<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:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
TIVOLI INDUSTRIES, INC.
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(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
[_] 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:
1,236,723 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 1,236,723
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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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[X] 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.
Terrence C. Walsh
Chairman of the Board of Directors
and
Chief Executive Officer
This proxy statement and form of proxy is dated October 26, 1999 and is
first being mailed to shareholders on or about October 26, 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., an Italian corporation, 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 rights in
accordance with Section 1300 of the California General Corporation Law (the
"CGCL"). Please see the discussion of dissenter rights in the accompanying
proxy statement on page 29. 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 26, 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
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER.................................... 3
SUMMARY................................................................... 6
The Companies........................................................... 6
The Special Meeting..................................................... 6
The Merger.............................................................. 8
Dissenter's Rights...................................................... 11
Market Prices of Tivoli Common Stock.................................... 11
Forward-Looking Statements.............................................. 11
THE COMPANIES............................................................. 12
Tivoli Industries, Inc. ................................................ 12
Targetti Sankey S.p.A. ................................................. 12
Florence Acquisition Corp. ............................................. 12
THE SPECIAL MEETING....................................................... 13
General................................................................. 13
Record Date And Voting.................................................. 13
Required Vote........................................................... 13
Proxies; Revocation..................................................... 14
Adjournments Or Postponements........................................... 14
THE MERGER................................................................ 15
Background of the Merger................................................ 15
Tivoli's Reasons for the Merger; Recommendation of the Tivoli Board..... 17
Opinion of Tivoli's Financial Advisor................................... 18
Material United States Federal Income Tax Consequences.................. 19
Regulatory Matters...................................................... 20
Accounting Treatment.................................................... 20
Merger Financing........................................................ 20
Interests of Certain Persons in the Merger; Possible Conflicts of
Interest............................................................... 20
THE MERGER AGREEMENT...................................................... 23
Structure And Effective Time............................................ 23
Merger Consideration.................................................... 23
Payment Procedures...................................................... 23
Treatment of Tivoli Stock Options and Warrants.......................... 23
Directors And Officers of the Surviving Corporation..................... 24
Representations And Warranties.......................................... 24
Covenants; Conduct of the Business of Tivoli Prior to the Merger........ 25
No Solicitation of Acquisition Transactions............................. 26
Employee Benefits....................................................... 27
Compliance With Legal Requirements...................................... 27
Indemnification......................................................... 27
Conditions to the Merger................................................ 27
Termination............................................................. 28
Termination Fees........................................................ 29
Expenses................................................................ 29
Amendment............................................................... 29
Dissenter's Rights...................................................... 29
</TABLE>
1
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
BUSINESS................................................................. 31
PROPERTIES............................................................... 41
LEGAL PROCEEDINGS........................................................ 41
HISTORICAL MARKET PRICE AND DIVIDEND DATA................................ 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................... 43
Overview............................................................... 43
Results of Operations.................................................. 43
Financial Position, Capital Resources and Liquidity.................... 45
"Year 2000" Requirements............................................... 46
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........... 47
INDEPENDENT PUBLIC ACCOUNTANTS........................................... 48
SHAREHOLDER PROPOSALS.................................................... 48
WHERE YOU CAN FIND MORE INFORMATION...................................... 48
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
</TABLE>
2
<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 17. Also, some members of the
Tivoli Board have additional interests in the merger which may create
possible conflicts of interest as discussed on pages 20 through 22.
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.
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<PAGE>
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.
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
29 through 30 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 19 and 20 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.
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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 48.
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
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- 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 26, 1999.
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
1,236,723 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.
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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.
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.
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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
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;
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- 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;
- 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.
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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 latest practicable trading day prior to
the date of this proxy statement, the closing price for Tivoli common stock
was $4.125.
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 distributors 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 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 26, 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 1,236,723 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
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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 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
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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.
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
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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 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;
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- 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.
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.
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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).
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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 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
rights for any Tivoli shares are perfected by any Tivoli shareholders, then
those shares will be treated as described under "Dissenter 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.
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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.
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;
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- conflicts under charter documents, violations of any instruments or law,
and required consents and approvals;
- availability of financing;
- 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 material 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;
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- 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;
- 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
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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 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;
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- 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 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;
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- 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.
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.
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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.
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") 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.
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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 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.
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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 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
American 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.
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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 Tivoli'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.
