SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31, 1997 Commission File Number
333-34585
JORDAN TELECOMMUNICATION PRODUCTS, INC.
(Exact name of registrant as specified in charter)
Delaware 36-4173125
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ArborLake Centre, Suite 550 60015
1751 Lake Cook Road (Zip Code)
Deerfield, Illinois
(Address of Principal Executive Offices)
Registrant's telephone number, including area code:
(847) 945-5591
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
None N/A
Securities registered pursuant to Section 12(g) of the Act:
None
Indicated by checkmark 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 twelve (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 ninety (90) days.
Yes x No __________
The aggregate market value of voting stock held by non-affiliates of
the Registrant is not determinable as such shares were privately place and
there is currently no public market for such shares.
The number of shares outstanding of Registrant's Common Stock as of
March 30, 1998: 994,638.889.
<PAGE>
TABLE OF CONTENTS
PAGE
Part I
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security
Holders 14
Part II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 14
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 8. Financial Statements 23
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 51
Part III
Item 10. Directors and Executive Officers 52
Item 11. Executive Compensation 55
Item 12. Security Ownership of Certain Beneficial
Owners and Management 56
Item 13. Certain Relationships and Related Transactions 57
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
On Form 8-K 62
Signatures 63
<PAGE>
PART I
ITEM 1. BUSINESS
THE COMPANY
Jordan Telecommunication Products, Inc., incorporated in Delaware on
July 18, 1997 (collectively with its subsidiaries is herein after referred to
as the "Company"), is a leading worldwide designer, manufacturer and
distributor of products to niche markets within the rapidly growing
telecommunications and data communications industries.
Jordan Industries, the Company's management and the Jordan Group formed
the Company in connection with Jordan Industries' recapitalization and to
establish the Company as a stand-alone, industry-focused company (see Note 1
to the Company's consolidated financial statements). The Company and its
subsidiaries are included in Jordan Industries' consolidated financial
statements, and will continue to be part of the Jordan Industries
consolidated group for tax purposes until the redemption of the Company's
Junior Preferred Stock or until such time as the Company can no longer be
consolidated for federal income tax purposes.
The Company's principal executive offices are located at ArborLake
Centre, Suite 550, 1751 Lake Cook Road, Deerfield, Illinois 60015 and its
telephone number is (847) 945-5591.
BUSINESS
Business Segment Information
The Company operates in three business segments: infrastructure
products and equipment, custom cable assemblies and specialty wire and cable,
and electronic connectors and components. The percentages of the Company's
total net sales by segment in each of its last three fiscal years were as
follows:
1997 1996 1995
Infrastructure Products & Equipment 54% 57% 78%
Electronic Connectors and Components 18% 30% 22%
Custom Cable Assemblies and Specialty
Wire & Cable 28% 13% 0%
Total 100% 100% 100%
For additional segment information see Note 17 of the Notes to the
Consolidated Financial Statements.
Infrastructure Products and Equipment
The Infrastructure Products and Equipment segment consists of four
operating units: Dura-Line Corporation and subsidiaries ("Dura-Line"),
Viewsonics, Inc. and subsidiary ("Viewsonics"), Northern Technologies
Holdings, Inc. and subsidiary ("Northern"), and Engineered Endeavors, Inc.
("EEI").
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The businesses in this segment provide products and services for the
construction, expansion and maintenance of the "outside plant" portion of the
telecommunications infrastructure. The products cover a broad range of
applications, including: cable conduit, cable television transmission
equipment, power conditioning systems, and antenna support systems.
Cable Conduit
The Company, through Dura-Line, supplies specialized telecommunications
high-density polyethylene ("HDPE") conduit systems, used to install and
protect outside plant fiber optic cables, coaxial cables and other telephone,
data transmission and electrical cable systems. These conduit systems protect
network infrastructure cables from environmental or accidental physical
damage as well as facilitate and reduce the cost of cable installation and
maintenance. Dura-Line manufactures a wide variety of cable conduit products,
including special fire-resistant and expandable capacity conduit systems. The
majority of the Company's sales to the fiber optic and coaxial conduit market
are comprised of either patented or proprietary products. The Company's
patented SILICORE technology is a solid co-extruded polymer lubricant lining
that accounted for $93.1 million and $61.8 million in sales of cable conduit
products in 1997 and 1996, respectively. The low coefficient of friction
characteristics of SILCORE allows fiber optic and other cables to be easily
"pulled" or "blown" through the conduit, thus saving customers significant
time and money during installation, repair and upgrade procedures.
Dura-Line markets its products internationally through a direct sales
force and independent sales representatives. Dura-Line sells to local and
regional telecommunications companies, competitive access providers ("CAPs"),
competitive local exchange carriers ("CLECs"), the regional bell operating
companies ("ROBCs"), and cable television ("CATV") operators.
Dura-Line has cable conduit manufacturing operations in the United
States, Mexico, the United Kingdom, and China. Dura-Line also has
manufacturing joint ventures in the Czech Republic (70%), Spain (70%), Israel
(33.33%), India (50%, plus one share) and Malaysia (60%).
Cable Television Transmission and Connection Equipment
Through Viewsonics, the Company designs, manufactures and distributes
high-quality CATV splitters, amplifiers and patented electronic security
components. These devices, used to insure signal integrity, are attached to
the cable "drop line" at the home or business and connect the user's
television or other electronic equipment to the cable or satellite system.
Viewsonics provides products for use in the "head end" transmitters of Multi-
Channel Multi-Point Distribution Systems ("MMDS"), a wireless alternative to
cable television, which is currently being sold in Russia.
Viewsonics sells its products through a direct sales force to many of
the major CATV service providers and through distributors who supply smaller
CATV service providers.
Power Conditioning Systems
The Company, through Northern, supplies commercial power conditioning
and protection equipment for protecting sensitive equipment against sudden or
extreme increases in voltage or variable electrical power. Such power
"transients" can result from lightning, ground faults and public utility
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switching and can cause extensive damage to critical equipment. The majority
of Northern's sales are from power conditioning system products used to
protect equipment on individual towers and sites in Personal Communication
Systems ("PCS") and cellular phone networks. Northern also provides products
such as voltage regulators, grounding devices, uninterruptible power supplies
and isolation transformers for use in a wide variety of critical
communications, medical, and industrial applications. Northern's products
employ patented applications of silicone avalanche diode technology, which it
feels provides a faster response to voltage differentials.
Nearly 75% of Northern's sales are to PCS service providers. Northern
believes its customer base includes over half of the major PCS providers from
the first two Federal Trade Commission ("FTC") auctions of PCS licenses. In
1995, Northern signed a five-year contract to be the exclusive supplier of
power conditioning equipment to one of the largest PCS providers in the
United States.
Antenna Support Systems
On September 2, 1997, the Company purchased the assets of EEI, a
turnkey provider of antenna support systems for the wireless communications
industry. EEI designs complete structures, manufactures monopole antenna
mount platforms, custom bell and clock towers, and accessories. EEI also
distributes ancillary products used in the construction of cellular and PCS
towers.
Electronic Connectors and Components
The Electronic Connectors and Components segment consists of four
operating units: AIM Electronics Corporation ("AIM"), Cambridge Products
Corporation ("Cambridge"), Johnson Components, Inc. ("Johnson"), and Vitelec
Electronics Ltd ("Vitelec"), which is located in the United Kingdom. Through
these businesses, the Company designs, manufactures and distributes
worldwide, a broad range of electronic connectors, including radio frequency
("RF") and coaxial connectors, plugs, adapters, and electronic hardware, as
well as electronic network and security components. These products are used
in telecommunications, data communications, and other original equipment
manufacturing ("OEM") applications that require miniaturization and high
frequency ranges, such as wireless telecommunications.
Electronic connectors are devices that allow an electronic signal to
pass from one device to another. They are used to connect wires, cables,
printed circuit boards, flat cable and other electronic components to each
other and to related equipment. Connectors are found in virtually every
electronic product including computers, printers, modems, VCRs, radios,
medical instruments, cellular telephones and automobiles.
The Company sells its electronic connectors and components to
commercial and consumer electronic customers throughout the world, directly
and through a network of manufacturers' representatives and distributors. The
Company imports a variety of its connectors and components through AIM and
Vitelec and produces high-quality RF and coaxial connectors, specializing in
miniature and sub-miniature RF connectors, through its Johnson and Cambridge
operations.
<PAGE>
Custom Cable Assemblies and Specialty Wire and Cable
The Custom Cable Assemblies and Specialty Wire and Cable segment
consists of four operating units: Bond Holdings, Inc. ("Bond"), Diversified
Wire & Cable, Inc. ("Diversified"), LoDan West, Inc. ("LoDAN"), which was
acquired on May 30, 1997, and Telephone Services Holdings, Inc. ("TSI"),
which on October 31, 1997 acquired Telephone Services of Florida, Inc.
Through these businesses, the Company designs, engineers and manufacturers
custom cable assemblies for internetworking suppliers, OEMs and RBOCs for use
primarily in the data communications and telecommunications industries. The
Company also is a broad line provider and value-added reseller of wire and
cable and custom cable assemblies for local area networks ("LANs") and other
commercial networking applications.
Cable assemblies are found in a broad range of electronic equipment,
including computers and related peripherals, network bridges and routers,
telephone switching equipment, central switching offices and electrical
controls. These products are assembled from bulk, coaxial, fiber optic or
other cables and discrete wire and various electronic connectors that are
attached to one or more cable ends. The Company offers customers
sophisticated in-house product design and technical support capabilities,
including support teams that work closely with the customer through all
stages of product planning and production. The Company believes that its
close coordination with customers, adherence to strict quality control
standards and its investment in production facilities and equipment help it
attract and retain its broad customer base.
The Company has developed long-term relationships with a select group
of OEMs in the data processing and telecommunications industries to provide
custom cable assemblies. In addition, the Company is also a prime supplier to
RBOCs, CLECs and long distance carriers. The Company believes there is a
growing trend toward outsourcing, which is fueled by a growing trend among
high-technology companies to outsource their cable assembly needs to contract
manufacturers. These companies are particularly seeking to consolidate their
supplier base, reduce inventories and improve inventory management, reduce
component cost, increase flexibility, and improve component product quality
and technical support.
The Company distributes more than 2,600 different types of wire and
cable, including cable for the electrical, electronic, telecommunications and
data communications applications. The Company sells its wire and cable
products to end-users, installers and/or OEMs of data networking equipment,
including building contractors, industrial manufacturers and educational
institutions, among others.
Backlog
The Company's approximate backlog of unfilled orders at the dates
specified was as follows:
Backlog
(Dollars in
Year Ended December 31, 1997 thousands)
Infrastructure Products and Equipment $ 8,537
Electronic Connectors and Components 3,876
Custom Cable Assemblies and Specialty Wire and Cable 19,702
$32,115
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Backlog
(Dollars in
Year Ended December 31, 1996 thousands)
Infrastructure Products and Equipment $ 4,250
Electronic Connectors and Components 2,772
Custom Cable Assemblies and Specialty Wire and Cable 4,025
$11,047
The Company will ship substantially all of its 1997 year end backlog
during 1998.
Marketing and Support Services
The Company places a high priority on identifying and responding to its
customers' requirements on a timely basis. The Company employs a sales and
marketing strategy that utilizes a highly trained direct sales force and
approximately 2,800 distributors and independent manufacturing
representatives.
The Company emphasizes close coordination with its customers in the
design and development stages of its customers' products to create demand for
its products, facilitate long-term customer relationships and allow the
Company to introduce new products that meet the specialized needs of its
customers. The Company also continues to increase the scope of its domestic
and international marketing initiatives, training, sophisticated field
testing support and education of end-users.
The Company's sales representatives undergo continuous training within
their related product groupings to develop a high degree of technical
expertise. Sales personnel are compensated primarily on a commission basis.
The Company also markets its products through multi-lingual direct mailings
of brochures and catalogs and advertising in trade journals.
In addition, the Company emphasizes superior customer service as part
of its overall marketing strategy. For example, the Company is able to ship
most of its electronic connectors and components, and wire and cable products
within 24 hours of an order being placed. The Company has also combined the
customer support and sales services functions for certain of these products
to reduce the time and effort a customer must expend to place an order.
Manufacturing and International Operations
The Company currently operates 29 manufacturing and distribution
facilities in nine countries around the world. The Company's products are
manufactured and assembled at Company owned or leased facilities in the
United States, China, the Czech Republic, Mexico and the United Kingdom,
through manufacturing joint ventures in Spain, India, Malaysia and Israel,
and at the facilities of contract manufacturers in various countries
including Korea, Japan, Singapore and Taiwan. The Company derived
approximately $61.9 million, $35.6 million, and $30.1 million or 24.1%, 26.8%
and 30.9% of its total 1997, 1996 and 1995 net sales, respectively, from
customers located outside of the United States.
<PAGE>
The Company employs advanced manufacturing processes in order to
manufacture according to the highest quality standards. The Company
maintains this standard through continuous improvements to its production
processes and upgrades to its manufacturing equipment. Over two-thirds of
the Company's facilities are certified by the International Standards
Organization ("ISO") according to its 9000 series of quality standards, or
are in the process of obtaining certification.
The Company is subject to risks generally associated with international
operations, including price and exchange controls, limitations on foreign
ownership and other restrictive actions. As a result, fluctuations in
currency exchange rates may affect the Company's financial condition and
results of operations.
Employees and Labor Relations
As of December 31, 1997 the Company employed an aggregate of
approximately 1,953 employees, including approximately 565 full-time salaried
employees and approximately 1,388 full and part-time hourly employees.
Approximately 4% of the Company's employees are covered by a collective
bargaining agreement, which expires in 2000. The Company believes that its
relations with its employees are good.
Competition
The Company faces substantial competition from a large number of
distributors, suppliers and manufacturers, some of which are larger and have
greater financial resources, broader name recognition and lower costs than
the Company.
The Company's manufacturing operations encounter competition from both
domestically manufactured products and products manufactured outside the
United States. Except for the SILICORE polymer pipe products, certain of its
CATV components and its fiber optic connector technology, the Company's
products are generally not protected by viture of any proprietary rights such
as patents.
The cable conduit market is highly competitive. In the United States,
the Company faces competition from a wide range of companies including
national, international and regional suppliers of cable conduit. In addition
to other independent manufacturers of cable conduit, the Company's
competitors, especially outside of the United States, include manufacturers
that produce pipe and tubing for other uses, such as gas and water
transportation. Competition within the industry is based primarily on
quality, price, production capacity, field support, technical capabilities,
service and reputation.
The Company's custom cable assemblies encounter competition from
independent manufacturers of cable assemblies, connector manufacturers, and
offshore manufacturers, several of which are much larger and have greater
financial resources than the Company. Competition within the industry is
based on quality, production capacity, breadth of product line, engineering
support capability, price, local support capability, systems support and
financial strength.
<PAGE>
The electronic connector industry is highly fragmented, with more than
1,500 connector manufacturers competing worldwide. The Company generally
competes with several different suppliers in the various categories in which
it operates, including certain large national suppliers. The Company
competes in this market on the basis of quality, reliability, reputation,
customer service, delivery time and price.
Raw Materials; Suppliers
The Company purchases a wide variety of raw materials for manufacturing
its products. These raw materials include: plastic resins, such as HPDE, used
in manufacturing cable conduit and in molding connector bodies and inserts,
brass used in manufacturing RF connectors, copper alloys used for contacts
and precious metals, such as gold and palladium, used in plating. All raw
materials are generally readily available throughout the world and most are
purchased on the spot market from a variety of suppliers. The Company is not
dependent upon any one source for any of the raw materials used in
manufacturing its products. The prices at which the Company purchases most
of its raw materials are based upon market prices at the time of purchase.
The Company does not enter into contractual agreements with respect to most
of the raw materials it uses. However, the Company does have a contract with
its brass supplier that allows the Company to return to the supplier, as
scrap, up to 50% of the brass it purchases. As a result, the Company only
pays for the brass it actually uses. Many of the raw materials used by the
Company have historically been subject to price fluctuations. In most cases,
the Company is able to pass on to its customers significant price
fluctuations in the market prices of the raw materials used in its products,
although product price increases typically lag behind the actual increase in
raw material prices.
The Company's SILICORE technology includes a patented, solid co-
extruded polymer lubricant lining that uses a silicone-based lubricant which
is marketed and sold under the SILICORE trademark. The Company produces all
of the silicone-based lubricant used in the manufacture of its cable conduit
products.
The Company purchases the electronic connectors, components and
materials that it does not manufacture itself from a large number of
suppliers. The Company believes that the electronic connectors and
components and other materials it requires could be purchased from several
domestic and international sources. Thus, the Company should be able to
obtain replacement sources of supply in the event of the loss of any current
supplier. Although customers often require that materials produced by a
particular supplier be used in manufacturing their customized products, in
the event of the loss of any such supplier, the Company believes that
customers would be likely to qualify alternative suppliers or, if necessary,
redesign their products to accommodate materials from replacement suppliers.
However, no assurance can be given that the loss of a key supplier would not
have a material adverse effect on the Company.
Intellectual Property
The Company relies on a combination of patent, copyright, trademark and
trade secret laws and contractual agreements to protect its proprietary
technology and know how. The Company owns and uses trademarks and brandnames
to identify itself as a source of certain goods and services, including the
<PAGE>
DURA-LINE and SILICORE trademarks, both of which are registered in the United
States and various foreign countries, and the VIEWSONICS brandname, in which
the Company has common law rights. The Company's SILICORE technology
includes a patented solid co-extruded polymer lubricant lining that uses a
silicone-based lubricant which is marketed and sold under the SILICORE
trademark. There can be no assurance that the Company will be granted
additional patents or that the Company's patents either will be upheld as
valid if ever challenged or will prevent the development of competitive
products. The Company's U.S. patents expire between 2004 and 2010 and the
U.S. patent with respect to the SILICORE lubricant lining expires in 2007.
The Company has not sought foreign patents for most of its technologies,
including technologies which have been patented in the United States, such as
the SILICORE lubricant lining, which may adversely affect the Company's
ability to protect its technologies and products in foreign countries. The
Company protects its confidential, proprietary information as trade secrets.
Except for the SILICORE polymer pipe products, certain of the Company's
CATV components and its fiber optic connector technology, the Company's
products are generally not protected by virtue of any proprietary rights such
as patents. There can be no assurance that the steps taken by the Company to
protect its proprietary rights will be adequate to prevent misappropriation
of its technology and know-how or that the Company's competitors will not
independently develop technologies that are substantially equivalent to or
superior to the Company's technology. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent
as do the laws of the United States. In the Company's opinion, the loss of
any intellectual property asset, other than the DURA-LINE or SILICORE
trademarks, or the patent or manufacturing trade secrets covering the solid
co-extruded polymer lubricant lining used in connection with the SILICORE
technology, would not have a material adverse effect on the conduct of the
Company's business.
The Company is also subject to the risk of adverse claims and
litigation alleging infringement of the proprietary rights of others. From
time to time, the Company has received notice of infringement claims from
other parties. Although the Company does not believe it infringes the valid
proprietary rights of others, there can be no assurance against future
infringement claims by third parties with respect to the Company's current or
future products. The resolution of any such infringement claims may require
the Company to enter into license arrangements or result in protracted and
costly litigation, regardless of the merits of such claims.
Environmental
The Company is subject to numerous U.S. and foreign federal, state,
provincial, and local laws and regulations relating to the storage, handling,
emission and discharge of materials into the environment, including the U.S.
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), the Clean Water Act, the Clean Air Act, the Emergency Planning
and Community Right-To-Know Act and the Resource Conservation and Recovery
Act. Under CERCLA and analogous state laws, a current or previous owner or
operator of real property may be liable for the costs of removal or
remediaton of hazardous or toxic substances on, under, or in such property.
Such laws frequently impose cleanup liability regardless of whether the owner
or operator knew of or was responsible for the presence of such hazardous or
toxic substances and regardless of whether the release or disposal of such
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substances was legal at the time it occurred. Regulations of particular
significance to the Company's ongoing operations include those pertaining to
handling and disposal of solid and hazardous waste, discharge of process
wastewater and stormwater and release of hazardous chemicals. The Company
believes it is in substantial compliance with such laws and regulations.
The Company generally conducts a Phase I environmental survey on each
acquisition candidate prior to purchasing the company to assess the potential
for the presence of hazardous or toxic substances that may lead to cleanup
liability with respect to such properties. The Company does not currently
anticipate any material adverse effect on its results of operations,
financial condition or competitive position as a result of compliance with
federal, state, provincial, local or foreign environmental laws or
regulations. However, some risk of environmental liability and other costs
is inherent in the nature of the Company's business, and there can be no
assurance that material environmental costs will not arise. Moreover, it is
possible that future developments such as the obligation to investigate or
clean up hazardous or toxic substances at the Company's property for which
indemnification is not available, could lead to material costs of
environmental compliance and cleanup by the Company.
ITEM 2. PROPERTIES
Properties
The Company's headquarters is located in an approximately 31,700 square
foot office space in Deerfield, Illinois that is provided by Jordan
Industries pursuant to the Transition Agreement (See Note 11 to the
Consolidated Financial Statements and Item 13. "Certain Relationships and
Related Transactions").
The principal properties of the Company, the location, user/subsidiary,
primary use, square feet and ownership status thereof as of December 31,
1997, are set forth in the table below:
United States/ User/ Owned/
Locations Subsidiary Primary Use Square Feet Leased
Anaheim, CA Bond Manufacturing/
Administration 22,000 Leased
Fremont, CA Bond Manufacturing/
Administration 16,000 Leased
Newark, CA Bond Manufacturing/
Administration 30,000 Leased
San Carlos, CA LoDan Manufacturing/
Administration 22,500 Leased
San Carlos, CA LoDan Manufacturing 28,000 Leased
San Carlos, CA LoDan Manufacturing 13,500 Leased
Shasta Lake City, CA TSI Manufacturing/
Distribution 6,000 Leased
Windsor, CT Cambridge Manufacturing 9,000 Leased
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United States/ User/ Owned/
Locations Subsidiary Primary Use Square Feet Leased
Boca Raton, FL Viewsonics Administration/
Distribution
Research and
Development 14,500 Leased
Riverview, FL TSI Administration/
Manufacturing/
Distribution 75,000 Leased
Sunrise, FL AIM Manufacturing/
Administration/
Distribution 36,000 Leased
Tampa, FL TSI Manufacturing/
Distribution 20,000 Leased
Middlesboro, KY Dura-Line Manufacturing/
Administration 80,000 Owned
Belle Chasse, LA Engineered
Endeavors Distribution 105,000 Leased
Troy, MI Diversified Manufacturing/
Administration/
Distribution 40,000 Leased
Waseca, MN Johnson Manufacturing/ Sub-
Administration 70,000 leased
Sparks, NV Dura-Line Manufacturing 35,000 Owned
Mentor, OH (1) Engineered Manufacturing/
Endeavors Administration 48,000 Leased
Knoxville, TN Dura-Line Administration 10,000 Leased
Nashville, TN Diversified Distribution/
Sales Office 7,100 Leased
Austin, TX Bond Manufacturing/
Administration 13,000 Leased
Grand Prairie, TX TSI Manufacturing/
Distribution 15,000 Leased
Liberty Lake, WA (2) Northern Manufacturing/
Administration 27,000 Leased
International
Locations
Shanghai, China Dura-Line Manufacturing/
Administration 52,000 Leased
Shanghai, China Dura-Line Sales Office/
Administration 1,000 Leased
Shanghai, China Viewsonics Manufacturing/
Administration 38,000 Leased
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International User/ Owned/
Locations Subsidiary Primary Use Square Feet Leased
Zlin, Czech Republic Dura-Line Manufacturing/
Administration 40,000 Owned
Paris, France Vitelec Sales Office 1,000 Leased
Goa, India Dura-Line Manufacturing/
Administration 48,000 Owned
New Delhi, India Dura-Line Administration/
Sales Office 2,000 Leased
Tel Aviv, Israel (3) Dura-Line Manufacturing/
Administration 10,000 Leased
Beranang, Malaysia Dura-Line Manufacturing/
Administration 64,000 Leased
Mexico City, Mexico Dura-Line Sales Office/
Administration 1,000 Leased
Queretaro, Mexico Dura-Line Manufacturing/
Administration 146,000 Leased
Ciudad Real, Spain Dura-Line Manufacturing 3,000 Leased
Bordon, United Kingdom Vitelec Distribution/
Administration/
Assembly 16,500 Owned
Grimsby, United
Kingdom Dura-Line Manufacturing/
Administration 28,000 Owned
(1) EEI rents its current facility from Timeless Enterprises, Inc., a
corporation owned by the former owners. The Company believes that the terms
are comparable to those which would have been obtained by the Company had
this lease been entered into with an unaffiliated third party.
(2) Northern's Liberty Lake, Washington facility is leased from a general
partnership consisting of the former owners. The Company believes that the
terms are comparable to those which would have been obtained by the Company had
this lease been entered into with an unaffiliated third party.
(3) This facility is leased by the joint venture in which the Company
participates.
The Company also has sales representatives in field offices in Florida,
Illinois, Ohio, Oregon, Virginia and internationally in Brazil, Bulgaria,
Germany, Malaysia, Romania, Russia and Slovakia.
The Company believes that its existing leased facilities are adequate for the
operations of the Company and its subsidiaries. The Company does not believe
that any single leased facility is material to its operations and that, if
necessary, it could readily obtain a replacement facility.
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ITEM 3. LEGAL PROCEEDINGS
Litigation
The Company is not a party to any pending legal proceeding the
resolution of which, the management of the Company believes, would have a
material adverse effect on the Company's financial condition or results of
operations, nor to any other pending legal proceedings other than ordinary,
routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fiscal year ended December 31, 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Company's Common
Stock. At December 31, 1997, there were 23 holders of record of the Company's
Common Stock.
The Company has not declared or paid any cash dividends on its capital
stock since its formation. The Company is not required to pay cash dividends
on its Senior Preferred Stock until November 1, 2002. The Company intends to
retain future earnings, if any, for use in its business and does not
anticipate paying any cash dividends in the foreseeable future on the Senior
Preferred Stock or on the Common Stock. In addition, the terms of the
Indenture's and Bank Credit Agreement limit the amount of cash dividends the
Company may pay with respect to the Senior Preferred Stock, the Common Stock
and other equity securities.
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On July 25, 1997, the Company issued and sold $190.0 million principal
amount of 9.875% Senior Notes due August 1, 2007 ("Senior Notes") and $120.0
million principal amount at maturity ($85,034 initial accreted value) of
11.75% Senior Discount Notes due August 1, 2007 ("Senior Discount Notes").
The Company also issued and sold $25.0 million of units, each consisting of
$1,000 liquidation preference of 13.25% Senior Preferred Stock due August 1,
2009 ("Senior Preferred Stock") and one share of Common Stock ("Common
Stock"). The principal initial purchasers were Jefferies & Company, Inc.,
Donaldson, Lufkin & Jenrette, and Smith Barney Inc. The aggregate offering
price for all the Securities was $298.5 million with underwriting discounts
of $7.4 million. The securities were sold in a transaction not registered
under the Securities Act in reliance upon the redemption provided in Section
4(2). The use of proceeds were as follows (in millions):
Acquisition of Telecommunications subsidiaries(1) $294.0
Fees and expenses 16.1
Excess cash 20.4
Total Uses $330.5
(1) Includes the assumption of $10.0 million of obligations of the
Telecommunications subsidiaries.
Following the consummation of the offerings, the excess cash was used to pay
a portion of the acquisition price of EEI.
On November 12, 1997, the Company entered into a registered exchange
offer for the above named securities. The Registration Statement on Form S4
(333-34585) was declared effective on that same date. The Company received no
proceeds from the exchange offer.
The Senior Notes bear interest at a rate of 9.875% per annum,
payable semi-annually in cash in arrears on February 1 and August 1 of each
year, commencing on February 1, 1998. The Senior Discount Notes will accrete
at a rate of 11.75%, compounded semi-annually, to par by August 1, 2000.
Commencing August 1, 2000, the Senior Discount Notes bear interest at a rate
of 11.75% per annum, payable semi-annually in cash in arrears on February 1
and August 1 of each year, commencing on February 1, 2001.
On July 21, 1997, the Company issued and sold an aggregate of 2,000
shares of Junior Preferred Stock to Jordan for $20.0 million and 959,639
shares of Common Stock to the Company's management and certain stockholders
of Jordan for approximately $1.9 million.
(this space intentionally left blank)
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial information (dollars in
thousands) derived from the Company's Consolidated Financial Statements.
