-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Jkmrhzx9+pokKkdNg/fRrjIfZdk4UJ14tfrgCCJ6ItMQatZjV0GN6ugzoYhaPZLq xI4Dn3HYTgRYM2KARIB5cg== 0000950148-97-001219.txt : 19970513 0000950148-97-001219.hdr.sgml : 19970513 ACCESSION NUMBER: 0000950148-97-001219 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970512 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALNETICS CORP CENTRAL INDEX KEY: 0000277376 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 952303687 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-08767 FILM NUMBER: 97600013 BUSINESS ADDRESS: STREET 1: 20401 PRAIRIE ST CITY: CHATSWORTH STATE: CA ZIP: 91311 BUSINESS PHONE: 8188869819 MAIL ADDRESS: STREET 1: 20401 PRAIRIE STREET CITY: CHATSWORTH STATE: CA ZIP: 91311 10-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 1997 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period from ____________ to ____________ Commission File Number: 0-8767 CALNETICS CORPORATION (Exact name of Registrant as specified in its charter) CALIFORNIA 95-2303687 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 20401 PRAIRIE STREET, CHATSWORTH, CALIFORNIA 91311 (Address of principle executive offices) (zip code) (818) 886-9819 Registrant's telephone number, including area code N/A Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares outstanding of the Registrant's Common Stock as of March 31, 1997 was 3,023,799. 2 CALNETICS CORPORATION INDEX
Part I. Financial Information Page Number - ------------------------------ ----------- Item 1. Financial Statements Condensed Consolidated Statements of Income (Unaudited) Three Months and Nine Months Ended March 31, 1997 and 1996 ................... 3 Condensed Consolidated Balance Sheets (Unaudited) March 31, 1997 and June 30, 1996 ............................................. 4 Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended March 31, 1997 and 1996 .................................... 6 Notes to Condensed Consolidated Financial Statements (Unaudited) ............................................. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ..................................11 Part II. Other Information Item 3. Litigation.............................................................13 Item 5. Other Information......................................................13 Item 6. Exhibits and Reports on Form 8-K ......................................14 Signatures .....................................................................18
Page 2 of 77 3 PART I - FINANCIAL INFORMATION CALNETICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended March 31, March 31, ---------------------------- ---------------------------- 1997 1996 1997 1996 ----------- ----------- ----------- ----------- Net Sales $ 9,260,938 $ 9,089,762 $26,293,369 $25,488,700 Cost of Sales 6,582,363 6,744,642 19,371,380 19,381,733 ----------- ----------- ----------- ----------- Gross Profit 2,678,575 2,345,120 6,921,989 6,106,967 Selling, general and administrative expenses 1,668,008 1,486,616 4,418,519 4,038,503 Other expense, net, including interest 74,000 95,666 250,989 335,493 ----------- ----------- ----------- ----------- Total costs and expenses 1,742,008 1,582,282 4,669,508 4,373,996 ----------- ----------- ----------- ----------- Income from operations before income taxes 936,567 762,838 2,252,481 1,732,971 Provision for income taxes 395,000 319,000 948,000 722,000 ----------- ----------- ----------- ----------- Net income $ 541,567 $ 443,838 $ 1,304,481 $ 1,010,971 =========== =========== =========== =========== Earnings per common share and common share equivalent $ 0.17 $ 0.14 $ 0.42 $ 0.33 Weighted average common shares and common share equivalents outstanding 3,111,022 3,075,569 3,098,724 3,063,145 =========== =========== =========== ===========
No dividends were paid during the periods set forth above. See accompanying notes to condensed consolidated financial statements. Page 3 of 77 4 CALNETICS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS
March 31, 1997 June 30, 1996 -------------- ------------- CURRENT ASSETS: Cash and cash equivalents $ 1,296,544 $ 1,877,633 Accounts receivable, net 5,784,310 4,997,471 Inventories 5,321,585 5,470,710 Prepaid expenses 208,626 254,608 Deferred income taxes 342,000 342,000 ----------- ----------- Total current assets 12,953,065 12,942,422 ----------- ----------- PROPERTY, PLANT AND EQUIPMENT (at cost): Land 466,288 466,288 Buildings and leasehold improvements 2,277,763 2,269,525 Machinery and equipment 5,195,047 4,587,322 Furniture and fixtures 265,832 248,220 ----------- ----------- 8,204,930 7,571,355 Less--Accumulated depreciation and amortization 3,931,711 3,399,998 ----------- ----------- Property, plant and equipment, net 4,273,219 4,171,357 ----------- ----------- Deposits and other assets 168,354 171,245 Goodwill, net 1,350,468 1,401,268 ----------- ----------- Total assets $18,745,106 $18,686,292 =========== ===========
See accompanying notes to condensed consolidated financial statements. Page 4 of 77 5 CALNETICS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, 1997 June 30, 1996 -------------- ------------- CURRENT LIABILITIES: Current portion of long-term debt $ 213,211 $ 247,187 Accounts payable 2,575,322 3,214,786 Accrued liabilities 1,255,609 1,167,707 Income taxes payable 249,021 386,021 ----------- ----------- Total current liabilities 4,293,163 5,015,701 ----------- ----------- LONG-TERM DEBT, net of current portion 4,125,659 4,740,820 ----------- ----------- DEFERRED INCOME TAXES 57,000 57,000 ----------- ----------- SHAREHOLDERS' EQUITY: Preferred stock: authorized- 2,000,000 shares, none issued -- -- Common stock, no par value: Authorized - 20,000,000 shares; Issued and outstanding -- 3,023,799 at March 31, 1997 and 2,959,799 at June 30, 1996 2,554,377 2,462,345 Retained earnings 7,714,907 6,410,426 ----------- ----------- Total shareholders' equity 10,269,284 8,872,771 ----------- ----------- Total liabilities and shareholders' equity $18,745,106 $18,686,292 =========== ===========
See accompanying notes to condensed consolidated financial statements. Page 5 of 77 6 CALNETICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended March 31, ----------------------------- 1997 1996 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,304,481 $ 1,010,971 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 596,814 539,723 Provision for doubtful accounts 29,864 21,000 Changes in operating assets and liabilities: Accounts receivable (816,703) (1,010,443) Inventories 149,125 (343,000) Prepaid expenses 45,982 (19,108) Deposits and other assets 2,891 (42,355) Accounts payable (639,464) 277,932 Customer deposits -- (38,900) Accrued liabilities 87,902 9,737 Income taxes payable (137,000) 58,828 ----------- ----------- Total adjustments (680,589) (546,586) ----------- ----------- Net cash provided by operating activities 623,892 464,385 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (647,876) (663,669) Net cash used in investing activities (647,876) (663,669) ----------- -----------
See accompanying notes to condensed consolidated financial statements. Page 6 of 77 7 CALNETICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
Nine Months Ended March 31, ----------------------------- 1997 1996 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long-term debt $ (649,137) $ (613,982) Net proceeds from issuance of common stock 92,032 14,380 ----------- ----------- Net cash used in financing activities (557,105) (599,602) ----------- ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS (581,089) (798,886) CASH AND CASH EQUIVALENTS, beginning of period 1,877,633 1,580,974 ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 1,296,544 $ 782,088 =========== =========== Supplemental disclosures of cash flow information: Cash paid for interest $ 250,989 $ 341,747 =========== =========== Cash paid for income tax $ 1,085,000 $ 664,000 =========== ===========
See accompanying notes to condensed consolidated financial statements. Page 7 of 77 8 CALNETICS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 1997 1. General. In the opinion of the management of Calnetics Corporation (the "Company"), the accompanying condensed consolidated unaudited financial statements contain all adjustments, consisting of only normal recurring accruals, necessary to present fairly the Company's financial position at March 31, 1997 and June 30, 1996, the results of its operations for the three and nine months ended March 31, 1997 and 1996 and the cash flows for the nine months ended March 31, 1997 and 1996. Certain information and footnote disclosures normally included in financial statements that would have been prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although management of the Company believes that the disclosures in these financial statements are adequate to make the information presented therein not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's June 30, 1996 Form 10-K filed with the Securities and Exchange Commission. The results of operations for the three and nine months ended March 31, 1997 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending June 30, 1997. 2. Receivables. The following tabulation shows the elements of receivables:
March 31, 1997 June 30, 1996 -------------- ------------- Trade accounts receivable $6,102,695 $5,313,471 Less allowance for doubtful accounts 318,385 316,000 ---------- ---------- Total $5,784,310 $4,997,471 ========== ==========
Page 8 of 77 9 3. Income Taxes. Income taxes for the nine-month period ended March 31, 1997 were computed using the effective tax rate estimated to be applicable for the full fiscal year. This rate is subject to ongoing evaluation and review by management. 4. Long-term debt. At March 31, 1997 and June 30, 1996, long-term debt consisted of the following:
March 31, 1997 June 30, 1996 -------------- ------------- Term loans payable to banks, unsecured, interest at the banks' reference rate (8.50 percent at March 31, 1997) plus 0.25 percent, due in various monthly installments of principal and interest through July 1, 1999, with balloon payments totaling $1,458,462 due on August 1, 1999 $2,312,498 $2,949,948 Industrial revenue bond payable, principal due in annual sinking fund installments ranging from $20,000 to $130,000 through December 2021, plus interest due monthly based on the Issuer's Weekly Adjustable Interest Rates for Revenue Bonds (3.5 percent at March 31, 1997), secured by a letter of credit issued by a bank with an annual fee of 1.125 percent 1,420,000 1,440,000
Page 9 of 77 10 Long-term debt. (cont'd)
March 31, 1997 June 30, 1996 -------------- ------------- Loans payable to former Agricultural Products, Inc. ("API") shareholders, unsecured, interest payable semi-annually at 7.50 percent, principal payable in three equal annual installments through June 1999 301,532 301,532 Mortgage payable to bank, secured by the related building and land, principal payable in monthly installments of $1,665 plus interest at the bank's prime rate (8.50 percent at March 31, 1997) plus 0.75 percent, with a balloon payment of $201,415 due on March 5, 2000 259,702 274,687 Other 45,138 21,840 ---------- ---------- $4,338,870 $4,988,007 Current portion of long-term debt 213,211 247,187 ---------- ---------- Long-term portion $4,125,659 $4,740,820 ========== ==========
The term loans and notes payable include certain restrictive financial and non-financial covenants, including certain cash restrictions and limitations on payment of cash dividends and redemption of stock. 5. Earnings per common share and common share equivalent. Earnings per common share and common share equivalent are based on the weighted average number of shares of common stock and common stock equivalents (dilutive stock options) outstanding during the related periods. The weighted average number of common stock equivalent shares includes shares issuable upon the assumed exercise of stock options less the number of shares assumed purchased with the proceeds available from such exercise. Fully diluted net income per share does not differ materially from net income per common share and common share equivalent. Page 10 of 77 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial condition. In general, except as discussed herein, there were no significant changes in current assets or current liabilities or the overall financial condition of the Company between March 31, 1997, the end of the third quarter, and June 30, 1996, the end of the prior fiscal year. Cash and cash equivalents decreased by approximately $581,000 by March 31, 1997, due in part to purchases of equipment, the voluntary payment of $150,000, representing three monthly installments, of the Company's long-term bank loan, the payment of which was in addition to the regular scheduled monthly payments, and the quicker payment of accounts payable. In addition, accounts receivable increased by approximately $787,000 as of March 31, 1997 due primarily to recent record sales by the Company's Agricultural Products, Inc. subsidiary, and accounts payable decreased by approximately $639,000 due primarily to the quicker payment of such accounts with available cash and a temporary decrease in raw material purchases at the Company's Manchester Plastics Co., Inc. subsidiary, as reflected by the approximately $150,000 lower March 31, 1997 inventory value. Contrary to previous announcement, the floods of Northern California during January 1997 did not have a significant adverse effect on the results of operations for the Company's agricultural irrigation products. For the nine months ended March 31, 1997, the Company's pre-tax earnings have benefited from adjustments to the LIFO reserve account for finished goods inventory at the Company's Manchester Plastics Co., Inc. subsidiary by an amount equal to approximately $240,000. Liquidity and Capital Resources. At March 31, 1997, the Company's working capital was $8,659,902, compared to $7,580,054 at the same time a year ago. The Company has a working capital agreement with a bank under which the Company may borrow up to $2,500,000 on an unsecured basis at the bank's prime rate. As of March 31, 1997, the entire amount of $2,500,000 was available under this credit arrangement, which is scheduled to expire on December 31, 1997. The Company has no immediate plans for any significant capital expenditures and the Company believes that its available funds and internally generated cash from operations will be sufficient to meet its working capital needs in fiscal 1997. Certain loan agreements limit capital expenditures to $1,000,000 in fiscal year ending June 30, 1997 and also contain limits on subsequent years. Certain statements made herein that are not related to historical results are forward-looking in nature within the meaning of the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties. Such forward-looking statements are based upon assumptions as to the future events that may not prove to be accurate, and actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, a change in the need to make capital expenditures based on market factors and a decrease in internally generated cash due to a downturn in market conditions. Page 11 of 77 12 Results of Operations. Three months ended March 31, 1997 compared to three months ended March 31, 1996 Net sales for the three-month period ended March 31, 1997 increased 1.9% from $9,089,762 in the same period in 1996, to $9,260,938 in 1997. Cost of sales as a percentage of sales decreased to 71.1%, during the period January 1, 1997 to March 31, 1997, as compared to 74.2% for the same period in the prior year. This decrease was attributed to increased profitability of certain products produced and sold by our Agricultural Products subsidiary. Selling, general and administrative expenses for the three-month period ended March 31, 1997 increased to $1,618,008 as compared with $1,486,616 for the same period in the prior year, an increase of 8.8%. The increase is mainly attributed to professional services incurred in the current quarter relating to the proposed merger (as discussed in Part II, Item 5 below). Net income for the current three-month period was $541,567 as compared with $443,838, for the same period in the prior year, after provisions for income taxes of $395,000 and $319,000 for the three months ended March 31, 1997 and 1996, respectively. Earnings per common share and common share equivalent increased to $0.17 from $0.14 per share for the three months ended March 31, 1997 and 1996, respectively. The increase in net income is attributed primarily to increased profit margins at our Agricultural Products subsidiary. Nine months ended March 31, 1997 compared to nine months ended March 31, 1996 Net sales for the nine-month period ended March 31, 1997 increased 3.2% from $25,488,700 in 1996, to $26,293,369 in 1997. Cost of sales as a percentage of sales decreased to 73.7%, during the period July 1, 1996 to March 31, 1997, as compared to 76.0% for the same period in the prior year. The decrease is primarily attributed to increased profitability of certain products produced and sold by our Agricultural Products subsidiary. Selling, general and administrative expenses increased to $4,368,519 for the nine-month period ended March 31, 1997 as compared with $4,038,503 for the same period in the prior year. The increase is mainly attributed to professional services incurred in the current quarter relating to the proposed merger (as discussed in Part II, Item 5 below). Net income for the current nine-month period was $1,304,481 as compared with $1,010,971 for the nine-month period ended March 31, 1996 after provisions for income taxes of $948,000 and $722,000 for the nine months ended March 31, 1997 and 1996, respectively. Earnings per common share and common share equivalent increased to $0.42 from $0.33 per share for the nine months ended March 31, 1997 and 1996, respectively. The increase in net income is attributed primarily to increased profit margins at our Agricultural Products subsidiary. Page 12 of 77 13 PART II - OTHER INFORMATION ITEM 3. LITIGATION The Company formerly operated a facility on property within the boundaries of a federal Superfund site located in Southern California. The Company operated at this site prior to October 1986. The Company has learned that hazardous substances have been identified in the subsurface of the property and that the current owner has been requested by a state agency to undertake additional investigation at the property. The Company is also aware that the property has been subject to a general notice letter issued by the United States Environmental Protection Agency under the federal Superfund law. The Company, as one of several prior operators of the property, may be held responsible for the contamination at the site to the extent the Company caused the contamination. The Company does not believe it is responsible for any material contamination at the property, and has not been notified or contacted by any governmental authority in that regard, nor named in any proceeding relating to the property. However, if the Company were held liable under the federal Superfund law, or other environmental law, the consequences could be material to the business of the Company as a whole. The potential liability associated with this property cannot be reasonably determined at this time. ITEM 5. OTHER INFORMATION As previously announced, the Company and Summa Industries, a California corporation ("Summa"), have agreed to a mutual termination of that certain Agreement and Plan of Reorganization dated March 26, 1997 ("Agreement"), pursuant to which the Company would have been merged with and into a new to-be-formed wholly-owned subsidiary of Summa. A copy of the Agreement has been filed as an exhibit to this quarterly report on Form 10-Q. Page 13 of 77 14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
Number Description ------ ----------- 3.1 Amended and Restated Articles of Incorporation of Calnetics (Exhibit 3.1 to Form 10-K filed September 25, 1989). 3.2 Bylaws of Calnetics (Exhibit 1.2 to Form 10-K filed September 21, 1978). 3.3 Amendment to Bylaws of Calnetics (Exhibit 3 to Form 8 filed September 28, 1989). 10.1 Lease dated November 22, 1989 between Manchester and Tom Schneider and Arlene Schneider and Amendment to said lease dated December 5, 1989 (Exhibit 10.12 to Form 10-K dated June 30, 1991). 10.2 Lease dated June 2, 1992 by and between Honey Protas and Ny-Glass (Exhibit 10.19 to Form 10-K dated June 30, 1992). 10.3 Addendum No. 1 to Lease dated June 2, 1992 (Exhibit 10.20 to Form 10-K dated June 30, 1992). 10.4 Lease Guaranty Agreement entered into as of June 2, 1992 by Calnetics (Exhibit 10.21 to Form 10-K dated June 30, 1992). 10.5 Memorandum of Lease with Right of First Refusal and Option to Purchase dated May 22, 1992 (Exhibit 10.22 to Form 10-K dated June 30, 1992). 10.6 Side Letter Agreement re Standard Industrial Commercial Single Tenant Lease by and between Honey Protas as lessor and Ny-Glass as lessee dated May 22, 1992 (Exhibit 10.23 to Form 10-K dated June 30, 1992). 10.7 Calnetics Corporation 1988 Employee Stock Option Plan (Exhibit 10.25 to Form 10-K dated June 30, 1993). 10.8 Calnetics Corporation 1993 Nonstatutory Stock Option Plan (Exhibit 10.26 to Form 10-K dated June 30, 1993). 10.9 Business Loan Agreement dated June 28, 1993 among Bank of America National Trust and Savings Association, Calnetics, Manchester and Ny-Glass (Exhibit 10.27 to Form
Page 14 of 77 15
10-K dated June 30, 1993). 10.10 First Amendment to Business Loan Agreement of June 28, 1993 dated as of June 20, 1994 among Bank of America National Trust and Savings Association, Calnetics, Manchester and Ny-Glass (Exhibit 10.17 to Form 10-K dated June 30, 1994). 10.11 Stock Purchase Agreement among Calnetics and the Selling Shareholders of API effective as of April 30, 1994 (Exhibit 2 to Form 8-K filed June 24, 1994). 10.12 Business Loan Agreement dated June 20, 1994 among The Bank of California, N.A., Calnetics, Manchester, Ny-Glass and API (Exhibit 10.19 to Form 10-K dated June 30, 1994). 10.13 Term Loan Note dated June 20, 1994 among The Bank of California, N.A., Calnetics, Manchester, Ny-Glass and API (Exhibit 10.24 to Form 10-K dated June 30, 1994). 10.14 Business Loan Agreement dated June 20, 1994 among Bank of America National Trust and Savings Association, Calnetics, Manchester, Ny-Glass and API (Exhibit 10.25 to Form 10-K dated June 30, 1994). 10.15 Noncompetition and Noninterference Agreement dated June 20, 1994 among Calnetics, API and Lon Schultz, individually and as trustee of the Lon Schultz Charitable Remainder Unitrust (Exhibit 10.31 to Form 10-K dated June 30, 1994). 10.16 Employment Agreement dated June 20, 1994 between API and Lon Schultz, an individual (Exhibit 10.32 to Form 10-K dated June 30, 1994). 10.17 Parts Purchase and Supply Agreement dated June 20, 1994 between API and Story Plastics, Inc., a California corporation (Exhibit 10.33 to Form 10-K dated June 30, 1994). 10.18 Loan Agreement dated December 31, 1991 between California Statewide Communities Development Authority and API (Exhibit 10.34 to Form 10-K dated June 30, 1994). 10.19 Reimbursement Agreement dated December 1, 1991 between API and Union Bank (Exhibit 10.35 to Form 10-K dated June 30, 1994). 10.20 Renewal/Consolidation Promissory Note and Security Agreement dated March 13, 1992 between API as borrower
Page 15 of 77 16
and First Union National Bank of Florida as lender (Exhibit 10.38 to Form 10-K dated June 30, 1994). 10.21 Amendment dated November 30, 1994 to Business Loan Agreement dated June 20, 1994 among Bank of America National Trust and Savings Association, Calnetics, Manchester, Ny-Glass and API (Exhibit 10.31 to Form 10-K dated June 30, 1995). 10.22 Mortgage Modification, Consolidation, Spreader, and Extension Agreement dated March 31, 1995 among First Union National Bank of Florida, API and Calnetics (Exhibit 10.32 to Form 10-K Dated June 30, 1995). 10.23 API Profit Sharing Plan Adoption Agreement dated November 21, 1991 (Exhibit 10.39 to Form 10-K dated June 30, 1994). 10.24 API 401(k) Plan Adoption Agreement effective as of January 1, 1993 (Exhibit 10.40 to Form 10-K dated June 30, 1994). 10.25 Nonstatutory Stock Option Agreement between Calnetics and Michael A. Hornak dated February 28, 1994 (Exhibit 10.41 to Form 10-K dated June 30, 1994). 10.26 Nonstatutory Stock Option Agreement between Calnetics and Steven L. Strawn dated February 28, 1994 (Exhibit 10.42 to Form 10-K dated June 30, 1994). 10.27 Nonstatutory Stock Option Agreement between Calnetics and Lon Schultz dated July 18, 1994 (Exhibit 10.37 to Form 10-K dated June 30, 1995). 10.28 Amendment No.2 dated December 21, 1995 to Business Loan Agreement dated June 20, 1994 among Bank of America National Trust and Savings Association, Calnetics, Manchester, Ny-Glass and API (Exhibit 10.38 to Form 10-K dated June 30, 1996). 10.29 Amendment No.3 dated June 28, 1996 to Business Loan Agreement dated June 20, 1994 among Bank of America National Trust and Savings Association, Calnetics, Manchester, Ny-Glass and API (Exhibit 10.39 to Form 10-K dated June 30, 1996). 10.30 1995 Employee Stock Option Plan Dated September 27, 1995 (Exhibit 10.40 to Form 10-K dated June 30, 1996).