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
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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".
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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 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
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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, 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.
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
Tivoli 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.
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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'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 Tivoli
has obtained in low voltage lighting and the increase in multi-unit, multi-
location international customers.
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
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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
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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 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 NRTL. 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
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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.
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.
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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 1,236,723 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 $4.125.
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.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
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
</TABLE>
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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 ("SG & A") 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.
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On November 1, 1997 Tivoli and Targetti formed a new company - Targetti USA,
LLC. 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. 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.
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.
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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 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.
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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 of 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.
46
<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 4.4%
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 1,236,723 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.
47
<PAGE>
(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 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 Tivoli's 2000 annual meeting
of shareholders is October 30, 1999. Unless a shareholder who wishes to bring
a matter before the shareholders at Tivoli's 2000 annual meeting of
shareholders notifies Tivoli of such matter prior to January 5, 2000,
management will have discretionary authority to note all shares for which it
has proxies in opposition to such matter. 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.
48
<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-20
Consolidated Statements of Operations for the Three Months Ended June 30,
1999 and 1998 (Unaudited)............................................... F-21
Consolidated Statements of Operations for the Nine Months Ended June 30,
1999 and 1998 (Unaudited)............................................... F-22
Consolidated Statements of Cash Flows for the Nine Months Ended June 30,
1999 and 1998 (Unaudited)............................................... F-23
Notes to Consolidated Financial Statements............................... F-24
</TABLE>
F-1
<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
<TABLE>
<S> <C>
ASSETS
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 sub-
sidiary 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 STOCKHOLDERS' 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
========== ==========
Noncash investing and financing activities:
</TABLE>
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--(Continued)
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--(Continued)
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 on 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:
<TABLE>
<S> <C>
Machinery and equipment 5 years
Furniture and fixtures 1 to 5 years
Tooling 5 years
</TABLE>
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--(Continued)
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--(Continued)
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
--------------------------------
Per
Income Shares 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--(Continued)
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:
<TABLE>
<S> <C>
Note receivable from related party $ 50,000
Note receivable--other 64,806
Deposits and other 53,766
--------
$168,572
========
</TABLE>
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--(Continued)
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:
<TABLE>
<S> <C>
Equipment $258,236
Accumulated depreciation (57,844)
--------
$200,392
========
</TABLE>
Future minimum lease obligations pursuant to the capital leases are as
follows:
<TABLE>
<CAPTION>
Fiscal Years Ending
-------------------
<S> <C>
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
========
</TABLE>
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.
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.
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
- ---------------------------------------
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.
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.
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
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.
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.
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
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:
<TABLE>
<CAPTION>
Price Range
Options Per Share
------- --------------
<S> <C> <C>
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
=======
</TABLE>
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.
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
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:
<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:
<TABLE>
<CAPTION>
1998 1997
---- -------
<S> <C> <C>
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
==== =======
</TABLE>
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:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(Benefit) provision for income taxes at a Federal statu-
tory rate of 34% $(212,957) $ 193,242
(Increase) reduction in income taxes resulting from:
Changes in the valuation allowance for deferred Tax-as-
sets allocated to income tax 212,957 (173,229)
State income taxes 800 36,580
--------- ---------
Provision for income taxes $ 800 $ 56,593
========= =========
</TABLE>
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 7--Income Taxes, continued
At September 30, 1998, significant components of the Company's net deferred
taxes are as follows:
<TABLE>
<S> <C>
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)
=========
</TABLE>
The net change in the valuation allowance was an 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-19
<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>
F-20
<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>
F-21
<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>
F-22
<PAGE>
TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<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>
F-23
<PAGE>
TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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
---------------------------- ---------------------------
Per
Per Share Share
Income Shares Amount Income Shares 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 Secu-
rities
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)
-------- --------- ----- --------- --------- ------
<CAPTION>
For the nine month period ending June 30,
--------------------------------------------------------
1999 1998
---------------------------- ---------------------------
Per
Per Share Share
Income Shares Amount Income Share 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 Secu-
rities
Warrants
Stock Options
Diluted EPS
Income available to
Shareholders........... $434,734 1,255,887 $0.35 $ (34,749) 1,308,856 $(0.03)
-------- --------- ----- --------- --------- ------
</TABLE>
F-24
<PAGE>
TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(UNAUDITED)
Note 2--Earnings Per Share, continued
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
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.