For the Year Ended December 31,
1997 1996 1995 1994 1993
Operations Data: (1)
Net sales $257,010 $132,999 $96,969 $64,690 $56,166
Depreciation 5,451 4,071 2,621 1,807 1,553
Amortization 5,487 2,571 2,484 3,293 3,940
Stock appreciation rights
expense 15,871 3,411 1,097 1,239 513
Management fees and other 4,874 3,307 1,869 1,641 1,370
Operating income 13,258 13,323 14,886 8,388 9,131
Other income (expense):
Interest expense (25,749) (11,826) (6,555) (5,778) (4,619)
Interest income 486 152 156 4 7
Other income expense (5) (31) -0- -0- -0-
Income (loss) before income
taxes, minority interest and
extraordinary (loss) (12,000) 1,618 8,487 2,614 4,519
Provision (benefit) for
income taxes (1,676) 3,647 4,062 1,172 2,498
Income (loss) before
minority interest and
extraordinary (loss) (10,324) (2,029) 4,425 1,442 2,021
Minority interest (expense) (543) (548) (419) (57) 3
Income (loss) from
continuing operations before
extraordinary (loss) (10,867) (2,577) 4,006 1,385 2,024
Extraordinary (loss) (479) -0- -0- -0- -0-
Net income (loss) $(11,346) $(2,577) $4,006 $1,385 $2,024
Balance Sheet Data (at period
end): (1)
Cash and cash equivalents $ 8,988 $ 6,385 $ 2,798 $ 862 $ 372
Total assets 334,514 179,646 62,748 49,445 52,958
Long-term debt (less current
portion) 358,830 147,186 52,009 46,368 30,453
Preferred stock 43,490 1,875 1,875 2,695 3,047
Shareholders' equity (net
capital deficiency) $(130,059) $(11,379) $(11,216) $(15,163) $5,367
Notes to the selected financial data are as follows:
(1) The Company has acquired a diverse group of operating companies over the
five-year period, which significantly affects the comparability of the
information shown above. (See Note 1 to the Consolidated Financial
Statements).
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company has different performance and growth drivers for each of
its three business segments.
The Company's Infrastructure Products and Equipment segment is tied
closely to the infrastructure build-outs of the emerging countries in which
it has early market positions and to the infrastructure build-out of the
wireless and PCS networks. These build-outs are heavily dependent on the
market conditions and capabilities of these emerging countries and the
wireless and PCS providers themselves.
The growth and performance of the Company's Custom Cable Assembly and
Specialty Wire and Cable segment is dependent on the demand for its
customer's products and the premises wiring build-out. The Company feels it
has aligned itself with fast growing, telecommunications and
datacommunications leaders.
The Electronic Connector and Component segment operates in a very niche
oriented segment of the over-all connector market.
Management believes that it has positioned itself favorably in its
markets and reasonably anticipates its growth rates to equal or exceed those
of the respective markets in which it operates for at least the next 12
months. However, there can be no assurances that such a growth rate will be
sustained in the future.
A substantial portion of the Company's growth during the past two
years is the result of the acquisitions of nine of the Company's twelve
subsidiaries. The Company acquired Johnson in January 1996, Diversified in
June 1996, Viewsonics in August 1996, Vitelec in August 1996, Bond in
September 1996, Northern in December 1996, LoDan in May 1997, EEI in
September 1997 and TSI in October 1997. Each of these acquisitions has been
accounted for under the purchase method of accounting and is included in the
Company's consolidated financial statements from their respective dates of
acquisition. As a result of these acquisitions, the Company's consolidated
results for 1997, 1996 and 1995 are not directly comparable.
These acquisitions have had a significant impact on the Company's
results of operations and financial position. Results of operations have
been affected by increases in amortization of intangibles (including non-
competition agreements, which are typically amortized over a period of five
years, and goodwill), inventory costs, depreciation (resulting from purchase
accounting adjustments), interest expense, and deferred financing and
prepayment fees.
<PAGE>
The following table is a summary of net sales, operating income and net
income (loss) for the periods ended December 31, 1997, 1996 and 1995,
respectively:
1997 1996 1995
Net sales
Infrastructure Products and Equipment $139,789 $75,179 $76,033
Electronic Connectors and Components 45,041 40,275 20,936
Custom Cable Assemblies and Specialty
Wire & Cable 72,180 17,545 -0-
Total net sales $257,010 $132,999 $96,969
Operating Income
Infrastructure Products and Equipment $ 18,914 $ 7,650 $11,504
Electronic Connectors and Components 10,040 10,484 5,878
Custom Cable Assemblies and Specialty
Wire & Cable 5,279 824 -0-
Unallocated amounts:
Stock appreciation rights expense (15,871) (3,411) (1,097)
Management fees (2,964) (2,224) (1,399)
Corporate Expenses (2,140) -0- -0-
Total Operating Income $ 13,258 $13,323 $14,886
Net Income (loss) ($11,346) ($2,577) $ 4,006
Consolidated Results of Operations
Net sales in 1997 increased $124.0 million, or 93%, to $257.0 million
from $133.0 million in 1996. The increase in sales was due primarily to the
acquisition of Johnson, Diversified, Viewsonics, Vitelec, Bond, Northern,
LoDan, EEI and TSI, which were not owned for the full year 1996. Combined,
these acquisitions accounted for approximately 80% of the increase in net
sales. The balance of the sales increase was attributed to higher sales of
cable conduit, particularly international sales, due to the addition of new
manufacturing facilities in Mexico and China.
Net sales in 1996 increased $36.0 million, or 37%, to $133.0 million
from $97.0 million in 1995. The increase in sales was due primarily to the
1996 acquisitions of Johnson, Diversified, Viewsonics, Vitelec and Bond,
which contributed $41.9 million to 1996 net sales, partially offset by lower
sales of cable conduit of $5.9 million despite significant growth in the
Company's Czech Republic cable conduit market. The decrease in cable conduit
sales was driven largely by the Company's de-emphasis of its large duct
product line, which was sold only in the United Kingdom, and accounted for an
$8.4 million decrease in cable conduit sales. The Company also experienced
decreases in domestic cable conduit sales to large telecommunications service
providers (such as the Regional Bell Operating Companies "RBOCs") which had
slowed capital expenditure programs due to regulatory uncertainty prior to
the passage of The Telecommunications Act of 1996, which focused on
increasing competition with an emphasis on the local phone market. The
Company expects these cable conduit sales to improve as passage of the
Telecom Act diminished such regulatory uncertainty and has allowed new
service providers to enter the RBOCs' markets, providing a significant new
customer base and source of growth for the Company.
Operating income in 1997 was flat compared to 1996. Due primarily to a
$15.9 million Stock Appreciation Rights ("SAR") expense incurred in April
1997, which related to the Company's acquisition of Dura-line in 1988.
Excluding the effects of SAR expenses in 1997 and 1996, operating income in
<PAGE>
1997 would have increased $12.4 million to $29.1 million from $16.7 million
in 1996. This increase in operating income (excluding the SAR expenses) was
due to the acquisitions described above, which added $14.6 million in
operating income. Partially offsetting this increase was an increase in
management fees -- due to the new acquisitions, the addition of shared
general, administrative and overhead expenses of Jordan Industries, and the
Company's corporate expenses (see Item 13 "Certain Relationships and Related
Transactions").
Operating margins in 1997 decreased to 5% from 10% in 1996. Excluding
the SAR expenses, operating margins would have declined to 11.3% in 1997 from
12.6% in 1996. This decline is attributable to the increase in management
fees -- due to the new acquisitions, the addition of shared general,
administrative and overhead expenses of Jordan Industries, and the Company's
corporate expenses. In addition, the Company also incurred underabsorbed
overhead relating to its new China and Mexico facilities, international
market development costs not incurred in 1996, and lower operating margins at
AIM.
Operating income in 1996 decreased $1.6 million, or 11%, to $13.3
million from $14.9 million in 1995. The decrease is primarily attributable to
the increase in SAR expense of $2.3 million, which relates to the Company's
acquisition of AIM in 1989, and costs associated with the Company's
development of new overseas markets and its new facilities in Mexico and
China. Partially offsetting the decrease were the 1996 acquisitions, which
contributed $4.6 million to operating income in 1996, and higher cable
conduit product sales in Europe, which contributed $1.9 million to operating
income in 1996. Excluding AIM's SAR expense, operating income would have
increased $0.8 million in 1996, or 5%, from 1995.
Operating margins in 1996 decreased to 10% from 15% in 1995 due to the
increase in SAR expenses, lower operating margins of the acquired businesses,
which averaged 11% due to certain purchase accounting adjustments, and the
underabsorbed costs associated with the Company's development of new overseas
markets and its new facilities in Mexico and China.
Interest expense in 1997 increased $13.9 million to $25.8 million from
$11.8 million in 1996, reflecting higher interest costs relating to the
financing of new acquisitions and the Company's July 1997 debt and equity
offerings.
The Company had an income tax benefit in 1997 of $1.7 million compared
to a provision of $3.6 million in 1996 due to an increase in deferred tax
assets generated by an increase in book over tax depreciation and
amortization and US net operating loss carryforwards. For information
concerning the provision for income taxes, as well as information regarding
differences between effective tax rates and statutory rates, see Note 10 of
the Notes to the Consolidated Financial Statements.
Infrastructure Products and Equipment Segment
Net sales in 1997 increased $64.6 million, or 86%, to $139.8 million
from $75.2 million in 1996. The acquisitions of Viewsonics, Northern and EEI
accounted for approximately 61% of the increase. The balance is accounted for
by higher net sales of cable conduit, particularly international sales, due
to the Company's new manufacturing facilities in China and Mexico.
<PAGE>
Net sales in 1996 decreased $0.8 million, or 1%, to $75.2 million from
$76.0 million in 1995 due to lower sales of cable conduit products, which
were partly offset by the acquisition of Viewsonics.
Operating income in 1997 increased $11.2 million, or 145%, to $18.9
million from $7.7 million in 1996. The acquisitions of Northern and
Viewsonics, which were not owned a full year in 1996, and EEI, which was
acquired in September 1997, account for the majority of the increase.
Operating income in 1996 decreased $3.8 million, or 33%, to $7.7
million from $11.5 million in 1995. This decrease was due primarily to lower
cable conduit sales in the United States, the start-up of new cable conduit
manufacturing facilities in China and Mexico and international market
development costs not incurred in 1995. These decreases were partially
offset by higher operating income of $1.9 million from higher cable conduit
sales in Europe ($6.7 million increase to operating income at Dura-Line's
Czech Republic subsidiary, offset by a $4.8 million decrease to operating
income at Dura-Line's United Kingdom subsidiary). In addition, this segment
recorded a purchase accounting adjustment for the inventories acquired in its
acquisition of Viewsonics, which reduced operating profits by $1.9 million in
1996.
Electronic Connectors and Components Segment
Net sales in 1997 increased $4.7 million, or 12%, to $45.0 million from
$40.3 million in 1996. The majority of the increase is due to the acquisition
of Vitelec, which was not owned for full year in 1996 and higher net sales
from Johnson, which was acquired in January 1996. These increases were partly
offset by lower sales from AIM.
Net sales in 1996 increased $19.4 million, or 93%, to $40.3 million
from $20.9 million in 1995 due to the acquisitions of Johnson and Vitelec.
Operating income in 1997 decreased $0.5 million, or 5%, to $10.0
million from $10.5 million in 1996. This decrease was due to additional
operating income of $0.9 million from the acquisitions of Johnson and
Vitelec, which were not owned a full year in 1996, offset by a $1.4 million
decrease in operating income from AIM. Lower domestic sales and lower gross
profits negatively impacted AIM's operating income in 1997.
Operating income in 1996 increased $4.6 million, or 78%, to $10.5
million from $5.9 million in 1995 due to the acquisitions of Johnson and
Vitelec.
Custom Cable Assemblies and Specialty Wire and Cable Segment
Net sales in 1997 increased $54.6 million to $72.2 million from $17.5
million in 1996 due to the acquisitions of Diversified and Bond, which were
not owned for the full year in 1996, and LoDan and TSI, which were acquired
in 1997.
Net sales in 1996 were $17.5 million due to the acquisition of
Diversified, Bond and LoDan, which were not owned in 1995.
Operating income in 1997 increased $4.5 million to $5.3 million from
$.8 million in 1996. The acquisition of Bond and Diversified, which were not
<PAGE>
owned a full year in 1996, and LoDan and TSI, which were acquired at the end
of May 1997 and October 1997, respectively, account for the increase.
Operating income in 1996 was $0.8 million due to the acquisitions
discussed above.
Liquidity and Capital Resources
In general, the Company requires liquidity for working capital, capital
expenditures, interest, taxes, debt repayment and its acquisition strategy.
Of primary importance are the Company's working capital requirements, which
increase whenever the Company experiences strong incremental demand or
geographical expansion. The Company expects to satisfy its liquidity
requirements through a combination of funds generated from operating
activities and the funds available under its revolving line-of-credit
agreement.
Operating activities. Net cash used in operating activities for the
year ended December 31, 1997 was $1.3 million, compared to $6.3 million
provided from operating activities during the same period in 1996. The
increase in cash requirements was primarily the result of SAR expense
relating to the Company's acquisition of Dura-Line. In addition, the Company
required higher working capital to support its sales growth.
Investing activities. Capital expenditures were $3.3 million more for
the year ended December 31, 1997 than for the comparable period in 1996. The
majority of the expenditures have been made in the Infrastructure Products
and Equipment segment where the Company continues to pursue an aggressive
international expansion into the Czech Republic, China, Mexico, India,
Malaysia and Spain. The Company expects its capital investment in these
countries to be substantially complete in 1997 and, as a result, total
capital expenditures are expected to be 15 to 25 percent lower in 1998.
Acquisitions prior to July 25, 1997 were financed through proceeds
borrowed from Jordan Industries. The Company plans to fund future
acquisitions through its revolving line-of-credit agreement. In addition,
under the terms of its long-term debt, the Company is able to make
restrictive investments of up to $40.0 million.
Financing activities. The Company's annual cash interest expense on
the Senior Notes, which are due 2007, is approximately $18.8 million.
Interest on the Senior Notes is payable semi-annually on February 1 and
August 1 of each year, commencing February 1, 1998. Cash interest on the
Discount Notes, which are due 2007, is payable semi-annual beginning February
1, 2001. Dividends on the Company's Senior Preferred Stock accrue quarterly
each February 1, May 1, August 1, and November 1. Dividends may be paid, at
the Company's option, in cash or additional shares of Senior Preferred Stock
until August 1, 2002. The Company's credit agreement currently prohibits the
Company from paying cash dividends on the Senior Preferred Stock.
The Company is party to a Credit Agreement under which the Company is
able to borrow up to approximately $110.0 million to fund acquisitions and
provide working capital and for other general corporate purposes. The Credit
Agreement provides for a revolving line of credit of $110.0 million over a
term of five years and the agreement is secured by a first priority security
interest in substantially all of the Company's assets, including a pledge of
<PAGE>
all of the stock of the Company's subsidiaries. Payments of principal and
interest on amounts borrowed under the Credit Agreement are guaranteed by the
Company's subsidiaries. As of March 30, 1998, the Company has approximately
$21 million of available funds under this Agreement.
Funding requirements during fiscal 1998 include an additional purchase
price payment of approximately $1.4 million, relating to the acquisition of
Viewsonics in 1996, which was paid in January 1998; the Company's agreement
to repurchase for $1.9 million the preferred stock of Dura-Line, held by its
previous owner, which was paid in March 1998; and deferred SAR payments to
previous owners of AIM and Dura-Line of $3.4 million and $1.0 million,
respectively, in March and May of 1998. Also, see Note 12 of the Consolidated
Company's Financial Statements.
The Company expects its principal sources of liquidity to be from its
operating activities and funding from the revolving line-of-credit agreement.
The Company further expects that these sources will enable it to meet its
long-term cash requirements for working capital, capital expenditures,
interest, taxes, debt repayment, and future acquisitions for at least the
next 12 months.
Year 2000
In July 1996, the Emerging Issues Task Force of the Financial
Accounting Standards Board reached a consensus on Issue 96-14, Accounting for
the Costs Associated with Modifying Computer Software for the Year 2000,
which provides that costs associated with modifying computer software for the
Year 2000 be expensed as incurred. The Company is assessing the extent of
the necessary modifications to its computer software.
The Company is in the process of conducting a comprehensive review of its
computer systems to identify the systems that could be affected by the Year
2000 issue and is developing an implementation plan to resolve the issue. The
Year 2000 problem is the result of computer programs being written using two
digits (rather than four) to define the applicable year. Any of the
Company's programs that have time-sensitive software may recognize a date
using "00" as the Year 1900 rather than the Year 2000. This could result in
a system failure or miscalculations. Management has not yet assessed the
Year 2000 compliance expense and related potential affect on the Company's
earnings.
Foreign Currency Impact
The Company does not currently hedge its foreign currency exposure.
The Company's exposure to decreases in the value of foreign currency is
protected by its investment in manufacturing facilities overseas whose costs,
including labor and raw materials, are also denominated in local currency.
Decreases in the value of foreign currencies relative to the U.S. dollar have
not resulted in significant losses from foreign currency translation.
However, there can be no assurance that foreign currency fluctuations in the
future would not have an adverse effect on the Company's business, financial
condition and results of operations.
Seasonality and Inflation
The results of the Company's infrastructure products and equipment
business segment are adversely affected by winter in certain of the
geographic markets in which it operates. The effects of seasonality have
<PAGE>
been mitigated by the substantial growth in net sales from period to period
due to the Company's acquisitions.
The impact of inflation on the Company's operations has not been
significant to date. However, there can be no assurance that a high rate of
inflation in the future would not have an adverse effect on the Company's
operating results.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not applicable.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
PAGE NO.
Reports of Independent Auditors 25
Consolidated Balance Sheets as of
December 31, 1997 and 1996 28
Consolidated Statements of Operations
for the years ended December 31, 1997, 1996 and
1995 29
Consolidated Statements of Changes in
Shareholders' Equity (Net Capital Deficiency) for
the years ended December 31, 1997, 1996 and 1995 30
Consolidated Statements of Cash Flows for
the years ended December 31, 1997, 1996 and 1995 31
Notes to Consolidated Financial Statements 32
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Jordan Telecommunication Products, Inc.
We have audited the accompanying consolidated balance sheets of Jordan
Telecommunication Products, Inc. as of December 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity (net
capital deficiency), and cash flows for each of the three years in the period
ended December 31, 1997. Our audits also included the financial statement
schedule listed in the index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
schedule based on our audits. We did not audit the financial statements of
certain subsidiaries whose statements reflect total assets constituting 15%
and 35% as of December 31, 1997 and 1996, respectively, and net sales
constituting 21% and 13% for the years ended December 31, 1997 and 1996,
respectively, of the related consolidated totals. Those statements were
audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to data included for these subsidiaries, is
based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the reports
of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Jordan Telecommunication
Products, Inc. at December 31, 1997 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
Ernst & Young LLP
/s/ERNST & YOUNG LLP
Chicago, Illinois
February 20, 1998
<PAGE>
Independent Auditors' Report
Board of Directors
Diversified Wire & Cable, Inc.
Troy, Michigan
We have audited the balance sheets of Diversified Wire & Cable, Inc. as of
December 31, 1997 and 1996 and the related statements of operations, changes
in stockholders' equity and cash flows for the year ended December 31, 1997
and for the period June 25, 1996 (Commencement of Operations) through
December 31, 1996, respectively (not separately presented herein). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosure in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in
all material respects, the financial position of Diversified Wire & Cable,
Inc. as of December 31, 1997 and 1996, and the results of its operations, the
changes in stockholders' equity and its cash flows for the year ended
December 31, 1997 and for the period June 25, 1996 through December 31, 1996,
respectively, in conformity with generally accepted accounting principles.
Mellen, Smith & Pivoz, P.C.
/S/MELLEN, SMITH & PIVOZ, P.C.
Bingham Farms, Michigan
January 22, 1998
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders
Northern Technologies Holdings, Inc.
Deerfield, Illinois
We have audited the consolidated balance sheet of Northern Technologies
Holdings, Inc. as of December 31, 1997 and the related consolidated
statements of income, stockholder's equity, and cash flows for the year then
ended (not separately presented herein). These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosure in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Northern
Technologies Holdings, Inc. as of December 31, 1997, and the results of its
operations and cash flows for the year then ended in conformity with
generally accepted accounting principles.
McFarland & Alton P.S.
/S/MCFARLAND & ALTON P.S.
Spokane, Washington
January 21, 1998
<PAGE>
JORDAN TELECOMMUNICATION PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
December 31,
1997 1996
ASSETS
Current Assets:
Cash and cash equivalents $ 8,988 $ 6,385
Restricted Cash -0- 708
Accounts receivable, net of allowance of
$867 in 1997 and $501 in 1996 48,733 30,255
Inventories 41,815 25,750
Prepaid expenses and other current assets 2,956 4,830
Total Current Assets 102,492 67,928
Property, plant, and equipment, net 35,332 29,046
Goodwill, net 166,098 71,097
Deferred financing costs, net 9,781 -0-
Deferred income taxes 6,000 438
Other assets, net 14,811 11,137
Total Assets $334,514 $179,646
LIABILITIES AND SHAREHOLDERS' EQUITY (NET
CAPITAL DEFICIENCY)
Current Liabilities:
Accounts payable $ 18,803 $ 16,799
Accrued interest payable 8,236 -0-
Accrued expenses and other current liabilities 22,290 9,941
Due to affiliated company 2,531 6,794
Short-term notes payable 641 -0-
Current portion of long-term debt 1,197 1,855
Total Current Liabilities 53,698 35,389
Line of credit 68,000 -0-
Other long-term debt 290,830 5,806
Notes payable to affiliated company -0- 141,380
Other non-current liabilities 5,179 4,845
Minority interest 3,376 1,730
7% Dura-Line cumulative preferred stock at
liquidation value; 187.5 shares issued and
outstanding (Note 12) -0- 1,875
13.25% Senior Preferred Stock at liquidation
value; 25,889.3836 shares issued and outstanding
at December 31, 1997 (none at December 31, 1996) 26,413 -0-
Junior Preferred Stock at liquidation value;
2,000 shares issued and outstanding at December
31, 1997 (none at December 31, 1996) 17,077 -0-
Shareholders' Equity (Net Capital Deficiency):
Common Stock ($0.01 par value); 1,000,000
shares authorized; 994,639 shares issued
and outstanding at December 31, 1997
(none at December 31, 1996) 10 -0-
Additional paid-in capital 1,982 -0-
Notes receivable from shareholders (877) -0-
Cumulative foreign currency translation (488) 221
Retained earnings (Accumulated deficit) (130,686) (11,600)
Total Shareholders' Equity (Net
Capital Deficiency) (130,059) (11,379)
Total Liabilities and Shareholders' Equity
(Net Capital Deficiency) $334,514 $179,646
See accompanying notes to consolidated financial statements.
<PAGE>
JORDAN TELECOMMUNICATION PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS)
Year Ended December 31,
1997 1996 1995
Net sales $257,010 $132,999 $96,969
Cost of sales, excluding depreciation 163,926 82,870 61,601
Selling, general, and administrative
expenses 48,143 23,446 12,411
Depreciation 5,451 4,071 2,621
Amortization of goodwill and other
intangibles 5,487 2,571 2,484
Stock appreciation rights expense 15,871 3,411 1,097
Management fees and other 4,874 3,307 1,869
Operating income 13,258 13,323 14,886
Other (income) and expense:
Interest expense 25,749 11,826 6,555
Interest income (486) (152) (156)
Other (5) 31 -0-
Total other expenses 25,258 11,705 6,399
Income (loss) before income taxes, minority
Interest and extraordinary item (12,000) 1,618 8,487
Provision (benefit) for income taxes (1,676) 3,647 4,062
Income (loss) before minority interest and
Extraordinary item (10,324) (2,029) 4,425
Minority interest 543 548 419
Income (loss) before extraordinary item (10,867) (2,577) 4,006
Extraordinary item (Note 18) (479) -0- -0-
Net income (loss) (11,346) $(2,577) $ 4,006
See accompanying notes to consolidated financial statements.
<PAGE>
JORDAN TELECOMMUNICATION PRODUCTS, INC.
Consolidated Statements of Changes in Shareholders' Equity
(Net Capital Deficiency)
Years ended December 31, 1997, 1996, and 1995
(DOLLAR AMOUNTS IN THOUSANDS)
Notes Cumulative Retained
Common Additional Receivable Foreign Earnings
Stock Paid-in From Currency (Accumulated
Shares Amount Capital Shareholders Translation Deficit) Total
Equity of
Telecommunications
Companies at January 1,
1995 -0- $-0- $-0- $-0- $ (179) $(14,984) $(15,163)
Foreign currency
translation
adjustment -0- -0- -0- -0- (14) -0- (14)
Dividends declared on
Dura-Line preferred
stock -0- -0- -0- -0- -0- (45) (45)
Net income -0- -0- -0- -0- -0- 4,006 4,006
Balance at December 31,
1995 -0- -0- -0- -0- (193) (11,023) (11,216)
Foreign currency
translation
adjustment -0- -0- -0- -0- 414 -0- 414
Issuance of subsidiary
common stock in
connection with their
acquisition
by Jordan -0- -0- -0- -0- -0- 2,000 2,000
Net loss -0- -0- -0- -0- -0- (2,577) (2,577)
Balance at December 31,
1996 -0- -0- -0- -0- 221 (11,600) (11,379)
Initial capitalization
of the Company on July
21, 1997
(Note 9) 959,639 10 1,910 (877) -0- -0- 1,043
Issuance of common stock
in connection with the
sale of the Senior
Preferred Stock Units on
July 25, 1997
(Note 9) 25,000 -0- 52 -0- -0- -0- 52
Cost incurred in
connection with the sale
of Preferred
Stock Units -0- -0- -0- -0- -0- (6,208) (6,208)
Issuance of common stock
on July 25,
1997 10,000 -0- 20 -0- -0- -0- 20
Acquisition of the
Telecommunications
companies on July 25,
1997 (Note 1) -0- -0- -0- -0- -0- (102,990) (102,990)
Foreign currency
translation
adjustment -0- -0- -0- -0- (708) -0- (709)
Dividends
accrued on
Junior Preferred
Stock -0- -0- -0- -0- -0- 2,923 2,923
Dividends declared on
Senior Preferred
Stock -0- -0- -0- -0- -0- (1,465) (1,465)
Net loss -0- -0- -0- -0- -0- (11,346) (11,346)
Balance at December 31,
1997 994,639 $10 $1,982 $ (877) $ (488) $(130,686)$(130,059)
See accompanying notes to consolidated financial statements
<PAGE>
JORDAN TELECOMMUNICATION PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
Year Ended December 31,
1997 1996 1995
Cash flows from operating activities:
Net income (loss) $(11,346) $(2,577) $4,006
Adjustments to reconcile net income (loss) to net
Cash provided by operating activities:
Depreciation and amortization 10,938 6,642 5,105
Deferred income taxes (5,952) (1,188) (538)
Minority interest 1,346 548 419
Amortization of deferred financing fees 422 -0- -0-
Non-cash interest on Senior Notes and Senior
Subordinated Notes 12,630 -0- -0-
Changes in operating assets and liabilities
(net of effects from acquisitions):
Accounts receivable (10,337) 1,103 (3,182)
Inventories (4,717) 54 (2,475)
Prepaid expenses and other current assets (634) (943) (156)
Non-current assets (774) 287 (1,026)
Accounts payable, accrued interest payable, and
Accrued expenses and other (1,153) (4,607) 4,559
Non-current liabilities 1,652 3,285 1,366
Due to affiliated company 6,594 3,668 (115)
Other -0- 41 (7)
Net cash (used in) provided by
operating activities (1,331) 6,313 7,956
Cash flows from investing activities:
Capital expenditures (9,864) (6,523) (5,400)
Purchase of Telecommunications Companies from
Affiliated company (284,027) -0- -0-
Acquisitions of subsidiaries (110,153) -0- -0-
Cash acquired in acquisitions of
subsidiaries 1,650 1,244 -0-
Acquisition of Dura-Line common stock
and other (205) -0- (3,332)
Net cash used in investing activities (402,599) (5,279) (8,732)
Cash flows from financing activities:
Proceeds from debt issuance 273,546 -0- -0-
Proceeds from issuance of Preferred Stock 45,000 -0- -0-
Proceeds from issuance of Common Stock 1,063 -0- -0-
Payment of financing costs (16,093) -0- -0-
Net borrowings from line of credit 68,000 -0- -0-
Borrowings under other long-term debt
and capital lease agreements 8,515 857 1,466
Repayment of long-term debt & capital
leases (2,713) (1,698) (1,427)
Net borrowings from affiliated company 28,745 2,834 2,673
Other 300 250 -0-
Net cash provided by financing activities 406,363 2,243 2,712
Effect of exchange rate changes on cash 170 310 -0-
Net increase in cash and cash equivalents 2,603 3,587 1,936
Cash and cash equivalents at beginning of
period 6,385 2,798 862
Cash and cash equivalents at end of period $ 8,988 $6,385 $2,798
Cash paid during the period for:
Interest on third party borrowings $ 1,847 $1,198 $2,423
Interest on Notes Payable to Affiliated
Company $10,241 $11,063 $6,235
Income taxes $ 2,963 $ 2,103 $4,265
Non-cash investing activities:
Capital leases $ 246 $ 686 $3,867
Jordan acquisitions $ -0- $92,334 $ -0-
See accompanying notes to consolidated financial statements.