Page 16 of 77 17
10.31 Amendment No.4 dated December 20, 1996 to Business Loan Agreement dated June 20, 1994 among Bank of America National Trust and Savings Association, Calnetics, Manchester, Ny-Glass and API (Exhibit 10.31 to Form 10-Q dated December 31, 1996). 10.32 Amendment No.3 dated December 19, 1996 to Business Loan Agreement dated June 20, 1994 among The Bank of California, a division of Union Bank of California, N.A., Calnetics, Manchester, Ny-Glass and API (Exhibit 10.32 to Form 10-Q dated December 31, 1996). 10.33 Amendment No.1 dated November 8, 1996 to Reimbursement Agreement dated December 1, 1991 between Union Bank of California, N.A. and API (Exhibit 10.33 to Form 10-Q dated December 31, 1996). 10.34 Hazardous Materials and Environmental Indemnity Agreement between Union Bank of California, N.A. and API (Exhibit 10.34 to Form 10-Q dated December 31, 1996). 10.35* Amendment No.2 dated January 15, 1997 to Employment Agreement dated June 20, 1994 between API and Lon Schultz. 10.36* Incentive Stock Option Agreement between Calnetics and Trygve Thoresen dated January 28, 1997. 10.37* Change in Control Agreement dated January 27, 1997 between Calnetics and Trygve Thoresen. 10.38* Form of Indemnity Agreement for directors and officers. 10.39* Agreement and Plan of Reorganization dated March 26, 1997 between Calnetics and Summa Industries. 27.1* Financial Data Schedule
(b) Reports on Form 8-K None. - ------------------------------------------------------------------------------ * Filed herewith Page 17 of 77 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CALNETICS CORPORATION (Registrant) Dated: May 7, 1997 /s/ CLINTON G. GERLACH ---------------------------- Clinton G. Gerlach President Dated: May 7, 1997 /s/ TERESA S. LOUIE ---------------------------- Teresa S. Louie Treasurer Page 18 of 77 EX-10.35 2 EXHIBIT 10.35 1 EXHIBIT 10.35 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT This Second Amendment (this "Amendment") to that certain Employment Agreement dated June 20, 1994 (the "Employment Agreement") by and between Agricultural Products, Inc., a California corporation with its principal executive offices at 5001 E. Philadelphia Street, Ontario, California 91761 (the "Company"), and Lon Schultz, c/o 5001 E. Philadelphia Street, Ontario, California 97161 (the "Executive"), is made and entered into as of January 15, 1997 (the "Effective Date"). RECITALS WHEREAS, on June 20, 1994 the Company and the Executive entered into the Employment Agreement which governs Executive's employment with the Company for a three-year period, a complete copy of which is attached hereto as Exhibit A and incorporated herein by this reference; WHEREAS, on June 5,1996 the Company and Executive entered into a written amendment of such Employment Agreement ("First Amendment") whereby, among other things, the aggregate amount of insurance coverage required to be provided by the Company covering the life of the Executive was reduced from approximately $3.5 million to $2.5 million, comprised of $1 million owned by Executive's designee with premiums being paid by the Company as compensation to Executive and $1.5 million owned by the Company under separate policy; and WHEREAS, the Company and the Executive now desire to further amend the Employment Agreement as set forth below. AGREEMENT In consideration of the foregoing recitals and the mutual covenants set forth herein, intending to be legally bound, the Company and the Executive hereby agree as follows: 1. CAPITALIZED TERMS. Capitalized terms used herein but not defined shall have the meanings ascribed to them in the Employment Agreement. 2. CONTINUED VALIDITY OF EMPLOYMENT AGREEMENT. Except as specifically set forth herein, this Amendment shall not modify nor terminate the Employment Agreement, as amended by the First Amendment, or any term thereof, and such Employment Agreement shall remain in full force and effect in accordance with its terms. 3. TERM. The first sentence of Section 2 of the Employment Agreement is hereby amended in its entirety to read as follows: "Subject to the provisions of Section 10 hereof, this Agreement shall begin on the Effective Date, and shall terminate at the end of business on the fifth anniversary date of the Effective Date unless extended." Page 19 of 77 2 4. SALARY. Section 4 of the Employment Agreement is hereby amended in its entirety to read as follows: "Subject to the provisions of Section 10 hereof, the Company shall pay the Executive a salary during the Employment Period as follows: (i) $29,166.67 per month for each of the first thirty-six months (the "Initial Employment Period"), (ii) $18,750 per month for each of the twelve months subsequent to the Initial Employment Period, and (iii) $25,000 per month for each of the remaining twelve months. All salary shall be paid to the Executive in accordance with the Company's customary payroll practices for its other executive officers, but, in any event, no less frequently than twice each month. Any salary paid with respect to less than a full one-month period shall be prorated, with such proration being based on the number of days in such month and the number of days during such month that the Employment Period is in effect. The Company shall not have the right to reduce such salary at any time during the Employment Period without the prior written consent of the Executive." 5. TERMINATION. Section 10 of the Employment Agreement is hereby amended in its entirety to read as follows: "(A) This Agreement and the Executive's rights hereunder (except as to salary, bonuses and other rights accrued prior thereto) shall terminate automatically as set forth in Section 2 above unless terminated earlier pursuant to the terms of this Section 10. (B) If the Executive dies at any time during the Employment Period, then the Company shall pay to the Executive's estate or designated beneficiary the monthly salary amount set forth in Section 4 hereof for the month in which such death occurred and for the subsequent month. Thereafter, if the Executive dies during the Initial Employment Period (as defined in Section 4 above), the Company shall pay to the Executive's estate or designated beneficiary the sum of $16,666.67 per month for the remainder of the Initial Employment Period. (C) If the Executive is disabled during the Employment Period, then the Company shall pay to the Executive the monthly salary amount set forth in Section 4 hereof for the month in which such disability occurred and for the subsequent three (3) months. Thereafter, if the Executive is disabled during the Initial Employment Period, the Company shall pay to the Executive a monthly salary of $22,916.67 for a further and subsequent three (3) month period of disability (or such shorter period of time as may remain in the Initial Employment Period) and, if still disabled after the above time periods, the Company shall pay the Executive a monthly salary of $16,667.67 for the remainder of the Initial Employment Period, if any. If and when the Executive is able to resume his duties as set forth in this Agreement, then at such date the Executive will be entitled to the monthly salary set forth in Section 4 from such date for the remainder of the Employment Period. (D) If (i) the Company reduces the Executive's salary set forth in Section 4 of this Agreement or (ii) the Executive's position with the Company is changed in a manner that materially reduces his responsibilities or duties, then the Executive's employment shall be considered to have been terminated by the Company without cause, entitling the Executive to the payment described in subsection (e) below. (E) The Company may terminate the Executive's employment at any time, with or without cause, by giving written notice of such termination to the Executive in the manner provided Page 20 of 77 3 below for the giving of notices, such termination to be effective on a date specified therein which is not less than fourteen (14) days from the date of such notice; provided, however, any termination other than (i) "for cause" as defined in this Section 10(e), (ii) pursuant to Section 10(b), or (iii) pursuant to Section 10(c) shall entitle the Executive to receive the monthly salary amount set forth in Section 4 for the remainder of the Employment Period. If the Executive is terminated for cause during the Initial Employment Period, the Executive shall be entitled to receive a monthly salary of $16,667.67 for the remainder of the Initial Employment Period. Termination "for cause" shall be deemed to be termination by the Executive (except pursuant to Section 10(b) hereof or due to the Company's material breach of this Agreement) or termination by the Company because of the Executive's repeated incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement." 6. WAIVER. No waiver of any obligation of any party hereto under this Amendment shall be effective unless in a writing specifying such waiver and executed by the other party. No waiver of any right or remedy of any party hereto under this Amendment shall be effective unless in a writing specifying such waiver and executed by such party. A waiver by any party hereto of any of its rights or remedies under this Amendment on any occasion shall not be a bar to the exercise of the same right or remedy on any subsequent occasion or of any other right or remedy at any time. 7. BINDING EFFECT; BENEFITS. This Amendment shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors, permitted assigns, heirs and legal representatives, including, without limitation, any corporation with which the Company may merge or consolidate; provided, however, that this Amendment, because it relates to personal services, cannot be assigned by the Executive. 8. ATTORNEYS' FEES AND COSTS. If any action at law or in equity is necessary to enforce or interpret the terms of this Amendment, the prevailing party shall be entitled to reasonable attorneys' fees, costs, and necessary disbursements in addition to any other relief to which he or it may be entitled. The term "prevailing party" within the meaning of this Section includes, without limitation, a party who agrees to dismiss an action upon the other party's payment of all or a portion of the sums allegedly due or performance of the covenants allegedly breached, or who obtains substantially the relief sought by it. 9. NOTICES. Any notice or other written communication, with respect to the employment of the Executive by the Company or any matter related to the rights or obligations of any party under this Amendment, to be given to a party hereto shall be given to such party at the address for such party provided above, or such other address as such party shall provide, in writing, to the other party. All such notices or communications shall be given by being personally delivered, placed in the United States mail, postage prepaid, certified or registered mail, or by being sent by prepaid air freight, overnight delivery of which is guaranteed and acknowledgment of receipt of which is required, to the party hereto to which such notice or communication is to be given at the address for such party specified above. Each such notice shall be deemed to be effective upon receipt, if personally delivered, one (1) Business Day after being so sent by air freight, or five (5) Business Days after being so mailed. For purposes of this Amendment, a Business Day shall mean a day other than a Saturday, Sunday or Federal or California state holiday. 10. INTEGRATION AND AMENDMENTS. The Employment Agreement, First Amendment Page 21 of 77 4 and this Amendment constitute the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes any prior agreement or understanding, whether written or oral, relating to such subject matter including, without limitation, any board resolutions or oral or written agreements or representations whatsoever regarding employment between the Company and the Executive. No modification or amendment to this Amendment shall be effective or binding unless in writing, specifying such modification or amendment, executed by the parties hereto. 11. HEADINGS. The headings contained in this Amendment are for reference purposes only and shall not affect the construction or interpretation of this Amendment. 12. SEVERABILITY. Should any section, provision or portion of this Amendment be declared invalid or unenforceable in any jurisdiction, then such section, provision or portion shall be deemed to be (a) severable from this Amendment as to such jurisdiction (but not elsewhere) and shall not affect the remainder hereof, and (b) amended to the extent, and only to the extent, necessary to permit such section, provision or portion, as the case may be, to be valid and enforceable in such jurisdiction (but not elsewhere). 13. COUNTERPARTS. This Amendment may be executed in any number of counterparts, each of which shall, when executed, be deemed to be an original, but all of which together shall constitute one and the same instrument. 14. GOVERNING LAW. This Amendment is made and shall be construed under the internal laws, but not the conflicts of law provisions, of the State of California. IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first written above. THE EXECUTIVE: THE COMPANY: AGRICULTURAL PRODUCTS, INC., a California corporation /s/ LON SCHULTZ By: /s/ CLINTON G. GERLACH - ------------------------------- ----------------------------------- Lon Schultz Its: Chief Financial Officer ---------------------------------- Page 22 of 77 EX-10.36 3 EXHIBIT 10.36 1 EXHIBIT 10.36 OPTION NO. 3 CALNETICS CORPORATION INCENTIVE STOCK OPTION AGREEMENT (1995 EMPLOYEE STOCK OPTION PLAN) This Incentive Stock Option Agreement (this "Agreement") is made effective as of the Option Grant Date set forth below by and between Calnetics Corporation, a California Corporation (the "Company"), and the optionee named on the signature page hereto ("Optionee"). Whereas, Optionee is an employee of the Company and/or one or more of its subsidiaries; and Whereas, pursuant to the Company's 1995 Employee Stock Option Plan (the "1995 Employee Plan"), the committee of the Board of Directors of the Company administering the 1995 Employee Plan (the "Committee") has approved the grant to Optionee of an incentive stock option to purchase shares of the Company's Common Stock on the terms and conditions set forth herein. Now, therefore, in consideration of the foregoing recitals and the covenants set forth herein, the parties hereto agree as follows: 1. Governing Plan. A copy of the 1995 Employee Plan is attached hereto as Exhibit A and incorporated herein by this reference. This Agreement is subject in all respects to the applicable provisions of the 1995 Employee Plan, and in the case of any conflict between the provisions of the 1995 Employee Plan and this Agreement, the provisions of the 1995 Employee Plan shall be controlling. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the 1995 Employee Plan. 2. Grant of Option. The Company hereby grants to Optionee, and Optionee hereby accepts, an incentive stock option (the "Option") to purchase the number of shares of the Company's Common Stock indicated below upon the following terms and subject to the following conditions:
(a) Option Grant Date: January 28, 1997 (b) Number of Shares: 50,000 shares (c) Exercise Price: $6.125 per share (d) Vesting Schedule: in three equal annual installments commencing on the first anniversary of the Option Grant Date (e) Form of Payment: cash, unless determined otherwise by the administrator of the 1995 Employee Plan
Page 23 of 77 2 3. Term and Termination. The Option shall be effective as of the Option Grant Date and shall expire at 5:00 p.m. Chatsworth, California time, on the earliest of (i) the applicable time set forth in Section 3.07 of the 1995 Employee Plan, (ii) the tenth anniversary of the Option Grant Date, or (iii) the fifth anniversary of the Option Grant Date if Optionee owned on the Option Grant Date more than 10% (after application of the family and other attribution rules of Section 424(d) of the Internal Revenue Code) of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation. 4. Employment Rights. No provision of this Agreement or the Option granted hereunder shall (a) confer upon Optionee any right to continue in the employ of the Company or any of its subsidiaries, (b) affect the right of the Company and each of its subsidiaries to terminate the employment of Optionee, with or without cause, or (c) confer upon Optionee any right to participate in any employee welfare or benefit plan or other program of the Company or any of its subsidiaries other than the 1995 Employee Plan. 5. Governing Law. This Agreement shall be governed by, interpreted under, and construed and enforced in accordance with the internal laws, and not the laws pertaining to conflicts or choice of laws, of the State of California applicable to agreements made and to be performed wholly within the State of California. IN WITNESS WHEREOF, the Company and Optionee have executed this Agreement effective as of the date first written above. CALNETICS CORPORATION OPTIONEE By: /s/ CLINTON G. GERLACH By: /s/ TRYGVE THORESEN ------------------------- --------------------------------- Clinton G. Gerlach Trygve M. Thoresen Chairman of the Board and President Address: c/o 20401 Prairie Street Chatsworth, CA 91311 Page 24 of 77 EX-10.37 4 EXHIBIT 10.37 1 EXHIBIT 10.37 CHANGE IN CONTROL AGREEMENT THIS CHANGE IN CONTROL AGREEMENT (this "Agreement") is made effective as of January 27, 1997 between Calnetics Corporation, a California corporation (the "Company"), and Trygve Mark Thoresen (the "Executive"). The Company's Board of Directors has determined that it is in the best interests of the Company and its shareholders to reinforce and encourage the continued attention and dedication of the Executive to his duties without distraction in potentially disturbing circumstances arising from the possibility of a change in control of the Company. This Agreement sets forth the severance compensation which the Company agrees it will pay to the Executive if the Executive's employment with the Company terminates under one of the circumstances described herein following a Change in Control of the Company (as defined herein). 1. Term. This Agreement shall terminate, except to the extent that any obligation of the Company hereunder remains unpaid as of such time, upon the termination of the Executive's employment with the Company based on death, Disability (as defined in Section 3(b)), Retirement (as defined in Section 3(c)) or Cause (as defined in Section 3(d)) or by the Executive other than for Good Reason (as defined in Section 3(e)). 2. Change in Control. No compensation shall be payable under this Agreement unless and until (a) there shall have been a Change in Control of the Company while the Executive is still an employee of the Company and (b) the Executive's employment by the Company thereafter shall have been terminated in accordance with Section 3. For purposes of this Agreement, a Change in Control of the Company shall be deemed to have occurred if (i) there shall be consummated (x) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock are converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (y) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, or (ii) the shareholders of the Company shall approve any plan or proposal for the liquidation or dissolution of the Company, or (iii) any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of 30% or more of the Company's outstanding Common Stock (excluding Clinton G. Gerlach and shares deemed beneficially owned by him), or (iv) during any period of two consecutive years, individuals who at the beginning of such period constitute the entire Board of Directors shall cease for any reason to constitute a majority thereof unless the election, or the nomination for election by the Company shareholders, of each new director was approved by a vote of at least a majority of the directors then still in office who were Page 25 of 77 2 directors at the beginning of the period. 3. Termination Following Change in Control. (a) If a Change in Control of the Company shall have occurred while the Executive is still an employee of the Company, the Executive shall be entitled to the compensation provided in Section 4 upon the subsequent termination of the Executive's employment with the Company by the Executive or by the Company unless such termination is as a result of (i) the Executive's death; (ii) the Executive's Disability (as defined in Section 3(b) below); (iii) the Executive's Retirement (as defined in Section 3(c) below); (iv) the Executive's termination by the Company for Cause (as defined in Section 3(d) below); or (v) the Executive's decision to terminate employment other than for Good Reason (as defined in Section 3(e) below). (b) Disability. If, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from his duties with the Company on a full-time basis for three months, and within 30 days after written notice of termination is thereafter given by the Company the Executive shall not have returned to the full-time performance of the Executive's duties, the Company may terminate this Agreement for "Disability." (c) Retirement. The term "Retirement" as used in this Agreement shall mean termination by the Company or the Executive of the Executive's employment based on the Executive's having reached age 65 or such other age as shall have been fixed in any arrangement established with the Executive's consent with respect to the Executive. (d) Cause. The Company may terminate the Executive's employment for Cause. For purposes of this Agreement only, the Company shall have "Cause" to terminate the Executive's employment only on the basis of fraud, misappropriation or embezzlement on the part of the Executive. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-fourths of the entire membership of the Company's Board of Directors at a meeting of the Board called and held for the purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Executive was guilty of fraud, misappropriation or embezzlement and specifying the particulars thereof in detail. (e) Good Reason. The Executive may terminate the Executive's employment for Good Reason following a Change in Control. For purposes of this Agreement, "Good Reason" shall mean any of the following (without the Executive's express written consent): (i) the assignment to the Executive by the Company of duties inconsistent with the Executive's position, duties, responsibilities and status with the Company immediately prior to a Change in Control of the Company, or a change in the Executive's titles or offices as in effect immediately prior to a Change in Control of the Company, or any removal of the Executive from or any failure to reelect the Executive to any of such positions, except in connection with the termination of his employment for Disability, Retirement or Cause or as a result of the Executive's death or by the Executive other than for Good Reason; provided that, "Finance" may be removed from the Executive's Vice President title at the Company's Page 26 of 77 3 discretion; (ii) a reduction by the Company in the Executive's base salary as in effect on the date hereof or as the same may be increased from time to time during the term of this Agreement or the Company's failure to increase (within 12 months of the Executive's last increase in base salary) the Executive's base salary after a Change in Control of the Company in an amount which at least equals, on a percentage basis, the average percentage increase in base salary for all officers of the Company effected in the preceding 12 months; (iii) any failure by the Company to continue in effect any benefit plan or arrangement in which the Executive is participating at the time of a Change in Control of the Company (or any successor plans providing the Executive with substantially similar benefits) (hereinafter referred to as "Benefit Plans"), or the taking of any action by the Company which would adversely affect the Executive's participation in or materially reduce the Executive's benefits under any such Benefit Plan or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of a Change in Control of the Company; (iv) any failure by the Company to continue in effect any incentive plan or arrangement in which the Executive is participating at the time of a Change in Control of the Company (or any successor plans or arrangements providing him with substantially similar benefits) (hereinafter referred to as "Incentive Plans"),or the taking of any action by the Company which would adversely affect the Executive s participation in any such Incentive Plan or reduce the Executive's benefits under any such Incentive Plan, expressed as a percentage of his base salary, by more than 10% in any fiscal year as compared to the immediately preceding fiscal year; (v) any failure by the Company to continue in effect any plan or arrangement to receive securities of the Company in which the Executive is participating at the time of a Change in Control of the Company (or successor plans or arrangements providing him with substantially similar benefits) (hereinafter referred to as "Securities Plans") or the taking of any action by the Company which would adversely affect the Executive's participation in or materially reduce the Executive's benefits under any such Securities Plan; (vi) a relocation of the Company's principal executive offices to a location other than in Orange, Los Angeles, Riverside or San Bernardino County, California, or the Executive's relocation to any place other than the location at which the Executive performed the Executive's duties immediately prior to a Change in Control of the Company, except for required travel by the Executive on the Company's business to an extent substantially consistent with the Executive's business travel obligations at the time of a Change in Control of the Company; (vii) any failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is entitled at the time of a Change in Control of the Company; (viii) any material breach by the Company of any provision of this Agreement; Page 27 of 77 4 (ix) any failure by the Company to obtain the assumption of this Agreement by any successor or assign of the Company; or (x) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3(f). (f) Notice of Termination. Any termination of the Executive's employment by the Company or by the Executive shall be communicated by a Notice of Termination. For purposes of this Agreement only, a "Notice of Termination" shall mean a written notice which shall indicate those specific termination provisions in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. (g) Date of Termination. "Date of Termination" shall mean (a) if this Agreement is terminated by the Company for Disability, 30 days after Notice of Termination is given to the Executive (provided that the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such 30-day period) or (b) if the Executive's employment is terminated by the Company for any other reason, the date on which a Notice of Termination is given; provided that if within 30 days after any Notice of Termination is given to the Executive by the Company the Executive notifies the Company that a dispute exists concerning the termination, the Date of Termination shall be the date the dispute is finally determined, whether by mutual agreement of the parties or upon final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected). 