F-25
<PAGE>
APPENDIX A
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 A-1
SECTION 1.1...................................................THE MERGER A-1
SECTION 1.2.........................................EFFECT OF THE MERGER A-1
SECTION 1.3...................................CONSUMMATION OF THE MERGER A-1
SECTION 1.4....ARTICLES OF INCORPORATION; BYLAWS; DIRECTORS AND OFFICERS A-2
SECTION 1.6................................COMPANY STOCK PLANS; WARRANTS A-2
SECTION 1.7...........................................PAYMENT FOR SHARES A-3
SECTION 1.8............................................DISSENTING SHARES A-4
SECTION 1.9...........................................SUBSEQUENT ACTIONS A-4
ARTICLE II....................REPRESENTATIONS AND WARRANTIES OF THE COMPANY A-5
SECTION 2.1...............................ORGANIZATION AND QUALIFICATION A-5
SECTION 2.2............................................CHARTER DOCUMENTS A-5
SECTION 2.3...............................................CAPITALIZATION A-5
SECTION 2.4....................................AUTHORITY; BOARD APPROVAL A-6
SECTION 2.5...................NO CONFLICT; REQUIRED FILINGS AND CONSENTS A-6
SECTION 2.6..........................................COMPLIANCE; PERMITS A-7
SECTION 2.7............................SEC REPORTS; FINANCIAL STATEMENTS A-7
SECTION 2.8.........................ABSENCE OF CERTAIN CHANGES OR EVENTS A-8
SECTION 2.9...................................NO UNDISCLOSED LIABILITIES A-8
SECTION 2.10.......................................ABSENCE OF LITIGATION A-8
SECTION 2.11...............EMPLOYEE BENEFIT PLANS; EMPLOYMENT AGREEMENTS A-8
SECTION 2.12..........................................EMPLOYMENT MATTERS A-10
SECTION 2.13........................................INFORMATION SUPPLIED A-10
SECTION 2.14...........................................TITLE TO PROPERTY A-10
SECTION 2.15.......................................................TAXES A-11
SECTION 2.16.......................................ENVIRONMENTAL MATTERS A-11
SECTION 2.17.....................................................BROKERS A-12
SECTION 2.18.............................................FULL DISCLOSURE A-12
SECTION 2.19................................OPINION OF FINANCIAL ADVISOR A-12
SECTION 2.20.......................................INTELLECTUAL PROPERTY A-12
SECTION 2.21...............................INTERESTED PARTY TRANSACTIONS A-13
SECTION 2.22...................................................INSURANCE A-13
SECTION 2.23...............................................VOTE REQUIRED A-13
ARTICLE III..............REPRESENTATIONS AND WARRANTIES OF PARENT AND NEWCO A-13
SECTION 3.1...............................ORGANIZATION AND QUALIFICATION A-13
SECTION 3.2....................................................AUTHORITY A-14
SECTION 3.3............................................NON-CONTRAVENTION A-14
SECTION 3.4.......................................GOVERNMENTAL APPROVALS A-14
SECTION 3.5......................................................BROKERS A-14
SECTION 3.6....................................................FINANCING A-14
SECTION 3.7.........................................INFORMATION SUPPLIED A-14
ARTICLE IV................................................CERTAIN COVENANTS A-15
SECTION 4.1............................CONDUCT OF THE COMPANY'S BUSINESS A-15
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 4.2..................ACCESS, DISCLOSURE, PUBLIC ANNOUNCEMENTS A-16
SECTION 4.3................CONSENTS AND APPROVALS; FURTHER ASSURANCES A-17
SECTION 4.4................................INQUIRIES AND NEGOTIATIONS A-18
SECTION 4.5...........................NOTIFICATION OF CERTAIN MATTERS A-19
SECTION 4.6........................................FIRPTA CERTIFICATE A-19
SECTION 4.7.....................CERTAIN EMPLOYEE BENEFIT ARRANGEMENTS A-19
SECTION 4.8.....................................EMPLOYMENT AGREEMENTS A-19
ARTICLE V..........................................ADDITIONAL AGREEMENTS A-19
SECTION 5.3.......................................CONSENTS; APPROVALS A-20
SECTION 5.4...........................................INDEMNIFICATION A-20
SECTION 5.5.......................................TARGETTI (USA), LLC A-21
ARTICLE VI......................................CONDITIONS TO THE MERGER A-21
SECTION 6.1.......CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER A-21
SECTION 6.2..CONDITIONS TO PARENT'S AND NEWCO'S OBLIGATIONS TO EFFECT
THE MERGER A-21
SECTION 6.3......CONDITIONS TO THE COMPANY'S OBLIGATION TO EFFECT THE
MERGER A-22
ARTICLE VII..................................TERMINATION AND ABANDONMENT A-22
SECTION 7.1...............................TERMINATION AND ABANDONMENT A-22
SECTION 7.2.....................................EFFECT OF TERMINATION A-23
ARTICLE VIII...............................................MISCELLANEOUS A-23
SECTION 8.1.............NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES A-23
SECTION 8.2............................................EXPENSES, ETC. A-24
SECTION 8.3.................................................PUBLICITY A-24
SECTION 8.4.................................EXECUTION IN COUNTERPARTS A-24
SECTION 8.5...................................................NOTICES A-24
SECTION 8.6...................................................WAIVERS A-25
SECTION 8.7..........................................ENTIRE AGREEMENT A-25
SECTION 8.8............................................APPLICABLE LAW A-25
SECTION 8.9......................................SPECIFIC PERFORMANCE A-25
SECTION 8.10.................................BINDING EFFECT, BENEFITS A-25
SECTION 8.11............................................ASSIGNABILITY A-26
SECTION 8.12...............................................AMENDMENTS A-26
SECTION 8.13.................................................HEADINGS A-26
ANNEX I DEFINED TERMS.................................................. A-27
EXHIBIT A-1 to A-8FORMS OF VOTING AGREEMENTS
EXHIBIT BFORM OF PRESS RELEASE
EXHIBIT C-1EMPLOYMENT AGREEMENT OF TERRENCE C. WALSH
EXHIBIT C-2EMPLOYMENT 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.
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
A-1
<PAGE>
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 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
A-2
<PAGE>
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).
(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
A-3
<PAGE>
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 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,
A-4
<PAGE>
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:
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
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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 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 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
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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 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
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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
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,
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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 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.
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(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.
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
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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) 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,
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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, 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 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
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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.
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.
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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
may be 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, 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
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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.
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);
(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;
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(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 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