<PAGE>
JORDAN TELECOMMUNICATION PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
1. Formation of the Company and Acquisitions
Jordan Telecommunication Products, Inc. (the "Company") was
formed on July 21, 1997 by its management, the stockholders of Jordan
Industries, Inc. ("Jordan"), and certain of their affiliates in order
to combine a group of companies that are focused on the manufacture and
distribution of products for use in the rapidly growing
telecommunications industry. In connection with its initial
capitalization, the Company issued and sold 2,000 shares of Junior
Preferred Stock to Jordan for $20,000 and 959,639 shares of Common
Stock to the Company's management and certain stockholders of Jordan
for approximately $1,920 (Note 9).
Concurrent with the consummation of a debt and equity offering on
July 25, 1997 (Notes 8 and 9), JTP Industries, Inc., a wholly-owned
subsidiary of the Company, acquired the Telecommunications Companies
(comprised of Aim Electronics Corporation (Aim), Bond Holdings, Inc.
and Subsidiaries (Bond), Cambridge Products Corporation (Cambridge),
Diversified Wire & Cable, Inc. (Diversified), Dura-Line Corporation &
Subsidiaries (Dura-Line), Johnson Components, Inc. (Johnson), Jordan
Telecommunications Products Group, Inc. and Subsidiaries (JTPG), LoDan
West, Inc. (LoDan), Northern Technologies Holdings, Inc. and Subsidiary
(Northern), and Viewsonics, Inc. and Subsidiary (Viewsonics)) from
Jordan for aggregate consideration of $284,027, plus the assumption of
$10,000 of Telecommunications Companies' obligations at the date of the
acquisition. The acquisition was financed with a portion of the net
proceeds from the offering.
The Company and the Telecommunications Companies are under the
common control of Jordan. The consolidated financial statements give
retroactive effect to the acquisition of the Telecommunications
Companies, which has been accounted for in a manner similar to the
pooling-of-interests method. Accordingly, the net assets acquired from
Jordan were recorded at Jordan's book value and the results of
operations of the Company include the historical results of operations
of the Telecommunications Companies from their respective dates of
acquisition by Jordan. As a result of the acquisition, the Company
recorded a $102,990 charge to retained earnings in 1997. This amount
represents the $284,027 of cash payments to Jordan, less $181,037 in
Telecommunication Companies' liabilities owed to Jordan.
On May 30, 1997, Jordan purchased the assets of LoDan West, Inc.
(LoDan). The purchase price of $17,000, including estimated costs
incurred directly related to the transaction, was allocated to working
capital of $5,066, property, plant and equipment of $783,
noncompetition agreement of $250, noncurrent assets of $41, and
resulted in an excess purchase price over net identifiable assets of
$10,860. LoDan was one of the Telecommunications Companies that was
subsequently acquired by the Company on July 25, 1997.
On September 2, 1997, the Company purchased the assets of
Engineered Endeavors, Inc. (EEI). The purchase price of $41,500,
<PAGE>
including estimated costs incurred directly related to the transaction,
has been preliminarily allocated to working capital of $2,068,
property, plant, and equipment of $799, noncompetition agreement of
$2,500, noncurrent assets of $14, and resulted in an excess purchase
price over net identifiable assets of $36,119. The acquisition was
financed with $21,500 of cash and $20,000 of borrowings from the
Company's line of credit.
On October 31, 1997, the Company, through its newly formed 70%
owned subsidiary Telephone Services Holdings, Inc. (TSI), purchased the
stock of Telephone Services, Inc. The purchase price of $53,303,
including estimated costs incurred directly related to the transaction,
has been preliminarily allocated to working capital of $3,864,
property, plant and equipment of $1,528, non-compete agreement of
$2,000, and noncurrent assets of $107, resulting in an excess purchase
price over net identifiable assets of $ 45,804. The acquisition was
financed with $48,000 of borrowings from the Company's revolving credit
agreement and $5,000 of subordinated seller notes and the assumption of
a $303 deferred purchase agreement.
Certain sellers of TSI are entitled to additional payments for
their stock, contingent upon operating results as defined in the
purchase agreement. The maximum contingent consideration to be paid is
$4,000.
On January 23, 1996 Jordan purchased the net assets of Johnson.
The purchase price of $16,121, including cost incurred directly related
to the transaction, was allocated to working capital of $1,616,
property, plant and equipment of $4,660, and noncompete agreements of
$1,050, and resulted in an excess purchase price over net identifiable
assets of $8,795. The acquisition was financed with cash.
On June 25, 1996, Jordan purchased the stock of Diversified. The
purchase price of $17,044, including estimated costs incurred directly
related to the transaction, was allocated to working capital of $534,
property, plant and equipment of $607, noncompete agreements of $500,
other assets of $27, capital leases of $194, and resulted in an excess
purchase price over net identifiable assets of $15,570. The
acquisition was financed with cash and $1,500 subordinated seller note.
Immediately after Diversified was purchased by Jordan, Diversified sold
1,250 shares of its common stock to the former owners and current
members of Diversified management for $250.
Certain sellers of Diversified are entitled to additional
payments for their stock, contingent upon operating results as defined
in the purchase agreement. The maximum contingent consideration to be
paid is $3,200.
On August 1, 1996, Jordan purchased the net assets of Viewsonics.
The purchase price of $15,000, including cost incurred directly related
to the transaction, was allocated to working capital of $6,378,
property, plant and equipment of $446, and resulted in an excess
purchase price over net identifiable assets of $8,176. The acquisition
was financed with cash.
The former owner of Viewsonics is entitled to additional payments
for the net assets acquired by Jordan, contingent upon operating
<PAGE>
results as defined in the purchase agreement. The maximum contingent
consideration to be paid is $5,000.
On August 5, 1996, Jordan purchased the stock of Vitelec through
its wholly owned subsidiaries, JTPG and JTPGE. The purchase price of
$14,040, including estimated costs incurred directly related to the
transaction, was allocated to working capital of $962, property, plant
and equipment of $1,054, and resulted in an excess purchase price over
net identifiable assets of $12,024. The acquisition was financed with
cash.
On September 20, 1996, Jordan purchased Bond Technologies Group.
The purchase price of $8,629, including cost incurred directly related
to the transaction, was allocated to working capital of $2,099,
property, plant and equipment of $902, noncompete agreements of $800,
other assets of $54, debt assumed of $53, and resulted in an excess
purchase price over net identifiable assets of $4,827. The acquisition
was financed with cash.
The purchase price included cash balances that are restricted in
their use. The restricted balances, which total $708 as of December 31,
1996, were held in an escrow account with instructions that the
balances be paid to the previous owners of Bond's underlying companies
at a predetermined date if certain earnings levels were achieved. This
entire amount was paid to the sellers in 1997.
On December 31, 1996, Jordan purchased 100% of the stock of
Northern Technologies, Inc., through its wholly owned subsidiary,
Northern. The purchase price of $21,500, including estimated costs
incurred directly related to the transaction, was allocated to working
capital of $5,082, property, plant and equipment of $887, noncompete
agreements of $500, long-term assets of $234, long-term liabilities of
$188, and resulted in an excess purchase price over net identifiable
assets of $14,985. The acquisition was financed with cash.
Unaudited annual pro forma information with respect to the
Company as if the 1997 acquisitions had occurred on January 1, 1997 and
1996, respectively, and as if the 1996 acquisitions had occurred on
January 1, 1996 and January 1, 1995, respectively, are as follows:
(Unaudited)
Year Ended December 31,
1997 1996 1995
Net Sales $317,608 $259,173 $178,678
Income (loss) before income taxes
and minority interest (8,946) 3,563 11,370
Net Income (loss) (9,514) 638 7,013
The accompanying consolidated financial statements include the
accounts of Aim, Bond, Cambridge, Diversified, Dura-Line, EEI, Johnson,
JTPG, LoDan, Northern, TSI, and Viewsonics. The Company has a 100%
ownership interest in each of its direct and indirect subsidiaries,
except for Diversified (87.5% owned), TSI (70% owned), and certain
subsidiaries of Bond (51% - 80% owned).
See Note 17 on segment information for a description of the
Company's business segments.
<PAGE>
2. Significant Accounting Policies
Principles of Consolidation
The Company consolidates all majority-owned subsidiaries and
limited partnerships where the Company is the general partner with a
controlling interest. Investments in 20% to 50% owned affiliates are
accounted for using the equity method. All significant intercompany
balances and transactions have been eliminated in consolidation.
Reclassifications
Certain reclassifications have been made to prior years' financial
statements in order for them to conform to the 1997 presentation.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates.
Cash and Cash Equivalents
All highly liquid debt instruments purchased with an initial
maturity of three months or less are considered to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market.
Inventories are primarily valued at either average or first in, first
out ("FIFO") cost.
Depreciation and Amortization
Property, Plant, and Equipment
Depreciation and amortization of property, plant, and equipment is
calculated using estimated useful lives, or over the lives of the
underlying leases, if less, using straight-line or accelerated methods.
The useful lives of plant and equipment for the purpose of computing
book depreciation are as follows:
Machinery and equipment 3-10 years
Buildings and improvements 7-35 years
Furniture and fixtures 5-10 years
Goodwill
Goodwill is being amortized on the straight-line basis principally over
40 years. At December 31, 1997 and 1996, goodwill is net of
accumulated amortization of $5,465 and $2,715, respectively.
Foreign Currency Translation
In accordance with Statement of Financial Accounting Standards
No. 52, "Foreign Currency Translation," assets and liabilities of the
<PAGE>
Company's foreign operations are translated from foreign currencies
into U.S. dollars at year-end rates while income and expenses are
translated at the weighted-average exchange rates for the year. Gains
or losses resulting from the translations of foreign currency financial
statements are deferred and classified as a separate component of
shareholders' equity.
Income Taxes
Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. A valuation allowance is provided
when it is more likely than not that some portion of the deferred tax
assets arising from temporary differences and net operating losses will
not be realized.
The Company has not provided for income taxes on undistributed
earnings of foreign subsidiaries to the extent that undistributed
earnings are considered to be permanently reinvested.
Revenue Recognition
Revenues are recognized when products are shipped to customers.
Risk and Uncertainties
The Company operates in nine countries. In each country, the
business is subject to varying degrees of risk and uncertainty. The
Company insures its business and assets in each country against
insurable risks in a manner that is deemed appropriate in the
circumstances. Because of the diversity in its operations, the Company
believes that the risk of loss from noninsurable events in their
businesses in any one country would not have a material adverse effect
on its operations as a whole.
AIM, Viewsonics, and Bond are economically dependent on a limited
number of suppliers, some of which are located in Asia. If these
suppliers become unable to meet materials requirements, sales could be
adversely affected. However, AIM, Viewsonics, and Bond management
believe that sufficient inventory levels are maintained, and
alternative sources of supply would be available, to prevent a
materially adverse impact on the respective results of operations.
Dura-Line's domestic employees represent approximately 42% of
Dura-Line's total worldwide employment as of December 31, 1997.
Approximately 34% of Dura-Line's domestic employees, or approximately
14% of Dura-Line's total employees, are subject to a collective
bargaining agreement which expires 2000.
Plastic resins are Dura-Line's principal raw materials. The
price of plastic resins is subject to worldwide market forces of supply
and demand. Prices can be volatile, and fluctuations can influence
Dura-Line's financial results.
<PAGE>
Long-Lived assets
Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of, requires, among other things, that companies consider
whether indicators of impairment of long-live assets held for use are
present, that if such indicators are present the company determines
whether the sum of the estimated undiscounted future cash flows
attributable to such assets is less than their carrying amounts, and if
so, the company recognizes an impairment loss based on the excess of
the carrying amount of the assets over their fair value.
Accordingly, the Company evaluated the ongoing value of their
property and equipment and other long-lived assets as of December 31,
1997. From this evaluation, the Company determined that there were no
indications of impairment significant enough warrant recognition of an
impairment loss, and as such, no impairment loss has been recognized
for the year ended December 31, 1997.
Adoption of Statement 131
Effective January 1, 1997, the Company adopted the Financial
Accounting Standards Board's Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information (Statement 131). Statement 131 superseded FASB
Statement No. 14, Financial Reporting for Segments of a Business
Enterprise. Statement 131 establishes standards for the way that public
business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial
reports. Statement 131 also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. The adoption of Statement 131 did not affect results of
operations or financial position, but did affect the disclosure of
segment information. See Note 17.
Other Matters
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income,"
which becomes effective January 1, 1998. Comprehensive income and its
components will be required to be presented for each year for which an
income statement is presented. Components to be included in
comprehensive income for the Company are expected to consist primarily
of translation adjustments on investments in foreign subsidiaries.
3. Inventories
Inventories consist of:
December 31
1997 1996
Raw Materials $16,215 $10,738
Work in process 2,769 1,559
Finished goods 22,831 13,453
$41,815 $25,750
<PAGE>
4. Other Assets
Customer lists, noncompete agreements, trade names, patents,
trademarks, and supplier relations are amortized on the straight-line
basis over their estimated useful lives, ranging from five to twenty
years. At December 31, 1997 and 1996, these items are shown net of
accumulated amortization of $24,638 and $21,484, respectively.
Other assets consist of:
December 31
1997 1996
Customer lists $ 1,278 $ 1,478
Noncompete agreements 8,736 5,720
Trade names, patents and trademarks 1,828 1,778
Supplier relations 1,038 1,129
Other 1,931 1,032
$14,811 $11,137
5. Property, Plant, and Equipment
Property, plant, and equipment, at cost, consists of:
December 31
1997 1996
Land $ 1,223 $ 1,045
Machinery and equipment 40,825 31,447
Buildings and improvements 10,073 8,853
Furniture and fixtures 3,871 3,395
55,992 44,740
Accumulated depreciation and
amortization (20,660) (15,694)
$35,332 $29,046
6. Accrued Expenses and Other Current Liabilities
Accrued liabilities consist of:
December 31
1997 1996
Accrued vacation $ 621 $ 445
Accrued TSI purchase price holdback 2,000 -0-
Accrued income taxes 508 1,829
Accrued commissions 768 356
Accrued payroll and payroll taxes 1,591 1,414
Accrued stock appreciation rights (Note 12) 4,356 2,922
Accrued Additional Purchase Price Payments
(Note 12) 1,388 -0-
Dura-Line Preferred Stock Redemption (Note 12) 1,875 -0-
Advanced deposits 3,717 -0-
Accrued other expenses 5,466 2,975
$22,290 $9,941
<PAGE>
7. Line of Credit
On July 25, 1997, the Company entered into a revolving credit
agreement with certain parties thereto, and BankBoston, N.A., as agent,
under which the Company is able to borrow up to approximately $110,000
in the form of a revolving credit facility over a term of five years.
Interest on borrowings is at BankBoston's base rate plus an applicable
margin (9.50% at December 31, 1997), or, at the Company's option, the
rate at which BankBoston's eurodollar lending office is offered dollar
deposits (Eurodollar Rate) plus an applicable margin (8.47% at December
31, 1997). The credit agreement is secured by a first priority
security interest in substantially all of the Company's assets,
including a pledge of all of the stock of the Company's subsidiaries.
The Company has $68,000 of outstanding borrowings and a $2,070 standby
letter of credit under this credit agreement at December 31, 1997. The
Company has $39,930 of additional borrowings available under the
revolving credit agreement at December 31, 1997. Unused commitments
are subject to an availability fee equal to 0.5% per annum.
8. Other Long Term Debt
Other Long-term debt consists of:
December 31
1997 1996
Senior Notes (A) $188,576 $ -0-
Senior Subordinated Notes (A) 89,365 -0-
Other notes payable (B) 10,682 3,623
Capital lease obligations (C) 3,404 4,038
Notes payable to affiliated company(D) -0- 141,380
292,027 149,041
Current portion (1,197) (1,855)
$290,830 $147,186
(A) On July 25, 1997, the Company issued and sold $190,000 principal
amount of 9.875% Senior Notes due August 1, 2007 ("Senior Notes")
and $120,000 principal amount at maturity ($85,034 initial
accreted value) of 11.75% Senior Discount Notes due August 1,
2007 ("Senior Discount Notes"). The Senior Notes bear interest
at a rate of 9.875% per annum, payable semi-annually in cash in
arrears on February 1 and August 1 of each year, commencing on
February 1, 1998. The Senior Discount Notes will accrete at a
rate of 11.75%, compounded semi-annually, to par by August 1,
2000. Commencing August 1, 2000, the Senior Discount Notes bear
interest at a rate of 11.75% per annum, payable semi-annually in
cash in arrears on February 1 and August 1 of each year,
commencing on February 1, 2001.
The Senior Notes are redeemable for 104.9375% of the principal
amount from August 1, 2002 to July 31, 2003, 102.4688% from
August 1, 2003 to July 31, 2004, and 100% on or after August 1,
2004, plus any accrued and unpaid interest to the date of
redemption.
<PAGE>
The Senior Discount Notes are redeemable for 105.8750% of the
accreted value from August 1, 2002 to July 31, 2003, 102.9375%
from August 1, 2003 to July 31, 2004, and 100% on or after August
1, 2004, plus any accrued and unpaid interest from August 1, 2000
to the redemption date, if such redemption occurs after August 1,
2000.
The indentures governing the Senior Notes and the Senior Discount
Notes contain certain covenants which limit the Company's ability
to (i) incur additional indebtedness; (ii) make restricted
payments (including dividends); (iii) enter into certain
transactions with affiliates; (iv) create certain liens; (v) sell
certain assets; and (vi) merge, consolidate or sell substantially
all of the Company's assets.
The fair value of the Senior Notes and Senior Discount Notes was
$194,275 and $97,200, respectively, at December 31, 1997. The
fair values were calculated by multiplying the face amount by the
market prices of each security at December 31, 1997.
The Company incurred approximately $16,093 of costs related to
the issuance and sale of the Senior Notes, Senior Discount Notes,
and the Senior Preferred Stock Units (Note 9), $9,885 of which
was allocated to deferred financing fees and $6,208 of which was
allocated to stockholders' equity.
(B) Dura-Line has $2,639 of notes payable due in monthly installments
through 2002 and bearing interest at rates ranging from 6.0% to
17.0%. The notes are secured by equipment.
Diversified has $1,500 of unsecured notes payable to the sellers.
The notes bear interest at 8% per annum. One-half of the
principal is due in 2003 with the remaining one-half due in 2004.
LoDan has a $1,500 unsecured note payable to an officer of LoDan.
The note bears interest at 8% per annum and is due in 1999.
TSI has $5,000 of unsecured notes payable to the sellers, one of
which is an officer of TSI. The note bears interest at 8% per
annum and are due in 2003.
Diversified has $43 of notes payable due in monthly installments
through 2000 and bearing interest at rates ranging from 9.0% to
9.9%. The notes are secured by equipment.
(C) Interest rates on capital leases range from 7.75% to 10.8% and
mature in installments through 2001. Leases are secured by the
underlying assets.
Future minimum lease payments as of December 31, 1997 under
capital leases consist of the following:
1998 $ 1,215
1999 1,148
2000 1,577
2001 149
2002 22
$ 4,111
<PAGE>
Amount representing interest (707)
Present value of future minimum
lease payments $ 3,404
The present value of the future minimum lease payments
approximates the book value of property, plant, and equipment
under capital leases at December 31, 1997.
(D) The Telecommunications Companies maintained notes payable to
Jordan. The notes were interest bearing at rates ranging from
10% to 14.5%, were due upon demand, and were secured by all the
assets of the respective entities. At December 31, 1996, these
notes were classified as long-term, as it was Jordan's intention
not to demand payment on these notes prior to January 1, 1998.
Concurrent with the Company's acquisition of the
Telecommunications Companies from Jordan on July 25, 1997, these
notes were repaid using a portion of the proceeds from the
Offerings.
Aggregate maturities of other long-term debt at December 31, 1997 are
as follows:
1998 $ 1,197
1999 3,893
2000 1,662
2001 388
2002 135
Thereafter 316,803
$324,078
Interest expense includes amortization of deferred financing costs of
$422, $0, and $0, for 1997, 1996, and 1995, respectively.
9. Capital Stock
Common Stock
In connection with its initial capitalization on July 21, 1997,
the Company issued and sold 959,639 shares of Common Stock to its
management and certain stockholders of Jordan for approximately $1,920.
On July 25, 1997, the Company issued and sold 35,000 shares of Common
Stock for approximately $72, 25,000 shares of which were issued and
sold as part of the sale of preferred stock units described below.
Senior Preferred Stock
The Company has authorized for issuance 1,000,000 shares of
Preferred Stock, of which the Senior Preferred Stock described below
constitute a series.
On July 25, 1997, the Company issued and sold twenty-five
thousand units, each consisting of (i) $1 aggregate liquidation
preference of 13.25% Senior Exchangeable Preferred Stock due August 1,
2009 ("Senior Preferred Stock"), and (ii) one share of Common Stock.
<PAGE>
Holders of the Senior Preferred Stock are entitled to receive
dividends at a rate of 13.25% per annum of the liquidation preference.
All dividends are cumulative, whether or not earned or declared, and
are payable on February 1, May 1, August 1, and November 1 of each
year. On or before August 1, 2002, the Company may, at its option, pay
dividends in cash or in additional shares of Senior Preferred Stock
having an aggregate liquidation preference equal to the amount of such
dividends. After August 1, 2002, dividends may be paid only in cash.
On November 1, 1997, the Company issued 889.3836 of additional shares
of Senior Preferred Stock, as payment of dividends through that date.
On February 1, 1998, the Company issued 864,6345 of additional
shares of Senior Preferred Stock as payment of dividends from November
1, 1997 through this date.
The fair value of the Senior Preferred Stock was $31,067 at
December 31, 1997. The fair value was calculated by multiplying the
shares outstanding by the market price per share at December 31, 1997.
The Senior Preferred Stock has no voting rights and is
mandatorily redeemable on August 1, 2009.
Junior Preferred Stock
In connection with its initial capitalization on July 21, 1997,
the Company issued and sold 2,000 shares of Junior Preferred Stock to
Jordan for $20,000. Jordan, as the holder of the Junior Preferred
Stock, is entitled to vote on each matter which the stockholders are
entitled to vote, including the election of directors, voting together
with the Common Stock as a single class. The holders of Junior
Preferred Stock are entitled to 9,500 votes for each share held and,
therefore, hold approximately 95% of the combined voting power of the
Common Stock and Junior Preferred Stock at December 31, 1997.
The Junior Preferred Stock has a liquidation value, in the
aggregate, equal to the sum of (i) $20,000; plus (ii)(A) for the period
from the date of issuance to August 1, 2002, plus or minus 95% of the
cumulative net income (loss) of the Company for such period and (B) for
the period subsequent to August 1, 2002, the amount of any preferred
dividends thereon not paid on any dividend payment date, whether or not
declared, which shall be added to the liquidation value at such
dividend payment date. Commencing on the earlier of August 1, 2002 or
the Early Redemption Date, as defined, holders of the Junior Preferred
Stock will be entitled to receive dividends at 10% per annum of the
liquidation value per share. All dividends are cumulative, whether or
not earned or declared, and are payable quarterly in arrears on March
31, June 30, September 30, and December 31 of each year following the
date dividends commence accruing. Through December 31, 1997, $2,923 of
dividends were accrued on the Junior Preferred Stock, representing 95%
of the Company's net loss from July 21, 1997 to December 31, 1997,
which has reduced the liquidation value of the Junior Preferred Stock.
The Junior Preferred Stock is mandatorily redeemable on August 1,
2002. Certain events, including the redemption of the Junior Preferred
Stock, could result in a change in control of the Company. Management
cannot determine the accounting impact of a change in control resulting
<PAGE>
from the redemption of the Junior Preferred Stock until the form of the
transaction(s) resulting in the redemption are known.
10. Income Taxes
Income (loss) before income taxes and minority interest consists
of the following:
Year Ended December 31
1997 1996 1995
From U.S. operations $(13,809) $1,513 $9,003
From foreign operations 1,330 (516) 105
Total income before income taxes and
minority interest $(12,479) $1,618 $8,487
The provision benefit for income taxes consists of the following:
Year Ended December 31
1997 1996 1995
Current:
Federal $ -0- $2,374 $3,744
Foreign 2,302 2,311 654
State and local 167 150 202
2,469 4,835 4,600
Deferred
Federal (3,990) (1,100) (500)
Foreign -0- -0- -0-
State and local (155) (88) (38)
(4,145) (1,188) (538)
Total provision benefit for income
taxes $(1,676) $3,647 $4,062
Deferred income taxes consist of the following:
December 31
1997 1996
Deferred tax liabilities:
Tax over book depreciation and amortization $2,345 $1,689
Equity investment in Dura-Line (Israel) Ltd. 114 86
Other 9 164
2,468 1,939
Deferred tax assets:
Accrued stock appreciation rights 3,772 2,273
U.S. net operating loss carryforwards 7,137 3,748
Foreign net operating loss carryforwards 3,582 224
Inventory reserves 393 -0-
Uniform capitalization of inventory 240 187
Book over tax depreciation and amortization 5,564 659
Accrued vacation 275 179
Accrued warranties -0- 138
Accrued employee benefits 206 -0-
Foreign currency translation adjustment 594 -0-
Other 422 209
22,185 7,617
Valuation allowance for deferred tax assets (13,717) (3,903)
Net deferred tax assets $ 6,000 $1,775
<PAGE>
The increase in the valuation allowance during 1997 and 1996 was
$9,814 and $738, respectively.
The Company is included in the consolidated federal income tax
return of Jordan, but has computed its provision for income taxes on a
separate return basis in accordance with Statement of Financial
Accounting Standards No. 109. A tax-sharing agreement exists between
the Company and Jordan under which the Company receives benefit for net
operating losses against taxable income of profitable entities included
in the consolidated tax group. At December 31, 1997, the Company has
U.S. net operating loss carryforwards under the tax-sharing agreement
of $10,849. The U.S. net operating loss carryforwards expire in
various years from 2005 to 2011. Total foreign net operating losses
are $6,270, $485 of which expire in 2005, $2,085 of which expire in
2007, and $3,700 of which can be carried forward indefinitely.
The provision (benefit) for income taxes differs from the amount
of income tax provision computed by applying the United States federal
income tax rate to income before income taxes and minority interest. A
reconciliation of the differences is as follows:
Year Ended December 31
1997 1996 1995
Computed statutory tax
provision (benefit) $(4,240) $ 550 $2,886
Increase (decrease) resulting from:
Nondeductible depreciation and
Amortization 554 109 88
Higher effective income taxes of
other countries 462 448 66
State and local taxes (534) 96 302
Foreign subsidiary losses without a
current-year tax benefit 1,906 1,630 811
U.S. losses without a current-year
tax benefit 524 527 72
Foreign tax holiday (517) -0- -0-
Single business tax 85 -0- -0-
Adjustments to prior-year tax
Liabilities -0- 400 -0-
Other, net 84 (113) (163)
Provision (benefit) for income taxes $(1,676) $3,647 $4,062
11. Related Party Transactions
Prior to the formation of the Company, the Telecommunications
Companies were subsidiaries of, and therefore financed and managed by,
Jordan. Jordan financed the Company pursuant to intercompany advances
and notes (the "Intercompany Notes") which were used largely to finance
the acquisition of the Telecommunications Companies and their
businesses. The Telecommunications Companies paid Jordan approximately
$10.2 million, $11.1 million and $6.2 million in interest under the
Intercompany Notes for the years ended December 31, 1997, 1996 and
1995, respectively. Concurrent with the consummation of the July 1997
debt and equity offerings (the "Offerings"), the Intercompany Notes
were repaid by the Telecommunication Companies.