4. Compensation upon Termination of Employment. If, following a Change in Control, the Company shall terminate the Executive's employment other than for the reasons specified in Sections 3(b), 3(c) or 3(d), or if the Executive shall terminate his employment for Good Reason, then the Company shall pay to the Executive as severance pay in a lump sum, in cash, on or before the tenth day following the Date of Termination, an amount equal to one times the average of the aggregate annual cash compensation (including bonuses) paid to the Executive during the 3 calendar years preceding the Change in Control of the Company; provided, however, that if the lump sum severance payment under this Section 4, either alone or together with other payments which the Executive has the right to receive from the Company, would constitute a "parachute payment" (as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code")), such lump sum payment shall be reduced to the largest amount as will result in no portion of the lump sum payment under this Section 4 being subject to the excise tax imposed by Section 4999 of the Code. The determination of any reduction in the lump sum payment under this Section 4 pursuant to the foregoing proviso shall be made by the Executive in good faith, and such determination shall be conclusive and binding on the Company. 5. No Obligation To Mitigate Damages; No Effect on Other Contractual Rights. (a) The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor Page 28 of 77 5 shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by the Executive as the result of employment by another employer after the Date of Termination, or otherwise. (b) The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Executive's existing rights, or rights which would accrue solely as a result of the passage of time, under any Benefit Plan, Incentive Plan or Securities Plan; provided, however, that this Agreement supersedes any prior agreements, arrangements or understandings between the Company and the Executive with respect to severance compensation following a Change in Control. 6. Successor to the Company. (a) The Company will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets or stock of the Company, by agreement in form and substance satisfactory to the Executive, expressly, absolutely and unconditionally to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. Any failure of the Company to obtain such agreement prior to the effectiveness of any such succession or assignment shall be a material breach of this Agreement and shall entitle the Executive to terminate the Executive's employment for Good Reason. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor or assign to its business and/or assets or stock as aforesaid which executes and delivers the agreement provided for in this Section 6 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. If at any time during the term of this Agreement the Executive is employed by any corporation a majority of the voting securities of which is then owned by the Company, "Company" as used herein shall in addition include such employer. In such event, the Company agrees that it shall pay or shall cause such employer to pay any amounts owed to the Executive pursuant to Section 4 hereof. (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts are still payable to him hereunder, all such amounts shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, if there be no such designee, to the Executive's estate. 7. Continuation of Employment. Nothing contained in this Agreement shall be construed to create or imply any contract of employment between the Executive and the Company, to confer upon the Executive any right to continue in the employ of the Company (either before or after a Change in Control) or to confer on the Company any right to require the Executive's continued employment. Except as expressly set forth in this Agreement, the Company shall have the right to deal with the Executive in the same manner as if this Agreement did not exist, including without limitation with respect to all matters related to the hiring, discharge, compensation and conditions of employment of the Executive. The Company or the Executive may terminate the employment of the Executive at any time for any reason, with or without cause. Page 29 of 77 6 8. Notices. All notices, demands or other communications hereunder shall be in writing and shall be delivered during normal business hours by hand, by Federal Express, United Parcel Service or other reputable overnight delivery service, by telecopy (confirmation of receipt received), or by United States mail, certified or registered, return receipt requested, and shall be deemed delivered when so delivered by hand, overnight delivery or telecopy, or if mailed three (3) days after the date of mailing, properly addressed as follows: If to the Company: Calnetics Corporation 20401 Prairie Street Chatsworth, CA 91311 Attn: President FAX: (818) 886-9702 If to the Executive: Trygve Thoresen c/o 20401 Prairie Street Chatsworth, CA 91311 FAX: (714) 669-1763 or such other address as either party may have furnished to the other in writing in accordance herewith. 9. Miscellaneous. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 10. Validity. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 11. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 12. Withholding of Taxes. The Company may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or government regulation or ruling. Page 30 of 77 7 13. Legal Fees and Expenses. It is the intent of the Company that the Executive not be required to incur any legal fees or disbursements associated with the attempted and/or actual enforcement of his rights under this Agreement. The Company or its successor shall promptly pay or cause to be paid and shall reimburse the Executive for any and all reasonable attorneys' and related fees and expenses so incurred by the Executive. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. CALNETICS CORPORATION By: /s/ Clinton G. Gerlach ------------------------------- Clinton G. Gerlach President EXECUTIVE By: /s/ Trygve Thoresen ------------------------------- Trygve Thoresen Page 31 of 77 EX-10.38 5 EXHIBIT 10.38 1 EXHIBIT 10.38 FORM OF INDEMNITY AGREEMENT This Indemnity Agreement ("Agreement") is made and entered into effective as of the day of by and between Calnetics Corporation, a California corporation (the Corporation"), and the undersigned (the "Agent"). WHEREAS, the Agent is currently serving as a Director and/or Officer of the Corporation and/or its subsidiaries, and the Corporation wishes the Agent to continue in such capacities; NOW, THEREFORE, in consideration of the foregoing recital and the mutual agreements set forth herein, and in order to induce the Agent to continue to serve as a Director and/or Officer of the Corporation and/or its subsidiaries and in consideration of continued service, the parties hereto hereby agree as follows: 1. The Corporation will pay on behalf of the Agent, and his or her executors, administrators or assigns, any amount which the Agent is or becomes legally obligated to pay in connection with any threatened, pending, or completed claim or claims made against the Agent because of any act or omission or neglect or breach of duty whether before, on or after the date hereof, including any actual or alleged error or misstatement or misleading statement, which the Agent commits or suffers while acting in his or her capacity as a Director and/or Officer of the Corporation and/or its subsidiaries. The payments which the Corporation will be obligated to make hereunder shall include, inter alia, damages, judgments, settlements and costs, cost of investigation (excluding salaries of officers or employees of the Corporation and its subsidiaries) and costs of defense (including attorneys' fees) or legal actions, claims or proceedings and appeals therefrom, and costs of attachment or similar bonds; provided however, that the Corporation shall not be obligated to pay fines or fees imposed by law or otherwise make any payments hereunder which it is prohibited by applicable law from paying as indemnity or for any other reason. In addition, to the extent that the Agent is, by reason of his status as an agent of the Corporation and/or its subsidiaries, a witness in any proceeding, he shall be indemnified against all costs and expenses (including attorneys' fees) incurred by him or on his behalf in connection therewith, and he shall be entitled to advancement of expenses in connection therewith under the terms of Section 7 hereof. 2. If a claim under this Agreement is not paid by the Corporation, or on its behalf, within 90 days after a written claim has been received by the Corporation, the Agent may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the Agent also shall be entitled to be paid all expenses of prosecuting such claim. 3. In the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Agent, who shall execute all papers as appropriate to secure such rights, including the execution of such Page 32 of 77 2 documents necessary or appropriate to enable the Corporation effectively to bring suit to enforce such rights. 4. The Corporation shall not be liable under this Agreement to make any payment in connection with any claim made against the Agent: (a) for which payment is actually made to the Agent under a valid and collectible insurance policy, except in respect of any excess beyond the amount of payment under insurance; (b) for which the Agent is indemnified by the Corporation otherwise than pursuant to this Agreement; (c) based upon or attributable to the Agent gaining in fact any personal profit or advantage to which the Agent was not legally entitled; (d) for an account of profits made from the purchase or sale by the Agent of securities of the Corporation within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of any state statutory law or common law; or (e) brought about or contributed to by the dishonesty of the Agent seeking payment hereunder; provided, however, notwithstanding the foregoing, the Agent shall be protected under this Agreement to the fullest extent permitted under law as to any claims upon which suit may be brought against the Agent by reason of any alleged dishonesty on his or her part, unless a final judgment or other final adjudication thereof adverse to the Agent shall establish that the Agent committed acts of active and deliberate dishonesty with actual dishonest purpose and intent, which acts were material to the cause of action so adjudicated. 5. No costs, charges or expenses for which indemnity shall be sought hereunder shall be incurred without the Corporation's consent, which consent shall not be unreasonably withheld; provided that, the Corporation may ratify expenses incurred without its consent in its sole discretion. 6. The Agent, as a condition precedent to indemnification under this Agreement, shall give to the Corporation notice in writing as soon as practicable of any claim made against the Agent for which indemnity will or could be sought under this Agreement. Notice to the Corporation shall be directed to Calnetics Corporation, 20401 Prairie Street, Chatsworth, California 91311, Attention: Chairman of the Board and Chief Executive Officer (or such other address as the Corporation shall designate in writing to the Agent); notice shall be deemed received if sent by prepaid mail properly addressed, the date of such notice being the date postmarked. In addition, the Agent shall give the Corporation such information and cooperation as it may reasonably require and as shall be within the Agent's power. 7. Costs and expenses (including attorneys' fees) incurred by the Agent in defending or investigating any pending or threatened action, suit, proceeding or investigation shall be paid by the Corporation in advance of the final disposition of such matter, if the Agent shall undertake in writing to repay any such advance in the event that it is ultimately Page 33 of 77 3 determined that the Agent is not entitled to indemnification under the terms of this Agreement. Notwithstanding the foregoing or any other provision of this Agreement, no advance shall be made by the Corporation if it is reasonably and promptly determined by the Board of Directors by a majority vote of a quorum of disinterested Directors, or if such quorum is not obtainable, by independent legal counsel, that, based upon the facts known to the Board or counsel at the time such determination is made, (a) the Agent acted in bad faith or deliberately breached his or her duty to the Corporation or its shareholders, and (b) as a result of such actions by the Agent, it is more likely than not that it will ultimately be determined that the Agent is not entitled to indemnification under the terms of this Agreement. 8. Nothing herein shall be deemed to diminish or otherwise restrict the Agent's right to indemnification under any provision of the Articles of Incorporation or Bylaws of the Corporation or under California law. 9. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California. 10. This Agreement shall be binding upon all successors and assigns of the Corporation (including any transferee of all or substantially all of its assets and any successor by merger or operation of law) and shall inure to the benefit of the heirs, personal representatives and estate of the Agent. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and signed as of the day and year first above written. CALNETICS CORPORATION By: _____________________________ AGENT _________________________________ Page 34 of 77 EX-10.39 6 EXHIBIT 10.39 1 EXHIBIT 10.39 AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and entered into effective as of March 26, 1997, by and between CALNETICS CORPORATION, a California corporation (together with any and all subsidiaries, "Calnetics"), and SUMMA INDUSTRIES, a California corporation (together with any and all subsidiaries, "Summa"). R E C I T A L S A. The authorized capital of Calnetics consists of 20,000,000 shares of Common Stock, without par value, of which 3,023,799 shares are issued and outstanding and held of record by a total of approximately 300 shareholders as of the date hereof, and 2,000,000 shares of Preferred Stock, without par value, of which no shares have been issued or are outstanding. The Common Stock of Calnetics is registered under Section 12(g) of the Securities Exchange Act of 1934 (the "Exchange Act") and traded in The Nasdaq National Market under the symbol "CALN." B. The authorized capital of Summa consists of 10,000,000 shares of Common Stock, $.001 par value, of which 4,070,250 shares are issued and outstanding as of the date hereof and held of record by a total of approximately 600 shareholders as of the date hereof, and 5,000,000 shares of Preferred Stock, $.001 par value, of which no shares have been issued or are outstanding. The Common Stock of Summa is registered under Section 12(g) of the Exchange Act and traded in The Nasdaq National Market under the symbol "SUMX." C. The respective Boards of Directors of Calnetics and Summa deem it advisable and generally to the advantage of each corporation, and in the best interests of their respective shareholders, to cause Calnetics to be merged with and into a newly-to-be-formed California corporation which will be a wholly-owned subsidiary ("Subsidiary") of Summa, under and pursuant to the provisions of the California Corporations Code (the "Merger"). Accordingly, the respective Boards of Directors of Calnetics and Summa have approved, and will recommend for approval of their respective shareholders, this Agreement and the Merger contemplated hereby, and have directed their respective proper officers to execute and deliver this Agreement and to cause the respective corporations to perform each of their respective obligations hereunder. D. It is the intention of the parties hereto that the acquisition by Summa of all of the issued and outstanding capital stock of Calnetics will qualify as a corporate "reorganization" within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"), such that receipt of Summa Common Stock will not be a taxable transaction for federal income tax purposes for the shareholders of Calnetics, who will recognize taxable gain Page 35 of 77 2 only on the cash and Debentures (as defined below) received by them as a consequence of the Merger. This Agreement is intended to be and is adopted as a plan of reorganization within the meaning of Section 368 of the Code. NOW, THEREFORE, in consideration of the foregoing recitals and the mutual agreements, representations, warranties and covenants herein contained, and subject to the terms and conditions hereinafter set forth, the parties hereto hereby agree in accordance with the California Corporations Code, the provisions of the Agreement of Merger (as defined below), and the provisions of this Agreement, that, at the Effective Time of the Agreement of Merger, Calnetics shall be merged with and into Subsidiary, such that Subsidiary, as the "Surviving Corporation" in the Merger, shall continue as a single corporation existing under the laws of the State of California and as a wholly-owned subsidiary of Summa, and the parties hereto hereby adopt and agree to the following agreements, terms, and conditions relating to the Merger and the manner of carrying the same into effect. 1. DEFINITIONS. 1.1 "Agreement" means, and the words "herein", "hereof", "hereunder" and words of similar import refer to this instrument and any and all exhibits, schedules and other attachments hereto, and any amendment hereto. 1.2 "Agreement of Merger" refers to that certain document of even date herewith, a copy of which is attached hereto as Exhibit A, the terms of which are fully incorporated into, and the satisfaction of which is an express condition of, this Agreement. 1.3 "Calnetics Balance Sheet" means the unaudited consolidated balance sheet of Calnetics as of December 31, 1996 referred to in Section 6.6 hereof. 1.4 "Calnetics Common Stock" refers to any and all common stock, without par value, of Calnetics. 1.5 "Calnetics Financial Statements" means the audited and unaudited consolidated financial statements of Calnetics referred to in Section 6.6 hereof. 1.6 "Calnetics' Property" means any real property and improvements owned, leased, used, operated or occupied by Calnetics. 1.7 "Calnetics Shareholders" refers collectively to any and all holders of Calnetics Common Stock of record immediately prior to the Effective Time. 1.8 "Commission" refers to the Securities and Exchange Commission. 1.9 "Debenture(s)" means the 5.5% Convertible Subordinated Debentures to be issued to the Calnetics Shareholders as a consequence of the Merger as provided in Section 3.1.1(a)(ii) below. 1.10 "Effective Date" means the date specified in Section 4.3 hereof. Page 36 of 77 3 1.11 "Effective Time" means that time specified in Section 4.3 hereof. 1.12 "Environmental Law" means any federal, state, local or foreign law, statute ordinance, rule, regulation, or treaty; all judicial administrative, and regulatory orders, judgments, decrees, permits, and authorizations; and common law relating to: (1) the protection, investigation, remediation or restoration of the environment or natural resources, (2) the handling, use, storage, treatment, disposal, release or threatened release of any Hazardous Substance; or (3) noise, odor, pollution, contamination, land use, or any injury or threat of injury to persons or property. 1.13 "Exchange Act" has the meaning set forth in Recital A hereto. 1.14 "Exchange Agent" means U. S. Stock Transfer Corporation, the transfer agent and registrar for the Summa Common Stock. 1.15 "Hazardous Substance" means any substance, material, or waste that is: (1) listed, classified or regulated in any concentration pursuant to any Environmental Law; (2) any petroleum product or by-product, asbestos-containing material, lead-containing paint or plumbing, polychlorinated biphenyls, radioactive materials or radon; or (3) any other substance, material, or waste which may be the subject of regulatory action by any governmental entity pursuant to any Environmental Law. 1.16 "Joint Proxy Statement/Prospectus" means the joint proxy statement of Summa and Calnetics and all supplements and amendments thereto, mailed to shareholders of Summa and Calnetics in connection with the Merger. 1.17 "Knowledge" means, with respect to an entity, actual knowledge of the Chief Executive Officer, the President, the Chief Financial Officer and/or the Chief Administrative Officer of that entity and, with respect to an individual, actual knowledge of that individual. 1.18 "Merger" has the meaning set forth in Recital C hereto. 1.19 "Options" means the outstanding options to purchase shares of Calnetics Common Stock referred to in Section 6.2(a) hereof. 1.20 "Person" refers to any corporation, trust, partnership, individual, association or other entity. 1.21 "Registration Statement" means the Registration Statement on Form S-4 to be filed with the Commission by Summa under the Securities Act, and any amendments thereto, for the purpose of registering the Summa Common Stock and Debentures (including the Summa Common Stock issuable upon conversion of the Debentures and upon exercise of options exchanged as provided in Section 10.6 below) to be issued in connection with the transactions contemplated by this Agreement. 1.22 "Securities Act" refers to the Securities Act of 1933, as amended. Page 37 of 77 4 1.23 "Subsidiary" has the meaning set forth in Recital C hereto. 1.24 "Summa Balance Sheet" means the unaudited consolidated balance sheet of Summa as of February 28, 1997 referred to in Section 7.6 hereof. 1.25 "Summa Common Stock" refers to any and all common stock, $.001 par value, of Summa. 1.26 "Summa Financial Statements" refers to the audited and unaudited consolidated financial statements of Summa referred to in Section 7.6 hereof. 