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Merger (such information, together with notes, memoranda, summaries, analyses,
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 any 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
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.
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(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.
(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.
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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 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
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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 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
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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 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.
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
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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.
(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;
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(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
(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.
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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).
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
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If to the Company, to:
1513 E. Saint Gertrude Place
Santa Ana, California 92705
Attention: Terrence C. Walsh
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 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
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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.
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:
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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).
"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.
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"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.
"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 as 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.
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"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).
"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).
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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 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.
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ARTICLE II
Representations and Warranties of the Shareholders
The Shareholders hereby represent and warrant jointly and severally to
Parent as follows:
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:
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
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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 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.
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<PAGE>
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):
with copies to:
if to Parent:
Rogers & Wells LLP
Targetti Sankey S.p.A. 200 Park Avenue
Via Pratese, 164 New York, New York 10166
50145 Firenze, Italia Attention: Michael S.
Attention: Lorenzo Targetti 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.
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
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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).
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:
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<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.
(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
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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.
(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.
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<PAGE>
(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 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;
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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.
(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.
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(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.
(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.
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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
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<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.
(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.
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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
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
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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 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.
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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 and
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.
(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
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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 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.
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
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EXHIBIT A TO TERRENCE C. WALSH
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").
WITNESSETH:
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.
"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.
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"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.
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
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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.
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.
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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.
(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
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obligation on the part of Targetti to purchase for cash, all of his Shares.
Unless otherwise 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 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.
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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 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.
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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:
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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.
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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.
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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
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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.
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
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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.
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.
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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
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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.
(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
Tivoli Industries, Inc.
Proxy Solicited on Behalf of the Board of Directors
of the Company for the Special Meeting
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
November 11, 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.
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.
(continued and to be signed on other side)
<PAGE>
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.
Dated: ______________________________________
_____________________________________________
(Signature of Shareholder)
Dated: ______________________________________
_____________________________________________
(Signature of Shareholder)
_____________________________________________
Please Mark, Sign, Date and Return the Proxy Card Promptly Using the Enclosed
Envelope.