<PAGE>
Prior to the consummation of the Offerings, the
Telecommunications Companies, as subsidiaries of Jordan, were charged
by Jordan (i) annual consulting fees, payable quarterly, equal to 3.0%
of the Company's cash flow (which were $1.7 million, $2.2 million and
$1.4 million for the years ended December 31, 1997, 1996 and 1995,
respectively); (ii) investment banking and sponsorship fees of up to
2.0% of the purchase price of acquisitions or sales involving the
Company or any of its subsidiaries or their respective businesses or
properties and financial advisory fees of up to 1.0% of any debt,
equity or other financing, in each case, arranged with the assistance
of The Jordan Company (which were $0.7, $2.0 and $0 million for the
years ended December 31, 1997, 1996 and 1995, respectively); and (iii)
reimbursement for The Jordan Company's out-of-pocket costs incurred and
indemnities in connection with providing such services. In connection
with the acquisition of Northern and LoDan the Company paid to The
Jordan Company an investment banking fee of $0.7 million following the
consummation of the Offerings. Concurrent with the consummation of the
Offerings, all management, consulting, investment banking, sponsorship,
financial advisory and similar arrangements between the Company on the
one hand and Jordan, TJC Management Corp. (an affiliate of The Jordan
Company) and The Jordan Company on the other were terminated. In their
place the Company entered into five new types of agreements and
arrangements.
First, the Company and each of its subsidiaries (other than
certain of the Bond and Dura-Line subsidiaries) entered into a new
advisory agreement (the "New Subsidiary Advisory Agreement") with
Jordan, pursuant to which the Company and its subsidiaries will pay to
Jordan (i) investment banking and sponsorship fees of up to 2.0% of the
purchase price of acquisitions, joint ventures, minority investments or
sales involving the Company and its subsidiaries or their respective
businesses or properties, which the Company has accrued $1.9 million in
connection with the acquisition of EEI and TSI in 1997; (ii) financial
advisory fees of up to 1.0% of any debt, equity or other financing or
refinancing involving the Company or such subsidiary, in each case,
arranged with the assistance of The Jordan Company or its affiliates
(which were $4.1 million in 1997); and (iii) reimbursement for The
Jordan Company's or Jordan's out-of-pocket costs in connection with
providing such services. Each of the New Subsidiary Advisory Agreement
and the New TJC Management Consulting Agreement will expire in December
2007, but is automatically renewed for successive one-year terms,
unless either party provides written notice of termination 60 days
prior to the scheduled renewal date. In connection with the
consummation of the Offerings and the Company's revolving credit
agreement, the Company paid fees of approximately $4.1 million to
Jordan pursuant to the New Subsidiary Advisory Agreement.
Second, the Company and each of its subsidiaries (other than
certain of the Bond and Dura-Line subsidiaries) entered into a
management consulting agreement (the "New Subsidiary Consulting
Agreement"), pursuant to which they will pay to Jordan annual
consulting fees of 1.0% of the Company's net sales for such services,
payable quarterly, and will reimburse Jordan for its out-of-pocket
costs related to its services. The New Subsidiary Consulting Agreement
will expire in December 2007, but is automatically renewed for
successive one-year terms, unless either party provides written notice
of termination 60 days prior to the scheduled renewal date. Pursuant
to the New Subsidiary Consulting Agreement, Jordan (but not Jordan's
<PAGE>
affiliates) will be obligated to present all acquisition, business and
investment opportunities that relate to manufacturing, assembly,
distribution or marketing of products and services in the
telecommunications and data communications industries to the Company,
and Jordan will not be permitted to pursue such opportunities or
present them to third parties unless the Company determines not to
pursue such opportunities or consents thereto. In accordance with this
agreement, the Company paid $1.3 million for the year ended December
31, 1997.
Third, the Company and each of its subsidiaries (other than
certain of the Bond and Dura-Line subsidiaries) and Jordan entered into
a services agreement (the "JI Properties Services Agreement") with JI
Properties, Inc. ("JI Properties"), a subsidiary of Jordan, pursuant to
which JI Properties will provide certain real estate and other assets,
transportation and related services to the Company. Pursuant to the JI
Properties Services Agreement, the Company will be charged for its
allocable portion of such services based upon its usage of such
services and its relative revenues, as compared to Jordan and its other
subsidiaries. In accordance with this agreement, such charges were
$0.5 million for the year ended December 31, 1997. The JI Properties
Services Agreement will expire in December 2007, but is automatically
renewed for successive one-year terms, unless either party provides
written notice of termination 60 days prior to the scheduled renewal
date.
Fourth, Jordan determined to refine the allocation of its
overhead, general and administrative charges and expense among Jordan
and its subsidiaries, including the Company, in order to more closely
match these overhead charges with the revenues and usage of corporate
overhead by Jordan and its subsidiaries. Under this agreement, the
Company's allocable portion of corporate expenses was $1.0 million for
the year ended December 31, 1997 of which $0.3 million was paid in
1997.
Fifth, the Company and Jordan entered into the transition
agreement (the "Transition Agreement") pursuant to which Jordan will
provide office space and certain administrative and accounting services
to the Company to facilitate the transition of the Company as a stand-
alone company. The Company will reimburse Jordan for services provided
pursuant to the Transition Agreement on an allocated cost basis. The
Transition Agreement will expire on December 31, 1998, but is
automatically renewed for successive one year periods (unless either
party provides prior written notice of non-renewal) and may be
terminated by the Company on 90 days' written notice.
12. Dura-Line Preferred Stock, Stock Appreciation Rights (SAR) and
Additional Purchase Price Agreements
In 1997, Dura-Line entered into an agreement to purchase the
former owners' interest in a SAR for $15,417, consisting of $9,438 in
cash and deferred payments payable in five annual installments as
follows:
<PAGE>
March 31, 1998 $ 1,019
March 31, 1999 1,101
March 31, 2000 1,189
March 31, 2001 1,284
March 31, 2002 1,386
As such, at December 31, 1997 the Company has recorded $1,019 in
accrued expenses and other current liabilities and $4,960 in other non-
current liabilities. Dura-Line also agreed to purchase the former
owners' shares of the 7% cumulative preferred stock of Dura-Line on
March 9, 1998 at a price in cash equal to $1,875. The Company further
agreed to pay the former shareholders of Dura-Line non-compete payments
totaling $352 and a special bonus of approximately $454, determined
based on a percentage of Dura-Line's gross profit during fiscal 1997.
In connection with the acquisitions of AIM and Cambridge in 1989,
the sellers of these companies were granted stock appreciation rights.
The formula used to value these rights is calculated by determining 20%
of a multiple of average cash flow of these companies for the two years
preceding the date when these rights are exercised, less the
indebtedness of these companies. The seller passed away in 1996, and
the seller's estate has exercised these rights. As of December 31,
1996, the Company had a total amount of $6,260 accrued under these
rights agreements. In 1997, the Company entered into an agreement to
purchase and redeem the Estate's and Decedent's interest in the SAR for
$3,111 in cash and a deferred payment, including interest at 9% per
annum, of $3,391 payable on May 2, 1998. As such, the remaining portion
of the liability, plus interest, of $3,337 is included in accrued
expenses and other current liabilities at December 31, 1997.
The Company has a Contingent Purchase Price Payment Plan relating
to its acquisition of Viewsonics in 1996. The plan is based on
Viewsonics achieving certain earnings before interest and taxes and can
pay a minimum of $0 and a maximum of $2,000 for the year ended July 31,
1997 and $3,000 for the year ending July 31, 1998. As of December 31,
1997 the Company recorded a liability and an increase to goodwill of
$1,388 for the plan year ended July 31, 1997. No amounts have been
accrued for the plan year ending July 31, 1998. The Company also has an
agreement to make an additional purchase price payment of up to a
maximum of $4.0 million, if certain earnings projections are met, to
the previous owners of TSI on or before March 1, 1999.
13. Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of cash and cash
equivalents and accounts receivable. The Company deposits cash and
cash equivalents with high-quality financial institutions, which are
federally insured up to prescribed limits.
The Company closely monitors the credit quality of its customers
and maintains allowances for potential credit losses which,
historically, have not been significant and have been within the range
of management's expectations. The Company generally does not require
collateral or other security on trade receivables.
<PAGE>
14. Financial Instruments
The Company's financial instruments include cash equivalents,
trade accounts receivable, accounts payable, accrued expenses, the
Senior Notes, the Senior Discount Notes, the line of credit, and notes
payable to Jordan. The fair values of all financial instruments,
except for the Senior Notes and Senior Discount Notes (Note 8), were
not materially different from their carrying values at December 31,
1997 and 1996.
15. Operating Leases
Certain land, buildings, and equipment are leased under
noncancelable operating leases. Certain leases for facilities contain
renewal options, require additional payments for maintenance charges,
and are subject to periodic escalation charges.
Total minimum rental commitments under noncancelable operating
leases at December 31, 1997 are:
1998 $ 3,833
1999 3,077
2000 2,625
2001 2,173
2002 1,834
Thereafter 10,476
$24,018
Northern rents its current facility from a partnership in which
an officer in Northern is a partner. The lease calls for annual rental
payments of approximately $9 through 2002, with annual 5% increases
effective each January.
EEI rents its current facility from a company that is owned by
EEI's President and Chief Executive Officer. The lease calls for
annual rental payments of approximately $295 through December 2004.
Total rental expense amounted to $2,642, $879, and $399 in 1997,
1996, and 1995 respectively.
16. Benefit Plan
Certain of the Company's subsidiaries participate in the Jordan
Industries, Inc. 401(k) Savings Plan (401(k) Plan), a defined-
contribution benefit plan for salaried and hourly employees. In order
to participate in the 401(k) Plan, employees must be at least 21 years
old and have worked at least 1,000 hours during the first 12 months of
employment. Each eligible employee may contribute from 1% to 15% of
their before-tax wages into the 401(k) Plan. The Company made matching
contributions of $370, $96, and $32 in 1997, 1996, and 1995,
respectively.
<PAGE>
17. Segment Data
Description of Segments
The Company operates in three business segments: infrastructure
products and equipment, custom cable assemblies and specialty wire and
cable, and electronic connectors and components.
The businesses in the infrastructure products and equipment
segment provide products and services for the construction, expansion
and maintenance of the "outside plant" portion of the
telecommunications infrastructure. The products cover a broad range of
applications including fiber optic and coaxial cable conduit, power
conditioning systems, CATV components and transmitters, and antenna
support systems used by wire-line and wireless telecommunications,
CATV, cellular telephone and Personal Communications Systems (PCS)
providers.
Through the businesses in the electronic connector and component
segment, the Company designs, manufactures and distributes worldwide, a
broad range of electronic connectors, including radio frequency (RF)
and coaxial connectors, plugs, adapters, and electronic hardware, as
well as electronic network and security components. These products are
used in telecommunications, data communications, and other OEM
applications that require miniaturization and high frequency ranges,
such as wireless telecommunications.
Through the businesses in the custom cable assemblies and
specialty wire and cable segment, the Company designs, engineers and
manufacturers custom cable assemblies for internetworking suppliers,
OEMs and RBOCs for use primarily in the data communications and
telecommunications industries. The Company also is a broad line
provider and value-added reseller of wire and cable and custom cable
assemblies for Local Area Networks (LANs) and other commercial
networking applications.
Measurement of Segment Profit or Loss and Segment Assets
The Company evaluates performance and allocates resources based
on operating income before management fees. The accounting policies of
the reportable segments are the same as those described in Note 2,
"Significant Accounting Policies." Intrasegment sales exist between AIM
and Cambridge and are accounted for at prices comparable to
unaffiliated customer sales. These sales are eliminated in
consolidation and are not presented in segment disclosures. No single
customer accounts for 10% or more of consolidated net sales.
Identifiable assets are those used by each segment in its operations.
Corporate assets consist primarily of cash and deferred financing fees.
Factors Used to Identify the Enterprise's Reportable Segments
The Company's reportable segments are business units that offer
different products. The reportable segments are each managed separately
because they manufacture and distribute distinct products with
different production processes.
Summary financial information by business segment is as follows:
<PAGE>
Year Ended December 31
1997 1996 1995
Net Sales
Infrastructure Products and Equipment $139,789 $ 75,179 $76,033
Electronic Connectors and Components 45,041 40,275 20,936
Custom Cable Assemblies and Specialty
Wire & Cable 72,180 17,545 -0-
$257,010 $132,999 $96,969
Operating Income
Infrastructure Products and Equipment $ 18,914 $ 7,650 $11,504
Electronic Connectors and Components 10,040 10,484 5,878
Custom Cable Assemblies and Specialty
Wire & Cable 5,279 824 -0-
Unallocated amounts:
Stock appreciation rights expense (15,871) (3,411) (1,097)
Management fees (2,964) (2,224) (1,399)
Corporate Expenses (2,140) -0- -0-
Total Operating Income $13,258 13,323 14,886
Interest expense (25,749) (11,826) (6,555)
Interest income 486 152 156
Other income (expense) 5 (31) -0-
Income (loss) before income taxes, minority interest and
extraordinary item $(12,000) $ 1,618 $ 8,487
Identifiable assets
Infrastructure Products and Equipment $151,165 $ 89,984 $44,378
Electronic Connectors and Components 52,118 54,872 18,370
Custom Cable Assemblies and Specialty
Wire & Cable 112,701 34,790 -0-
Corporate Assets 18,530 -0- -0-
$334,514 $179,646 $62,748
Summary financial information by geographic area is as follows:
1997 1996 1995
Net Sales
United States $195,073 $97,369 $66,914
Europe 38,794 34,152 30,055
South America 12,097 1,137 -0-
Asia 10,646 341 -0-
Other foreign countries 400 -0- -0-
Total $257,010 $132,999 $96,969
Identifiable Assets
United States $278,585 $136,339 $40,743
Europe 33,121 35,055 22,005
South America 8,488 3,879 -0-
Asia 14,320 4,373 -0-
Total $334,514 $179,646 $62,748
Net sales are attributed to countries based on the location of
customers. In 1997, the Company sold products into over thirty
countries with no individual country, other than the United States,
representing more than 6% of the Company's total sales.
Following is additional information about the reported industry
segments:
Year Ended December 31
1997 1996 1995
Depreciation and amortization
Infrastructure Products and Equipment $ 6,230 $ 3,836 $ 3,766
Electronic Connectors and Components 2,679 2,321 1,339
Custom Cable Assemblies and Specialty
Wire & Cable 2,029 485 -0-
$10,938 $ 6,642 $ 5,105
Capital expenditures
Infrastructure Products and Equipment $ 7,767 $ 5,543 $ 5,200
Electronic Connectors and Components 922 849 200
Custom Cable Assemblies and Specialty
Wire & Cable 1,175 131 -0-
$9,864 $ 6,523 $ 5,400
<PAGE>
18. Extraordinary Item
On January 1, 1997, the Company's Dura-Line Reno, Nevada
production facility was flooded. Uninsured property damage and lost
production totaled $479.
19. Legal Proceedings
The Company is subject to legal proceedings and claims which
arise in the ordinary course of its business. The Company believes
that the final disposition of such matters will not have a material
adverse effect on the financial position or results of operations of
the Company.
20. Subsequent Event
On January 20, 1998, the Company through a newly created
subsidiary K&S Sheet Metal Holdings (K&S Holdings), a subsidiary of 80%
owned Bond Technologies, purchased the stock of K&S Sheet Metal (K&S).
K&S is a manufacturer of precision metal enclosures for electronic
original equipment manufacturers. K&S is located in Huntington Beach,
California.
The purchase price of $15,500, including estimated costs
incurred directly related to the transaction, has been preliminarily
allocated to working capital of $2,257, property, plant and equipment
of $1,002, non-compete agreements of $1,545 and other assets of $91
resulting in an excess purchase price over net identifiable assets of
$10,605. The acquisition was financed with $14,000 of borrowings from
the Company's revolving credit agreement and $1,500 of a subordinated
seller note.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
[This space is intentionally left blank
<PAGE>
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth the names and ages of the Company's
directors and executive officers and the positions they hold as of
March 31, 1998:
Name Age Position with Company
Executive Officers and Directors
Thomas H. Quinn (2) 50 Chairman
Michael R. Elia 39 Vice President and Chief Financial
Officer
William C. Ballard (1) 57 Director
Jonathan F. Boucher 41 Vice President and Director
John W. Jordan,II (2) 50 Director
Michael A. Wadsworth (1) 54 Director
David W. Zalaznick (1)(2)(3) 43 Director
Other Key Employees
Abram Ackerman 72 President, Viewsonics
Steve Baker 48 President, Northern
Ernie Glass 60 President, Johnson
William McIlvene 39 President, Bond
Arnie Rosenblum 62 President, AIM and Cambridge
Donald J. Sitter 58 President, LoDan
Charles P. Megan 48 President, Dura-Line
Dean Stanton 36 President, Diversified
Bruce Burton 32 Managing Director, Vitelec
Timothy Gooding 48 President, EEI
Paul Melech 51 President, TSI
_______
(1) Member of the Audit Committee.
(2) Member of the Executive Committee.
(3) Member of Banking, Finance and Investment Committee.
Set forth below is a brief description of the business experience
of each director and executive officer of the Company.
Mr. Quinn has served as a Director of the Company since July
1997. Since 1988, Mr. Quinn has been President, Chief Operating
Officer and a director of Jordan Industries. From November 1985 to
December 1987, Mr. Quinn was Group Vice President and corporate officer
of Baxter International. From September 1970 to November 1985, Mr.
Quinn was employed by American Hospital Supply Corporation, where he
was a Group Vice President and a corporate officer when it was acquired
by Baxter International. Mr. Quinn is also the Chairman of the Board
and Chief Executive Officer of American Safety Razor Company and
AmeriKing, Inc., Motors and Gears, Inc., and Welcome Home, Inc., as
well as other privately held companies. In January 1997, Welcome Home,
Inc. filed a voluntary petition for bankruptcy.
Mr. Elia has served as the Company's Vice President and Chief
Financial Officer since July 1997. From February 1997 to June 1997,
Mr. Elia served as chief financial officer of the telecommunications
<PAGE>
group of Jordan Industries. From 1994 to 1996, Mr. Elia served as
Corporate Director of Strategic Planning and Division Vice President
and Controller for Fieldcrest Cannon, Inc., a global manufacturer of
textile products. From 1983 to 1994, Mr. Elia held several financial
management positions with Insilco Corporation, a diversified
manufacturer of automotive and electronic products, including Vice
President and Chief Financial Officer of Insilco Technologies Group.
Prior to joining Insilco, Mr. Elia was with Ernst & Young LLP.
Mr. Ballard has served as a Director of the Company since July
1997. Mr. Ballard has been of counsel to the law firm of Greenbaum,
Doll & McDonald in Louisville, Kentucky since May 1992. From 1970 to
April 1992, Mr. Ballard held various positions with Humana, Inc., an
investor-owned hospital company, including most recently as its
Executive Vice President and as a member of its Board of Directors.
Mr. Ballard is a director of Atria Communities, Inc., Health Care Reit,
Health Care Recoveries, Inc., American Safety Razor Company, LG&E
Energy Corp., Mid-America Bancorp, Vencor, Inc. and United Healthcare
Corp.
Mr. Boucher has served as a Vice President and a Director of the
Company since July 1997. Since 1983, Mr. Boucher has been a partner of
The Jordan Company, a private merchant banking firm. Mr. Boucher is
also a director of Jordan Industries, Atria Communities, Inc., Health
Care Reit, Health Care Recoveries, Inc., American Safety Razor Company
and Motors and Gears, Inc., as well as other privately held companies.
In January 1997, Welcome Home, Inc., a company of which Mr. Boucher was
a director until December 1996, filed a voluntary petition for
bankruptcy.
Mr. Jordan has served as a Director of the Company since July
1997. Mr. Jordan is a managing partner of The Jordan Company, a
private merchant banking firm which he founded in 1982. Mr. Jordan is
also a director of Jordan Industries, Welcome Home, Inc., American
Safety Razor Company, AmeriKing, Inc., Carmike Cinemas, Inc., Motors
and Gears, Inc., Apparel Ventures, Inc., GFSI, Inc., GFSI Holdings,
Inc., and Rockshox, Inc., as well as other privately held companies.
In January 1997, Welcome Home, Inc., filed a voluntary petition for
bankruptcy.
Mr. Wadsworth has served as a Director of the Company since July
1997. Mr. Wadsworth has served as Director of Athletics of the
University of Notre Dame since 1995 and a member of the International
Advisory Counsel to the University of Notre Dame since 1994. From
August 1989 to March 1995 Mr. Wadsworth served as the Canadian
Ambassador to Ireland. From 1984 to August 1989, Mr. Wadsworth served
as Senior Vice President of the U.S. operations of Crown Life Insurance
Company and a senior executive officer of its parent, Crown, Inc.
Mr. Zalaznick has served as a Director of the Company since July
1997. Since 1982, Mr. Zalaznick has been a managing partner of The
Jordan Company, a private merchant banking firm. Mr. Zalaznick is also
a director of Jordan Industries, Carmike Cinemas, Inc., AmeriKing,
Inc., American Safety Razor Company, Marisa Christina, Inc., Apparel
Ventures, Inc., Motors and Gears, Inc., GFSI, Inc., and GFSI Holdings,
Inc., as well as other privately held companies.
<PAGE>
Mr. Ackerman founded Viewsonics and has been President since
1974. He has been involved in ownership and management of various
other electronic business enterprises since 1957. He holds patents on
and directed the design of many proprietary products. His business
involvement includes public and private entities both domestic and
foreign.
Mr. Baker has served as President of Northern since 1986. Mr.
Baker was one of the original founders of Northern in 1985. He was
initially responsible for sales in the medical market, protecting
sensitive medical devices such as Magnetic Resonance Imaging and CAT
Scanning Equipment.
Mr. Glass has served as the President of Johnson since January
1996. From 1987 to 1996 Mr. Glass held various positions, including
Vice President of Operations, Vice President of Custom and Component
Products and Vice President of Finance and CFO with EF Johnson Company
who designs, manufactures and distributes radio communication
equipment. Prior to 1987 Mr. Glass was employed by General Electric
Company and held various management positions throughout North and
South America.
Mr. McIlvene has served as President and Chief Executive Officer
of Bond since he founded Bond in 1988. Prior to that, he was a sales
manager for Avnet Incorporated, an electronics distributor.
Mr. Rosenblum has served as President of AIM and Cambridge since
September 1996. From 1995 to 1996 he served as Vice President - Sales
& Marketing for Manhattan/CDT which was a consolidation of his acquired
company (Cole-Flex) and Manhattan Electric Cable by Cable Design
Technologies (CDT). From 1977 to 1995 he served as Vice President,
President and Partner of Cole-Flex, a leading supplier of insulation
products for the electronic OEM and distribution wire and cable market.
Mr. Sitter has been President of LoDan, a company he co-founded,
since 1967. Prior to that, he was a territory manager for Amphenol, a
leader in the connector business.
Mr. Megan has served as President and Chief Operating Officer of
Dura-Line since January 1997. From April 1991 through December 1996,
Mr. Megan was President and Chief Operating Officer of Hudson Lock,
Inc. located in Hudson, Massachusetts which was a Jordan Industries
company during that time. Prior to 1991, Mr. Megan was President and
Chief Operating Officer of Grotnes Metalforming Systems, Inc., a
special machinery manufacturer serving the automotive and aerospace
markets.
Mr. Stanton has served as President and Chief Executive Officer
of Diversified since January 1988. From 1985 to 1988, Mr. Stanton held
several senior management positions, including National Sales Manager
for Northern Wire & Cable, Inc., prior to starting Diversified.
Mr. Burton has served as Managing Director of Vitelec since
December 1997. From 1990 to 1997, he has held several positions
including General Manager, Sales & Marketing Manager and Sales Engineer
for the Company. Prior to joining Vitelec, Mr. Burton worked for the
Thorn Electronic Group as an Electronic Service Technician.
<PAGE>
Mr. Gooding has been President and Chief Executive Officer of EEI
since he founded EEI in 1988. Prior to that, he worked for various
companies in the manufacture and design of tapered poles.
Mr. Melech has served as President of TSI since November 1997.
From 1984 to 1997, Mr. Melech served as Vice President of Operations
for TSI. Prior to joining TSI he held several senior management
positions including Vice President of Sales for KGS, a large marine
equipment distributor, and as Distributor Sales Manager for Incom
International, a global manufacturer of controls and gears.
ITEM 11. EXECUTIVE COMPENSATION
Directors' Compensation
Directors of the Company receive $20,000 per year for serving as
a director of the Company, plus $1,000 for each meeting of the Board of
Directors or any committee thereof attended in person or by telephone.
In addition, the Company reimburses directors for their travel and
other expenses incurred in connection with attending meetings of the
Board of Directors.
Executive Compensation
The Company was not organized until July 18, 1997, and therefore
had no executive officers prior to that time. The Company expects that
each of Messrs. Quinn and Elia will receive compensation in excess of
$100,000 during 1998. The following table sets forth a summary of
certain information regarding compensation paid or accrued by the
Company from July 18, 1997 to each of Messrs. Quinn and Pileggi (former
CEO)(collectively, the "Named Executives").
The Company anticipates adopting a plan under which it would
award stock options, restricted stock and/or stock appreciation rights
to certain officers and directors. However, the terms of such a plan
have not yet been determined. The Company may issue a maximum of 5,000
shares of Common Stock pursuant to such a plan.
SUMMARY COMPENSATION TABLE
Other Annual
Name and Principal Position Salary Bonus(1) Compensation
Dominic J. Pileggi(2)(3) $125,000 $150,000 $10,000(4)
President and Chief Executive
Officer
Thomas H. Quinn(5) -0- -0- -0-
Chairman of the Board
(1) The Company provides bonus compensation based on an individual's
achievement of certain specified objectives, including achieving the
Company's stated earnings before interest, taxes, depreciation and
amortization.
(2) For services rendered from July 18, 1997 to December 31, 1997. Service
rendered prior to July 18, 1997 were paid by Jordan Industries.
(3) Mr. Pileggi ceased to be employed by the Company as of March 18, 1998.
(4) Mr. Pileggi's other compensation consisted of Directors fees.
(5) Does not reflect compensation paid to Mr. Quinn by Jordan Industries.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth as of March 30, 1998, certain
information regarding beneficial ownership of Common Stock held by (i)
each director and each of the Named Executives; (ii) all directors and
executive officers of the Company as a group; and (iii) each person
known by the Company to own beneficially more than 5% of the Common
Stock. Each individual or entity named has sole investment and voting
power with respect to shares of Common Stock indicated as beneficially
owned by them, except where otherwise noted.
Amount of Beneficial
Ownership(1)
Number of
Shares Percentage
(rounded)
Executive Officers and Directors:
Thomas H. Quinn 89,804.6030 9.0
Dominic J. Pileggi 10,722.2222 1.0
Michael R. Elia 0 *
William C. Ballard 0 *
Jonathan F. Boucher 52,935.1436 5.3
John W. Jordan, II (2)(3)(4) 379,349.1691 38.0
Michael A. Wadsworth 0 *
David W. Zalaznick(3)(5) 183,073.2676 18.3
All directors and executive officers as
a group (8 persons) 715,884.3054 71.6
Other Principal Stockholders:
Leucadia Investors, Inc. 95,566.3378 9.6
Jordan Industries, Inc. (6) 0 *
*Represents less than 1% of the outstanding shares of Common Stock.
(1) Calculated pursuant to Rule 13d-3(d) under the Exchange Act. Under Rule
13d-3(d), shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage
owned by such person, but not deemed outstanding for the purpose of
calculating the percentage owned by each other person listed. As of
March 30, 1998 the Company had 994,639 shares of Common Stock issued
and outstanding.
(2) Includes 8.9820 shares held personally and 379,340.1871 shares held by
the John W. Jordan II Revocable Trust. Does not include 2,777.5927
shares held by Daly Jordan O'Brien, the sister of Mr. Jordan, 2,777.5927
shares held by Elizabeth O'Brien Jordan, the mother of Mr. Jordan, or
2,777.5927 shares held by George Cook Jordan, Jr., the brother of Mr.
Jordan.
(3) Does not include 898.0451 shares held by The Jordan/Zalaznick Capital
Company ("JZCC") or 31,431.5758 shares held by Mezzanine Capital & Income
Trust 2001 PLC ("MCIT PLC"), a publicly traded U.K. investment trust
advised by an affiliate of The Jordan Company (which is controlled by
Messrs. Jordan and Zalaznick). Mr. Jordan, Mr. Zalaznick and Luecadia,
Inc. are the sole partners of JZCC.
(4) Does not include 29,171.4943 shares held by The Jordan Family Trust, of
which John W. Jordan II, George Cook Jordan, Jr., and G. Robert Fisher
are the Trustees.
(5) Does not include 737.8205 shares held by Bruce Zalaznick, the brother of
Mr. Zalaznick.