1.27 "Summa's Property" means any real property and improvements owned, leased, used, operated or occupied by Summa. 1.28 "Summa Shareholders" refers to those holders of Summa Common Stock of record immediately prior to the Effective Time. 1.29 "Surviving Corporation" refers to Subsidiary as the survivor of the Merger. 2. THE SURVIVING CORPORATION. 2.1 Surviving Corporation. The corporation which shall survive the Merger is Subsidiary (sometimes hereinafter referred to as the "Surviving Corporation"). 2.2 Articles of Incorporation. The Articles of Incorporation of Subsidiary, as in effect immediately before the Effective Time, shall be amended upon consummation of the Merger to change the name of Subsidiary to "Calnetics Corporation," and as so amended shall be the Articles of Incorporation of the Surviving Corporation from and after the Effective Time until changed or amended as provided by law or such Articles of Incorporation. 2.3 Authorized Capitalization of Surviving Corporation. The total number of shares of all classes of capital stock which the Surviving Corporation shall have authority to issue shall be 1,000 shares of Common Stock, $.001 par value per share. 2.4 Bylaws. The Bylaws of Subsidiary, as in effect immediately before the Effective Time, shall be the Bylaws of the Surviving Corporation until changed or amended as provided in accordance with law, the Articles of Incorporation of the Surviving Corporation, or such Bylaws. 2.5 Directors. There shall be (3) directors of the Surviving Corporation from and after the Effective Time (until changed in accordance with applicable law and the Articles of Incorporation and Bylaws of the Surviving Corporation), who shall be the three directors of Subsidiary in office immediately before the Effective Time. 3. CONVERSION OF SHARES, OPTIONS AND OTHER SECURITIES. 3.1 Manner of Converting Shares. The manner and basis of converting securities of Calnetics into securities of Summa shall be as follows: Page 38 of 77 5 3.1.1 Calnetics Common Stock. (a) Subject in all events to the provisions of Sections 3.1.1(b) and 3.4 below, each share of Calnetics Common Stock outstanding on the Effective Date shall, as a consequence of the Merger, be converted automatically into the right to receive: (i) The sum of $1.25 in cash; (ii) The additional sum of $2.25, which shall be payable pursuant to the terms and conditions of a Debenture in the form of Exhibit A to the form of Indenture attached as Exhibit B hereto; and (iii) That portion of a share of Summa Common Stock as is determined in accordance with the provisions of Section 3.1.1(c) below. (b) Debentures will not be callable or otherwise redeemable at the option of Summa during their term. Debentures will be issued in principal denominations of $1,000 and integral multiples thereof, and holders of Calnetics' Common Stock who would otherwise be entitled to receive a Debenture in a principal amount of less than $1,000 will be entitled to receive such amount, in lieu thereof and at their election to be made within 30 days following the date of the Letter of Transmittal sent to each former shareholder of Calnetics as provided in Section 3.2 below, either in cash or in additional shares of Summa's Common Stock valued at the Average Trading Price (as defined in Section 3.1.1(c) below), with cash in lieu of fractional shares as provided in Section 3.3 below. Holders failing to make an election within this 30-day period will be deemed to have elected to receive either additional shares of Summa's Common Stock or cash, at the option of Summa. (c) The portion of a share of Summa Common Stock which the former Calnetics Shareholders shall be entitled to receive as a consequence of the Merger for each share of Calnetics Common Stock held as of the Effective Time of the Merger shall be determined by dividing $4.25 by the Average Trading Price of a share of Summa Common Stock, but not less than .57 of a share nor more than .77 of a share. For these purposes, the Average Trading Price will equal the 20-day average of the mean between the closing bid and asked prices for a share of Summa's Common Stock on The Nasdaq National Market for each of the 20 consecutive trading days ending on the third trading day prior to the meeting of Calnetics Shareholders to be held to consider and vote upon the Merger, as provided in Section 8.6 below. 3.1.2 Options to Purchase Calnetics Common Stock. Each Option (as defined in Section 6.2(a) below) outstanding at the Effective Time shall be canceled as of the Effective Time by agreements with the holder thereof to accept, in the place thereof, an option to purchase 1.167 shares of Summa Common Stock, at the same aggregate exercise price, all Page 39 of 77 6 as provided in Section 10.6 below. 3.1.3 Calnetics Common Stock Owned by Calnetics. Shares of Summa Common Stock shall not be issued as a consequence of the Merger in respect of shares of Calnetics Common Stock owned by Calnetics immediately prior to the Effective Time, if any, and as of the Effective Time any and all such shares of Calnetics Common Stock owned by Calnetics shall be canceled and retired, and all rights in respect thereof shall cease to exist. 3.2 Surrender and Exchange of Calnetics Common Stock. (a) As soon as reasonably practicable after the Effective Time, the Exchange Agent shall mail to each holder of record of Calnetics Common Stock immediately prior to the Effective Time (excluding any shares of Calnetics Common Stock which will be canceled pursuant to Section 3.1.3 and any shares which constitute Perfected Dissenting Shares pursuant to Section 3.4) a letter of transmittal (the "Letter of Transmittal") stating that the Merger has been consummated and setting forth instructions for use in effecting the surrender of the shares of Calnetics Common Stock in exchange for the cash, Debenture and shares of Summa Common Stock which all holders of shares of Calnetics Common Stock are entitled to receive as a consequence of the Merger. An election form shall accompany each Letter of Transmittal pursuant to which each holder may elect within 30 days following the date of the Letter of Transmittal to receive cash or additional shares of Summa Common Stock pursuant to the provisions of Section 3.1.1(b) above. (b) Upon surrender of a certificate formerly representing shares of Calnetics Common Stock for cancellation to the Exchange Agent, together with a Letter of Transmittal, duly executed, and such other documents as the Exchange Agent shall reasonably request, the holder of such certificate shall be entitled to receive in exchange therefor (i) a certified or bank cashier's check in the amount equal to the cash which such holder has the right to receive pursuant to the provisions of Sections 3.1.1(a)(i), 3.1.1(b) and 3.3, (ii) a Debenture in the aggregate principal amount which such holder has a right to receive pursuant to Section 3.1.1(a)(ii), and (iii) a certificate representing that number of whole shares of Summa Common Stock which such holder has the right to receive pursuant to Section 3.1.1(a)(iii) (in each case less the amount of any required withholding taxes), and the certificate formerly representing shares of Calnetics Common Stock so surrendered shall forthwith be canceled. Until surrendered as contemplated by this Section 3.2, each certificate formerly representing shares of Calnetics Common Stock shall be deemed for all purposes at any time after the Effective Time to evidence solely the right to receive the cash, Debenture and number of whole shares of Summa Common Stock into which such shares of Calnetics Common Stock have been converted under Section 3.1 hereof. (c) Notwithstanding any other provisions of this Agreement, no dividends or other distributions declared after the Effective Time on Summa Common Stock shall be paid with respect to any shares of Calnetics Common Stock until the certificate formerly representing such shares is surrendered for exchange as provided herein. Subject to the effect Page 40 of 77 7 of applicable laws, following surrender of any certificate formerly representing shares of Calnetics Common Stock, there shall be paid to the holder of shares of Summa Common Stock issued in exchange therefor, without interest, the amount of dividends or other distributions with a record date after the Effective Time theretofore payable with respect to such whole shares of Summa Common stock and not paid, less the amount of any withholding taxes which may be required thereon. (d) From and after the Effective Time, there shall be no transfers on the stock transfer books of Calnetics of the shares of Calnetics Common Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, certificates representing any such shares are presented to the Surviving Corporation, they shall be canceled and exchanged for certificates for the consideration, if any, deliverable in respect thereof pursuant to this Agreement and the Merger Agreement. Certificates formerly representing shares of Calnetics Common Stock surrendered for exchange by any person constituting an "affiliate" of Summa for purposes of Rule 145(c) under the Securities Act shall not be exchanged until Summa has received an Affiliate Letter from such person in the form set forth in Exhibit K attached hereto. In the event that any certificate which formerly represented shares of Calnetics Common Stock shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such certificate to be lost, stolen or destroyed and, if required by Summa, the posting by such person of a bond in such reasonable amount as Summa may direct as indemnity against any claim that may be made against it with respect to such certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed certificate the applicable Merger consideration, cash in lieu of fractional shares, and unpaid dividends and distributions on shares of Summa Common Stock as provided herein. 3.3 Fractional Shares. No fractional shares of Summa Common Stock and no scrip certificates therefor shall be issued to represent any fractional share interests in shares of Summa Common Stock, and such fractional share interest shall not entitle the owners thereof to vote, to receive dividends, or to exercise any other right of shareholders of Summa. In lieu of a fractional share or scrip certificate, each holder of a share of Calnetics Common Stock otherwise entitled to a fractional interest in a share of Summa Common Stock shall be entitled to receive a cash payment (without interest) in an amount equal to the fraction of such share of Summa Common Stock to which such holder otherwise would be entitled multiplied by the Average Trading Price determined as provided in Section 3.1.1(c) above. 3.4 Dissenting Shares. Each Calnetics Shareholder, if any, and each Summa Shareholder, if any, who becomes entitled, pursuant to the provisions of the California Corporations Code, to the payment in cash of the "fair market value" of such Shareholder's shares of Calnetics Common Stock or Summa Common Stock, as the case may be ("Perfected Dissenting Shares"), shall receive payment therefor from Summa, but only after the value thereof shall have been agreed upon or finally determined pursuant to such provisions. Perfected Dissenting Shares acquired by Summa, if any, shall be canceled. Page 41 of 77 8 4. SHAREHOLDER APPROVALS AND EFFECTIVE DATE. 4.1 Approval by Calnetics Shareholders. As provided in Section 8.6 below, a special meeting of the Calnetics Shareholders shall be called to be held in accordance with the California Corporations Code on or before May 29, 1997, or as soon thereafter as is practicable, at a time, place and date to be set by the Calnetics Board of Directors, for the purposes of considering and voting upon a proposal to approve this Agreement and the Merger contemplated hereby. The Board of Directors of Calnetics has recommended that the Calnetics Shareholders approve this Agreement and the Merger. By signing this Agreement where indicated on the signature page hereof, each shareholder of Calnetics who owns or has voting control over 10% or more of the Common Stock of Calnetics issued and outstanding as of the date hereof has agreed, subject to the terms and conditions of this Agreement, to vote all such shares in favor of this Agreement and the Merger at the special meeting of Calnetics Shareholders . 4.2 Approval by Summa Shareholders and Summa. As provided in Section 8.7 below, a special meeting of the Summa Shareholders shall be called to be held in accordance with the California Corporations Code on or before May 29, 1997, or as soon thereafter as is practicable, at a time, place and date to be set by the Summa Board of Directors, for the purposes of considering and voting upon a proposal to approve the Agreement of Merger, the Merger and the other transactions (including the issuance of Summa Common Stock) contemplated thereby. The Summa Board of Directors has recommended that the Summa shareholders approve the Agreement of Merger, the Merger and the other transactions (including the issuance of Summa Common Stock) contemplated thereby. Summa, as the sole shareholder of Subsidiary, shall approve the Agreement of Merger, the Merger and the other transactions contemplated thereby. 4.3 Effective Date and Time. Upon approval of this Agreement and the Merger contemplated hereby by the Calnetics Shareholders, the Summa Shareholders, and Summa as the sole shareholder of Subsidiary, and provided that the Merger is not thereafter terminated as provided in Section 13 hereof, the Agreement of Merger, along with any and all other necessary documents, shall be executed and delivered by each of Calnetics, Summa and Subsidiary and filed with the California Secretary of State, in accordance with applicable provisions of the California Corporations Code. The Merger shall become effective on the date when the Agreement of Merger, along with any and all other necessary documents, has been duly filed with the California Secretary of State. The date of such effectiveness is referred to herein as the "Effective Date," and the time of such effectiveness is referred to herein as the "Effective Time." Calnetics and Summa shall agree upon the date on which the Agreement of Merger shall be submitted for filing in the State of California. 5. EFFECT OF MERGER. Page 42 of 77 9 5.1 Cessation of Calnetics' Existence. When the Merger becomes effective, Calnetics shall be merged with and into Subsidiary, the separate existence of Calnetics shall cease, and Subsidiary, as the Surviving Corporation in the Merger, without further action, shall succeed to and shall possess and enjoy all the rights, privileges, immunities, powers, purposes, and franchises, both of a public and private nature, and be subject to all restrictions, disabilities, and duties of Calnetics, and the Merger shall have the effects on Calnetics and Subsidiary as provided under the California Corporations Code. 5.2 Property. All rights, franchises and interest of Calnetics in and to every type of property, whether real, personal or mixed, and all debts due to Calnetics on whatever account, including stock subscriptions and causes of action, and every other asset of Calnetics, shall be vested in the Surviving Corporation. All such property, rights, privileges, powers and franchises shall be thereafter the property of the Surviving Corporation. Title to any real estate and to any other property, whether by deed or otherwise, under the laws of the State of California or of any other jurisdiction, that is vested in Calnetics shall not revert or be in any way impaired by reason of the Merger or the statutes providing therefor. 5.3 Creditor Rights. All rights of creditors and all liens upon the property of Calnetics existing immediately prior to the Effective Time shall be preserved unimpaired, and all debts, liabilities, obligations, penalties and duties of Calnetics shall thenceforth attach to the Surviving Corporation, and may be enforced against it to the same extent as if they had been incurred or contracted by it. No liability or obligation due or to become due, nor any claim or demand existing against either corporation or any shareholder, officer or director thereof, shall be impaired by the Merger. 5.4 Legal Actions. No action or proceeding, whether civil or criminal, pending on the Effective Date by or against either corporation, or any shareholder, officer, or director thereof, shall abate or be discontinued by the Merger, but may be enforced, prosecuted, settled, or compromised as if the Merger had not occurred, or the Surviving Corporation may be substituted in such action or proceeding in place of Calnetics. 5.5 Delivery of Documents. At any time, or from time to time, after the Effective Date, the last acting officers of Calnetics, or the corresponding officers of the Surviving Corporation, may, in the name of the Surviving Corporation, execute and deliver all such proper deeds, assignments, and other instruments and take or cause to be taken all such further or other action as the Surviving Corporation may deem necessary or desirable in order to vest, perfect or confirm in the Surviving Corporation title to and possession of all of Calnetics' property, rights, privileges, immunities, powers, purposes and franchises, and otherwise to carry out the purposes of this Agreement. 6. REPRESENTATIONS AND WARRANTIES OF CALNETICS. Page 43 of 77 10 Calnetics hereby represents and warrants to Summa and Subsidiary as follows (it being acknowledged that Summa is entering into this Agreement in material reliance upon each of the following representations and warranties): 6.1 Organization and Corporate Power. Calnetics is a corporation duly organized, validly existing and in good standing under the laws of the State of California, and is duly qualified and in good standing to do business as a foreign corporation in each jurisdiction in which such qualification is required and where the failure to be so qualified would have a materially adverse effect upon Calnetics. Calnetics has all requisite corporate power and authority to conduct its business as now being conducted and to own and lease the properties which it now owns and leases. The Articles of Incorporation, as amended to date, certified by the California Secretary of State, the Bylaws of Calnetics, as amended to date, and the resolutions of Calnetics' Board of Directors authorizing the execution, delivery and performance of this Agreement, all certified by the Secretary of Calnetics, which have previously been provided to Summa by Calnetics, are true and complete copies thereof as currently in effect. 6.2 Capitalization. (a) The authorized capital stock of Calnetics consists of 20,000,000 shares of Calnetics Common Stock and 2,000,000 shares of preferred stock, without par value. As of the date hereof, there are 3,023,799 shares of Calnetics Common Stock issued and outstanding. All of the issued and outstanding shares of Calnetics Common Stock were validly issued and are fully paid, nonassessable and free of preemptive rights. In addition, there are currently outstanding options to purchase from Calnetics an aggregate of 240,000 additional shares of Calnetics Common Stock (the "Options"). Set forth on Exhibit C attached hereto is a full and complete listing setting forth the name and address of each holder of all Options that are outstanding as of the date hereof, the number of shares subject to each such Option, and the exercise price relating thereto. (b) Except expressly set forth in Section 6.2(a) above and on Exhibit C attached hereto, there are no warrants, options, calls, commitments or other rights to subscribe for or to purchase from Calnetics any capital stock of Calnetics or any securities convertible into or exchangeable for any shares of capital stock of Calnetics, or any other securities or agreements pursuant to which Calnetics is or may become obligated to issue any shares of its capital stock, nor is there outstanding any commitment, obligation or agreement on the part of Calnetics to repurchase, redeem or otherwise acquire any of the outstanding shares of its capital stock. 6.3 Authorization; Government Approvals. Calnetics has full corporate power and authority to enter into, execute and deliver this Agreement, to execute all attendant documents and instruments necessary to consummate the transactions herein contemplated, and to perform its obligations hereunder, subject to receipt of the requisite approval of the Calnetics Shareholders. This Agreement (and each and every other agreement, document and Page 44 of 77 11 instrument to be executed by Calnetics hereunder) has been effectively authorized by all necessary action on the part of the Board of Directors of Calnetics, which authorizations remain in full force and effect, has been duly executed and delivered by Calnetics, and no other authorizations or proceedings on the part of Calnetics are required to authorize this Agreement and/or the transactions contemplated hereby, except for receipt of the requisite approval of the Calnetics Shareholders. This Agreement constitutes the legal, valid and binding obligation of Calnetics, subject to receipt of the requisite approval of the Calnetics Shareholders, enforceable with respect to Calnetics in accordance with its terms, except as enforcement hereof may be limited by bankruptcy, insolvency, reorganization, priority or other laws or court decisions relating to or affecting generally the enforcement of creditors' rights or affecting generally the availability of equitable remedies. Other than in connection with the filing of the Agreement of Merger with the California Secretary of State and related assumption of tax liabilities, proceedings with the Commission, and the proceedings contemplated by Section 8.6 hereof, no authorization, consent or approval of any public body or authority is necessary for the consummation by Calnetics of the transactions contemplated by this Agreement. 6.4 No Conflicts. Except as disclosed on the Calnetics Disclosure Schedule attached hereto as Exhibit D, neither the execution and delivery of this Agreement, nor the consummation by Calnetics of any of the transactions contemplated hereby, nor compliance by Calnetics with any of the provisions hereof, will (i) conflict with or result in a breach of, violation of, or default under any of the terms, conditions or provisions of any note, debenture, bond, mortgage, indenture, license, lease, credit agreement or other agreement, document, instrument or obligation (including, without limitation, any of Calnetics' charter documents) to which Calnetics is a party or by which any of its assets or properties may be bound, or (ii) violate any judgment, order, injunction, decree, statute, rule or regulation applicable to Calnetics or any of its officers, directors, employees, assets or properties, excluding from the foregoing clauses (i) and (ii) any conflicts, breaches, violations or defaults that would not have a materially adverse affect on Calnetics or materially impair Calnetics' ability to consummate the transactions contemplated hereby, or for which Calnetics shall have received before the Effective Time appropriate consents or waivers. 6.5 Subsidiaries. Calnetics has no subsidiaries and no investments, directly or indirectly, or other financial interest in any other corporation or business organization, joint venture or partnership of any kind whatsoever except as reflected in the Calnetics Financial Statements (defined in Section 6.6 below) or as shown on the Calnetics Disclosure Schedule. 6.6 Financial Statements. Attached hereto as Exhibit E are (i) the audited consolidated financial statements of Calnetics for each of its fiscal years ended June 30, 1994, 1995 and 1996, consisting of balance sheets as of such dates, the related statements of income for the periods then ended, and the notes thereto, certified by Arthur Andersen LLP, and (ii) unaudited consolidated financial statements of Calnetics for the 6 months ended December 31, 1996, consisting of the balance sheet as of such date (the "Calnetics Balance Sheet"), the related statement of income for the period then ended, and the notes thereto, Page 45 of 77 12 certified by the chief financial officer of Calnetics. Such financial statements (and the notes related thereto) are herein sometimes collectively referred to as the "Calnetics Financial Statements." The Calnetics Financial Statements (i) are derived from the books and records of Calnetics, which books and records have been consistently maintained in a manner which reflects, and such books and records do fairly reflect in all material respects, the assets and liabilities of Calnetics, (ii) fairly present in all material respects the financial condition of Calnetics on the respective dates of such statements and the results of its operations for the periods indicated, except as may be disclosed in the notes thereto, and (iii) have been prepared in all material respects in accordance with generally accepted accounting principles consistently applied throughout the periods involved (except for footnote disclosures to the unaudited financial statements and as otherwise disclosed in the notes thereto). 