shares
(Section 152) and prior to payment for the shares by the corporation shall be
credited against the total amount to be paid by the corporation therefor.
SEC. 1308. RIGHTS IN DISSENTING SHARES PRIOR TO DETERMINATION OF FAIR MARKET
VALUE.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
SEC. 1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders thereof
cease to be dissenting shareholders and cease to be entitled to require the
corporation to purchase their shares upon the happening of any of the following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable attorneys'
fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i)
of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SEC. 1310. LITIGATION; SUSPENSION OF PROCEEDINGS.
If litigation is instituted to test the sufficiency or regularity of the votes
of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
SEC. 1311. SHARES SPECIFYING AMOUNT IN EVENT OF MERGER OR REORGANIZATION.
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
SEC. 1312. ATTACK ON VALIDITY OF MERGER OR REORGANIZATION.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set
aside or rescinded, except in an action to test whether the number of shares
required to authorize or approve the reorganization have been legally voted
in favor thereof; but any holder of shares of a class whose terms and
provisions specifically set forth the amount to be paid in respect to them in
the event of a reorganization or short-form merger is entitled to payment in
accordance with those terms and provisions or, if the principal terms of the
reorganization are approved pursuant to subdivision (b) of Section 1202, is
entitled to payment in accordance with the terms and provisions of the
approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash
for such shareholder's shares pursuant to this chapter; but if the
shareholder institutes any action to attack the validity of the
reorganization or short-form merger or to have the reorganization or short-
form merger set aside or rescinded, the shareholder shall not thereafter have
any right to demand payment of cash for the shareholder's shares pursuant to
this chapter. The court in any action attacking the validity of the
reorganization or short-form merger or to have the reorganization or short-
form merger set aside or rescinded shall not restrain or enjoin the
consummation of the transaction except upon 10 days' prior notice to the
corporation and upon a determination by the court that clearly no other
remedy will adequately protect the complaining shareholder or the class of
shareholders of which such shareholder is a member.
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(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable
as to the shareholders of any party so controlled.
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PROXY CARD
This Proxy is solicited on behalf of the Board of Directors and will be voted.
The undersigned hereby appoints Terrence C. Walsh and Charles Kimmel, or either
of them, proxies with full power of substitution to vote, as designated below,
all shares of common stock which the undersigned is entitled to vote, at the
special meeting of shareholders of Tivoli Industries, Inc. to be held on
[______], 1999, and any adjournment or postponement thereof. If no direction is
made, this Proxy will be voted FOR Proposal 1.
TIVOLI'S BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSAL 1.
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1. Proposal to approve and adopt the Agreement and Plan of Merger among Tivoli
Industries, Inc., Targetti Sankey S.p.A., and Florence Acquisition Corp., in
which each share of outstanding Tivoli common stock will be converted into the
right to receive $4.50 in cash.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
In their discretion, the proxies are authorized to vote on such other matters as
may properly come before the meeting or any adjournment of the meeting.
Please sign your name here exactly as it appears
hereon. Joint owners must each sign. When
signing as attorney, executor, administrator,
trustee or guardian, please give your full title
as it appears hereon. If a corporation, please
sign in full corporate name by President or
other authorized officer. If a partnership,
please sign in partnership name by an authorized
person.
_________________________ _______________
Signature(s) Date
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