(6) Jordan Industries owns all of the issued and outstanding Junior Preferred
Stock. The Junior Preferred Stock entitles Jordan Industries to 95% of
the voting power as of March 30, 1998 the principal address of Jordan
Industries is ArborLake Centre, Suite 550, 1751 Lake Cook Road,
Deerfield, IL 60015.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was organized in July 1997 to acquire the
Telecommunications Subsidiaries and other targeted companies focused on
the manufacture and distribution of products for use in the rapidly
growing telecommunications and data communications industries.
Prior to the formation of the Company, the Telecommunications
Subsidiaries were subsidiaries of, and therefore financed and managed
by, Jordan Industries. Jordan Industries financed the Company pursuant
to intercompany advances and notes (the "Intercompany Notes"), which
were used largely to finance the acquisition of the Telecommunications
Subsidiaries and their businesses. The Telecommunications Subsidiaries
paid Jordan Industries $10.2 million, $11.1 million and $6.2 million in
interest under the Intercompany Notes for the years ended December 31,
1997, 1996 and 1995, respectively. Concurrent with the consummation of
the Offerings, the Intercompany Notes were repaid by the
Telecommunication Subsidiaries.
In connection with the initial capitalization of the Company, the
Company issued 2,000 shares of Junior Preferred Stock to Jordan
Industries for $20.0 million in cash and 959,639 shares of Common Stock
(representing 96.5% of the currently outstanding shares of Common
Stock) to the Jordan Group and management of the Company for total cash
consideration of $1.9 million.
The Company acquired the Telecommunications Subsidiaries pursuant
to a series of transactions resulting in the payment and distribution
to Jordan Industries, including the payment and discharge of the
Intercompany Notes, of approximately $284.0 million and the assumption
of $10.0 million of obligations of the Telecommunications Subsidiaries,
including $8.1 million of indebtedness and an obligation to fund the
redemption of $1.9 million of preferred stock.
Services Agreements. Prior to the consummation of the Offerings,
the Telecommunications Subsidiaries, as subsidiaries of Jordan
Industries, were charged by Jordan (i) annual consulting fees, payable
quarterly, equal to 3.0% of the Company's cash flow (which were $1.7
million, $2.2 million and $1.4 million for the years ended December 31,
1997, 1996 and 1995, respectively); (ii) investment banking and
sponsorship fees of up to 2.0% of the purchase price of acquisitions or
sales involving the Company or any of its subsidiaries or their
respective businesses or properties and financial advisory fees of up
to 1.0% of any debt, equity or other financing, in each case, arranged
with the assistance of The Jordan Company (which were $0.7, $2.0 and $0
million for the years ended December 31, 1997, 1996 and 1995,
respectively); and (iii) reimbursement for The Jordan Company's out-of-
pocket costs incurred and indemnities in connection with providing such
services. In connection with the acquisition of Northern and LoDan the
Company paid to The Jordan Company an investment banking fee of $0.7
million following the consummation of the Offerings. Concurrent with
the consummation of the Offerings, all management, consulting,
investment banking, sponsorship, financial advisory and similar
arrangements between the Company on the one hand and Jordan Industries,
TJC Management Corp. (an affiliate of The Jordan Company) and The
<PAGE>
Jordan Company on the other were terminated. In their place the
Company entered into five new types of agreements and arrangements.
First, the Company and each of its subsidiaries (other than
certain of the Bond and Dura-Line subsidiaries) entered into a new
advisory agreement (the "New Subsidiary Advisory Agreement") with
Jordan Industries, pursuant to which the Company and its subsidiaries
will pay to Jordan Industries (i) investment banking and sponsorship
fees of up to 2.0% of the purchase price of acquisitions, joint
ventures, minority investments or sales involving the Company and its
subsidiaries or their respective businesses or properties, which the
Company has accrued $1.9 million in connection with the acquisition of
EEI and TSI in 1997; (ii) financial advisory fees of up to 1.0% of any
debt, equity or other financing or refinancing involving the Company or
such subsidiary, in each case, arranged with the assistance of The
Jordan Company or its affiliates (which were $4.1 million in 1997); and
(iii) reimbursement for The Jordan Company's or Jordan Industries' out-
of-pocket costs in connection with providing such services. Each of
the New Subsidiary Advisory Agreement and the New TJC Management
Consulting Agreement will expire in December 2007, but is automatically
renewed for successive one-year terms, unless either party provides
written notice of termination 60 days prior to the scheduled renewal
date. In connection with the consummation of the Offerings and the
Credit Agreement, the Company paid fees of approximately $4.1 million
to Jordan Industries pursuant to the New Subsidiary Advisory Agreement.
Mssrs. Jordan, Boucher and Zalaznick, directors of the Company, are
partners of The Jordan Company.
Second, the Company and each of its subsidiaries (other than
certain of the Bond and Dura-Line subsidiaries) entered into a
management consulting agreement (the "New Subsidiary Consulting
Agreement"), pursuant to which they will pay to Jordan Industries
annual consulting fees of 1.0% of the Company's net sales for such
services, payable quarterly, and will reimburse Jordan Industries for
its out-of-pocket costs related to its services. The New Subsidiary
Consulting Agreement will expire in December 2007, but is automatically
renewed for successive one-year terms, unless either party provides
written notice of termination 60 days prior to the scheduled renewal
date. Pursuant to the New Subsidiary Consulting Agreement, Jordan
Industries (but not Jordan Industries' affiliates) will be obligated to
present all acquisition, business and investment opportunities that
relate to manufacturing, assembly, distribution or marketing of
products and services in the telecommunications and data communications
industries to the Company, and Jordan Industries will not be permitted
to pursue such opportunities or present them to third parties unless
the Company determines not to pursue such opportunities or consents
thereto. In accordance with this agreement, the Company paid $1.3
million for the year ended December 31, 1997.
Third, the Company and each of its subsidiaries (other than
certain of the Bond and Dura-Line subsidiaries) and Jordan Industries
entered into a services agreement (the "JI Properties Services
Agreement") with JI Properties, Inc. ("JI Properties"), a subsidiary of
Jordan Industries, pursuant to which JI Properties will provide certain
real estate and other assets, transportation and related services to
the Company. Pursuant to the JI Properties Services Agreement, the
Company will be charged for its allocable portion of such services
based upon its usage of such services and its relative revenues, as
<PAGE>
compared to Jordan Industries and its other subsidiaries. In
accordance with this agreement, such charges were $0.5 million for the
year ended December 31, 1997. The JI Properties Services Agreement
will expire in December 2007, but is automatically renewed for
successive one-year terms, unless either party provides written notice
of termination 60 days prior to the scheduled renewal date.
Fourth, Jordan Industries determined to refine the allocation of
its overhead, general and administrative charges and expense among
Jordan Industries and its subsidiaries, including the Company, in order
to more closely match these overhead charges with the revenues and
usage of corporate overhead by Jordan Industries and its subsidiaries.
Under this agreement, the Company's allocable portion of corporate
expenses was $1.0 million for the year ended December 31, 1997 of
which $0.3 million was paid in 1997.
Fifth, the Company and Jordan Industries entered into the
transition agreement (the "Transition Agreement") pursuant to which
Jordan Industries will provide office space and certain administrative
and accounting services to the Company to facilitate the transition of
the Company as a stand-alone company. The Company will reimburse
Jordan Industries for services provided pursuant to the Transition
Agreement on an allocated cost basis. The Transition Agreement will
expire on December 31, 1998, but is automatically renewed for
successive one year periods (unless either party provides prior written
notice of non-renewal) and may be terminated by the Company on 90 days'
written notice.
Tax Sharing Agreement. The Company and each of its subsidiaries
are parties to a tax sharing agreement (the "Tax Sharing Agreement")
with Jordan Industries and each of the other direct and indirect
subsidiaries of Jordan Industries that are consolidated with Jordan
Industries for Federal income tax purposes. Pursuant to the Tax
Sharing Agreement, each of the consolidated subsidiaries of Jordan
Industries pays to Jordan Industries, on an annual basis, an amount
determined by reference to the separate return tax liability of the
subsidiary as defined in Treasury Regulation 1.1552-1(a)(2)(ii). The
Company and its subsidiaries paid an aggregate of $0 million, $1.6
million and $3.5 million to Jordan Industries pursuant to the Tax
Sharing Agreement in the years ended December 31, 1997, 1996 and 1995,
respectively. These income tax payments reflected a Federal income tax
rate of approximately 34% of each subsidiary's pre-tax income.
Upon redemption of the Junior Preferred Stock or other
circumstances that cause the Company and its subsidiaries to cease to
be tax consolidated subsidiaries of Jordan Industries, the Company and
its subsidiaries will be released from making any further payments
under the Tax Sharing Agreement. While the release will discharge the
Company and its subsidiaries from making future income tax payments to
Jordan Industries, the Company and its subsidiaries will remain
contingently liable to Jordan Industries under the Tax Sharing
Agreement in respect of any increases in their separate return tax
liability for periods prior to the consummation of the Offerings. The
Company is not aware of any such liabilities.
Directors of the Company, John W. Jordan II, David W. Zalaznick
and Thomas H. Quinn each have an ownership interest of more than 10% of
the common stock of Jordan Industries.
<PAGE>
Common Stock Consideration. In connection with the purchase of
Common Stock by certain officers and directors of the Company, Thomas
H. Quinn paid $179,609.21, Dominic J. Pileggi paid $21,444.44, Jonathan
F. Boucher paid $105,870.29, John W. Jordan paid $758,698.31 and David
W. Zalaznick paid $366,145.54. Each of Mssrs. Quinn, Pileggi, Jordan
and Zalaznick borrowed one-half of the purchase price from Jordan
Industries.
Management Arrangements. In connection with the initial
capitalization of the Company, Mr. Pileggi acquired 10,000 shares of
Common Stock for $20,740 in cash. The Company has a five-year call
option on these shares at Mr. Pileggi's original cost, exercisable only
if his employment terminates, provided that 30% of his shares will
cease to be subject to the call option on September 1, 1998, an
additional 10% of the shares will cease to be subject to the call
option each of September 1, 1999 and 2000, and the remaining 50% of the
shares will cease to be subject to the call option on September 1,
2001.
Acquisition Consideration. In connection with acquiring the
Company's subsidiaries, the sellers of the subsidiaries, who usually
include the subsidiary's management, often receive sellers' notes,
stock or stock appreciation rights and special bonus plans in respect
of those subsidiaries. The Company expects to continue using such
devices and incentives, when appropriate, in making future acquisitions
and providing incentives for subsidiary management. The consideration
paid the sellers of the subsidiaries in each case was negotiated at
arms-length.
SAR Payments. In April 1997, the Company paid and purchased
stock appreciation rights and related interests at Dura-Line, AIM and
Cambridge. At Dura-Line, the Company paid $9.4 million as part of a
$15.4 million agreement to purchase Dura-Line stock appreciation rights
from the president and chief financial officer of Dura-Line, and agreed
to redeem, in March 1998, $1.9 million of Dura-Line preferred stock
held by the president and chief financial officer of Dura-Line. At AIM
and Cambridge, the Company paid $3.1 million as part of a $6.5 million
agreement to purchase AIM and Cambridge stock appreciation rights
(based upon 20% of AIM and Cambridge appreciation from 1989 to 1996)
from the estates of the former presidents of AIM and Cambridge. Each
of these payments and purchases in respect of the stock appreciation
rights was expensed for financial reporting purposes.
Guaranty. In connection with the acquisition of Diversified,
Diversified issued sellers' notes in the aggregate principal amount of
$1.5 million. The principal amount of the sellers' notes is guaranteed
by Jordan Industries.
Directors and Officers Indemnification. The Company and each of
its directors have entered into indemnification agreements. The
indemnification agreements provide that the Company will indemnify the
directors against certain liabilities (including settlements) and
expenses actually and reasonably incurred by them in connection with
any threatened or pending legal action, proceeding or investigation
(other than actions brought by or in the right of the Company) to which
any of them is, or is threatened to be, made a party by reason of their
status as a director, officer or agent of the Company, or serving at
<PAGE>
the request of the Company in any other capacity for or on behalf of
the Company; provided that (i) such director acted in good faith and in
a manner not opposed to the best interests of the Company; (ii) with
respect to any criminal proceedings had no reasonable cause to believe
his or her conduct was unlawful; (iii) such director is not finally
adjudged to be liable for negligence or misconduct in the performance
of his or her duty to the Company, unless the court rules in light of
the circumstances the director is nevertheless entitled to
indemnification; and (iv) the indemnification does not relate to any
liability arising under Section 16(b) of the Exchange Act, or the rules
or regulations promulgated thereunder. With respect to any action
brought by or in the right of the Company, directors may also be
indemnified to the extent not prohibited by applicable laws or as
determined by a court of competent jurisdiction, against expenses
actually and reasonably incurred by them in connection with such action
if they acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interest of the Company.
Future Arrangements. The Company has adopted a policy to provide
that future transactions between the Company and its officers,
directors and other affiliates (including Jordan Industries) must (i)
be approved by a majority of the members of the Board of Directors and
by a majority of the disinterested members of the Board of Directors;
and (ii) be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
[ This space is intentionally left blank
<PAGE>
Part IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE
AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) Financial Statements
Reference is made to the Index to Consolidated Financial
Statements appearing at Item 8, which Index is incorporated
herein by reference.
(2) Financial Statement Schedule
The following financial statement schedule for the years ended
December 31, 1997, 1996 and 1995 is submitted herewith:
Item Page Number
Schedule II - Valuation and qualifying amounts S-1
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions, are not applicable and
therefore have been omitted, or the information has been included in
the consolidated financial statements.
(3) Exhibits
An index to the exhibits required to be listed under this Item
14(a)(3) follows the "Signatures" section hereof and is
incorporated herein by reference.
(b) Reports on Form 8-K
None.
<PAGE>
Signatures Page
Pursuant to the requirements of the Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registration has duly caused this
report to be signed on its behalf by the undersigned thereunto duly
authorized.
JORDAN INDUSTRIES, INC.
By: /s/ Thomas H. Quinn
Thomas H. Quinn
Chairman of the Board of Directors
Dated: March 30, 1998
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ Thomas H. Quinn
Thomas H. Quinn
Dated: March 30, 1998 Chairman of the Board of Directors
By: /s/ William C. Ballard
William Ballard
Dated: March 30, 1998 Director
By: /s/ Jonathan F. Boucher
Jonathan F. Boucher
Dated: March 30, 1998 Director
By: /s/ John W. Jordan, II
John W. Jordan, II
Dated: March 30, 1998 Director
By: /s/ Michael A. Wadsworth
Michael A. Wadsworth
Dated: March 30, 1998 Director
<PAGE>
By: /s/ David W. Zalaznick
David W. Zalaznick
Dated: March 30, 1998 Director
By: /s/ Michael R. Elia
Michael R. Elia
Dated: March 30, 1998 Chief Financial Officer
(this space intentionally left blank)
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
1 Purchase Agreement, dated July 21, 1997, by and among Jordan
Telecommunication Products, Inc., Jefferies & Company, Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation and Smith
Barney Inc. (Incorporated by reference to Exhibit 1 of the
registrants registration statements on Form S-4 (333-34585)
dated November 12, 1997 ("S-4")
3.1 Certificate of Incorporation of Jordan Telecommunication
Products, Inc. (Incorporated by reference to Exhibit 3.1 of
the registrants registration statements on Form S-4 (333-
34585) dated November 12, 1997 ("S-4")
3.2 Bylaws of Jordan Telecommunication Products, Inc.
(Incorporated by reference to Exhibit 3.2 of the registrants
registration statements on Form S-4 (333-34585) dated November
12, 1997 ("S-4")
4.1 Series A and Series B 9 7/8% Senior Notes due 2007 Indenture,
dated July 25, 1997, between Jordan Telecommunication
Products, Inc. And First Trust National Association, as
Trustee (Incorporated by reference to Exhibit 4.1 of the
registrants registration statements on Form S-4 (333-34585)
dated November 12, 1997 ("S-4")
4.2 Series A and Series B 11 _% Senior Discount Notes due 2007
Indenture, dated July 25, 1997, between Jordan
Telecommunication Products, Inc. and First Trust National
Association, as Trustee (Incorporated by reference to Exhibit
4.2 of the registrants registration statements on Form S-4
(333-34585) dated November 12, 1997 ("S-4")
4.3 Series A and Series B 13 1/4% Subordinated Preferred Stock
Exchange Notes due 2009 Indenture, dated July 25, 1997,
between Jordan Telecommunication Products, Inc. and First
Trust National Association, as Trustee (Incorporated by
reference to Exhibit 4.3 of the registrants registration
statements on Form S-4 (333-34585) dated November 12, 1997
("S-4")
4.4 Global Series A 9 7/8% Senior Note due 2007 (Incorporated by
reference to Exhibit 4.4 of the registrants registration
statements on Form S-4 (333-34585) dated November 12, 1997
("S-4")
4.5 Form of Global Series B 9 7/8% Senior Note due 2007 (included
in Exhibit 4.1) (Incorporated by reference to Exhibit 4.5 of
the registrants registration statements on Form S-4 (333-
34585) dated November 12, 1997 ("S-4")
4.6 Global Series A 11 _% Senior Discount Note due 2007
(Incorporated by reference to Exhibit 4.6 of the registrants
registration statements on Form S-4 (333-34585) dated November
12, 1997 ("S-4")
4.7 Form of Global 11 _% Series B Senior Discount Note due 2007
(included in Exhibit 4.2) (Incorporated by reference to
Exhibit 4.7 of the registrants registration statements on Form
S-4 (333-34585) dated November 12, 1997 ("S-4")
4.8 Global Series A 13 1/4% Senior Exchangeable Preferred Stock due
2009 Certificate (Incorporated by reference to Exhibit 4.8 of
the registrants registration statements on Form S-4 (333-
34585) dated November 12, 1997 ("S-4")
<PAGE>
4.9 Form of Global Series B 13 1/4% Senior Exchangeable Preferred
Stock due 2009 Certificate (Incorporated by reference to
Exhibit 4.9 of the registrants registration statements on Form
S-4 (333-34585) dated November 12, 1997 ("S-4")
4.10 Form of Global Series A and Series B 13 1/4% Subordinated
Preferred Stock Exchange Notes (included in Exhibit 4.3)
(Incorporated by reference to Exhibit 4.10 of the registrants
registration statements on Form S-4 (333-34585) dated November
12, 1997 ("S-4")
4.11 $190,000,000 9 7/8% Series A Senior Notes due 2007
Registration Rights Agreement, dated July 25, 1997, by and
among Jordan Telecommunication Products, Inc., Jefferies &
Company, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and Smith Barney, Inc. (Incorporated by reference
to Exhibit 4.11 of the registrants registration statements on
Form S-4 (333-34585) dated November 12, 1997 ("S-4")
4.12 $120,000,000 11 _% Series A Senior Discount Notes due 2007
Registration Rights Agreement, dated July 25, 1997, between
Jordan Telecommunication Products, Inc. and Jefferies &
Company, Inc. (Incorporated by reference to Exhibit 4.12 of
the registrants registration statements on Form S-4 (333-
34585) dated November 12, 1997 ("S-4")
4.13 $25,000,000 13 1/4% Series A Senior Exchangeable Preferred Stock
due 2009 Registration Rights Agreement, dated July 25, 1997,
between Jordan Telecommunication Products, Inc. and Jefferies
& Company, Inc. (Incorporated by reference to Exhibit 4.13 of
the registrants registration statements on Form S-4 (333-
34585) dated November 12, 1997 ("S-4")
4.14 Subscription Agreement, dated July 21, 1997, by and among
Jordan Telecommunication Products, Inc. and the investors
listed thereto (Incorporated by reference to Exhibit 4.14 of
the registrants registration statements on Form S-4 (333-
34585) dated November 12, 1997 ("S-4")
4.15 Management Subscription Agreement, dated July 21, 1997,
between Jordan Telecommunication Products, Inc. and Dominic
Pileggi (Incorporated by reference to Exhibit 4.15 of the
registrants registration statements on Form S-4 (333-34585)
dated November 12, 1997 ("S-4")
4.16 Stockholders Agreement, dated July 21, 1997, by and among
Jordan Telecommunication Products, Inc. and the Stockholders
listed thereto (Incorporated by reference to Exhibit 4.16 of
the registrants registration statements on Form S-4 (333-
34585) dated November 12, 1997 ("S-4")
10.1 Revolving Credit Agreement, dated July 25, 1997, by and among
JTP Industries, Inc., the lenders listed thereto and
BankBoston, N.A., as Agent (Incorporated by reference to
Exhibit 10.1 of the registrants registration statements on
Form S-4 (333-34585) dated November 12, 1997 ("S-4")
10.2 Tax Sharing Agreement, dated July 29, 1994 and Additional
Subsidiary Agreement dated July 25, 1997 by and among the
signatories thereto (Incorporated by reference to Exhibit
10.2 of the registrants registration statements on Form S-4
(333-34585) dated November 12, 1997 ("S-4")
10.3 Properties Services Agreement, dated July 25, 1997, by and
among JTP Properties, Inc., and Jordan Industries, Inc., and
the other signatories thereto (Incorporated by reference to
Exhibit 10.3 of the registrants registration statements on
Form S-4 (333-34585) dated November 12, 1997 ("S-4")
<PAGE>
10.4 Transition Agreement, dated July 25, 1997, between Jordan
Telecommunication Products, Inc. and Jordan Industries, Inc.
(Incorporated by reference to Exhibit 10.4 of the registrants
registration statements on Form S-4 (333-34585) dated November
12, 1997 ("S-4")
10.5 New Subsidiary Advisory Agreement, dated July 25, 1997, by and
among Jordan Telecommunication Products, Inc. and Jordan
Industries, Inc. and the other signatories thereto
(Incorporated by reference to Exhibit 10.5 of the registrants
registration statements on Form S-4 (333-34585) dated November
12, 1997 ("S-4")
10.6 New Subsidiary Consulting Agreement, dated July 25, 1997, by
and among Jordan Telecommunication Products, Inc. and Jordan
Industries, Inc. and the other signatories thereto
(Incorporated by reference to Exhibit 10.6 of the registrants
registration statements on Form S-4 (333-34585) dated November
12, 1997 ("S-4")
10.7 Form of Indemnification Agreement, dated July 25, 1997,
between Jordan Telecommunication Products, Inc. and its
directors (Incorporated by reference to Exhibit 10.7 of the
registrants registration statements on Form S-4 (333-34585)
dated November 12, 1997 ("S-4")
10.8 Acquisition Agreement for Telephone Services of Flordia
("TSI")
25.1 Statement of Eligibility of Trustee for 9 7/8% Senior Notes
due 2007, 11 3/4% Discount Notes due 2007 and 13 1/4% Subordinated
Preferred Stock Exchange Notes due 2009 (Incorporated by
reference to Exhibit 25.1 of the registrants registration
statements on Form S-4 (333-34585) dated November 12, 1997
("S-4")
<PAGE>
Schedule II
JORDAN TELECOMMUNICATION PRODUCTS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
Additions Uncollectible
Balance Charged Balances
at to Costs Written off Balance
Beginning and Net of at end of
Of Period Expenses Recoveries Other Period
Year Ended December 31, 1995:
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful
accounts $ 60 $221 $(109) $ -0- $ 172
Valuation for deferred tax
assets 2,975 -0- -0- 190 3,165
Inventory reserves -0- 25 -0- -0- 25
Year Ended December 31, 1996:
Allowance for doubtful
accounts 172 270 (95) 154 501
Valuation for deferred tax
assets 3,165 -0- -0- 738 3,903
Inventory reserves 25 248 (160) 184 297
Year Ended December 31, 1997:
Allowance for doubtful
accounts 501 539 (238) 65 867
Valuation for deferred tax
assets 3,903 -0- -0- 9,814 13,717
Inventory reserves 297 688 (270) -0- 715
AGREEMENT FOR PURCHASE AND SALE OF STOCK
of
TELEPHONE SERVICES, INC. OF FLORIDA
AGREEMENT FOR PURCHASE AND SALE OF STOCK
THIS AGREEMENT (this "Agreement"), dated as of the _______ day of
October, 1997, is made by and among RAYMOND E. MURRAY, RAYMOND MICHAEL MURRAY,
PAUL MELECH, O'NEAL SUTTON, DENISE R. SUTTON, O'NEAL SUTTON III, STEVEN K.
SUTTON, NICOLE F. WILLIER, KAITLYN M. SUTTON, JACKSON W. SUTTON, GERALDINE L.
BROWN, JEANETTE E. SMITH, THE R. MICHAEL & JOY A. MURRAY 1997 UNITRUST, THE
RAYMOND E. MURRAY 1997 UNITRUST, THE RAYMOND E. MURRAY REVOCABLE TRUST, THE
PAUL AND TRISH MELECH 1997 UNITRUST AND THE COMMUNITY FOUNDATION OF TAMPA BAY,
INC. (the "Foundation") being the holders of all of the outstanding shares of
stock of TELEPHONE SERVICES, INC. OF FLORIDA, a Florida corporation
(hereinafter "the Company"), all of said individuals being hereinafter
collectively referred to as the "Sellers," and TELEPHONE SERVICES HOLDINGS,
INC., a Delaware corporation (hereinafter "Holdings").
ARTICLE I
PURCHASE AND SALE; PRICE
1.1 Purchase and Sale of the Shares and the Noncompetition
Agreements. At the Closing (hereinafter defined) and in the manner herein
provided, the Sellers shall sell and deliver all of the shares of capital stock
of the Company (hereinafter collectively called the "Shares") to Holdings, and
Holdings shall purchase the Shares from Sellers, together with the
Noncompetition Agreements (defined below), on the terms and conditions set
forth herein.
1.2 Purchase Price. Subject to the terms and conditions of
this Agreement and in reliance on the representations and warranties of the
Sellers herein contained, and in consideration of the sale, conveyance,
transfer and delivery of the Shares provided for in this Agreement and the
execution of the Noncompetition Agreements, Holdings agrees to pay to the
Sellers an aggregate purchase price (the "Purchase Price") of $50,000,000, plus
the additional payments made pursuant to the APP (defined below), payable, pro
rata to the Sellers based on the number of Shares purchased by Holdings from
each of the Sellers, as follows:
(a) $43,000,000 by delivery at the Closing to the Sellers in
the amounts set forth in Exhibit 1.2(a), and in the form of a certified or
cashier's check or funds by wire transfer to account(s) designated by the
Sellers in writing no later than five business days prior to Closing, which
amount includes the $2,000,000 payment for the purchase of the Noncompetition
Agreements;
<PAGE>
(b) $5,000,000 by delivery of an 8% subordinated note, with
respect to The Raymond E. Murray Revocable Trust, in the form designated as
Exhibit 1.2(b) hereto and with respect to Raymond Michael Murray, Paul Melech,
O'Neal Sutton, The R. Michael and Joy A. Murray 1997 Unitrust and The Paul and
Trish Melech 1997 Unitrust, in the form designated as Exhibit 1.2(c), payable
in the aggregate principal amount of $5,000,000 (the "Subordinated Notes"), in
accordance with the allocations set forth in Exhibit 1.2(a);
(c) If and when required by Section 1.4(b) hereof, Holdings
shall pay all or a portion of the $2,000,000 retained by Holdings and disbursed
pursuant to this Agreement (the "Reserve Amount"), together with such other
amounts as Holdings is required to pay under Section 1.4(b) hereof, by delivery
of a certified or cashier's check or by wire transfer or transfers to an
account or accounts designated by certain Sellers in accordance with the
allocation set forth on Exhibit 1.2(d);
(d) The amounts, if any, payable pursuant to the APP to
certain Sellers in accordance with the allocation set forth on Exhibit 1.2(e);
and
(e) Up to $500,000 for Excess Owners' Equity (defined below),
pursuant to Section 1.4(b) and in accordance with the allocation set forth on
Exhibit 1.2(a).
1.3 Payment of Liabilities; Definitions.
(a) Liabilities.
(i) Payment of Liabilities Other Than Permitted Liabilities.
The Sellers acknowledge and agree that the Purchase Price has been calculated,
and is being paid, based on the agreement that the Company will have paid in
full immediately prior to the Closing all liabilities and obligations of the
Company other than the Permitted Liabilities. "Permitted Liabilities" shall
mean only the current portion of trade accounts payable, accrued payroll,
accrued payroll taxes, accrued sales taxes, accrued income taxes, other accrued
taxes, accrued operating expenses, the current and noncurrent amounts payable
to The Bank of Tampa pursuant to the Existing Credit Agreement (defined below),
accrued liabilities for long term inventory obligations pursuant to the
Purchase Agreement with Lucent Technologies, Inc., the Texas expansion costs
disclosed in Exhibit 2.25 (the "Texas Expansion"), up to $75,000 in transaction
costs actually incurred by the Company in connection with this Agreement (the
"Permitted Transaction Costs") and the capital leases designated as such in
Exhibit 2.10.