6.7 Absence of Undisclosed Liabilities. Except as and to the extent reflected or reserved against in the Calnetics Balance Sheet, and as to matters arising in the ordinary course of its business since the date of the Calnetics Balance Sheet that are disclosed in the Calnetics Disclosure Schedule, Calnetics has no liability or obligation (whether accrued, to become due, contingent or otherwise) which individually or in the aggregate could have a materially adverse effect on the business, assets or condition (financial or otherwise) of Calnetics. 6.8 Absence of Certain Developments. Except as set forth in the Calnetics Disclosure Schedule, since the date of the Calnetics Balance Sheet there has been (i) no declaration, setting aside or payment of any dividend or other distribution with respect to any capital stock of Calnetics, no redemption, purchase or other acquisition of any shares of Calnetics' capital stock, and no split-up or other recapitalization relative to any of such capital stock, nor any action authorizing or obligating Calnetics to do any of the foregoing; (ii) no loss, destruction or damage to any material property or asset of Calnetics, whether or not insured; (iii) no acquisition or disposition of material assets (or any contract or arrangement therefor) or any other material transaction by Calnetics, otherwise than for fair value and in the ordinary course of business; (iv) no discharge or satisfaction by Calnetics of any lien or encumbrance or payment of any material obligation or liability (absolute or contingent) other than current liabilities shown on the Calnetics Balance Sheet, or current liabilities incurred since the date thereof in the ordinary course of business, (v) no sale, assignment or transfer by Calnetics of any of its tangible or intangible assets including any security interest or other encumbrance, or waiver by Calnetics of any rights of value which, in any such case, is outside the ordinary course of business and material to the business of Calnetics; (vi) no payment or accrual (except consistent with past practices) of any bonus to or change in the compensation of any director, officer or employee, whether directly or by means of any bonus, pension plan, contract or commitment; (vii) no write-off or material reduction in the carrying value of any asset which is material to the business of Calnetics; (viii) no disposition or lapse of rights as to any intangible property which is material to the business of Calnetics; (ix) except for ordinary travel advances, no loans or extensions of credit to shareholders, officers, directors or employees of Calnetics; (x) no loss of a customer of or supplier to Calnetics the loss of which could reasonably be expected to materially adversely affect Calnetics; (xi) no agreement Page 46 of 77 13 to do any of the things described in this Section 6.8, or (xii) no materially adverse change in the condition (financial or otherwise) of Calnetics or in its assets, liabilities, properties or business. 6.9 Real Property. Set forth in the Calnetics Disclosure Schedule is a complete and accurate description of each parcel of real property owned by or leased to and occupied by Calnetics, and Calnetics neither owns or leases, nor occupies, any other real property. Except as would be disclosed in a reasonably diligent inspection, to Calnetics' Knowledge, the buildings and all fixtures and improvements located on such real property are in good operating condition, ordinary wear and tear excepted. To Calnetics Knowledge, Calnetics is not in violation of any zoning, building or safety ordinance, regulation or requirement or other law or regulation applicable to the operation of owned or leased properties, the violation of which could reasonably be expected to have a material adverse affect upon Calnetics, its condition (financial or otherwise), assets, liabilities, properties or business, and Calnetics has not received any notice of violation with which it has not complied or is not taking steps to comply. Calnetics has good and marketable title to all such real property owned by Calnetics, free and clear of all liens, mortgages, encumbrances, easements, leases, restrictions and claims of any kind whatsoever except for (i) those matters shown on the Calnetics Disclosure Schedule, (ii) liens for taxes and tax assessments not yet due and payable; and (iii) mechanics' or similar liens for materials or services furnished or to be furnished after the date hereof. All leases of real property to which Calnetics is a party are fully effective in accordance with their respective terms and afford Calnetics peaceful and undisturbed possession of the subject matter of the lease, and there exists no material default on the part of Calnetics or termination thereof, except as may be set forth in the Calnetics Disclosure Schedule. 6.10 Tangible Personal Property. Set forth in the Calnetics Disclosure Schedule hereto is a complete list of all items of tangible personal property (including without limitation all items of tooling) owned, leased or otherwise used by Calnetics in the current conduct of its business, wherever located, where the original cost was in excess of $50,000.00. Except as set forth in the Calnetics Disclosure Schedule, Calnetics has, and at the Effective Date will have, good and marketable title to, or in the case of leased equipment a valid leasehold interest in, and is in the possession of, all such items of personal property owned or leased by it, free and clear of all title defects, mortgages, pledges, security interests, condition sales agreements, liens, restrictions or encumbrances whatsoever. Included in the Calnetics Disclosure Schedule is a list of all outstanding equipment leases and maintenance agreements to which Calnetics is a party as lessee and which individually provide for future lease payments in excess of $5,000 per month, with the identities of the other parties to all such leases and agreements shown thereon. All leases of tangible personal property to which Calnetics is a party and which are material to the business of Calnetics are fully effective in accordance with their respective terms, and there exists no material default on the part of Calnetics or termination thereof, except as may be set forth in the Calnetics Disclosure Schedule. Each item of capital equipment reflected in the Calnetics Balance Sheet which is used in the current conduct of Calnetics' business is in good operating and usable condition and repair, ordinary wear and tear excepted, and is suitable for use in the ordinary course of Page 47 of 77 14 Calnetics' business and fit for its intended purposes, except as may be set forth in the Calnetics Disclosure Schedule. 6.11 Tax Matters. Calnetics has, since its inception, duly filed and timely all federal, state, county and local tax returns required to have been filed by it in those jurisdictions where the nature or conduct of its business required such filing and where the failure to so file would be materially adverse to Calnetics. Copies of all tax returns for the past three years have been made available for inspection by Summa prior to the execution hereof. All federal, state, county and local taxes, including but not limited to those taxes due with respect to Calnetics' properties, income, gross receipts, excise, occupation, franchise, permit, licenses, sales, payroll, and inventory due and payable as of the date of the Effective Date by Calnetics have been paid or validly extended. The amount reflected in the Calnetics Balance Sheet as liabilities or reserves for taxes which are due but not yet payable is sufficient for the payment of all accrued and unpaid taxes of the types referred to hereinabove. No consent to the application of Section 341(f)(2) of the Internal Revenue Code of 1986, as amended, has been filed with respect to Calnetics. 6.12 Accounts Receivable. The accounts receivable reflected in the Calnetics Balance Sheet constituted all accounts receivable of Calnetics as of the date thereof, other than accounts receivable fully written off as uncollectible as of such date in accordance with consistently applied prior practice. All such accounts receivable arose from valid sales made (as opposed to consignments) or services rendered in the ordinary course of business, and are not subject to any return privileges, set-off or counter-claim, except as disclosed on the Calnetics Disclosure Schedule. Except as disclosed on the Calnetics Disclosure Schedule, such accounts receivable have been collected in full since the date of the Calnetics Balance Sheet or, to Calnetics' Knowledge, are collectible at their full respective amounts (net of allowance for doubtful accounts established in accordance with consistently applied prior practice). Based upon the prior experience of Calnetics, the "allowance for doubtful accounts" shown on the Calnetics Balance Sheet is sufficient to cover all doubtful accounts. 6.13 Inventories. Calnetics has good and marketable title to all of its inventories of raw materials, work-in-process and finished goods, including models and samples, free and clear of all security interests, liens, claims and encumbrances, except as set forth in the Calnetics Disclosure Schedule. All such inventories consist of items that are usable and salable in the ordinary course of business of Calnetics for an amount at least equal to the book value thereto, plus the costs of disposition thereof, and represent quantities, individually and in the aggregate, not in excess of one year's requirements for its business as currently conducted, except as may be set forth in the Calnetics Disclosure Schedule. 6.14 Contracts and Commitments. Calnetics has no contract, agreement, obligation or commitment, written or oral, expressed or implied, which involves a commitment or liability in excess of $100,000 or for a term of more than one year or whose terms do not permit cancellation without liability on 90 days' notice or less (other than obligations which are included in accounts payable), and no union contracts, employee or Page 48 of 77 15 consultant contracts, loan, credit or other financing agreements, inventory flooring arrangements, debtor or creditor arrangements, security agreements, licenses, franchise, manufacturing, distributorship or dealership agreements, leases, or bonus, health or stock option plans, except for those described in the Calnetics Disclosure Schedule, all of which have been made available to Summa prior to the execution hereof. As of the date hereof, to Calnetics' Knowledge, there exists no circumstances which would affect the validity or enforceability of any of such contracts and other agreements in accordance with their respective terms. Except as set forth in the Calnetics Disclosure Schedule, Calnetics has performed and complied in all material respects with all obligations required to be performed by it to date under, and is not in default (without giving effect to any required notice or grace period) under, or in breach of, the terms, conditions or provisions of any of such contracts and other agreements. Except as set forth in the Calnetics Disclosure Schedule, the validity and enforceability of any contract or other agreement described herein has not been and shall not in any manner be affected by the execution and delivery of this Agreement without any further action. Except as set forth in the Calnetics Disclosure Schedule, Calnetics has no material contract, agreement, obligation or commitment which requires or will require future expenditures (including internal costs and overhead) in excess of reasonably anticipated receipts, nor which is likely to be materially adverse to Calnetics' business, assets or condition (financial and otherwise). 6.15 Patents, Trade Secrets and Customer Lists. Except as set forth in the Calnetics Disclosure Schedule, Calnetics does not have any patents, applications for patents, trademarks, applications for trademarks, trade names, brand names, licenses or service marks relating to the business of Calnetics, nor does any present or former shareholder, officer, director or employee of Calnetics own any patent rights relating to any products manufactured, rented or sold by Calnetics. Except as set forth in the Calnetics Disclosure Schedule, to the Knowledge of Calnetics, Calnetics has the unrestricted right to use, free and clear of any claims or rights of others, all trade secrets, customer lists, manufacturing and secret processes, trademarks, trade names, brand names, licenses and service marks reasonably necessary to the manufacturing and marketing of all products made or proposed to be made by Calnetics, and, to the Knowledge of Calnetics, the continued use thereof by Calnetics following the Effective Date will not conflict with, infringe upon, or otherwise violate any rights of others. To Calnetics' Knowledge, Calnetics has not used and is not making use of any confidential information or trade secrets of any present or past employee of Calnetics that has not been assigned to Calnetics or that Calnetics does not have the right to use. 6.16 No Pending Material Litigation or Proceedings. Except as set forth in the Calnetics Disclosure Schedule, there are no actions, suits or proceedings pending or, to Calnetics' Knowledge, threatened against or directly affecting Calnetics (including actions, suits or proceedings where liabilities may be adequately covered by insurance) at law or in equity or before or by any federal, state, municipal or other governmental department, commission, court, board, bureau, agency or instrumentality, domestic or foreign, or affecting any of the shareholders, officers or directors of Calnetics in connection with the business, Page 49 of 77 16 operations or affairs of Calnetics, which could reasonably be expected to result in any material adverse change in the business, properties, assets or condition (financial or otherwise) of Calnetics, or which question or challenge the transaction contemplated hereby. Except as set forth in the Calnetics Disclosure Schedule, to Calnetics' Knowledge, Calnetics has not, during the past three years, been threatened with any action, suit, proceedings or claim (including actions, suits, proceedings or claims where its liabilities may be adequately covered by insurance) for personal injuries allegedly attributable to products sold or services performed by Calnetics asserting a particular defect or hazardous property in any of Calnetics' products, services or business practices or methods, nor has Calnetics been a party to or threatened with proceedings brought by or before any federal or state agency; and Calnetics has no Knowledge of any defect or hazardous property, claimed or actual, in any such product, service, business practice or method. Calnetics is not subject to any voluntary or involuntary proceeding under the United States Bankruptcy Code and has not made an assignment for the benefit of creditors. 6.17 Insurance. Calnetics maintains insurance with reputable insurance companies on such of its equipment, tools, machinery, inventory and properties as are usually insured by companies similarly situated in the same geographic location and to the extent customarily insured, and maintains products and personal liability insurance, and such other insurance against hazards, risks and liability to persons and property as is customary for companies similarly situated in the same geographic location. A true and complete listing and general description of each of Calnetics' insurance policies as currently in force, including all policies of group medical and/or dental insurance, is set forth in the Calnetics Disclosure Schedule, copies of all of which have previously been made available to Summa. All such insurance policies currently are in full force and effect. 6.18 Arrangements with Personnel. Except as set forth in the Calnetics Disclosure Schedule, no shareholder, director, officer or employee of Calnetics is presently a party to any transaction with Calnetics, including without limitation any contract, loan or other agreement or arrangements providing for the furnishing of services by, the rental of real or personal property from or to, or otherwise requiring loans or payments to, any such shareholder, director, officer or employee, or to any member of the family of any of the foregoing, or to Calnetics' Knowledge, to any corporation, partnership, trust or other entity in which any shareholder, director, officer or employee or any member of the family of any of them has a substantial interest or is an officer, director, trustee, partner or employee. There is set forth in the Calnetics Disclosure Schedule a list showing (i) the name, title, date and amount of last compensation increase, and aggregate compensation, including amounts paid or accrued pursuant to any bonus, pension, profit sharing, commission, deferred compensation or other plans or arrangements in effect as of the date of this Agreement, of each officer or employee of Calnetics whose salary and other compensation, in the aggregate, received from Calnetics or accrued is at an annual rate (or aggregated for the most recently completed fiscal year) in excess of $100,000, as well as any employment and/or severance agreements relating to any such persons; (ii) a description of any and all bonus, pension, profit sharing, commission, deferred compensation or other plans or arrangements in effect for any of Page 50 of 77 17 Calnetics' employees as of the date of this Agreement; (iii) a description of any noncompetition or similar agreements to which Calnetics or any shareholder, director, officer or employee of Calnetics is a party; (iv) all powers of attorney from Calnetics to any person or entity; and (v) the name of each person or entity authorized to borrow money or incur or guarantee indebtedness on behalf of Calnetics. Calnetics has made available to Summa copies of all written personnel policies, including without limitation vacation, severance, bonus, profit sharing and commission policies, applicable to any of Calnetics' employees. Neither the execution and delivery of this Agreement by Calnetics, nor the consummation by Calnetics of any of the transactions contemplated hereby, or compliance by Calnetics with any of the provisions hereof, shall create any obligation or liability on the part of Calnetics under any bonus, profit sharing, deferred compensation of other plan or arrangement in effect as of the date of this Agreement, other than the vesting of certain outstanding options. 6.19 Labor Relations. Except as set forth in the Calnetics Disclosure Schedule, Calnetics has never been a party to any collective bargaining agreement or other contract with a labor union, nor, to Calnetics' Knowledge, is any union, labor organization or group of employees of Calnetics presently seeking the right to enter into collective bargaining with Calnetics on behalf of any of its employees. 6.20 Bank Accounts. All bank and savings accounts, and other accounts at similar financial institutions, of Calnetics are listed in the Calnetics Disclosure Schedule, and copies of all signature cards or other documentation reflecting all individuals who are authorized to withdraw funds from any such accounts have been made available to Summa. 6.21 Absence of Questionable Payments. Neither Calnetics nor, to Calnetics' Knowledge, any shareholder, director, officer, agent, employee, consultant or other person associated with or acting on behalf of any of them, has (i) used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity, (ii) made any direct or indirect unlawful payments to governmental officials or others from corporate funds, engaged in any payments or activity which would be deemed a violation of the Foreign Corrupt Practices Act or rules or regulations promulgated thereunder, or (iii) established or maintained any unlawful or unrecorded accounts. 6.22 Compliance with Laws. Calnetics holds all licenses, franchises, permits and authorizations necessary for the lawful conduct of its business as presently conducted, has complied with all applicable statutes, laws, ordinances, rules and regulations of all governmental bodies, agencies and subdivisions having, asserting or claiming jurisdiction over it, with respect to any part of the conduct of its business and corporate affairs, where the failure to so hold or comply could reasonably be expected to have a material adverse affect upon Calnetics' condition (financial or otherwise), business, assets or properties. 6.23 Environmental Matters. Page 51 of 77 18 (a) To the Knowledge of Calnetics, except as set forth on the Calnetics Disclosure Schedule: (i) Calnetics has complied with all applicable Environmental Laws; (ii) Calnetics' Property (including soils, groundwater, surface water, buildings or other structures) is not contaminated with any Hazardous Substances that may subject Summa to liability under any Environmental Law; (iii) the properties formerly owned or operated by Calnetics were not contaminated with Hazardous Substances during the period of ownership or operation by Calnetics that may subject Calnetics to liability under any Environmental Law; (iv) Calnetics is not subject to liability under any Environmental Law for any Hazardous Substance disposal or contamination on any third party property; (v) Calnetics has not been associated with any release or threat of release of any Hazardous Substance that may subject Calnetics to liability under any Environmental Law; (vi) Calnetics has not received any notice, demand, letter, claim or request for information alleging that Calnetics may be in violation of, or liable under, any Environmental Law; (vii) Calnetics is not subject to any orders, decrees, injunctions or other arrangements with any governmental entity, nor is subject to any indemnity or other agreement with any third party relating to liability under any Environmental Law or relating to Hazardous Substances; (viii) there are no circumstances or conditions involving Calnetics that could reasonably be expected to result in any claims, liability, investigations, costs or restrictions on the ownership, use or transfer of any of Calnetics' Property pursuant to any Environmental Law; and (ix) Calnetics' Property does not contain any underground storage tanks, asbestos-containing material, lead-based products, or polychlorinated biphenyls. 6.24 Relationships with Customers and Suppliers. Except as set forth in the Calnetics Disclosure Schedule, no present customer or substantial supplier to Calnetics has indicated an intention to terminate or materially and adversely alter its existing business relationship therewith, and Calnetics has no reason to believe that any of the present customers of or substantial suppliers to Calnetics intends to do so, other than, in each such case, any customer or substantial supplier the loss of which could not reasonably be expected to materially adversely affect Calnetics. Page 52 of 77 19 6.25 Brokerage. Except as set forth in the Calnetics Disclosure Schedule, Calnetics has no obligation to any person or entity for brokerage commissions, finder's fees or similar compensation in connection with the transactions contemplated by this Agreement. 6.26 Reports Under the Exchange Act. The Calnetics Common Stock is registered under Section 12(g) of the Exchange Act. Accordingly, Calnetics is subject to the information requirements of the Exchange Act, and in accordance therewith files reports and other information with the Commission. Since January 1, 1992, Calnetics has filed with the Commission on a timely basis all such reports which Calnetics has been required to file under the Exchange Act. Calnetics has made available to Summa accurate and complete copies of each registration statement, report, proxy statement, information statement or schedule, together with all amendments thereto, that were required to be filed with the SEC by Calnetics since January 1, 1992 (the "Calnetics SEC Documents"). As of their respective dates, the Calnetics SEC Documents complied in all material respects with the applicable requirements of the Securities Act and the Exchange Act, as the case may be, and none of the Calnetics SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were or are made, not misleading. 6.27 Disclosure. Neither this Agreement nor any certificate, exhibit, or other written document or statement, furnished to Summa by or on behalf of Calnetics in connection with the transactions contemplated by this Agreement contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary to be stated in order to make the statements contained herein or therein, in the light of the circumstances in which they were made, not misleading. Calnetics has no Knowledge of any fact which has not been disclosed in writing to Summa which may reasonably be expected to materially and adversely affect the business, operations, properties, assets, condition (financial or other), and/or results of operations of Calnetics or the ability of Calnetics to perform all of the obligations to be performed by Calnetics under this Agreement and/or any other agreement between Summa and Calnetics to be entered into pursuant to any provision of this Agreement. 7. REPRESENTATIONS AND WARRANTIES OF SUMMA. Summa represents and warrants to Calnetics as follows (it being acknowledged and agreed that Calnetics is entering into this Agreement in material reliance upon each of the following representations and warranties): 7.1 Organization and Corporate Power. Summa is a corporation duly organized, validly existing and in good standing under the laws of the State of California, and is duly qualified and in good standing to do business as a foreign corporation in each jurisdiction in which such qualification is required and where the failure to be so qualified would have a materially adverse effect upon Summa. Summa has all requisite corporate power and authority to conduct its business as now being conducted and to own and lease the properties which it now owns and leases. The Articles of Incorporation, as amended to date, Page 53 of 77 20 certified by the Secretary of State of California, and the Bylaws of Summa, as amended to date, and the resolutions of Summa's Board of Directors authorizing the execution, delivery and performance of this Agreement, all certified by the Secretary of Summa, which have previously been provided to Calnetics by Summa, are true and complete copies thereof as currently in effect. Subsidiary will be organized prior to the Effective Time as a duly organized and validly existing California corporation in good standing under the laws of the State of California, all of whose capital stock will be issued to and owned, beneficially and of record, by Summa. 7.2 Capitalization. The authorized capital stock of Summa consists of 10,000,000 shares of Summa Common Stock and 5,000,000 shares of preferred stock, $.001 par value. As of the date hereof, there are 4,070,250 shares of Summa Common Stock outstanding, and no shares of preferred stock have been issued or are outstanding. In addition, there are currently outstanding options and warrants to purchase from Summa an aggregate of 470,721 additional shares of Summa Common Stock. Except expressly set forth hereinabove, there are no warrants, options, calls, commitments or other rights to subscribe for or to purchase from Summa any capital stock of Summa or any securities convertible into or exchangeable for any shares of capital stock of Summa, or any other securities or agreements pursuant to which Summa is or may become obligated to issue any shares of its capital stock, nor is there outstanding any commitment, obligation or agreement on the part of Summa to repurchase, redeem or otherwise acquire any of the outstanding shares of its capital stock. 7.3 Authorization; Government Approvals. Summa has full corporate power and authority to enter into, execute and deliver this Agreement, to execute all attendant documents and instruments necessary to consummate the transactions herein contemplated, and to perform its obligations hereunder, subject to receipt of the requisite approval of the Summa Shareholders. This Agreement (and each and every other agreement, document and instrument to be executed by Summa hereunder) has been effectively authorized by all necessary action on the part of the Board of Directors of Summa, which authorizations remain in full force and effect, has been duly executed and delivered by Summa, and no other authorizations or proceedings on the part of Summa are required to authorize this Agreement and/or the transactions contemplated hereby, except for receipt of the requisite approval of the Summa Shareholders. This Agreement constitutes the legal, valid and binding obligation of Summa, subject to receipt of the requisite approval of the Summa Shareholders, enforceable with respect to Summa in accordance with its terms, except as enforcement hereof may be limited by bankruptcy, insolvency, reorganization, priority or other laws or court decisions relating to or affecting generally the enforcement of creditors' rights or affecting generally the availability of equitable remedies. Other than in connection with the filing of the Agreement of Merger with the California Secretary of State, proceedings with the Commission, and the proceedings specified in Section 8.7 below, no authorization, consent or approval of any public body or authority is necessary for the consummation by Summa of the transactions contemplated by this Agreement. Page 54 of 77 21 7.4 No Conflicts. Except as disclosed on the Summa Disclosure Schedule attached hereto as Exhibit F, neither the execution and delivery of this Agreement, nor the consummation by Summa of any of the transactions contemplated hereby, or compliance with any of the provisions hereof, will (i) conflict with or result in a breach of, violation of, or default under any of the terms, conditions, or provisions of any note, debenture, bond, mortgage, indenture, license, lease, credit agreement or other agreement, document, instrument or obligation (including, without limitation, any of Summa's charter documents) to which Summa is a party or by which any of its assets or properties may be bound, or (ii) violate any judgment, order, injunction, decree, statute, rule or regulation applicable to Summa or any of its officers, directors, employees, assets or properties, excluding from the foregoing clauses (i) and (ii) any conflicts, breaches, violations or defaults that would not have a materially adverse affect on Summa or materially impair Summa's ability to consummate the transactions contemplated hereby, or for which Summa shall have received before the Effective Time appropriate consents or waivers. 7.5 Subsidiaries. Summa has no subsidiaries and no investments, directly or indirectly, or other financial interest in any other corporation or business organization, joint venture or partnership of any kind whatsoever except as reflected in the Summa Financial Statements (defined in Section 7.6 below) or as shown on the Summa Disclosure Schedule. Prior to the Effective Time, Subsidiary will be organized as a California corporation whose capital stock is wholly-owned by Summa. 7.6 Financial Statements. Attached hereto as Exhibit G are (i) the audited consolidated financial statements of Summa for each of its fiscal years ended August 31, 1994, 1995 and 1996 consisting of balance sheets as of such dates, the related statements of income for the periods then ended, and the notes thereto, certified by Arthur Andersen LLP, and (ii) the unaudited consolidated financial statements of Summa as of and for the six months ended February 28, 1997, consisting of the balance sheet as of such date (the "Summa Balance Sheet"), the related statement of income for the period then ended, and the respective notes thereto, in each case certified by the chief financial officer of Summa. Such financial statements (and the notes related thereto) are herein sometimes collectively referred to as the "Summa Financial Statements." The Summa Financial Statements (i) are derived from the books and records of Summa, which books and records have been consistently maintained in a manner which reflects, and such books and records do fairly reflect in all material respects, the assets and liabilities of Summa, (ii) fairly present in all material respects the financial condition of Summa on the respective dates of such statements and the results of its operations for the periods indicated, except as may be disclosed in the notes thereto, and (iii) have been prepared in all material respects in accordance with generally accepted accounting principles consistently applied throughout the periods involved (except as otherwise disclosed in the notes thereto). 7.7 Absence of Undisclosed Liabilities. Except as and to the extent reflected or reserved against in the Summa Balance Sheet, and as to matters arising in the ordinary course of its business since the date of the Summa Balance Sheet that are disclosed in the Page 55 of 77 22 Summa Disclosure Schedule, Summa has no liability or obligation (whether accrued, to become due, contingent or otherwise) which individually or in the aggregate could have a materially adverse effect on the business, assets or condition (financial or otherwise) of Summa. 7.8 Absence of Certain Developments. Except as set forth in the Summa Disclosure Schedule, since the date of the Summa Balance Sheet there has been (i) no declaration, setting aside or payment of any dividend or other distribution with respect to any capital stock of Summa, no redemption, purchase or other acquisition of any shares of Summa's capital stock, and no split-up or other recapitalization relative to any of such capital stock, nor any action authorizing or obligating Summa to do any of the foregoing; (ii) no loss, destruction or damage to any material property or asset of Summa, whether or not insured; (iii) no acquisition or disposition of material assets (or any contract or arrangement therefor) or any other material transaction by Summa, otherwise than for fair value and in the ordinary course of business; (iv) no discharge or satisfaction by Summa of any lien or encumbrance or payment of any material obligation or liability (absolute or contingent) other than current liabilities shown on the Summa Balance Sheet, or current liabilities incurred since the date thereof in the ordinary course of business, (v) no sale, assignment or transfer by Summa of any of its tangible or intangible assets including any security interest or other encumbrance, or waiver by Summa of any rights of value which, in any such case, is outside the ordinary course of business and material to the business of Summa; (vi) no payment of any bonus to or change in the compensation of any director, officer or employee, whether directly or by means of any bonus, pension plan, contract or commitment; (vii) no write-off or material reduction in the carrying value of any asset which is material to the business of Summa; (viii) no disposition or lapse of rights as to any intangible property which is material to the business of Summa; (ix) except for ordinary travel advances, no loans or extensions of credit to shareholders, officers, directors or employees of Summa; (x) no loss of a customer of or supplier to Summa the loss of which could reasonably be expected to materially adversely affect Summa; (xi) no agreement to do any of the things described in this Section 7.8; or (xii) no materially adverse change in the condition (financial or otherwise) of Summa or in its assets, liabilities, properties or business. 7.9 Real Property. Set forth in the Summa Disclosure Schedule is a complete and accurate description of each parcel of real property owned by or leased to and occupied by Summa, and Summa neither owns or leases, nor occupies, any other real property. Except as would be disclosed in a reasonably diligent inspection, to Summa's Knowledge, the buildings and all fixtures and improvements located on such real property are in good operating condition, ordinary wear and tear excepted. To Summa's Knowledge, Summa is not in violation of any zoning, building or safety ordinance, regulation or requirement or other law or regulation applicable to the operation of owned or leased properties, the violation of which could reasonably be expected to have a material adverse affect upon Summa, its condition (financial or otherwise), assets, liabilities, properties or business, and Summa has not received any notice of violation with which it has not complied or is not taking steps to comply. Summa has good and marketable title to all such real property owned by Summa, free and Page 56 of 77 23 clear of all liens, mortgages, encumbrances, easements, leases, restrictions and claims of any kind whatsoever except for (i) those matters shown on the Summa Disclosure Schedule; (ii) liens for taxes for the current year and tax assessments not yet due and payable; and (iii) mechanics' or similar liens for materials or services furnished or to be furnished after the date hereof. All leases of real property to which Summa is a party are fully effective in accordance with their respective terms and afford Summa peaceful and undisturbed possession of the subject matter of the lease, and there exists no material default on the part of Summa or termination thereof, except as may be set forth in the Summa Disclosure Schedule. 7.10 Tangible Personal Property. Set forth in the Summa Disclosure Schedule hereto is a complete list of all items of tangible personal property (including without limitation all items of tooling) owned or leased and used by Summa in the current conduct of its business, where the original cost was in excess of $50,000. Except as set forth in the Summa Disclosure Schedule, Summa has, and at the Effective Date will have, good and marketable title to, or in the case of leased equipment a valid leasehold interest in, and is in possession of, all such items of personal property owned or leased by it, free and clear of all title defects, mortgages, pledges, security interests, conditional sales agreements, liens, restrictions or encumbrances whatsoever. Included in the Summa Disclosure Schedule is a list of all outstanding equipment leases and maintenance agreements to which Summa is a party as lessee and which individually provide for future lease payments in excess of $5,000 per month, with the identities of the other parties to all such leases and agreements shown thereon. All leases of tangible personal property to which Summa is a party and which are material to the business of Summa are fully effective in accordance with their respective terms, and there exists no material default on the part of Summa or termination thereof, except as may be set forth in the Summa Disclosure Schedule. Each item of capital equipment reflected in the Summa Balance Sheet which is used in the current conduct of Summa's business is in good operating and usable condition and repair, ordinary wear and tear excepted, and is suitable for use in the ordinary course of Summa's business and fit for its intended purposes, except as may be set forth in the Summa Disclosure Schedule. 7.11 Tax Matters. Summa has, since its inception, duly filed and timely all federal, state, county and local tax returns required to have been filed by it in those jurisdictions where the nature or conduct of its business required such filing and where the failure to so file would be materially adverse to Summa. Copies of all tax returns for the past 3 years have been made available for inspection by Calnetics prior to the execution hereof. All federal, state, county and local taxes, including but not limited to those taxes due with respect to Summa's properties, income, gross receipts, excise, occupation, franchise, permit, licenses, sales, payroll, and inventory due and payable as of the date of the Effective Date by Summa have been paid or validly extended. The amount reflected in the Summa Balance Sheet as liabilities or reserves for taxes which are due but not yet payable is sufficient for the payment of all accrued and unpaid taxes of the types referred to hereinabove. No consent to the application of Section 341(f)(2) of the Internal Revenue Code of 1986, as amended, has been filed with respect to Summa. Page 57 of 77 24 7.12 Accounts Receivable. The accounts receivable reflected in the Summa Balance Sheet constituted all accounts receivable of Summa as of the date thereof, other than accounts receivable fully written off as uncollectible as of such date in accordance with consistently applied prior practice. All such accounts receivable arose from valid sales made (as opposed to consignments) or services rendered in the ordinary course of business, and are not subject to any return privileges, set-off or counter-claim, except as disclosed on the Summa Disclosure Schedule. Except as disclosed in the Summa Disclosure Schedule, such accounts receivable have been collected in full since the date of the Summa Balance Sheet or, to Summa's Knowledge, are collectible at their full respective amounts (net of allowance for doubtful accounts established in accordance with consistently applied prior practice). Based upon the prior experience of Summa, the "allowance for doubtful accounts" shown on the Summa Balance Sheet is sufficient to cover all doubtful accounts. 7.13 Inventories. Summa has good and marketable title to all of its inventories of raw materials, work-in-process and finished goods, including models and samples, free and clear of all security interests, liens, claims and encumbrances, except as set forth in the Summa Disclosure Schedule. All such inventories consist of items that are usable and salable in the ordinary course of business of Summa for an amount at least equal to the book value thereto, plus the costs of disposition thereof, and represent quantities, individually and in the aggregate, not in excess of one year's requirements for its business as currently conducted, except as may be set forth in the Summa Disclosure Schedule. 7.14 Contracts and Commitments. Summa has no contract, agreement, obligation or commitment, written or oral, expressed or implied, which involves a commitment or liability in excess of $100,000 or for a term of more than one year or whose terms do not permit cancellation without liability on 90 days' notice or less (other than obligations which are included in accounts payable), and no union contracts, employee or consulting contracts, financing agreements, debtor or creditor arrangements, licenses, franchise, manufacturing, distributorship or dealership agreements, leases, or bonus, health or stock option plans, except as described in the Summa Disclosure Schedule, all of which have been made available to Calnetics prior to the execution hereof. As of the date hereof, to Summa's Knowledge, there exists no circumstances which would affect the validity or enforceability of any of such contracts and other agreements in accordance with their respective terms. Except as set forth in the Summa Disclosure Schedule, Summa has performed and complied in all material respects with all obligations required to be performed by it to date under, and is not in default (without giving effect to any required notice or grace period) under, or in breach of, the terms, conditions or provisions of any of such contracts and other agreements. Except as set forth in the Summa Disclosure Schedule, the validity and enforceability of any contract or other agreement described herein has not been and shall not in any manner be affected by the execution and delivery of this Agreement without any further action. Except as set forth in the Summa Disclosure Schedule, Summa has no material contract, agreement, obligation or commitment which requires or will require future expenditures (including internal costs and overhead) in excess of reasonably anticipated receipts, nor which is likely to be materially adverse to Summa's business, assets or condition Page 58 of 77 25 (financial and otherwise). 7.15 Patents, Trade Secrets and Customer Lists. Except as set forth on the Summa Disclosure Schedule, Summa does not have any patents, applications for patents, trademarks, applications for trademarks, trade names, licenses or service marks relating to the business of Summa, nor does any present or former shareholder, officer, director or employee of Summa own any patent rights relating to any products manufactured, rented or sold by Summa. Except as set forth in the Summa Disclosure Schedule, to the Knowledge of Summa, Summa has the unrestricted right to use, free and clear of any claims or rights of others, all trade secrets, customer lists, manufacturing and secret processes, trademarks, tradenames, brand names, licenses and service marks reasonably necessary to the manufacture and marketing of all products made or proposed to be made by Summa, and, to the Knowledge of Summa, the continued use thereof by Summa following the Effective Date will not conflict with, infringe upon, or otherwise violate any rights of others. To Summa's Knowledge, Summa has not used and is not making use of any confidential information or trade secrets of any present or past employee of Summa that has not been assigned to Summa or that Summa does not have the right to use. 7.16 No Pending Material Litigation or Proceedings. Except as set forth in the Summa Disclosure Schedule, there are no actions, suits or proceedings pending or, to Summa's Knowledge, threatened against or directly affecting Summa (including actions, suits or proceedings where liabilities may be adequately covered by insurance) at law or in equity or before or by any federal, state, municipal or other governmental department, commission, court, board, bureau, agency or instrumentality, domestic or foreign, or affecting any of the shareholders, officers or directors of Summa in connection with the business, operations or affairs of Summa, which could reasonably be expected to result in any material adverse change in the business, properties or assets, or in the condition (financial or otherwise) of Summa, or which question or challenge the transaction contemplated hereby. Except as set forth in the Summa Disclosure Schedule, to Summa's Knowledge, Summa has not, during the past three years, been threatened with any action, suit, proceedings or claim (including actions, suits, proceedings or claims where its liabilities may be adequately covered by insurance) for personal injuries allegedly attributable to products sold or services performed by Summa asserting a particular defect or hazardous property in any of Summa's products, services or business practices or methods, nor has Summa been a party to or threatened with proceedings brought by or before any federal or state agency; and Summa has no Knowledge of any defect or hazardous property, claimed or actual, in any such product, service, business practice or method. Summa is not subject to any voluntary or involuntary proceeding under the United States Bankruptcy Code and has not made an assignment for the benefit of creditors. 7.17 Insurance. Summa maintains insurance with reputable insurance companies on such of its equipment, tools, machinery, inventory and properties as are usually insured by companies similarly situated in the same geographic location and to the extent customarily insured, and maintains products and personal liability insurance, and such other insurance against hazards, risks and liability to persons and property as is customary for companies Page 59 of 77 26 similarly situated in the same geographic location. A true and complete listing and general description of each of Summa's insurance policies as currently in force, including all policies of group medical and/or dental insurance, is set forth in the Summa Disclosure Schedule, copies of all of which have previously made available to Calnetics. All such insurance policies are currently in full force and effect. 