(ii) Excluded Liabilities. "Excluded Liabilities" shall mean
all liabilities of the Company other than the Permitted Liabilities, including,
without limitation, all interest bearing debt (other than the Existing Credit
Agreement), mortgages, shareholder loans, dividends payable, other capital
debt, any capital expenditure (other than those aggregating less than $5,000
<PAGE>
and those associated with the Texas Expansion) or other liability incurred
outside the normal course of business or any similar obligation (collectively,
the "Excluded Liabilities"). The Company shall give prior Notice (hereinafter
defined) to Holdings before incurring any Excluded Liabilities. In the event
any Excluded Liabilities exist at the Closing, then such amounts shall not
constitute Damages (defined in Article XI); instead the Purchase Price shall be
reduced by the aggregate amount of the Excluded Liabilities on a dollar for
dollar basis. If the cash portion of the Purchase Price has already been paid
when such liabilities or obligations are discovered by Holdings, then Holdings
may offset such liabilities or obligations against the Reserve Amount, and if
the Reserve Amount has been paid or is not payable pursuant to Section 1.4(b),
then the Sellers will immediately pay such liabilities or obligations or repay
Holdings for any expenditure incurred by Holdings in relation to such
liabilities or obligations.
(b) Calculations; Definitions.
(i) Calculation of Owners' Equity. "Owners' Equity" shall
equal (x) the aggregate dollar amount of the Company's Total Assets
(hereinafter defined) less (y) the aggregate dollar amount of the Permitted
Liabilities plus (z) the Permitted Transaction Costs. For example purposes
only, the Company's Owners' Equity as of August 31, 1997 is set forth on
Exhibit 1.3(a). In the calculation of Owners' Equity, the Company will use
GAAP (hereinafter defined) and provide for all year-end expense adjustments on
a pro-rata basis.
(ii) Definition of Total Assets. "Total Assets" shall mean
the amount of all assets (net of reserves for bad debts, depreciation and
similar "contra-asset" items) of the Company.
(iii) Definition of Laws. "Laws" shall mean, without
limitation, all foreign, federal, state and local laws, statutes, rules,
regulations, codes, ordinances, plans, orders, judicial decrees, writs,
injunctions, notices, decisions or demand letters issued, entered or
promulgated pursuant to any foreign, federal, state or local law.
(iv) Definition of GAAP or Generally Accepted Accounting
Principles. "GAAP" or "generally accepted accounting principles" shall mean
such principles, applied on a consistent basis, as set forth in Opinions of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and/or in statements of the Financial Accounting Standards Board
which are applicable in the circumstances as of the date in question. For
purposes of this definition, the requirement that such principles be applied on
a "consistent basis" shall mean that accounting principles observed in the
current period are comparable in all material respects to those applied in the
preceding periods, except as change is permitted or required under or pursuant
<PAGE>
to such accounting principles. The delivery of an unqualified opinion of Ernst
& Young, LLP on the financial statements of the Company as of August 31, 1997
or for any subsequent periods shall be deemed to have satisfied GAAP.
(v) Definition of Permitted Distributions. "Permitted
Distributions" shall mean payments made by the Company in September and October
of 1997 for estimated quarterly corporate income taxes, customary compensation
and management bonuses paid in the ordinary course of business consistent with
past practices, and special employee bonuses of up to $1,000,000, all of which
are detailed in Exhibit 1.3(b).
(vi) Definition of Sellers' Agent. "Sellers' Agent" shall
mean Raymond E. Murray. Each of the Sellers hereby appoints Raymond E. Murray
as his, her or its representative and attorney-in-fact , with full power and
authority (including power of substitution), in the name of and on behalf of
each such Seller, or in his own name as the Sellers' Agent, to resolve all
issues concerning the Post-Closing Adjustment pursuant to Section 1.4(b) hereof
and for the purposes set forth in Section 11.4 hereof.
(vii) Definition of Existing Credit Agreement. The "Existing
Credit Agreement" shall mean The Commercial/Agricultural Revolving or Draw Note
- - Variable Rate dated March 22, 1996, as amended, executed by the Company in
favor of The Bank of Tampa.
1.4 Financial Requirements Regarding Purchased Owners' Equity;
Post Closing Adjustments.
(a) Financial Requirements. Notwithstanding anything in this
Agreement to the contrary the Owners' Equity at the Closing shall not be less
than $5,000,000.
(b) Post-Closing Adjustments. Immediately after the Closing,
at no cost to the Sellers, Holdings will have prepared by Ernst & Young, LLP an
audited balance sheet of the Company as of the Closing Date, together with a
calculation of Owners' Equity at the Closing Date (the "Closing Financials and
Computations"). The Closing Financials and Computations will be completed
within 90 business days after the Closing Date and delivered to the Sellers'
Agent for review. If the Sellers' Agent has any objections to or otherwise
disputes the Closing Financials and Computations, the Sellers' Agent shall
notify Holdings within 30 business days of his receipt of such Closing
Financials and Computations, describing his objections and the basis therefor
in reasonable detail. The failure of the Sellers' Agent to so notify Holdings
within such 30 business day period, or notification by the Sellers' Agent that
he has no objection to the Closing Financials and Computations, shall
constitute acceptance thereof, whereupon the Closing Financials and
Computations shall be deemed complete and final. Alternatively, if Holdings
accepts the proposed changes of the Sellers' Agent, the Closing Financials and
Computations shall be deemed complete and final upon such written acceptance by
Holdings. If Holdings does not respond to the changes proposed by the Sellers'
<PAGE>
Agent within 30 business days following receipt of such proposed changes, the
same shall be deemed to have been accepted by Holdings, and the Closing
Financials and Computations as so changed shall be deemed complete and final.
The parties agree that the provisions of Section 12.7 hereof will apply in
resolving any dispute regarding the Closing Financials and Computations.
Immediately after the completion of the Closing Financials and Computations,
and the review and acceptance of the same by the Sellers' Agent, or, if
applicable the resolution in accordance herewith of any dispute between the
parties with respect to the Closing Financials and Computations, the parties
agree that the Reserve Amount, or portions thereof, shall be retained by
Holdings to satisfy any deficiency in any of the requirements described in
Section 1.4(a) above (the "Deficiency"). Immediately thereafter, Holdings
shall pay to the Sellers the remaining Reserve Amount, if any, or all of the
Reserve Amount, if appropriate, together with 8% annual interest thereon,
accrued from the Closing Date to the date of payment. If no Deficiency exists,
Holdings shall pay to the Sellers, an amount equal to the Owners' Equity at
Closing less $5,000,000; provided, however, that such payment shall in no event
exceed $500,000, even if Owners' Equity at Closing exceeds $5,500,000 (the
"Excess Owners' Equity"). Payments by Holdings pursuant to this Section 1.4
shall be made to those certain Sellers in accordance with the allocations set
forth in Exhibit 1.2(a) with respect to Excess Owners' Equity and in accordance
with the allocations set forth in Exhibit 1.2(d) with respect to the Reserve
Amount . To the extent that the Deficiency at Closing exceeds the Reserve
Amount, such Deficiency shall not constitute Damages, but shall be immediately
due and payable to Holdings in cash by the Sellers.
(c) Pro-Rata Adjustments. The Sellers and Holdings will
provide for all year-end expense adjustments on a pro-rata basis prior to the
preparation of the Closing Financials and Computations and disbursement of the
Reserve Amount in accordance with Section 1.4(b) above.
1.5 Allocations of the Purchase Price Among Sellers. The
Purchase Price shall be paid and allocated among the Sellers as provided in the
allocation set forth on Exhibit 1.5 hereto, including the allocation of
$2,000,000 for the Noncompetition Agreements.
1.6 Accounts and Notes Receivable. Sellers will deliver to
Holdings a schedule of all accounts and notes receivable (and the face amounts
thereof) which are outstanding on the Closing Date. All accounts and notes
receivable listed on the schedule delivered at the Closing will constitute
valid claims against third parties not affiliated with the Company arising in
the ordinary course of business of the Company. The parties hereto agree that
Holdings may assign to Sellers any accounts and notes receivable which are
outstanding on the Closing Date and which are uncollected as of the date six
months after the Closing Date, and concurrently with such assignment Sellers
shall pay to Holdings, in cash, an amount equal to the aggregate value of such
<PAGE>
accounts and notes receivable to the extent the same exceeds the reserve for
doubtful accounts on the Balance Sheet. All amounts which are collected by
Holdings or the Company from an account or note debtor after the Closing Date
shall be first applied to reduce the oldest outstanding balance on such account
or with such note debtor.
1.7 Product Claims and Returns. Sellers shall be responsible
for customer claims relating to services rendered by the Company prior to the
Closing Date, and customer claims relating to, or returns of, products of the
Company sold and shipped by the Company prior to the Closing Date or in the
finished goods inventory of the Company as of the Closing Date. If a customer
makes a claim or seeks a return and, in the judgment of the then management of
the Company the claim or return is proper, the Company shall replace or repair,
as the case may be, the services rendered or product purchased at the Company's
then generally prevailing prices and labor rates. Such repairs or returns
shall be for the account of Sellers who shall promptly reimburse Holdings for
the amounts thereof in excess of reserves for such items included in the
Balance Sheet.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each of the Indemnifying Sellers (as defined in Section 11.1 to this
Agreement) hereby jointly and severally represent and warrant to Holdings, as
follows:
2.1. Corporate Organization, etc. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
state of Florida with all requisite corporate power and authority to carry on
its business as it is now being conducted and to own, operate and lease its
properties and assets. Exhibit 2.1.1 lists each of the states where the
Company is qualified as a foreign corporation. The conduct of its business and
its ownership or use of property do not require the Company to be qualified or
licensed to do business as a foreign corporation in any state except those
listed in Exhibit 2.1.1. Exhibit 2.1.2 contains complete and correct copies of
the Company's (i) articles of incorporation; (ii) bylaws; (iii) good standing
certificates from the secretary of state of (A) the state of Florida and (B)
each of the states listed on Exhibit 2.1.1; and (iv) certificates of authority
for the states listed in Exhibit 2.1.1, each as amended to date. The Company
has all federal, state, local and foreign licenses, permits or other approvals
required for the operation of its business as now being conducted.
2.2. Capital Stock; Options. The authorized capital stock of the
Company and the shares of capital stock of the Company issued and outstanding,
of all classes, and the respective holdings of each of Sellers, are as set
<PAGE>
forth in Exhibit 2.2. The Shares represent all of the issued and outstanding
capital stock of the Company, the Shares are all listed on Exhibit 2.2, and the
Company has no treasury stock. All of the Shares are validly issued, fully
paid and nonassessable and are owned by Sellers, free and clear of all
encumbrances or claims. There are no issued and outstanding options, warrants,
rights, securities, contracts, commitments, understandings or arrangements by
which the Company is bound to issue any additional shares of its capital stock
or options to purchase shares of its capital stock.
2.3. Subsidiaries and Affiliates. Except as set forth in Exhibit
2.3, the Company has no subsidiaries, Affiliates or investments in any other
entity or business operation. The term "Affiliates" includes each shareholder,
director, officer and employee of the Company, the family members of each
Seller, and any director, officer or employee of the Company, and any
corporation, partnership or other entity in which the Company, any Seller, any
family member of a Seller or director or officer of the Company has any
financial interest or is a controlling person, as that term is used in
connection with the federal securities laws, if such person or entity has, or
in the past had, a contractual relationship with or is transacting, or has in
the past transacted, business with the Company. All of the outstanding shares
of all classes of capital stock of each subsidiary of the Company are owned by
the Company free of any liens, security interests, claims or encumbrances. The
Company has no Affiliate whose liabilities or obligations will be assumed by
Holdings.
2.4. Authorization, etc. The Sellers have full power and
authority to enter into this Agreement and to carry out the transactions
contemplated hereby. Except for O'Neal Sutton III, none of the Sellers are
residents of any state that has enacted community property statutes nor are any
of the Sellers subject to any community property statutes.
2.5. No Violation. Except as set forth in Exhibit 2.5, the
Company is not subject to or obligated under any article or certificate of
incorporation, bylaw, Law (as defined in Section 1.3(b)(iii)), or any agreement
or instrument, or any license, franchise or permit, which would be breached or
violated by Sellers' execution, delivery and performance of this Agreement.
Sellers will comply with all applicable Laws in connection with their
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby.
2.6. Governmental Authorities. Neither the Sellers nor the
Company are required to submit any notice, report or other filing with, and no
consent, approval or authorization is required, by any governmental or
regulatory authority in connection with their execution, delivery, consummation
or performance of this Agreement or the transactions contemplated hereby.
<PAGE>
Neither the Company nor any "Ultimate Parent Entity" (as defined in 16 C.F.R.
801.1(a) (1988)) of the Company immediately prior to the transactions
contemplated hereunder is a person that has total assets or annual net sales of
$100,000,000 or more within the meaning of 15 U.S.C. Section 18a.
2.7. Financial Statements. Exhibit 2.7 contains the Company's
reviewed statements of financial position as of November 30th for the years
1994 through 1996 and reviewed statements of income and retained earnings for
the fiscal year then ended, each such statement being prepared by Fabricant,
Weissman & Darby, P.A., together with the Company's audited statement of
financial position as of August 31, 1997 and audited statement of income and
retained earnings for the 9 month period then ended, each such statement being
prepared by Ernst & Young, LLP. All such statements of financial position and
the notes thereto are complete and accurate and fairly present the financial
position of the Company as of the respective dates thereof, and such statements
of income and retained earnings and the notes thereto fairly present the
results of operations for the periods therein referred to, all in accordance
with generally accepted accounting principles consistently applied throughout
the periods indicated (except as stated therein or in the notes thereto). The
audited statement of financial position as of August 31, 1997 and the notes
thereto included in Exhibit 2.7 are referred to as the "Balance Sheet". August
31, 1997 is referred to as the "Financial Statement Date."
2.8. No Undisclosed Liabilities, Claims, etc. Except for (a)
liabilities fully reflected or reserved against in the Balance Sheet; and (b)
regular and usual liabilities and obligations incurred in the ordinary course
of business consistent with past practices after the Financial Statement Date,
the Company has no liabilities, obligations or claims (absolute, accrued, fixed
or contingent, matured or unmatured, or otherwise), including liabilities,
obligations or claims which may become known or which arise only after the
Closing and which result from actions, omissions or occurrences of the Company
prior to the Closing.
2.9. Absence of Certain Changes. Since the Financial Statement
Date, there has not been (a) any adverse change in the business, prospects,
financial condition, earnings or operations of the Company's business; (b) any
damage, destruction or loss, whether covered by insurance or not, adversely
affecting the Company's properties and business; (c) any declaration, setting
aside or payment of any dividend whether in cash, stock or property with
respect to the Company's capital stock, or any redemption or other acquisition
of such stock by the Company; (d) any increase in the compensation payable or
to become payable by the Company to its directors, officers, key employees,
Affiliates or any of the Sellers or any adoption of or increase in any bonus,
insurance, pension or other employee benefit plan, payment or arrangement made
<PAGE>
to, for or with any such party (except for Permitted Distributions); (e) any
entry by the Company into any commitment or transaction, including, without
limitation, any borrowing or capital expenditure other than in accordance with
the schedule of capital expenditures (Exhibit 2.25); (f) any change by the
Company in accounting methods, practices or principles; (g) any adoption of any
statute, rule, regulation or order which adversely affects the Company; (h) any
termination or waiver of any rights of value to the business of the Company;
(i) any other transaction or event other than in the ordinary course of the
Company's business (except for Permitted Distributions); (j) any transaction or
conduct inconsistent with the Company's past business practices; (k) any
adoption or amendment of any collective bargaining, bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation, or
other plan, agreement, trust, fund or arrangement for the benefit of employees;
or (l) any agreement or understanding made or entered into to do any of the
foregoing.
2.10. Contracts. Exhibit 2.10 contains a schedule of, and copies
of, all Contracts to which the Company is a party. The term "Contracts" shall
include, but shall not be limited to, all oral (which shall be summarized in
Exhibit 2.10) and written contracts, agreements, agency agreements, loan
agreements, mortgages, indentures, deeds of trust, guarantees, commitments,
joint venture agreements, purchase and/or sale agreements, collective
bargaining, union, consulting and/or employment contracts, leases of real or
personal property, easements, distribution or dealer agreements, service
agreements, license agreements and advertising agreements (except there shall
not be included agreements which do not exceed, in the case of any one
agreement, an obligation of $5,000, and in the case of all agreements, an
aggregate obligation of $10,000. The Company is not in default or alleged to
be in default under any Contract nor are Sellers aware of any default by any
other party to any Contract, and there exists no event, condition or occurrence
which, after notice or lapse of time, or both, would constitute a default under
any Contract. All of the Contracts are in full force and effect and constitute
legal, valid and binding obligations of the Company, and to the knowledge of
the Sellers, are legal, valid and binding on the other parties thereto in
accordance with their terms, and will remain in full force and effect after the
Closing without any notice to or consent by any other party, except as set
forth on Exhibit 2.10.
2.11. True and Complete Copies. Copies of all agreements,
contracts and documents delivered and to be delivered hereunder by Sellers or
the Company are and will be true and complete copies of such agreements,
contracts and documents. All written summaries of oral agreements will be true
and complete.
2.12. Title and Related Matters. Except as set forth in Exhibit
2.12, the Company has good and marketable title to all of the properties and
<PAGE>
assets reflected in the Balance Sheet or acquired after the date thereof
(except properties sold or otherwise disposed of since the date thereof in the
ordinary course of business and consistent with past practices), including,
without limitation, the specific assets referred to in paragraphs (a), (b) and
(c) below, free and clear of all mortgages, security interests, liens, pledges,
claims, escrows, options, rights of first refusal, indentures, easements,
licenses, security agreements or other agreements, arrangements, contracts,
commitments, understandings, obligations, charges or encumbrances of any kind
or character, except as reflected on the Balance Sheet. The Company owns or
leases, directly or indirectly, all of the assets and properties, and is a
party to all licenses and other agreements, presently used or necessary to
carry on the business or operations of the Company as presently conducted.
(a) Real Property.
(i) The Company owns no real property.
(ii) The Company is not a tenant under any lease(s) of real
property used by the Company except as described on Exhibit 2.10. With respect
to the leased real property described on Exhibit 2.10 and except as set forth
on Exhibit 2.12: (A) all such leases are in full force and effect and
constitute valid and binding obligations of the respective parties thereto; (B)
there have not been and there currently are not any defaults thereunder by any
party thereto; (C) no event has occurred which (whether with or without notice,
lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder entitling the lessor to terminate the lease;
and (D) the continuation, validity and effectiveness of all such leases under
the current rentals and other current terms thereof will in no way be affected
by the transactions contemplated by this Agreement or, if any would be
affected, Sellers shall use all necessary means at their disposal to cause an
appropriate consent to such transactions to be delivered to Holdings prior to
the Closing Date at no cost or other adverse consequences to the Company ((A)
through (D) are hereinafter collectively referred to as "Lease Restrictions").
(iii) Except as shown on Exhibit 2.12, each parcel of real
property, building, structure and improvement owned, leased or otherwise
utilized by the Company (collectively the "Premises") conforms to all
applicable Laws, including zoning regulations, none of which will, upon the
sale of the Shares to Holdings, prohibit the use of such properties, buildings,
structures or improvements, for the purposes for which they are now utilized.
The Premises are of good quality construction throughout, are in good condition
and working order, are adequate for their intended purposes, have no structural
or other substantial deficiencies, and are free from deferred maintenance.
<PAGE>
(iv) The Company does not currently have, and in the past has not
had, any interest (as owner, tenant or otherwise) in any real property except
as disclosed on Exhibit 2.12.
(b) Personal Property. The Company has good and marketable title
to all the personal property and assets, tangible or intangible, shown on the
Balance Sheet, except to the extent sold or disposed of in transactions entered
into in the ordinary course of business consistent with past practices since
the Financial Statement Date. The personal property in the aggregate is in
good condition and working order, and each individual item of personal property
which would cost in excess of $5,000 to replace is in good condition and
working order. None of such assets are subject to any (i) contracts of sale or
lease, except contracts for the sale of inventory in the ordinary and regular
course of business; or (ii) security interests, encumbrances, liens or charges
of any kind or character, except as set forth in Exhibit 2.12. Except as set
forth in Exhibit 2.12, there are no Lease Restrictions with respect to the
personal property leased by the Company.
(c) Inventories. In addition to subsection (b) of this Section,
the inventories of the Company included on the Balance Sheet, to be included on
interim balance sheets provided pursuant to Section 4.8 and owned by the
Company on the Closing Date: (i) are valued with respect to each category of
inventory at the lower of cost (on a FIFO basis) or market; and (ii) do not
include any items which are below standard quality, damaged or spoiled,
obsolete or of a quality or quantity not usable or salable in the normal course
of the business of the Company as currently conducted within normal inventory
"turn" experience, the value of which has not been fully written down, or with
respect to which adequate reserves have not been provided. The Company has the
proper amount of inventories to conduct its business consistent with past
practices. There has not been since the Financial Statement Date any provision
for markdowns or shrinkage with respect to inventories other than in the
ordinary and regular course of business consistent with past practices or as
otherwise consented to by Holdings.
(d) No Disposition of Assets. Except for those items set forth
on Exhibit 2.12(d), there has not been since the Financial Statement Date any
sale, lease or any other disposition or distribution by the Company of any of
its assets or properties and any other assets now or hereafter owned by it,
except transactions in the ordinary and regular course of business consistent
with past practices or as otherwise consented to by Holdings.
2.13. Litigation. Except as set forth in Exhibit 2.13, there is no
suit, action, investigation or proceeding pending or, to the knowledge of the
Sellers, threatened against the Company or any of Sellers which, if adversely
<PAGE>
determined, would adversely affect the business, prospects, operations,
earnings, properties or the condition, financial or otherwise, of the Company,
nor is there any judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding against the Company having, or which, insofar as can be reasonably
foreseen, in the future may have, any such effect.
2.14. Tax Matters. The term "Taxes" means all net income, capital
gains, gross income, gross receipts, sales, use, transfer, ad valorem,
franchise, profits, license, capital, withholding, payroll, employment, excise,
goods and services, severance, stamp, occupation, premium, property, windfall
profits, customs, duties or other taxes, fees or assessments, or other
governmental charges of any kind whatsoever, together with any interest, fines
and any penalties, additions to tax or additional amounts incurred or accrued
under applicable Law or assessed, charged or imposed by any governmental
authority, domestic or foreign, provided that any interest, penalties,
additions to tax or additional amounts that relate to Taxes for any taxable
period (including any portion of any taxable period ending on or before the
Closing Date) shall be deemed to be Taxes for such period, regardless of when
such items are incurred, accrued, assessed or imposed. For the purposes of
this Section 2.14 and Section 6.5, the Company shall be deemed to include any
predecessor of the Company or any person or entity from which the Company
incurs a liability for Taxes as a result of any transferee liability. Except
as stated in Exhibit 2.14.1:
(a) The Company has duly and timely filed (and prior to the
Closing Date will duly and timely file) true, correct and complete tax returns,
reports or estimates, all prepared in accordance with applicable Laws, for all
years and periods (and portions thereof) and for all jurisdictions (whether
federal, state, local or foreign) in which any such returns, reports or
estimates were due. All Taxes shown as due and payable on such returns,
reports and estimates have been paid, and there is no current liability for any
Taxes due and payable in connection with any such returns. All Taxes not yet
due and payable have been fully accrued on the books of the Company and
adequate reserves have been established therefor; the charges, accruals and
reserves for Taxes provided for on the financial statements delivered or to be
delivered pursuant to Section 2.7 and Section 4.8 are adequate; and there are
no unpaid assessments for additional Taxes for any period nor is there any
basis therefor. Attached hereto as Exhibit 2.14.2 are copies of all federal,
state and foreign tax returns filed by the Company for the past five (5) years.
(b) The Company is not, and never has been, a member of any
consolidated, combined or unitary group for federal, state, local or foreign
tax purposes. The Company is not a party to any joint venture, partnership or
other arrangement that could be treated as a partnership for federal income tax
purposes.
<PAGE>
(c) The Company has (i) withheld all required amounts from its
employees, agents, contractors and nonresidents and remitted such amounts to
the proper agencies; (ii) paid all employer contributions and premiums and
(iii) filed all federal, state, local and foreign returns and reports with
respect to employee income tax withholding, and social security and
unemployment taxes and premiums, all in compliance with the withholding tax
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), as in
effect for the applicable year or any prior provision thereof and other
applicable Laws.
(d) The Company's federal income tax return for the year ended
1988 has been examined by the Internal Revenue Service (the "IRS"). No other
income tax return of the Company has been audited. The federal and state
income tax returns of the Company for all periods through December 31, 1993
have been closed by the applicable statute of limitation. No deficiencies or
reassessments for any Taxes have been proposed, asserted or assessed against
the Company by any federal, state, local or foreign taxing authority. Exhibit
2.14.1 describes the status of any federal, state, local or foreign tax audits
or other administrative proceedings, discussions or court proceedings that are
presently pending with regard to any Taxes or tax returns of the Company
(including a description of all issues raised by the taxing authorities in
connection with any such audits or proceedings), and no additional issues are
being asserted against the Company in connection with any existing audits or
proceedings.
(e) The Company has not executed or filed any agreement or other
document extending the period for assessment, reassessment or collection of any
Taxes, and no power of attorney granted by the Company with respect to any
Taxes is currently in force.
(f) The Company has not entered into any closing or other
agreement with any taxing authority which affects any taxable year of the
Company ending after the Closing Date. The Company is not a party to any tax
sharing agreement or similar arrangement for the sharing of tax liabilities or
benefits.
(g) The Company has not agreed to and is not required to make any
adjustment by reason of a change in accounting methods that affects any taxable
year ending after the Closing Date. The IRS has not proposed to the Company
any such adjustment or change in accounting methods that affects any taxable
year ending after the Closing Date. The Company has no application pending
with any taxing authority requesting permission for any changes in accounting
methods that relate to its business or operations and that affects any taxable
year ending after the Closing Date.
(h) The Company has not consented to the application of Code
Section 341(f).
<PAGE>
(i) There is no contract, agreement, plan or arrangement covering
any employee or former employee of the Company that, individually or
collectively, could give rise to the payment by the Company of any amount that
would not be deductible by reason of Code Section 280G.
(j) No asset of the Company is tax exempt use property under Code
Section 168(h). No portion of the cost of any asset of the Company has been
financed directly or indirectly from the proceeds of any tax exempt state or
local government obligation described in Code Section 103(a).
(k) None of the assets of the Company is property that the
Company is required to treat as being owned by any other person pursuant to the
safe harbor lease provision of former Code Section 168(f)(8).
(l) The Company does not have and has not had a permanent
establishment in any foreign country and does not and has not engaged in a
trade or business in any foreign country. Neither the Sellers nor the Company
is a foreign person within the meaning of Code Section 1445.
(m) Neither Holdings nor the Company will be liable for any
federal, state, local, foreign and other sales, use, documentary, recording,
stamp, transfer or similar Taxes applicable to, imposed upon or arising out of
the transfer of the Shares to Holdings and the related change in control of the
Company except for the asset transfers pursuant to the Asset Purchase Agreement
(defined below).
2.15. Government Contracts. No Contract or other aspect of the
business of the Company is subject to the Armed Services Procurement
Regulations or other regulations of any governmental agency. In particular,
the Agreement for Distribution dated March 31, 1997 by and between the Company
and TeKONTROL, Inc. (the "TeKONTROL Contract"), shall not be violated by the
change of control of the Company contemplated by this Agreement. The Company
has not bid on or been awarded any "small business set aside contract", any
other "set aside contract" or other order or contract requiring small business
or other special status at any time during the last three years. None of the
Company's expected sales or orders will be lost, and the Company's customer
relations will not be damaged, as a result of the Company's continuing the
operations of an entity that does not qualify as a small business.
<PAGE>
2.16. Compliance with Law.
(a) The Company has not previously failed and is not currently
failing to comply with any applicable Laws relating to the business of the
Company or the operation of its assets where such failure or failures would
individually or in the aggregate have an adverse effect on the financial
condition, business, operations or prospects of the Company. In particular,
but without limiting the generality of the foregoing, the Company is in
compliance with all applicable Laws relating to anti-competitive practices,
price fixing, health and safety, environmental, employment and discrimination
matters. There are no proceedings of record and no proceedings are pending or
threatened, nor has the Company or any of the Sellers received any written
notice regarding any violation of any Law, including, without limitation, any
requirement of OSHA or any pollution or environmental control agency (including
air and water).