7.18 Arrangements with Personnel. Except as set forth in the Summa Disclosure Schedule, no shareholder, director, officer or employee of Summa is presently a party to any transaction with Summa, including without limitation any contract, loan or other agreement or arrangement providing for the furnishing of services by, the rental of real or personal property from or to, or otherwise requiring loans or payments to, any such shareholder, director, officer or employee, or to any member of the family of any of the foregoing, or, to Summa's Knowledge, to any corporation, partnership, trust or other entity in which any shareholder, director, officer or employee, or any member of the family of any of them has a substantial interest or is an officer, director, trustee, partner or employee. There is set forth in the Summa Disclosure Schedule a list showing (i) the name, title, date and amount of last compensation increase, and aggregate compensation, including amounts paid or accrued pursuant to any bonus, pension, profit sharing, commission, deferred compensation or other plans or arrangements in effect as of the date of this Agreement, of each officer or employee of Summa whose salary and other compensation, in the aggregate, received from Summa or accrued is at an annual rate (or aggregated for the most recently completed fiscal year) in excess of $100,000, as well as any employment and/or severance agreements relating to any such persons; (ii) a description of any and all bonus, pension, profit sharing, commission, deferred compensation or other plans or arrangements in effect for any of Summa's employees as of the date of this Agreement; (iii) a description of any noncompetition or similar agreements to which Summa or any shareholder, director, officer or employee of Summa is a party; (iv) all powers of attorney from Summa to any person or entity; and (v) the name of each person or entity authorized to borrow money or incur or guarantee indebtedness on behalf of Summa. Summa has made available to Calnetics copies of all written personnel policies, including without limitation vacation, severance, bonus, pension, profit sharing and commission policies, applicable to any of Summa's employees. Neither the execution and delivery of this Agreement by Summa, nor the consummation by Summa of any of the transactions contemplated hereby, or compliance by Summa with any of the provisions hereof, shall create any obligation or liability on the part of Summa under any bonus, profit sharing, deferred compensation of other plan or arrangement in effect as of the date of this Agreement. 7.19 Labor Relations. Except as set forth in the Summa Disclosure Schedule, Summa has never been a party to any collective bargaining agreement or other contract with a labor union, nor, to Summa's Knowledge, is any union, labor organization or group of employees of Summa presently seeking the right to enter into collective bargaining with Summa on behalf of any of its employees. 7.20 Bank Accounts. All bank and savings accounts, and other accounts at similar financial institutions, of Summa are listed in the Summa Disclosure Schedule, and Page 60 of 77 27 copies of all signature cards or other documentation reflecting all individuals who are authorized to withdraw funds from any such accounts have been made available to Calnetics. 7.21 Absence of Questionable Payments. Neither Summa nor, to Summa's Knowledge, any shareholder, director, officer, agent, employee, consultant or other person associated with or acting on behalf of any of them, has (i) used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity, (ii) made any direct or indirect unlawful payments to governmental officials or others from corporate funds, engaged in any payments or activity which would be deemed a violation of the Foreign Corrupt Practices Act or rules or regulations promulgated thereunder, or (iii) established or maintained any unlawful or unrecorded accounts. 7.22 Compliance with Laws. Summa holds all licenses, franchises, permits and authorizations necessary for the lawful conduct of its business as presently conducted, has complied with all applicable statutes, laws, ordinances, rules and regulations of all governmental bodies, agencies and subdivisions having, asserting or claiming jurisdiction over it, with respect to any part of the conduct of its business and corporate affairs, where the failure to so hold or comply could reasonably be expected to have a material adverse affect upon Summa's condition (financial or otherwise), business, assets or properties. 7.23 Environmental Matters. (a) To the Knowledge of Summa, except as set forth on the Summa Disclosure Schedule: (i) Summa has complied with all applicable Environmental Laws; (ii) Summa's Property (including soils, groundwater, surface water, buildings or other structures) is not contaminated with any Hazardous Substances that may subject Summa to liability under any Environmental Law; (iii) the properties formerly owned or operated by Summa were not contaminated with Hazardous Substances during the period of ownership or operation by Summa that may subject Summa to liability under any Environmental Law; (iv) Summa is not subject to liability under any Environmental Law for any Hazardous Substance disposal or contamination on any third party property; (v) Summa has not been associated with any release or threat of release of any Hazardous Substance that may subject Summa to liability under any Environmental Law; (vi) Summa has not received any notice, demand, letter, claim or request for information alleging that Summa may be in violation of, or liable under, any Environmental Law; Page 61 of 77 28 (vii) Summa is not subject to any orders, decrees, injunctions or other arrangements with any governmental entity, nor is subject to any indemnity or other agreement with any third party relating to liability under any Environmental Law or relating to Hazardous Substances; (viii) there are no circumstances or conditions involving Summa that could reasonably be expected to result in any claims, liability, investigations, costs or restrictions on the ownership, use or transfer of any of Summa's Property pursuant to any Environmental Law; and (ix) Summa's Property does not contain any underground storage tanks, asbestos-containing material, lead-based products, or polychlorinated biphenyls. 7.24 Relationships with Customers and Suppliers. Except as may be set forth on the Summa Disclosure Schedule, no present customer or substantial supplier to Summa has indicated an intention to terminate or materially and adversely alter its existing business relationship therewith, and Summa has no reason to believe that any of the present customers of or substantial suppliers to Summa intends to do so, other than, in each such case, any customer or substantial supplier the loss of which could not reasonably be expected to materially adversely affect Summa. 7.25 Brokerage. Except as set forth in the Summa Disclosure Schedule, Summa has no obligation to any person or entity for brokerage commissions, finder's fees or similar compensation in connection with the transactions contemplated by this Agreement. 7.26 Reports Under the Exchange Act. The Summa Common Stock is registered under Section 12(g) of the Exchange Act. Accordingly, Summa is subject to the information requirements of the Exchange Act, and in accordance therewith files reports and other information with the Commission. Since January 1, 1992, Summa has filed with the Commission on a timely basis all such reports which Summa has been required to file under the Exchange Act. Summa has made available to Calnetics accurate and complete copies of each registration statement, report, proxy statement, information statement or schedule, together with all amendments thereto, that were required to be filed with the SEC by Summa since January 1, 1992 (the "Summa SEC Documents"). As of their respective dates, the Summa SEC Documents complied in all material respects with the applicable requirements of the Securities Act and the Exchange Act, as the case may be, and none of the Summa SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were or are made, not misleading. 7.27 Disclosure. Neither this Agreement, nor any certificate, exhibit, or other written document or statement, furnished to Calnetics by or on behalf of Summa in connection with the transactions contemplated by this Agreement contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary to be stated Page 62 of 77 29 in order to make the statements contained herein or therein, in the light of the circumstances in which they were made, not misleading. Summa has no Knowledge of any fact which has not been disclosed in writing to Calnetics which may reasonably be expected to materially and adversely affect the business, properties, assets, condition (financial or other) and/or results of operations of Summa or the ability of Summa to perform all of the obligations to be performed by Summa under this Agreement and/or any other agreement between Summa and Calnetics to be entered into pursuant to any provision of this Agreement. 7.28 Financing. Summa shall use its best efforts to obtain the funds required to make full payment of the cash portion of the Merger consideration as contemplated herein. 8. COVENANTS OF THE PARTIES PRIOR TO THE EFFECTIVE DATE. Each of Calnetics and Summa hereby covenants to and agrees with the other that between the date hereof and the Effective Date: 8.1 Access to Properties and Records. Each party shall give to the other and its authorized representatives full access, during reasonable business hours, in such a manner as not unduly to disrupt normal business activities, to any and all of its premises, properties, contracts, books, records and affairs, and will cause its senior officers to furnish any and all data and information pertaining to its business that the other may from time to time reasonably require. Unless and until the transactions contemplated by this Agreement have been consummated, each party and its representatives shall hold in confidence all information so obtained and will use such information solely for the purposes intended by this Agreement. If the transactions contemplated hereby are not consummated, each party will return all documents (and copies thereof) hereinabove referred to and obtained therefrom. Such obligation of confidentiality shall not extend to any information which is shown to have been previously (i) known to the party receiving it, (ii) generally known to others engaged in the trade or business of the disclosing party, (iii) part of public knowledge or literature without breach of a duty of confidentiality, or (iv) lawfully received from a third party. Without limiting the generality of the foregoing, it is understood and agreed that certain information disclosed by each party to the other, or their respective representatives, may constitute "material inside information" that has not previously been disclosed to the public generally. Each party acknowledges that it and its representatives are aware of the restrictions on the use of such information imposed by federal and state securities laws, agrees to comply and cause its representatives to comply with such restrictions, and agrees to indemnify and hold the other party and each of its directors, officers and employees free and harmless from any and all liability, cost or expense that any of them may incur or suffer by reason of any breach by the indemnifying party or any of its authorized representatives of any of such restrictions. From and after the date hereof and until the Closing or termination hereof, neither party, nor any of their respective officers, directors, principal shareholders or other representatives, shall purchase or sell, directly or indirectly, in the public marketplace or otherwise, any securities of the other party. Page 63 of 77 30 8.2 Corporate Existence, Rights and Franchises. Each party shall take all necessary actions to maintain in full force and effect its corporate existence, rights, franchises and good standing. No change shall be made to the Articles of Incorporation or Bylaws of either party. 8.3 Insurance. Each party shall take all necessary actions to maintain in force all of its existing insurance policies (or replacements therefor), subject only to variations in amounts required by the ordinary operation of its business. 8.4 Conduct of Business in the Ordinary Course. Except as otherwise expressly provided in this Agreement, neither party shall permit to be done any act which would result in a material breach of any of the covenants of such party contained herein or which would cause the representations and warranties of such party contained herein to become untrue or inaccurate in any material respect as of any date subsequent to the date hereof. Without limiting the generality of the foregoing, each party shall take all reasonably necessary actions to (i) operate its business diligently in the ordinary course of business as an ongoing concern, and will use its best business efforts to preserve intact its organization and operations at current levels and to make available to the Surviving Corporation the services of Calnetics' present employees and to preserve for the Surviving Corporation the relationships of Calnetics with its suppliers and customers and others having business relationships with it; (ii) maintain in good operating condition, ordinary wear and tear excepted, all of its assets and properties which are in such condition as of the date hereof; (iii) maintain its books, accounts and records in the usual, regular and ordinary manner, on a basis consistent with past practice in recent periods; (iv) refrain from entering into any contract, agreement, lease, acquisition, sale of assets, capital expenditure or other commitment of a value in excess of $250,000 (other than purchases and sales of inventory, including sales orders, in the ordinary course of business), or from modifying, amending, canceling or terminating any of such contracts, agreements, leases or other commitments presently in force, except as expressly contemplated by this Agreement, without the prior approval of the other party (which approval shall not be unreasonably withheld and which may be verbal to be promptly followed by written confirmation); (v) refrain from paying any bonus to any officer or director, other than pursuant to any contract, agreement or arrangement existing on the date of this Agreement, or any employee other than on a basis consistent with past practice, and from declaring or paying any dividend, or making any other distribution in respect of, or from redeeming, any of its capital stock; and (vi) refrain from issuing any capital stock or other securities convertible into or exercisable to purchase capital stock other than upon exercise of existing options. 8.5 Consents. Each of the parties shall use its best business efforts to obtain any and all necessary permits, approvals, qualifications, consents or authorizations from third parties and governmental authorities which are required to be obtained prior to the Effective Date, and shall use its best efforts to make or complete all filings, proceedings and waiting periods required to be made or completed prior to the Effective Date. Page 64 of 77 31 8.6 Approval of Calnetics Shareholders. A special meeting of the Calnetics Shareholders shall be called to be held in accordance with the California Corporations Code on or before May 29, 1997, or as soon thereafter as is practicable, at a time, place and date to be set by the Calnetics Board of Directors, for the purposes of considering and voting upon a proposal to approve this Agreement and the transactions contemplated hereby. The Calnetics Board of Directors shall recommend that the Calnetics Shareholders approve this Agreement and the transactions contemplated hereby. By signing this Agreement where indicated on the signature page hereof, each shareholder of Calnetics who owns or has voting control over 10% or more of the Common Stock of Calnetics issued and outstanding as of the date hereof has agreed (subject to the terms and conditions of this Agreement) to vote all such shares in favor of the transactions contemplated hereby at the special meeting of Calnetics Shareholders. Calnetics shall prepare and mail, or cause to be prepared and mailed to the Calnetics Shareholders, at least 30 days prior to the special meeting, appropriate notice of the meeting, together with a copy of the Joint Proxy Statement/Prospectus prepared as provided in Section 8.8 below. 8.7 Approval of Summa Shareholders. A special meeting of the Summa Shareholders shall be called to be held in accordance with the California Corporations Code on or before May 29, 1997, or as soon thereafter as is practicable, at a time, place and date to be set by the Summa Board of Directors, for the purposes of considering and voting upon a proposal to approve this Agreement and the transactions contemplated hereby. The Summa Board of Directors shall recommend that the Summa Shareholders approve this Agreement and the transactions contemplated hereby. Summa shall prepare and mail, or cause to be prepared and mailed to the Summa Shareholders, at least 30 days prior to the special meeting, an appropriate notice of the meeting, together with a copy of the Joint Proxy Statement/Prospectus in Section 8.8 below. 8.8 Registration Statement and Proxy Statement. (a) Summa and Calnetics shall cooperate in preparing the Registration Statement (including any amendments or supplements thereto) and the Joint Proxy Statement/Prospectus to be included therein and each shall furnish to the other for inclusion therein all such information relating to it as the other party or its counsel reasonably requests. Summa shall file the Registration Statement with the Commission promptly after completion, and Summa and Calnetics shall use all reasonable efforts to respond to any comments of the Commission staff and to have the Registration Statement declared effective as promptly as practicable and, thereafter, to maintain such effectiveness through the Effective Time. Summa agrees to provide to Calnetics the opportunity to review and comment on the Registration Statement, each amendment or supplement to the Registration Statement, each responsive correspondence to be sent to the Commission, and each form of the Joint Proxy Statement/Prospectus within a reasonable time before filing, and agrees not to file any such documents without Calnetics' consent. Summa shall (i) include in the Registration Statement and each amendment and supplement information relating to Calnetics, its business and financial condition only as authorized by Calnetics, and (ii) promptly provide to Calnetics Page 65 of 77 32 copies of all correspondence received from the Commission with respect to the Registration Statement and its amendments or supplements and copies of all responsive correspondence to the Commission. Summa agrees to notify Calnetics of any stop orders or threatened stop orders with respect to the Registration Statement. The Joint Proxy Statement/Prospectus may be filed with the Commission as confidential preliminary proxy material under Regulation 14A of the Exchange Act. (b) Calnetics and Summa shall not furnish to their respective shareholders any proxy materials relating to this Agreement or the Merger until the Registration Statement has become effective. Calnetics and Summa each shall mail to its shareholders (i) as promptly as practicable after the Registration Statement becomes effective, the Joint Proxy Statement/Prospectus (the date of such mailing hereinafter being referred to as the "Mailing Date"), (ii) as promptly as practicable after receipt thereof, any supplemental or amended Joint Proxy Statement/Prospectus, and (iii) such other supplementary proxy materials as may be necessary, in light of the circumstances arising after the mailing of the Joint Proxy Statement/Prospectus, to make the Joint Proxy Statement/Prospectus, as theretofore supplemented or amended, complete and correct. The Joint Proxy Statement/Prospectus and all amendments and supplements thereto shall comply with applicable law and shall be in form and substance satisfactory to Summa and Calnetics. (c) Summa and Calnetics each shall advise the other if, at any time before the effective date of the Registration Statement, the date of the special meeting of Calnetics Shareholders to be held pursuant to Section 8.6 hereof, the date of the special meeting of Summa Shareholders to be held pursuant to Section 8.7 hereof, or the Effective Time, the Registration Statement or the Joint Proxy Statement/Prospectus contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements contained therein, in the light of the circumstances under which they were made, not misleading. In such event, Summa or Calnetics, as the case may be, shall provide the other with the information needed to correct such misstatement or omission. 8.9 Fairness Opinions. Each party hereto may, but shall not be obligated to, obtain on or before March 31, 1997 (with a written update to be received on or before the mailing date of the Joint Proxy Statement/Prospectus), at its sole cost and expense, a third-party opinion as to the fairness of the transactions contemplated hereby from a financial point of view to the shareholders of the party obtaining such opinion. Should such opinion not be reasonably acceptable to the party obtaining it, such party may terminate the transactions contemplated hereby without further liability or obligation to the other except as provided in Section 13.2 hereof. 8.10 Tax Opinion. Calnetics may, but shall not be obligated to, obtain on or before March 31, 1997 (with a written update to be received on or before the Effective Date), at its sole cost and expense, a favorable tax opinion of its counsel, Gibson, Dunn & Crutcher LLP. Should such opinion not be reasonably acceptable to Calnetics, Calnetics may terminate the transactions contemplated hereby without further liability or obligation to Summa except Page 66 of 77 33 as provided in Section 13.2 hereof. 8.11 No Equitable Conversion. Prior to the Effective Time, neither the execution of this Agreement nor the performance of any provision contained herein shall cause either Summa, on the one hand, or Calnetics, on the other hand, to be or become liable for or in respect of the operations or business of the other, for the cost of any labor or materials furnished to or purchased by the other, for compliance with any laws, requirements or regulations of, or taxes, assessments or other charges now or hereafter due to, any governmental authority, or for any other charges or expenses whatsoever pertaining to the conduct of the business or the ownership, title, possession, use or occupancy of the property of the other. 8.12 Standstill Agreements. (a) Prior to the Effective Time, unless this Agreement is sooner terminated as expressly provided herein, neither party shall initiate, directly or indirectly, any possible business combination, sale of assets or stock, or other transaction which is inconsistent with the transactions contemplated thereby. Notwithstanding the foregoing, either party may respond to third party inquiries subject to the provisions set forth in Section 13.1.8 hereof. (b) If this Agreement is terminated by either party, then for a period of two (2) full years from the date of such termination, neither party shall, directly or indirectly, except as may expressly be permitted in writing by the other party: (i) acquire or agree, offer, seek or propose to acquire, or cause to be acquired, ownership of any of the assets or businesses or voting securities of the other party, or any other rights or options to acquire any such ownership (including from a third party); (ii) seek or propose to influence or control the management or policies of the other party; or (iii) enter into any discussions, negotiations, arrangements or understandings with any third party with respect to any of the foregoing. 9. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The respective obligations of the parties hereto to consummate the transactions contemplated hereby shall be subject to the fulfillment, at or prior to the Effective Date, of the following conditions: 9.1 Regulatory Approvals. There shall have been obtained any and all permits, approvals and qualifications of, and there shall have been made or completed all filings, proceedings and waiting periods, required by any governmental body, agency or regulatory authority which, in the reasonable opinion of counsel to the parties, are required for the consummation of the transactions contemplated hereby. 9.2 No Action or Proceeding. No claim, action, suit, investigation or other proceeding shall be pending or threatened before any court or governmental agency, and no statute, rule or regulation shall have enacted or entered by a governmental body of competent jurisdiction, which presents a substantial risk of the restraint or prohibition of the transactions Page 67 of 77 34 contemplated by this Agreement or the obtaining of material damages or other relief in connection therewith. 9.3 Tax Matters. Nothing shall have come to the attention of either party which has led such party reasonably to believe that the Merger will not qualify as a tax-free reorganization under Section 368 of the Code. 9.4 Dissenters' Rights. The number of shares of either Calnetics Common Stock or Summa Common Stock which constitute "Perfected Dissenting Shares" as defined in Section 3.4 hereof does not exceed five percent (5%) of the total number of shares of Calnetics Common Stock or Summa Common Stock, as the case may be, outstanding on the respective record dates of the meetings of the Calnetics Shareholders and the Summa Shareholders referred to in Sections 4.1 and 4.2. 