(b) Exhibit 2.16 contains copies of all reports of inspections by
representatives of any federal, state or local governmental entity or agency of
the business and properties of the Company from January 1, 1993 through the
date hereof under OSHA and under all other applicable health and safety Laws.
The deficiencies, if any, noted on such reports or any deficiencies noted by
such inspections through the Closing Date shall be corrected by the Closing
Date. Neither the Company nor any of the Sellers know or have reason to know
of any other safety, health, environmental, anti-competitive or discrimination
problems relating to the financial condition, business, assets, operations,
prospects, earnings or employment practices of the Company.
2.17. Absence of Certain Business Practices. None of the Sellers,
any person or entity related to or affiliated with any of the Sellers, any
officer, employee or agent of the Company or any of the Sellers, any other
person or entity acting on behalf of or associated with the Company or any of
the Sellers, nor any other entity directly or indirectly owned or controlled by
any of the Sellers or the Company, acting alone or together, has (a) received,
directly or indirectly, any rebates, payments, commissions, promotional
allowances or any other economic benefit, regardless of its nature or type,
from any customer, supplier, trading company, shipping company, governmental
employee or other entity or individual with whom the Company has done business
directly or indirectly; or (b) directly or indirectly, given or agreed to give
any gift or similar benefit to any customer, supplier, trading company,
shipping company, governmental employee or other person or entity who is or may
be in a position to help or hinder the business of the Company (or assist the
Company in connection with any actual or proposed transaction) which (i) might
subject the Company to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (ii) if not given in the past, might
have had an adverse effect on the assets, business or operations of the Company
as reflected in the financial statements set forth as Exhibit 2.7 or (iii) if
<PAGE>
not continued in the future, might adversely affect the assets, business,
operations or prospects of the Company or which might subject the Company to
suit or penalty in any private or governmental litigation or proceeding.
2.18. ERISA and Related Employee Benefit Matters.
(a) Welfare Benefit Plans. Exhibit 2.18.1 lists each "employee
welfare benefit plan" (within the meaning of Section 3(1) of the Employee
Retirement Income Security Act of 1974 ("ERISA")) maintained by the Company or
to which the Company contributes or is required to contribute, including any
multiemployer plan ("Welfare Benefit Plan") and sets forth as of the most
recent valuation date (i) the amount of any liability of the Company for
payments due with respect to any Welfare Benefit Plan, (ii) the amount of any
payment made and to be made, stated separately, by the Company with respect to
any Welfare Benefit Plan for the plan year during which the Closing is to
occur, and (iii) with respect to any Welfare Benefit Plan to which Section 505
of the Code applies, a statement of assets and liabilities for such Welfare
Benefit Plan as of the most recent valuation date. Without limiting the
foregoing, Exhibit 2.18.1 discloses any obligations of the Company to provide
retiree health benefits to current or former employees of the Company.
(b) Pension Benefit Plans. Exhibit 2.18.2 lists each "employee
pension benefit plan" (within the meaning of Section 3(2) of ERISA) maintained
by the Company or to which the Company contributes or is required to
contribute, including any multiemployer plan ("Pension Benefit Plan"). All
costs of the Pension Benefit Plans have been provided for on the basis of
consistent methods and, if applicable, in accordance with sound actuarial
assumptions and practices that are acceptable under ERISA. With respect to
each Pension Benefit Plan that is subject to Title I, Part 3 of ERISA
(concerning "funding"), Exhibit 2.18.2 sets forth as of the valuation date (i)
the unfunded liability for all accrued benefits, (ii) the funding method, (iii)
the actuarially computed value of vested benefits, (iv) the fair market value
of the assets held for funding purposes, (v) the amount and plan year of any
"accumulated funding deficiency," as defined in Section 302(a)(2) of ERISA
(arising for any reason whatever) that exists with respect to any plan year,
and (vi) the amount of any contribution by the Company paid and to be paid,
stated separately, for the plan year during which the Closing is to occur.
With respect to each Pension Benefit Plan that is not subject to Title I, Part
3 of ERISA, Exhibit 2.18.2 sets forth as of the valuation date (i) the amount
of any liability of the Company for any contributions due with respect to such
Pension Benefit Plan and (ii) the amount of any contribution paid and to be
paid, stated separately, by the Company with respect to such Pension Benefit
Plan for the plan year during which the Closing is to occur.
<PAGE>
(c) Compliance with Applicable Law. Each of the Pension Benefit
Plans, Welfare Benefit Plans, any related trust agreements, insurance
contracts, annuity contracts, and other funding instruments, comply with the
provisions of ERISA and the Code and all other statutes, orders, governmental
rules and regulations applicable to such Welfare Benefit Plans and Pension
Benefit Plans. The Company has performed all of its obligations currently
required to have been performed under all Welfare Benefit Plans and Pension
Benefit Plans. There are no actions, suits or claims (other than routine
claims for benefits) pending or threatened against or with respect to any
Welfare Benefit Plans, Pension Benefit Plans or the assets of such plans, and
no facts exist that could give rise to any actions, suits or claims (other than
routine claims for benefits) against such plans or the assets of such plans.
Each Pension Benefit Plan is qualified in form and operation under Section
401(a) of the Code, the Internal Revenue Service has issued a favorable
determination letter with respect to each Pension Benefit Plan, and no event
has occurred that will or could give rise to a disqualification of any Pension
Benefit Plan under Code section 401(a). No event has occurred that will or
could subject any Welfare Benefit Plan or Pension Benefit Plan to tax under
Section 511 of the Code.
(d) Administration of Plans. Each Welfare Benefit Plan and each
Pension Benefit Plan has been administered to date in compliance with the
requirements of ERISA and the Code. No plan fiduciary of any Welfare Benefit
Plan or Pension Benefit Plan has engaged in (i) any transaction in violation of
Section 406(a) or (b) of ERISA, or (ii) any "prohibited transaction" (within
the meaning of Section 4975(c)(1) of the Code) for which no exemption exists
under Section 408 of ERISA or Section 4975(d) of the Code.
(e) Title IV Plans. With respect to each Pension Benefit Plan
which is subject to the provisions of Title IV of ERISA in which the Company
(for purposes of this subsection the Company shall include each trade or
business, whether or not incorporated, which is a member of a group of which
the Company is a member and which is under common control within the meaning of
Section 414 of the Code and the regulations thereunder) participates or has
participated, (i) the Company has not withdrawn from such Pension Benefit Plan
during a plan year in which it was a "substantial employer" (as defined in
Section 4001(a) (2) of ERISA), (ii) the Company has not completely or partially
withdrawn from a Pension Benefit Plan that is a multiemployer plan, and the
liability to which the Company would become subject under ERISA if the Company
were to withdraw completely from all multiemployer plans in which it currently
participates is not in excess of $5,000 as of the most recent valuation date
applicable thereto, (iii) the Company has not filed a notice of intent to
terminate any such Pension Benefit Plan or adopted any amendment to treat such
Pension Benefit Plan as terminated, (iv) the Pension Benefit Guaranty
Corporation has not instituted proceedings to terminate any such Pension
<PAGE>
Benefit Plan, (v) no other event or condition has occurred that might
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a Trustee to administer, any such Pension Benefit Plan, (vi) all
required premium payments to the Pension Benefit Guaranty Corporation have been
paid when due, and (vii) no "reportable event" (as described in Section 4043 of
ERISA and the regulations thereunder) has occurred with respect to said Pension
Benefit Plan.
(f) Other Employee Benefit Plans and Agreements. Exhibit 2.18.3
lists each fringe benefit, profit sharing, deferred compensation, bonus, stock
option, stock purchase, pension, retainer, consulting, retirement, welfare, or
other incentive plan or agreement, employment agreement not terminable on 30
days or less written notice, and any other employee benefit plan, agreement,
arrangement, or commitment not previously listed on the Exhibits to this
Section that is maintained by the Company or to which the Company contributes
or is required to contribute. Exhibit 2.18.3 also contains a complete list of
all employees of the Company and the amount of vacation pay currently accrued
to each such employee.
(g) Copies of Plans. Exhibit 2.18.4 includes true and complete
copies of: each Welfare Benefit Plan, related trust agreements, insurance
contracts and other funding arrangements; each Pension Benefit Plan; related
trust agreements, annuity contracts and other funding instruments; each plan,
agreement, arrangement, and commitment referred to in subsection (f) of this
Section; favorable determination letters; annual reports (Form 5500 series)
required to be filed with any governmental agency for each Welfare Benefit
Plan, Pension Benefit Plan, and fringe benefit plan for the three most recent
plan years, including, without limitation, all schedules thereto and all
financial statements with attached opinions of independent accountants; current
summary plan descriptions; and actuarial reports as of the last valuation date
for each Pension Benefit Plan that is subject to Title IV of ERISA.
(h) Continuation Coverage Requirements for Health Plans. All
group health plans of the Company (including any plans of affiliates of the
Company that must be taken into account under Section 4980B of the Code) have
been operated in compliance with the group health plan continuation coverage
requirements of Section 4980B of the Code and Title I, Part 6 of ERISA.
(i) Valid Obligations. All Welfare Benefit Plans, Pension
Benefit Plans, related trust agreements, annuity contracts or other funding
instruments, and all plans, agreements, arrangements and commitments referred
to in subsection (f) of this Section are legal, valid and binding and in full
force and effect, and there are no defaults thereunder. Except as specified in
Exhibit 2.18.5, none of the rights of the Company thereunder will be impaired
<PAGE>
by the consummation of the transactions contemplated by this Agreement, and all
of the rights of the Company thereunder will be enforceable by Holdings at and
after the Closing without the consent or agreement of any other party other
than consents and agreements specifically listed in Exhibit 2.18.5.
2.19. Intellectual Property. The Company has good and marketable
title to, and Exhibit 2.19 contains a detailed listing of, each copyright,
trademark, trade name, service mark, trade dress, patent, franchise, trade
secret, product designation, formula, process, know-how, right of publicity,
design and other similar rights (collectively "Intellectual Property Rights")
used in, or necessary for, the operation of its business as currently
conducted. Except as otherwise set forth on Exhibit 2.19, all of said
Intellectual Property Rights are free and clear of all royalty obligations,
security interests, liens and encumbrances. The Company has the exclusive
right to use all Intellectual Property Rights used in, or necessary for, the
operation of its business as currently conducted. The Sellers have taken all
action necessary to protect against and defend against, and have no knowledge
of, any conflicting use of any such Intellectual Property Rights. The Company
does not have nor does the Company utilize any Intellectual Property Rights
except those which are set forth in Exhibit 2.19. Except as set forth in
Exhibit 2.19, the Company is not a party in any capacity to any franchise,
license, royalty or other agreement respecting or restricting any Intellectual
Property Rights, and the Intellectual Property Rights used by the Company in
the conduct of its business do not conflict with the Intellectual Property
Rights of any third party. No product made, sold or distributed by the
Company, or service provided by the Company, violates any license or infringes
any Intellectual Property Rights of any third party, and there are no pending
claims or demands by any third party to the contrary.
2.20. Warranties. Except as set forth in Exhibit 2.20, there are
no claims existing or threatened under or pursuant to any warranty, whether
expressed or implied, on products or services sold by the Company and the
Balance Sheet reserves, if any, for anticipated claims are adequate to cover
any such claims. Exhibit 2.20 includes a copy of the form of all written
warranties furnished by the Company to purchasers of any product since
January 1, 1993.
2.21. Labor Relations. Except as set forth in Exhibit 2.21, there
have been no strikes, work stoppages or any demands for collective bargaining
by any union or labor organization since January 1, 1993, there is no
collective bargaining relationship between the Company and any union; there is
no dispute or controversy with any union; or other organization of the
Company's employees and there are no arbitration proceedings pending or
threatened involving a dispute or controversy. The Company is in full
compliance with all Laws respecting employment and employment practices, terms
and conditions of employment and wages and hours including, without limitation,
<PAGE>
the Fair Labor Standards Act, the Family and Medical Leave Act of 1993, the
Americans with Disabilities Act of 1990, the Veterans Reemployment Rights Act,
the Equal Employment Opportunities Act, as amended by the Civil Rights Act of
1991, the Occupational Safety and Health Act, the Employee Retirement Income
Security Act of 1974, the Immigration Reform and Control Act of 1986, the Age
Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964,
the Older Workers Benefit Protection Act, and all other Laws, each as amended
to date, relating to employer/employee rights and obligations. The Company
currently has satisfactory relationships with its employees. Except as
disclosed in Exhibit 2.21 and since January 1, 1993, no non-officer employees
of the Company and no officers of Seller have resigned, advised the Company of
an intention to resign from such employment or refused to continue employment
with the Company. Exhibit 2.21 lists each former employee and/or officer of
the Company whose aggregate annualized compensation exceeded $30,000 and whose
employment by the Company has ceased for any reasons since January 1, 1993.
Set forth opposite the name of each such employee and/or officer are: the
positions held; the beginning and ending employment dates; and the reason for
the cessation of employment.
2.22. Insurance. Exhibit 2.22 lists and includes copies of all
certificates of coverage regarding all of the Company's existing insurance
policies, the premiums therefor and the coverage of each policy. Such policies
and the amount of coverage and the risks insured are, in the aggregate,
sufficient to protect and insure the Company against perils which good business
practice demands be insured against or which are normally insured against by
other industry members similarly situated, and will remain in full force and
effect after the Closing.
2.23. Products Liability. There exist no claims, whether known or
unknown, against the Company for injury to person or property of its employees
or any third parties suffered as a result of the sale of any product or
performance of any service by the Company, including, but not limited to,
claims arising out of the defective or unsafe nature of its products or
services. The Company has full and adequate insurance coverage for potential
products liability claims against it. The products liability and personal
injury insurance maintained by the Company has been on an "occurrence" basis
during the six (6) year period prior to the Closing Date.
2.24. Environmental.
(a) For purposes of this Section:
(1) "Hazardous Materials" means any hazardous, infectious or
toxic substance, chemical, pollutant, contaminant, emission or waste which is
or becomes regulated by any local, state, federal or foreign authority.
Hazardous Materials include, without limitation, anything which is: (i)
<PAGE>
defined as a "pollutant" pursuant to 33 U.S.C. 1362(6); (ii) defined as a
"hazardous waste" pursuant to 42 U.S.C. 6921; (iii) defined as a "regulated
substance" pursuant to 42 U.S.C. 6991; (iv) defined as a "hazardous substance"
pursuant to 42 U.S.C. 9601(14); (v) defined as a "pollutant or contaminant"
pursuant to 42 U.S.C. 9601(33); (vi) petroleum; (vii) asbestos; and (viii)
polychlorinated biphenyl.
(2) "Environmental Laws and Regulations" means all limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any Laws relating to pollution, nuisance,
or the environment including, without limitation, (i) the Federal Clean Air
Act, 42 U.S.C. 7401 et seq.; (ii) the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. 9601 et seq.; (iii) the Federal
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. 1101 et seq.;
(iv) the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. 136 et
seq.; (v) the Federal Water Pollution Control Act, 33 U.S.C. 1251 et seq.;
(vi) the Solid Waste Disposal Act, 42 U.S.C. 6901 et seq.; (vii) the Toxic
Substances Control Act, 15 U.S.C. 2601 et seq.; (viii) Laws relating in
whole or part to emissions, discharges, releases, or threatened releases of any
Hazardous Material; and (ix) Laws relating in whole or part to the manufacture,
processing, distribution, use, coverage, disposal, transportation, storage or
handling of any Hazardous Material.
(b) The operations and activities of the Company comply, and have
in the past complied, in all respects, with all Environmental Laws and
Regulations. To the knowledge of the Sellers, there are no pending or
currently proposed changes to any Environmental Laws and Regulations which,
when implemented or effective, may affect the operations of the Company.
(c) The Company has obtained and is and has been in full
compliance with all requirements, permits, licenses and other authorizations
which are required with respect to the Company's operations, as well as the
transactions contemplated hereby under all Environmental Laws and Regulations.
Exhibit 2.24 lists each such permit, license or other authorization. There are
no other such permits, licenses or other authorizations which are required by
any Environmental Laws and Regulations to be obtained in connection with the
transfer of the Shares to Holdings and the related change in control of the
Company.
(d) There is no civil, criminal, administrative or other action,
suit, demand, claim, hearing, notice of violation, proceeding, investigation,
notice or demand pending, received, or, to the best knowledge of the Company,
threatened against the Company relating in any way to any Environmental Laws
and Regulations.
<PAGE>
(e) The Company has not caused, experienced or been advised of
any past or present events, conditions, circumstances, plans or other matters
which: (i) are not in compliance with all Environmental Laws and Regulations;
(ii) may give rise to any statutory, common law, or other legal liability, or
otherwise form the basis of any claim, action, demand, suit, proceeding,
hearing, notice of violation or investigation based on or relating to Hazardous
Materials including, without limitation, such matters relating to any property
owned, leased or utilized by the Company at any time; (iii) arise from
inventory of or waste from Hazardous Materials; or (iv) arise from or are
related to any off-site or on-site disposal, release or threatened release of
Hazardous Materials.
(f) No asbestos, polychlorinated biphenyls, lead-based paints, or
radon are on any real property or in any building now or previously owned,
operated, leased or utilized by the Company.
(g) No employee or former employee of the Company has been
exposed to any Hazardous Material owned, produced or utilized by the Company or
any former subsidiary.
(h) The Company has not received any notice or indication from
any governmental agency or private or public entity advising it that it is or
may be responsible for any investigation or response costs with respect to a
release, threatened release or cleanup of chemicals or materials produced by,
resulting from or related to any business, commercial or industrial activities,
operations or processes, including, without limitation, any Hazardous
Materials. The Company is not aware of any facts which might give rise to such
notices.
(i) No underground tanks, piping or subsurface structures of any
type exist or have existed on any real property now or previously owned,
operated, leased or utilized by the Company.
(j) Exhibit 2.24 contains complete copies of all environmental
investigations, assessments, audits, studies, tests and related materials in
possession of the Company, or known to the Company to exist, which relate to
the current or prior operations of the Company or any real property now or
previously owned, operated, leased or utilized by the Company.
2.25. Capital Expenditures. The Company has outstanding
commitments for capital expenditures as set forth in Exhibit 2.25, which
includes a schedule of substantially all monies disbursed on account of capital
expenditures made by the Company between the Financial Statement Date and the
date hereof. After the date hereof, no capital expenditures or commitments in
excess of $5,000 in the aggregate will be made by the Company, except as set
forth in Exhibit 2.25 or with Holdings' prior written consent.
<PAGE>
2.26. Suppliers. No suppliers of goods or services to the Company
that has made sales or provided services representing, individually or in the
aggregate, more than $5,000 in payments or commitments by the Company within
the last 12 months has (i) ceased, or indicated any intention to cease, doing
business with the Company, or (ii) changed or indicated any intention to change
any terms or conditions for future supply or sale of products or services from
the terms or conditions that existed with respect to the supply or sale of such
products or services during the 12 month period ending on the date hereof.
2.27. Dealings with Affiliates. Exhibit 2.27 sets forth a complete
list (including the parties) and copies (or a detailed summary in the case of
an oral agreement) of all oral or written contracts, arrangements or other
agreements to which the Company or any Affiliate is, will be or has been a
party at any time from January 1, 1993 to the Closing Date, and to which any
other Affiliate or the Company was or is also a party.
2.28. Business Generally. Since January 1, 1997, there have been
no events, transactions or information which have come to the attention of the
Sellers (other than matters in the public domain) which could be expected to
have an adverse effect on the business and operations of the Company, and the
Company is not a party to any agreement, contract or covenant limiting the
Company from competing in any line of business or with any person or other
entity in any geographic area.
2.29. Bank Accounts. Exhibit 2.29 is a list of all bank accounts,
lock boxes, post office boxes and safe deposit boxes maintained in the name of
or controlled by the Company and the names of the persons having access
thereto.
2.30. Compensation. Exhibit 2.30 lists the current job title and
total remuneration (including, without limitation, salary, commissions and
bonuses) for each of the Sellers and for each officer, director, employee or
consultant of the Company who received total remuneration in excess of $50,000
from the Company during any of the past three fiscal years or who is expected
to receive total remuneration in excess of such amount during the current
fiscal year. Except as disclosed on Exhibit 2.30, the Company has not since
the Financial Statement Date and will not prior to the Closing Date increase or
commit to increase the base compensation, commission, bonus or the rate (or any
other component) of total compensation payable or to become payable by the
Company to any employee (including any director or officer), whether such
person is listed on Exhibit 2.30 or not, and no extraordinary compensation or
bonus will be paid by the Company.
2.31. Disclosure. No representation or warranty made by the
Sellers in this Agreement or in any agreement, instrument, document,
certificate, statement or letter furnished to Holdings by or on behalf of the
<PAGE>
Sellers in connection with any of the transactions contemplated by this
Agreement contains any untrue statement of fact or omits to state a fact
necessary in order to make the statements herein or therein not misleading in
light of the circumstances in which they are made.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HOLDINGS
Holdings hereby represents and warrants to the Sellers, as follows:
3.1. Corporate Organization, etc. Holdings is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware.
3.2. Capitalization. As of the date of this Agreement, Holdings
has authorized capital stock consisting of 10,000 shares of Common Stock, par
value $1.00 per share.
3.3. Authorization, etc. Holdings has full corporate power and
authority to enter into this Agreement and to carry out the transactions
contemplated hereby. The Board of Directors of Holdings has duly authorized the
execution and delivery of this Agreement and the transactions contemplated
hereby, and no other corporate proceedings on its part are necessary to
authorize this Agreement and the transactions contemplated hereby.
3.4. No Violation. Holdings is not subject to or obligated under
any certificate of incorporation, bylaw, Law, or any agreement or instrument,
or any license, franchise or permit, which would be breached or violated by its
execution, delivery or performance of this Agreement. Holdings will comply
with all Laws in connection with its execution, delivery and performance of
this Agreement and the transactions contemplated hereby.
3.5. Governmental Authorities. Holdings is not required to submit
any notice, report or other filing with and no consent, approval or
authorization is required by any governmental or regulatory authority in
connection with Holdings' execution or delivery of this Agreement or the
consummation of the transactions contemplated hereby.
3.6. Outstanding Options. Holdings does not have issued or
outstanding any options, warrants or other rights to acquire any capital stock
of Holdings other than the Subscription Agreement (defined below).
<PAGE>
ARTICLE IV
COVENANTS OF THE SELLERS
Except as otherwise consented to or approved by Holdings in
writing, until the Closing, the Sellers jointly and severally covenant and
agree (and will cause the Company to act or refrain from acting where required
hereinafter) as follows:
4.1. Regular Course of Business. The Company will operate its
business in the ordinary course, diligently and in good faith, consistent with
past management practices; will maintain all of its properties in customary
repair, order and condition, reasonable wear and tear excepted; will maintain
(except for expiration due to lapse of time) all leases and contracts described
herein in effect without change except as expressly provided herein; will
comply with the provisions of all Laws applicable to the conduct of its
business; will not engage in any significant or unusual transaction; will not
cancel, release, waive or compromise any debt, claim or right in its favor
having a value in excess of $5,000 other than in connection with returns for
credit or replacement in the ordinary course of business; will maintain
insurance coverage up to the Closing Date in amounts adequate to protect and
insure the Company against perils which good business practice demands be
insured against or which are normally insured against by other industry members
similarly situated.
4.2. Amendments. Except as required for the transactions
contemplated in this Agreement, no change or amendment shall be made in the
Company's articles or certificate of incorporation or bylaws. The Company will
not merge into or consolidate with any other corporation or person, or change
the character of its business.
4.3. Capital Changes. The Company will not (i) issue or sell any
shares of its capital stock of any class or issue or sell any securities
convertible into, or options, warrants to purchase or rights to subscribe to,
any shares of its capital stock of any class or (ii) directly or indirectly,
redeem, purchase or otherwise acquire any shares of its capital stock.
4.4. Dividends; Bonuses. Except for Permitted Distributions, the
Company will not declare, pay or set aside for payment any dividend or other
distribution in respect of its capital stock and the Company will not pay, set
aside, accrue, agree to or become liable in any manner for any bonus, of any
nature or type, to Sellers or to any employee or officer of the Company.
4.5. Capital and Other Expenditures. The Company will not make
any capital expenditures, or commitments with respect thereto in excess of an
<PAGE>
aggregate amount of $5,000, except as set forth in Exhibit 2.25. The Company
will not prepay any debt or obligation (except for prepaying amounts owed under
the Existing Credit Agreement, the $125,000 Promissory Note (REM#3) executed by
the Company in favor of Raymond E. Murray on January 1, 1997 and the $125,000
Promissory Note (REM#4) executed by the Company in favor of Raymond E. Murray
on January 1, 1997 and trade accounts payable in the normal course of business
to take advantage of cash discounts).
4.6. Borrowing. The Company will not incur, assume or guarantee
any indebtedness or capital leases. The Company will not create or permit to
become effective any mortgage, pledge, lien, encumbrance or charge of any kind
upon its assets other than in the ordinary course of business.
4.7. Other Commitments. Except in the ordinary course of business
consistent with past practices, the Company will not enter into any
transaction, make any commitment or incur any obligation.
4.8. Interim Financial Information. The Company will supply
Holdings with unaudited monthly financial statements within 17 business days of
the end of each month ending between the Financial Statement Date and the
Closing Date certified by its President and chief financial officer as having
been prepared in accordance with procedures employed by the Company in
preparing prior monthly financial statements. All such financial statements
shall be accompanied by a certificate of the Company's President and chief
financial officer certifying that such financial statements were prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with the Balance Sheet and the unaudited financial statements for
the preceding months and such unaudited statements include all adjustments (all
of which were normal recurring adjustments) necessary to fairly present the
financial position, results of operations and changes in financial position at
and for such period.
4.9. Full Access and Disclosure.
(a) Upon receipt of written Notice from Holdings at least 48
hours prior to the time Holdings requests such access, the Company shall afford
to Holdings and its counsel, accountants and other authorized representatives
access during business hours to the Company's plants, properties, books and
records in order that Holdings may have full opportunity to make such
reasonable investigations as it shall desire to make of the affairs of the
Company and the Company will cause its officers and employees to furnish such
additional financial and operating data and other information as Holdings shall
from time to time reasonably request.
<PAGE>
(b) From time to time prior to the Closing Date, the Company will
promptly supplement or amend in writing information previously delivered to
Holdings with respect to any matter hereafter arising which, if existing or
occurring at the date of this Agreement, would have been required to be set
forth or disclosed.
4.10. Consents. The Company will use reasonable commercial efforts
to obtain on or prior to the Closing Date all consents necessary to the
consummation of the transactions contemplated hereby.
4.11. Breach of Agreement. Neither Sellers nor the Company will
take any action which would constitute a breach of this Agreement.
4.12. Further Assurances. The Company, Sellers and the Company's
counsel will furnish Holdings with such other and further documents,
certificates, opinions, consents and information as either Holdings shall
reasonably request to enable Holdings to borrow funds from a bank or other
lending entity or individual(s) for the purchase of the Shares and to evidence
compliance with the terms and conditions of any credit agreement to be entered
into between Holdings and a bank and/or other lending entities or individuals.
4.13. Fulfillment of Conditions. Sellers and the Company will take
all commercially reasonable steps necessary or desirable, and proceed
diligently and in good faith, to satisfy each condition to the obligations of
Holdings contained in this Agreement and will not take or fail to take any
action that could reasonably be expected to result in the nonfulfillment of any
such condition.
4.14. HSR Filing. Sellers and the Company will (a) take promptly
all actions necessary to make the filings required of Sellers or their
affiliates under Section 7A of the Clayton Act (Title II of the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended), and the rules and
regulations promulgated thereunder (the "HSR Act"), (b) comply at the earliest
practicable date with any request for additional information received by the
Company, Sellers or their affiliates from the Federal Trade Commission or the
Antitrust Division of the Department of Justice pursuant to the HSR Act and
(c) cooperate with Holdings in connection with Holdings' filing under the HSR
Act and in connection with resolving any investigation or other inquiry
concerning the transactions contemplated by this Agreement commenced by the
Federal Trade Commission, the Antitrust Division of the Department of Justice
or any state attorney general.
4.15. Mix and Composition of Assets. Sellers and the Company will
take all actions necessary to ensure that the mix and composition of both
assets and liabilities of the Company at the Closing are substantially similar
<PAGE>
to the mix and composition of the assets and liabilities of the Company as
reflected in the Balance Sheet, adjusted for growth. In particular, there will
be no undisclosed or contingent liabilities (adjusted for growth) including,
without limitation, those liabilities relating to taxes, pension obligations,
litigation, environmental contamination or deferred capital expenditures and
maintenance.