10. CONDITIONS PRECEDENT TO OBLIGATIONS OF SUMMA AND SUBSIDIARY. The obligation of each of Summa and Subsidiary to consummate the Merger is expressly subject to the satisfaction, on or before the Effective Date, of each of the further conditions set forth below, any or all of which may be waived by Summa in whole or in part without prior notice; provided, however, that no such waiver of a condition shall constitute a waiver by Summa or Subsidiary of any other condition or of any of its rights or remedies, at law or in equity, if Calnetics shall be in default or breach any of the representations, warranties or covenants of Calnetics under this Agreement: 10.1 Shareholder Approvals. The Summa Shareholders and the Calnetics Shareholders shall have approved by the requisite vote the adoption of this Agreement and the transactions contemplated hereby. 10.2 Proceedings. All corporate and other proceedings taken or to be taken by Calnetics or any governmental authority in connection with the transactions contemplated hereby to be consummated at the Effective Date and all documents incident thereto or required to be delivered prior or at closing will be reasonably satisfactory in form and substance to Summa and its counsel as may be required to consummate the transactions contemplated hereby. 10.3 Performance of Agreement; Accuracy of Representations and Warranties. Calnetics shall have performed in all material respects the agreements and covenants required to be performed by Calnetics under this Agreement prior to or on the Effective Date, there shall have been no material adverse change in the condition (financial or otherwise), assets, liabilities, earnings or business of Calnetics since the date hereof, and the representations and warranties of Calnetics contained herein shall, except as contemplated or permitted by this Agreement or as qualified in a writing dated as of the Effective Date and delivered by Calnetics to Summa with the approval of Summa indicated thereon (which writing is to be Page 68 of 77 35 attached hereto as Exhibit H), be true in all material respects on and as of the Effective Date as if made on and as of such date, and Summa shall have received a certificate, dated as of the Effective Date, signed by the President and Chief Financial Officer of Calnetics, on behalf of Calnetics, reasonably satisfactory to Summa and its counsel, to such effect. 10.4 Opinion of Counsel of Calnetics Summa and its counsel shall have received an opinion dated as of the Effective Date from Gibson, Dunn & Crutcher LLP, counsel to Calnetics, in form and substance reasonably satisfactory to Summa and its counsel, substantially to the effect that: 10.4.1 Calnetics is a duly incorporated and validly existing corporation in good standing under the laws of California, and has the corporate power to enter into this Agreement and consummate the transactions herein; 10.4.2 This Agreement and the Agreement of Merger have been duly authorized, executed and delivered by Calnetics and each constitutes the legal, valid and binding obligation of Calnetics, except as the same may be limited by bankruptcy, insolvency or other similar laws relating to or affecting the enforcement of creditors' rights or by general principles of equity, whether considered in a proceeding at law or in equity; 10.4.3 To the best of such counsel's Knowledge, to the extent that the approval or consent of any governmental agency or body is required for the legal and valid execution and delivery of this Agreement or the performance of any obligation of Calnetics under any provision hereof, such consent has been validly procured; and 10.4.4 Neither the execution of this Agreement nor the performance by Calnetics of any of its obligations hereunder will violate the Certificate of Incorporation or the Bylaws of Calnetics. 10.5 Accuracy of Information in Joint Proxy Statement/Prospectus. None of the information which shall have been furnished by or on behalf of Calnetics or its management for inclusion in the Joint Proxy Statement/Prospectus shall 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. 10.6 Exchange of Calnetics Options. Each holder of outstanding Options shall have entered into a written agreement with Calnetics to surrender for cancellation all such Options owned beneficially and of record by such holder effective as of the Effective Time on terms and conditions set forth therein, in consideration of the execution by each such holder of a standard Summa "incentive" or "nonstatutory" stock option agreement, as the case may be (the form of each of which has been provided to Calnetics prior to the execution and delivery hereof), with Summa effective as of the Effective Time, pursuant to which such holders would be entitled to purchase shares of Summa Common Stock on the basis set forth in Section Page 69 of 77 36 3.1.2 above. 10.7 Fairness Opinion. If a "fairness opinion" has been provided to the Board of Directors of Summa as provided in Section 8.9 hereof, such opinion subsequently shall not have been withdrawn. 10.8 Consents. Calnetics shall have been obtained any and all approvals, consents or authorizations of third parties which, in the opinion of counsel Summa, are reasonably required for the consummation of the transactions contemplated hereby. 11. CONDITIONS PRECEDENT TO CALNETICS' OBLIGATIONS. Calnetics' obligation to consummate the Merger is expressly subject to the satisfaction, on or before the Effective Date, of each of the further conditions set forth below, any or all of which may be waived by Calnetics in whole or in part without prior notice; provided, however, that no such waiver of a condition shall constitute a waiver by Calnetics of any other condition or of any of its rights or remedies, at law or in equity, if Summa shall be in default or breach any of the representations, warranties or covenants of Summa under this Agreement: 11.1 Shareholder Approval. The Calnetics Shareholders and the Summa Shareholders shall have approved by the requisite vote the adoption of this Agreement and the transactions contemplated hereby. 11.2 Proceedings. All corporate and other proceedings taken or to be taken by Summa or any governmental authority in connection with the transactions contemplated hereby to be consummated at the Effective Date and all documents incident thereto or required to be delivered prior or at closing will be satisfactory in form and substance to Calnetics and its counsel (including but not limited to, the recordation of the Agreement of Merger) as may be required to consummate the transactions contemplated hereby. 11.3 Performance of Agreement; Accuracy of Representations and Warranties. Summa shall have performed the agreements and covenants required to be performed by Summa under this Agreement prior to or on the Effective Date, there shall have been no material adverse change in the condition (financial or otherwise), assets, liabilities, earnings or business of Summa since the date hereof, and the representations and warranties of Summa contained herein shall, except as contemplated or permitted by this Agreement or as qualified in a writing dated as of the Effective Date and delivered by Summa to Calnetics with the approval of Calnetics indicated thereon (which writing is to be attached hereto as Exhibit J), be true in all material respects on and as of the Effective Date as if made on and as of such date, and Calnetics shall have received a certificate, dated as of the Effective Date, signed by the President and Chief Financial Officer of Summa, on behalf of Summa, reasonably satisfactory to Calnetics and its counsel, to such effect. 11.4 Opinion of Counsel for Summa. Calnetics and its counsel shall have Page 70 of 77 37 received an opinion, dated as of the Effective Date, from Phillips & Haddan, counsel to Summa, in form and substance reasonably satisfactory to Calnetics and its counsel, substantially to the effect that: 11.4.1 Each of Summa and Subsidiary is a duly incorporated and validly existing corporation in good standing under the laws of California, and has the corporate power to enter into this Agreement and consummate the transactions herein; 11.4.2 This Agreement and the Agreement of Merger have been duly authorized, executed and delivered by Summa and each constitutes the legal, valid and binding obligation of each of Summa and Subsidiary, except as the same may be limited by bankruptcy, insolvency or other similar laws relating to or affecting the enforcement of creditors rights or by general principles of equity, whether considered in a proceeding at law or in equity; 11.4.3 The issuance of Summa Common Stock and Debentures to be issued as a consequence of the Merger (including all of the shares of Summa Common Stock issuable upon conversion of the Debentures and exercise of stock options exchanged as provided in Section 10.6 above) has been duly authorized by all necessary corporate action on the part of Summa; and that all of such shares of Summa Common Stock, when issued as a consequence of the Merger or upon conversion of the Debentures or exercise of stock options, as the case may be, as provided in this Agreement will be validly issued, fully paid and nonassessable under the laws of the State of California; 11.4.4 To the best of such counsel's Knowledge, to the extent that the approval or consent of any governmental agency or body is required for the legal and valid execution and delivery by Summa of this Agreement, the issuance of Summa Common Stock and Debentures, or the performance of any obligation of Summa or Subsidiary under any provision hereof, such consent has been validly procured; 11.4.5 Neither the execution of this Agreement or the performance by either Summa or Subsidiary of any of its obligations hereunder, will violate the Articles of Incorporation or the Bylaws of either Summa or Subsidiary; and 11.4.6 The Registration Statement has become effective under the Act and, to counsel's Knowledge, no stop order suspending its effectiveness has been issued and no proceedings for that purpose are pending before or are contemplated by the Commission. 11.5 Registration of Shares and Debentures. All shares of Summa Common Stock and Debentures issuable to Calnetics Shareholders as a consequence of the Merger (including all shares of Summa Common Stock issuable upon conversion of the Debentures and upon exercise of stock options exchanged as provided in Section 10.6 above) shall have been duly registered under the Securities Act pursuant to the provisions of Section 12 hereof, and such registration shall be effective and no stop order shall have been issued. Page 71 of 77 38 11.6 Accuracy of Information in Joint Proxy Statement/Prospectus. None of the information which shall have been furnished by or on behalf of Summa or its management for inclusion in the Joint Proxy Statement/Prospectus shall 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. 11.7 Composition of Summa's Board of Directors. Messrs. Clinton G. Gerlach, Fred E. Edward and Peter H. Griffith shall have been elected to the Board of Directors of Summa (one of whom shall be elected to each of the three classes of Summa directors), effective as of the Effective Time, to serve in such capacity from and after the Effective Time, along with Messrs. Swartwout and five other current members of Summa's Board of Directors to be designated in the Joint Proxy Statement/Prospectus, until changed in accordance with applicable law and the Articles of Incorporation and Bylaws of Summa. 11.8 Nasdaq Listing. The shares of Summa Common Stock to be issued to the Calnetics Shareholders in connection with the Merger shall have been listed on The Nasdaq National Market. 11.9 Consents. Summa shall have been obtained any and all approvals, consents or authorizations of third parties which, in the opinion of counsel Calnetics, are reasonably required for the consummation of the transactions contemplated hereby. 11.10 Fairness Opinion; Tax Opinion. If a "fairness opinion" has been provided to the Board of Directors of Calnetics as provided in Section 8.9 hereof, such opinion subsequently shall not have been withdrawn. If a "tax opinion" has been provided to the Board of Directors of Calnetics as provided in Section 8.10 hereof, the updated written opinion effective as of the Effective Date specified therein shall have been received. 11.11 Registration Rights Agreements. Summa shall have entered into a Registration Rights Agreement in the Form attached as Exhibit I hereto with each former shareholder of Calnetics who will receive shares of Summa Common Stock as a consequence of the Merger (including shares issuable upon conversion of Debentures and upon exercise of stock options) which, in the aggregate, will represent 10% or more of the number of shares of Summa's Common Stock outstanding immediately following the Merger. 12. REGISTRATION OF SHARES AND DEBENTURES. Summa shall use its best efforts, with the cooperation and participation of Calnetics as provided in Section 8.8 hereof, to cause all of the shares of Summa Common Stock and Debentures issuable to the Calnetics Shareholders as a consequence of the Merger (including the shares of Summa Common Stock issuable upon conversion of the Debentures and upon exercise of options exchanged as provided in Section 10.6 above) to be duly registered under the Securities Act, and qualified under the Blue Sky laws of each state with Page 72 of 77 39 jurisdiction over the transaction, as same may be required. Such registration under the Securities Act shall be effected pursuant to the Registration Statement which shall become and remain effective under the Securities Act prior to or as of the Effective Date, and shall remain effective thereafter as to the shares of Summa Common Stock issuable upon conversion of the Debentures and upon exercise of options exchanged as provided in Section 10.6 above for not less than the respective terms of the Debentures and the options. In the case of those Calnetics Shareholders who are not or do not become "Affiliates," as that term is defined in Rule 405, the shares of Summa Common Stock to be received by them as a consequence of the Merger will not require further registration. As provided in Section 11.8 hereof, Summa shall take all necessary actions to obtain the listing of the Summa Common Stock to be issued in connection with the Merger (including the shares issuable upon conversion of the Debentures and upon exercise of the options exchanged as provided in Section 10.6 above) on The Nasdaq National Market. 13. TERMINATION, AMENDMENT AND WAIVER. 13.1 Termination. This Agreement may be terminated at any time prior to the Effective Date, whether before or after approval by either or both of the Summa Shareholders or the Calnetics Shareholders: 13.1.1 By mutual written consent of Calnetics and Summa; 13.1.2 Unilaterally by either Calnetics or Summa at any time on or before April 30, 1997, if as a result of its due diligence the terminating party has determined, in its sole discretion, not to proceed with the transactions contemplated hereby; 13.1.3 By either Calnetics or Summa, if the Merger shall not have been consummated on or before August 31,1997 (the "Termination Date"), except that the right to terminate under this Section 13.1.2 shall not be available to any party whose failure to perform any covenant herein or satisfy any condition hereof within the reasonable control of such party has been the proximate cause of or resulted in the failure of the Merger to be consummated on or before the Termination Date; 13.1.4 Unilaterally by either Calnetics or Summa (i) if the other fails to perform any covenant in any material respect in this Agreement, unless the failure is capable of being and has been cured in all material respects within 30 business days after the terminating party has delivered written notice of the alleged failure, or (ii) if any condition to the obligations of that party is not satisfied (other than by reason of a breach by that party of its obligations hereunder), and it reasonably appears that the condition cannot be satisfied prior to the Termination Date, unless the party has earlier waived such condition; 13.1.5 By either Calnetics or Summa if any of the conditions to such party's performance remain unsatisfied for a period of 40 days after the Commission shall have indicated its willingness to accelerate the effectiveness of the Registration Statement to be Page 73 of 77 40 filed by Summa as provided in Section 12 hereof; 13.1.6 By either party as provided in Section 8.9 hereof; 13.1.7 By Calnetics as provided in Section 8.10 hereof; and 13.1.8 By either party, upon the payment by the terminating party to the other of the sum of $500,000 should the Board of Directors of such party determine to enter into an inconsistent transaction with a third party. 13.2 Effect of Termination. In the event of termination of this Agreement by either Summa or Calnetics as provided in Section 13.1, this Agreement shall forthwith become void and there shall be no further obligation on the part of either Calnetics or Summa, or their respective officers or directors (except as set forth in this Section 13.2 and in Sections 8.1, 8.9, 8.10, 12.3, 13.1.8, 14.8, 14.9 and 14.10 which shall survive the termination); provided, however, that if either party hereto willfully fails to perform its obligations hereunder or willfully neglects to perform acts that are necessary to the fulfillment of conditions set forth herein or willfully prevents the fulfillment of a condition set forth herein, the other party may seek any available legal and equitable remedies in addition to those provided herein. 13.3 Amendment. This Agreement may not be amended or modified except by an instrument in writing signed on behalf of each of the parties hereto and in compliance with applicable law. 13.4 Waiver. At any time prior to the Effective Time, the parties hereto may (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant thereto, and (iii) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. 14. MISCELLANEOUS. 14.1 Other Documents. Each of the parties hereto shall execute and deliver such other and further documents and instruments, and take such other and further actions, as may be reasonably requested of them for the implementation and consummation of this Agreement and the transactions herein contemplated. 14.2 Parties in Interest. This Agreement shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns, but shall not confer, expressly or by implication, any rights or remedies upon any other party. 14.3 Governing Law. This Agreement is made and shall be governed in all respects, including validity, interpretation and effect, by the laws of the State of California. Page 74 of 77 41 14.4 Notices. All notices, requests or demands and other communications hereunder must be in writing and shall be deemed to have been duly given if personally delivered or 48 hours after mailing, postage prepaid, to the parties as follows: (a) If to Calnetics, to: Clinton G. Gerlach Calnetics Corporation 20401 Prairie Street Chatsworth, California 91311 With copies to: Robert E. Dean, Esq. Gibson, Dunn & Crutcher LLP 4 Park Plaza Irvine, California 92614 (b) If to Summa, to: James R. Swartwout Summa Industries 21250 Hawthorne Boulevard, Suite 500 Torrance, California 90503 With copies to: Michael J. Connell, Esq. Morrison & Foerster LLP 555 West Fifth Street, Suite 3500 Los Angeles, California 90013-1024 Any party hereto may change its address by written notice to the other party given in accordance with this Section 14.4. 14.5 Entire Agreement. This Agreement, together with the Agreement of Page 75 of 77 42 Merger and each of the other exhibits and schedules attached hereto, contains the entire agreement between the parties and supersedes all prior agreements, understandings and writings between the parties with respect to the subject matter hereof. Each party hereto acknowledges that no representations, inducements, promises or agreements, oral or otherwise, have been made by any party, or anyone acting with authority on behalf of any party, which are not embodied herein or in the Agreement of Merger or in an exhibit or schedule hereto, and that no other agreement, statement or promise may be relied upon or shall be valid or binding. 14.6 Headings. The captions and headings used herein are for convenience only and shall not be construed as a part of this Agreement. In this Agreement, the term "including" and terms of similar import shall mean "including without limitation" unless the context requires otherwise. 14.7 Attorneys' Fees. In the event of any litigation between Calnetics and Summa, the non-prevailing party shall pay the reasonable expenses, including the attorneys' fees, of the prevailing party in connection therewith. 14.8 Expenses. Except as otherwise expressly provided hereunder, each party hereto agrees to pay all of its own expenses and to save the other party harmless against liability for the payment of any such expenses arising in connection with the negotiation, execution and consummation of the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, all registration and filing fees, fees and disbursements of counsel for Summa, expenses of any audits of Summa incident to or required by any such registration and expenses of Summa's proxy solicitation and expenses of complying with the securities or blue sky laws of any jurisdictions pursuant to Section 12 hereof shall be borne and paid by Summa at Summa's sole cost and expense. One-half of the expenses of printing the Joint Proxy Statement/Prospectus, all expenses of distributing the Joint Proxy Statement/Prospectus to and soliciting proxies from the Calnetics Shareholders, all fees and disbursements of counsel for Calnetics, and the expenses of any audits of Calnetics incident to or required by any such registration, shall be borne and paid by Calnetics at Calnetics' sole cost and expense. 14.9 Public Announcements. If any disclosure relating hereto is believed by either party to be required under applicable securities laws, the other party shall be given advance notice of such disclosure. Both parties shall review in advance any proposed public announcement with respect to the transactions contemplated herein. 14.10 Survival. The representations and warranties of the parties contained herein and in any other document or instrument delivered pursuant hereto shall survive any investigations made by or on behalf of any other party made prior to the Effective Time, but shall not survive beyond the Effective Time. Nothing contained in this Section 14.10 shall in any way affect any obligations of any party under this Agreement that are to be performed, in whole or in part, after the Effective Date, nor shall it prevent or preclude any party from Page 76 of 77 43 pursuing any and all available remedies at law or in equity for actual fraud against any party or parties guilty of such fraud. 14.11 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which taken together shall constitute but one and the same document. 14.12 Assignment. Neither this Agreement, the Agreement of Merger nor any of the rights, interests or obligations hereunder or thereunder may be assigned by either party without the prior written consent of the other party. IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the day and year first above written. SUMMA INDUSTRIES CALNETICS CORPORATION By: /s/ James R. Swartwout By: /s/ Clinton G. Gerlach ---------------------------- ----------------------------- James R. Swartwout Clinton G. Gerlach Chief Executive Officer Chief Executive Officer By signing below, each shareholder who owns or has voting control over 10% or more of the Common Stock of Calnetics outstanding as of the date hereof agrees, subject to the terms and conditions of the foregoing Agreement, to vote, or cause to be voted, in favor of this Agreement and the Merger, all of such shares held of record or beneficially by such shareholder as of the record date for the special meeting of Calnetics Shareholders referred to in Section 8.6 above: GERLACH HOLDING CORPORATION By: /s/ Clinton G. Gerlach ------------------------------ President Page 77 of 77 EX-27.1 7 FINANCIAL DATA SCHEDULE
5 9-MOS JUN-30-1997 JUL-01-1996 MAR-31-1997 1,296,544 0 6,102,695 318,385 5,321,585 12,953,065 8,204,930 3,931,711 18,745,106 4,293,163 4,182,659 0 0 2,554,377 7,714,907 18,745,106 26,293,369 26,293,369 19,371,380 23,760,035 0 29,864 250,989 2,252,481 948,000 0 0 0 0 1,304,481 .42 .42
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