ARTICLE V
COVENANTS OF HOLDINGS
Holdings hereby covenants and agrees with the Sellers that:
5.1. Confidentiality. Holdings will hold in strict confidence and
not disclose to any other party (other than its counsel and other advisors),
without all of the Sellers' prior consents, all information received by
Holdings from any of Sellers or the Company, any of the Company's officers,
directors, employees, agents, counsel or auditors in connection with the
transactions contemplated hereby, except as may be required by applicable law
or as otherwise contemplated herein.
5.2. Books and Records. Holdings shall preserve and keep the
Company's books and records delivered hereunder for a period of six years from
the date hereof and shall, during such period, make such books and records
available to former shareholders, officers and directors of the Company for any
reasonable purpose.
5.3. HSR Filing. Holdings will (a) take promptly all actions
necessary to make the filings required of Holdings under Section 7A of the HSR
Act, (b) comply at the earliest practicable date with any request for
additional information received by Holdings or its affiliates from the Federal
Trade Commission or the Antitrust Division of the Department of Justice
pursuant to the HSR Act and (c) cooperate with Sellers in connection with
Sellers' filing under the HSR Act and in connection with resolving any
investigation or other inquiry concerning the transactions contemplated by this
Agreement commenced by the Federal Trade Commission, the Antitrust Division of
the Department of Justice or any state attorney general.
5.4. Financing. Holdings will use reasonable commercial efforts
to obtain financing for the transactions contemplated by this Agreement and
will provide to Raymond E. Murray weekly reports regarding the status of such
efforts within 5 business days of the end of each week ending between the date
of this Agreement and the Closing Date.
<PAGE>
ARTICLE VI
OTHER AGREEMENTS
Holdings and the Sellers covenant and agree that:
6.1. Agreement to Defend. In the event any action, suit,
proceeding or investigation of the nature specified in Section 7.5 or Section
8.2 hereof is commenced, whether before or after the Closing Date, all the
parties hereto agree to cooperate and use their best efforts to defend against
and respond thereto.
6.2. Consultants, Brokers and Finders. The Sellers and Holdings
each represent and warrant to the other that they have not retained any
consultant, broker or finder in connection with the transactions contemplated
by this Agreement, except for Exchange Corporate Development, Inc. ("ECDI").
The Sellers and Holdings each hereby agree to indemnify, defend and hold the
other party and its officers, directors, employees and affiliates, harmless
from and against any and all claims, liabilities or expenses for any brokerage
fees, commissions or finders fees due to any consultant, broker or finder
retained by the indemnifying party.
6.3. Consulting and Noncompetition Agreement. At the Closing,
Holdings will cause the Company to enter into with Raymond E. Murray a
Consulting and Noncompetition Agreement in the form set forth in Exhibit 6.3.
6.4. Noncompetition Agreement. At the Closing, Holdings and each
of the Sellers will enter into a Noncompetition Agreement in the form set forth
in Exhibit 6.4 (collectively, the "Noncompetition Agreements").
6.5. Taxes.
(a) The Sellers shall be liable and indemnify Holdings and the
Company for all Taxes of the Company to the extent such Taxes are not
adequately provided for as current Taxes on the Company's Closing Balance Sheet
(i) for taxable periods ending on or before the Closing Date and (ii) for any
period not ending on or before the Closing Date, for the portion of any Taxes
attributable to the period ending on the Closing Date.
(b) All Taxes attributable to the operations of the Company for
periods after the Closing Date shall be borne by the Company. For any period
that includes but does not end on the Closing Date, (i) liability for any Taxes
determined by reference to income, capital gains, gross income, gross receipts,
sales, net profits, windfall profits or similar items or resulting from a
transfer of assets shall be allocated between the Sellers and the Company based
on the date on which such items accrued; and (ii) liability for all other Taxes
<PAGE>
shall be allocated between the Sellers and the Company, pro rata based on the
number of days in the taxable period for which each party is liable for Taxes
hereunder.
(c) The Sellers shall cause the Company to prepare and file all
tax returns and reports of the Company due on or prior to the Closing Date,
which returns and reports shall be prepared and filed timely and on a basis
consistent with existing procedures for preparing such returns and reports and
in a manner consistent with prior practice with respect to the treatment of
specific items on the returns or reports; provided, however, that if the
treatment of any item on any such return or report has not been provided by
prior practice, the Sellers shall cause the Company to report such items in a
manner that would result in the least amount of tax liability to the Company
and Holdings for periods ending after the Closing Date. Holdings shall cause
the Company to prepare and file all tax returns and reports of the Company due
after the Closing Date, which returns and reports, to the extent they relate to
taxable periods beginning prior to, but including the Closing Date, and for the
purpose of determining the Sellers' liability for taxes, shall be prepared and
filed timely and on a basis consistent with existing procedures for preparing
such returns and in a manner consistent with prior practice with respect to the
treatment of specific items on the returns and reports, unless such treatment
does not have sufficient legal support to avoid the imposition of penalties.
In the event that the parties agree, or an arbitrator determines pursuant to
12.6 that the Sellers are liable under Section 6.5(a) hereof for Taxes due in
connection with the returns described in the preceding sentence, the Sellers
shall pay the amount of such liability to the Company within 24 hours of
request or at least three (3) business days prior to the filing of such
returns, whichever is later.
(d) Holdings, the Company and the Sellers shall provide each
other with such assistance as may reasonably be requested by the others in
connection with the preparation of any return or report of Taxes, any audit or
other examination by any taxing authority, or any judicial or administrative
proceedings relating to liabilities for Taxes. Holdings, the Company and the
Sellers will retain for the full period of any statute of limitations and
provide the others with any records or information which may be relevant to
such preparation, audit, examination, proceeding or determination.
(e) If in connection with any examination, investigation, audit
or other proceeding in respect of any tax return covering the operations of the
Company on or before the Closing Date, any governmental body or authority
issues to the Company a written notice of deficiency, a notice of reassessment,
a proposed adjustment, an assertion of claim or demand concerning the taxable
period covered by such return, Holdings or the Company shall notify the Sellers
<PAGE>
of its receipt of such communication from the governmental body or authority
within fifteen (15) business days after receiving such notice of deficiency,
reassessment, adjustment or assertion of claim or demand. No failure or delay
of Holdings or the Company in the performance of the foregoing shall reduce or
otherwise affect the obligations or liabilities of the Sellers pursuant to this
Agreement, except to the extent that such failure or delay shall have adversely
affected the Sellers' ability to defend against any liability or claim for
Taxes that the Sellers are obligated to pay hereunder or to the extent that
such failure or delay increases the amount of Taxes payable by the Sellers.
Except as provided below, the Sellers shall, at his, her or its expense, have
the nonexclusive right to participate in the contest of any such assessment,
proposal, claim, reassessment, demand or other proceedings in connection with
any tax return covering taxable periods of the Company ending on or before the
Closing Date. Holdings and the Company will not be obligated to settle or
resolve any issue related to Taxes for such a period, which, if so settled or
resolved, could have an effect on the Company or Holdings for periods after the
Closing Date, unless the Sellers agree in writing with Holdings and the
Company, in terms reasonably satisfactory to Holdings and the Company, to
indemnify Holdings and the Company from any cost, damage, loss or expense
relating to such settlement or resolution. Notwithstanding anything in this
Agreement to the contrary, if any examination, investigation, audit or other
proceeding relates to a tax return for a period that begins before and ends
after the Closing Date, Holdings and the Company shall solely participate in,
control and resolve such examination, investigation, audit or other proceeding,
provided that Holdings shall communicate with the Sellers regarding the status
of such examination, investigation, audit or proceeding.
(f) If there is an adjustment to any return or report of Taxes
for the Company which creates a deficiency in any Taxes for which the Sellers
are liable under the provisions of Section 6.5(b) hereof, the Sellers shall pay
to Holdings the amount of such deficiency in Taxes. No liability of the
Sellers under this Section 6.5(f) shall be payable until the occurrence of any
action by any Tax authority that is final or, if not final, is acquiesced in by
the Sellers during the course of any audit or any proceeding relating to
Taxes. All payments required to be made by the Sellers pursuant to this
Section 6.5(f) shall be made within thirty (30) business days of the
occurrence of the event described in the immediately preceding sentence.
(g) All federal, state, local, foreign and other transfer, sales,
use or similar Taxes applicable to, imposed upon or arising out of the transfer
of the Shares shall be paid by the Sellers.
(h) The provisions of this Section 6.5 shall not be governed by
the limitations contained in Section 11.1 and to the extent of any
<PAGE>
inconsistency between this Section 6.5 and Article XI, the provisions of this
Section 6.5 shall control.
6.6. Additional Purchase Price Agreement. At the Closing,
Holdings and each of the Sellers shall enter into the Additional Purchase Price
Agreement in the form set forth in Exhibit 6.6 (the "APP").
6.7. Subscription and Stockholders Agreement. At the Closing,
Holdings and each of Raymond E. Murray, Raymond Michael Murray and Paul Melech
shall enter into the Subscription and Stockholders Agreement in the form set
forth in Exhibit 6.7 (the "Subscription Agreement").
6.8. 1998 Bonus Plan Agreement. At the Closing, Holdings will
cause the Company, and each of Paul Melech and Raymond Michael Murray shall,
enter into a 1998 Bonus Plan Agreement in the form set forth in Exhibit 6.8
(the "Bonus Plan").
6.9. Releases. At the Closing, each of the Sellers shall have
executed and delivered to the Company a Release in the form set forth in
Exhibit 6.9 (the "Releases").
6.10. Asset Purchase Agreement. At the Closing, the Sellers will
cause The 512 Partnership, a Florida general partnership, to execute and
deliver to Holdings, the Asset Purchase Agreement in the form set forth in
Exhibit 6.10 (the "Asset Purchase Agreement"), and to consummate the
transactions contemplated thereby.
6.11. Employment and Noncompetition Agreement. At the Closing,
Holdings will cause the Company, and each of Raymond Michael Murray and Paul
Melech shall, enter into an Employment and Noncompetition Agreement in the
form set forth in Exhibit 6.11 (the "Employment Agreements").
6.12. Payoff of Existing Credit Agreement. At the Closing, the
Sellers will cause The Bank of Tampa to execute and deliver the Payoff Letter
in the form attached hereto as Exhibit 6.12 (the "Payoff Letter") and to
deliver the UCC-3 termination statements and make the other deliveries
required by the Payoff Letter.
<PAGE>
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF HOLDINGS
Each and every obligation of Holdings under this Agreement shall be
subject to the satisfaction, on or before the Closing Date, of each of the
following conditions unless waived in writing by Holdings:
7.1. Representations and Warranties; Performance. The
representations and warranties made by the Sellers herein shall be true and
correct on the date of this Agreement and on the Closing Date with the same
effect as though made on such date; the Sellers shall have performed and
complied with all agreements, covenants and conditions required by this
Agreement to be performed and complied with by them prior to the Closing Date;
Sellers shall have, and shall have caused the President and chief financial
officer of the Company to have delivered to Holdings a certificate, dated the
Closing Date, in the form designated Exhibit 7.1 hereto, certifying to such
matters and the other conditions contained in this Article VII.
7.2. Consents and Approvals. All consents from and filings with
third parties, regulators and governmental agencies required to consummate the
transactions contemplated hereby, or which, either individually or in the
aggregate, if not obtained, would cause an adverse effect on the Company's
financial condition or business shall have been obtained and delivered to
Holdings. Without limiting the above, the applicable waiting period under the
HSR Act shall have terminated or expired.
7.3. Opinion of Sellers' Counsel. Holdings shall have received an
opinion of Sellers' counsel, dated the Closing Date, substantially in the form
attached hereto as Exhibit 7.3.
7.4. No Adverse Change. There shall have been no material adverse
change since the Financial Statement Date in the business, prospects, financial
condition, earnings or operations of the Company's business.
7.5. No Proceeding or Litigation. No action, suit or proceeding
before any court or any governmental or regulatory authority shall have been
commenced or threatened, and no investigation by any governmental or regulatory
authority shall have been commenced or threatened against any of the Sellers,
the Company, Holdings or any of their respective principals, officers or
directors seeking to restrain, prevent or change the transactions contemplated
hereby or questioning the validity or legality of any of such transactions or
seeking damages in connection with any of such transactions.
<PAGE>
7.6. Solvency Certificate. Holdings shall have received a
"solvency" certificate from Sellers and the Company's President and chief
financial officer substantially in the form of Exhibit 7.6 hereto which shall
relate to the operations and financial conditions of the Company and the
interim financial statements delivered pursuant to Section 4.8 hereof.
7.7. Financial Condition at Closing.
(a) Except for liabilities set forth in the Balance Sheet,
Permitted Liabilities and accounts payable incurred in the ordinary course of
business of the Company consistent with past practices, the Company shall not
owe any debt at the Closing Date. The term "debt" includes notes payable and
the short-term and long-term portions of any and all debt or obligations,
including capitalized lease obligations.
(b) The Company's net income before provision for interest
expense, income taxes, charitable donations, shareholder dividends, bonuses,
special employee bonuses of up to $1,000,000 paid in 1997 and the royalties
paid to The 512 Partnership ("Adjusted EBIT") for the fiscal year ending
November 30, 1997 to be on schedule to equal at least $7,440,000. The
Company's Adjusted EBIT for the fiscal year ended November 30, 1996 shall equal
or exceed $5,185,000. The Company's Adjusted EBIT for the fiscal year ended
November 30, 1995 shall equal or exceed $3,422,000. The Company's Adjusted
EBIT for the fiscal year ended November 30, 1994 shall equal or exceed
$1,819,000.
(c) The mix and composition of the assets and liabilities of the
Company on the Closing Date will not be materially different than those
indicated on the Balance Sheet, adjusted for growth. In particular, there will
be no undisclosed or contingent liabilities (adjusted for growth), including,
without limitation, those liabilities relating to taxes, pension obligations,
litigation, environmental contamination or deferred capital expenditures and
maintenance.
(d) The Company's net sales for the fiscal year ending November
30, 1997 to be on schedule (run rate) to equal at least $35,000,000. The
Company's net sales for the fiscal year ended November 30, 1996, calculated in
accordance with GAAP, shall equal or exceed $23,257,000. The Company's net
sales for the fiscal year ended November 30, 1995, calculated in accordance
with GAAP, shall equal or exceed $15,681,000. The Company's net sales for the
fiscal year ended November 30, 1994, calculated in accordance with GAAP, shall
equal or exceed $10,600,000.
(e) At the Closing Date, the Owners' Equity of the Company shall
be no less than $5,000,000.
(f) Except for Permitted Distributions, since August 31, 1997,
the Company shall not have (i) paid any shareholder dividends or distributions,
<PAGE>
(ii) repaid any debt in excess of the amount required to be repaid pursuant to
written contractual obligations or pursuant to Section 1.3 or (iii) paid any
bonuses or excessive compensation to any of the Sellers, without first
notifying Holdings of such action.
7.8. Retention of Key Personnel. None of Raymond E. Murray,
Raymond Michael Murray or Paul Melech shall have terminated their respective
positions with the Company.
7.9. Certified Audit. Ernst & Young, LLP shall conduct a certified
audit of the Company as at August 31, 1997, the results of which shall be
satisfactory to Holdings in its sole and absolute discretion.
7.10. Review. A full due diligence review of the Company's
business shall be completed by Holdings, its legal counsel, its outside
consultants, or others appointed by Holdings. Holdings shall be satisfied in
its sole and absolute discretion with the results of Holdings' due diligence
review of the Company and its business operations, prospects and assets.
Holdings shall bear the costs of this review.
7.11. Other Documents. Sellers will furnish or cause the Company
to furnish Holdings with such other and further documents and certificates of
its officers and others as Holdings shall reasonably request to evidence
compliance with the conditions set forth in this Agreement.
7.12. Other Agreements. The Agreements described in Article VI
shall have been entered into and delivered and the Payoff Letter delivered.
7.13. Estoppel Certificate. The Sellers shall have furnished
Holdings with an estoppel certificate in the form attached hereto as Exhibit
7.13, which shall have been executed by each of the lessors under the leases
described on Exhibit 2.12.
7.14. Withholding Certificate. Holdings shall have received from
each of the Sellers an executed withholding certificate in the form attached
hereto as Exhibit 7.14.
7.15. Asset Purchase Agreement. The Asset Purchase Agreement shall
have been duly and validly executed and delivered to Holdings by The 512
Partnership and the transactions contemplated thereby consummated.
7.16. No Liens. All liens or encumbrances against the assets of
the Company and The 512 Partnership shall have been removed.
<PAGE>
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF THE SELLERS
Each and every obligation of the Sellers under this Agreement shall
be subject to the satisfaction, on or before the Closing Date, of each of the
following conditions unless waived in writing by all of the Sellers:
8.1. Representations and Warranties; Performance. The
representations and warranties made by Holdings herein shall be true and
correct on the date of this Agreement and on the Closing Date with the same
effect as though made on such date; Holdings shall have performed and complied
with all agreements, covenants and conditions required by this Agreement to be
performed and complied with by it prior to the Closing Date; Holdings shall
have delivered to the Sellers a certificate of its President, dated the Closing
Date, certifying to the fulfillment of the conditions set forth herein, in the
form designated as Exhibit 8.1 and the other conditions contained in this
Article VIII.
8.2. No Proceeding or Litigation. No action, suit or proceeding
before any court or any governmental or regulatory authority shall have been
commenced, or threatened, and no investigation by any governmental or
regulatory authority shall have been commenced, or threatened, against the
Company, Holdings, any of the Sellers, or any of their respective principals,
officers or directors, seeking to restrain, prevent or change the transactions
contemplated hereby or questioning the validity or legality of any of such
transactions or seeking damages in connection with any of such transactions.
8.3. Opinion of Counsel. The Sellers shall have received an
opinion of counsel to Holdings dated the Closing Date substantially in the form
of Exhibit 8.3.
8.4. Payment. The payment(s) described in Section 1.2 shall have
been made.
8.5. Other Documents. Holdings will furnish the Sellers with such
other documents and certificates to evidence compliance with the conditions set
forth in this Article as may be reasonably requested by the Sellers.
8.6. Other Agreements. The agreements described in Article VI
shall have been entered into and delivered.
<PAGE>
ARTICLE IX
CLOSING
9.1. Closing. Unless this Agreement shall have been terminated or
abandoned pursuant to the provisions of Article X hereof, a closing (the
"Closing") shall be held on October 31, 1997, or on such other date (the
"Closing Date") mutually agreed upon at such place or places as Holdings shall
designate. Holdings shall have the right at any time to extend the Closing
Date for a period of up to 30 business days from the date stated above, by
written notice to the Sellers.
9.2. Deliveries at Closing.
(a) At the Closing, the Sellers shall transfer and assign to
Holdings all of the Shares by delivering certificates representing each of the
Shares, duly endorsed for transfer to Holdings with signatures guaranteed, and
the other agreements, certifications and other documents required to be
executed and delivered hereunder at the Closing shall be duly and validly
executed and delivered by the respective parties, and Holdings shall have
delivered the cash consideration and Subordinated Notes. In addition, the
Asset Purchase Agreement shall be duly and validly executed and delivered.
(b) From time to time after the Closing, at Holdings' request and
without further consideration from Holdings, the Sellers shall execute and
deliver such other instruments of conveyance and transfer and take such other
action as Holdings reasonably may require to convey, transfer to and vest in
Holdings and to put Holdings in possession of the Shares to be sold, conveyed,
transferred and delivered hereunder.
9.3. Legal Actions. If, prior to the Closing Date, any action or
proceeding shall have been instituted by any third party before any court or
governmental agency to restrain or prohibit this Agreement or the consummation
of the transactions contemplated herein, the Closing shall be adjourned at the
option of any party hereto for a period of up to one hundred twenty (120) days.
If, at the end of such 120-day period, the action or proceeding shall not have
been favorably resolved, Holdings on the one hand and a majority of the Sellers
on the other hand, may, by written notice thereof to the other party or
parties, terminate its obligations hereunder.
9.4. Specific Performance. The parties agree that if any party
hereto is obligated to, but nevertheless does not, consummate this transaction,
then any other party, in addition to all other rights or remedies, shall be
entitled to the remedy of specific performance mandating that the other party
<PAGE>
or parties consummate this transaction. In an action for specific performance
by any party hereto against any other party, the other party shall not plead
adequacy of damages at law.
ARTICLE X
TERMINATION AND ABANDONMENT
10.1. Methods of Termination. This Agreement may be terminated and
the transactions herein contemplated may be abandoned at any time
(notwithstanding approval by the Board of Directors of Holdings):
(a) by mutual consent of Holdings and all of the Sellers; or
(b) by either Holdings or Sellers, if (i) such party is not in
breach hereunder and the other party is in breach hereunder, and (ii) this
Agreement is not consummated on or before the Closing Date, including
extensions.
10.2. Procedure Upon Termination. In the event of termination and
abandonment pursuant to Section 10.1 hereof, this Agreement shall terminate and
shall be abandoned, without further action by any of the parties hereto. If
this Agreement is terminated as provided herein:
(a) each party will upon request redeliver all documents and
other materials of any other party relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to the party
furnishing the same;
(b) no party hereto shall have any liability or further
obligation to any other party to this Agreement;
(c) each party shall bear its own expenses; and
(d) subsequently, each party shall not at any time or in any
manner, directly or indirectly, use or disclose to any party, any trade secrets
or other Confidential Information (as defined below), learned or obtained by
such party as a consequence of the disclosures made pursuant to this Agreement
or in connection with the transactions contemplated hereby. As used herein,
the term "Confidential Information" means information disclosed to or known by
a party as a consequence of the disclosures made by any other party pursuant to
this Agreement or in connection with the transactions contemplated hereby and
not generally known in the industry in which the disclosing party is engaged
and that in any way relates to the disclosing party's products, processes,
services, inventions (whether patentable or not, formulas, techniques or know-
how, including, but not limited to, information relating to distribution
systems and methods, research, development, manufacturing purchasing,
<PAGE>
accounting, engineering, marketing, merchandising and selling. Notwithstanding
the foregoing, the foregoing restrictions shall not apply to the disclosure of
information required by Law, any information previously in the possession of
such party, any information independently developed by such party, or any
information that becomes publicly available.
ARTICLE XI
INDEMNIFICATION
11.1. Indemnification of Certain Sellers. Raymond E. Murray,
Raymond Michael Murray, Paul Melech, The Raymond E. Murray Revocable Trust,
and O'Neal Sutton jointly and severally (the "Indemnifying Sellers") , agree to
indemnify Holdings and each of its shareholders, officers and directors against
any loss, damage, or expense, (including but not limited to reasonable
attorneys' fees) ("Damages"), incurred or sustained by Holdings or any of its
shareholders, officers or directors as a result of (a) any breach of any term,
provision, covenant or agreement contained in this Agreement by the
Indemnifying Sellers; (b) any inaccuracy in any of the representations or
warranties made by the Indemnifying Sellers in Article II of this Agreement;
(c) any inaccuracy or misrepresentation in any certificate or other document or
instrument delivered by the Indemnifying Sellers or the Company in accordance
with any provision of this Agreement; or (d) any Damages relating to activities
and events occurring in connection with the TeKONTROL Contract prior to the
Closing Date or any Damages relating to the use of trichloroethane (TCE) prior
to the Closing Date. The obligations of the Indemnifying Sellers as set forth
in Section 11.1(b) shall be subject to and limited by the following:
(i) No claim for Damages shall be made until the
cumulative amount of such Damages shall equal or exceed $250,000,
at which point the full amount of such claim(s) for Damages may be
made without deduction of any kind; provided, however, that such
limitation shall not apply to any Damages resulting from (x)
violations under Sections 2.2, 2.4, 2.12, 2.14, 2.15, 2.18, 2.20,
2.23 or 2.24 hereof, (y) damages relating to activities and events
occurring in connection with the TeKONTROL Contract prior to the
Closing Date or (z) from intentional or fraudulent actions,
misrepresentations or breaches;
(ii) Holdings shall give written Notice to the
Sellers stating specifically the basis for the claim for Damages,
the amount thereof and shall tender defense thereof to the
Indemnifying Sellers as provided in Section 11.2; and
<PAGE>
(iii) In addition to any other remedy, Holdings shall
be entitled, but shall not be obligated, to offset all such claims
for Damages against any obligation of Holdings to Indemnifying
Sellers now or hereafter existing including, without limitation,
payments of principal or interest in the order of installments due
on the Subordinated Notes delivered pursuant to Section 1.2(b).
Notwithstanding the foregoing, (i) the indemnification obligations
of Raymond E. Murray and The Raymond E. Murray Revocable Trust shall not exceed
fifty-one percent (51%) of the total Purchase Price; (ii) the indemnification
obligations of Raymond Michael Murray shall not exceed nineteen percent (19%)
of the total Purchase Price; (iii) the indemnification obligations of Paul
Melech shall not exceed ten percent (10%) of the total Purchase Price; and (iv)
the indemnification obligations of O'Neal Sutton shall not exceed twenty
percent (20%) of the total Purchase Price. In no event shall the other Sellers
including, without limitation, The Community Foundation of Tampa Bay, Inc. and
the unitrusts, be considered Indemnifying Sellers and therefor such Sellers
shall have no liability for the indemnification obligations provided in this
Article 11.
11.2. Tender of Defense for Damages. Promptly upon receipt by
Holdings of a notice of a claim by a third party which may give rise to a claim
for Damages, Holdings shall give written notice thereof to the Indemnifying
Sellers. No failure or delay of Holdings in the performance of the foregoing
shall relieve, reduce or otherwise affect the Indemnifying Sellers' obligations
and liability to indemnify Holdings pursuant to this Agreement, except to the
extent that such failure or delay shall have adversely affected the
Indemnifying Sellers' ability to defend against such claim for Damages and
except to the extent that such failure or delay increases such claim for
Damages. If the Indemnifying Sellers give to Holdings an Indemnifying
agreement in writing, in a form reasonably satisfactory to Holdings' counsel,
to defend such claim for Damages, the Indemnifying Sellers may, at their sole
expense, undertake the defense against such claim and may contest or settle
such claim on such terms, at such time and in such manner as the Indemnifying
Sellers, in their sole discretion, shall elect and Holdings shall execute such
documents and take such steps as may be reasonably necessary in the opinion of
counsel for the Indemnifying Sellers to enable the Indemnifying Sellers to
conduct the defense of such claim for Damages. If the Indemnifying Sellers
fail or refuse to defend any claim for Damages, the Indemnifying Sellers may
nevertheless, at their own expense, participate in the defense of such claim by
Holdings and in any and all settlement negotiations relating thereto. In any
and all events, the Indemnifying Sellers shall have such access to the records
and files of Holdings relating to any claim for Damages as may be reasonably
necessary to effectively defend or participate in the defense thereof.
<PAGE>
11.3. Indemnification of Holdings. Holdings agrees to indemnify
each of the Sellers and each of their respective trustees, shareholders,
officers and directors against any Damages incurred or sustained by Sellers or
any of their shareholders, officers or directors as a result of (a) any breach
of any term, provision, covenant or agreement contained in this Agreement by
Holdings; (b) any inaccuracy in any of the representations or warranties made
by Holdings in Article III of this Agreement; or (c) any inaccuracy or
misrepresentation in any certificate or other document or instrument delivered
by Holdings in accordance with any provision of this Agreement. The
obligations of Holdings as set forth in Section 11.3(b) shall be subject to and
limited by the following:
(i) No claim for Damages shall be made until the
cumulative amount of such Damages shall equal or exceed $200,000,
at which point the full amount of such claim(s) for Damages may be
made without deduction of any kind;
(ii) A majority of the Sellers shall give written
Notice to Holdings stating specifically the basis for the claim for
Damages, the amount thereof and shall tender defense thereof to
Holdings as provided in Section 11.4; and
(iii) In addition to any other remedy, the Sellers
shall be entitled, but shall not be obligated, to offset all such
claims for Damages against any obligation of the Sellers to
Holdings now or hereafter existing.
11.4. Tender of Defense for Sellers' Damages. Promptly upon
receipt by any of the Sellers of a notice of a claim by a third party which may
give rise to a claim for Damages, the Sellers' Agent shall give written notice
thereof to Holdings. No failure or delay of the Sellers in the performance of
the foregoing shall relieve, reduce or otherwise affect Holdings' obligations
and liability to indemnify the Sellers pursuant to this Agreement, except to
the extent that such failure or delay shall have adversely affected Holdings'
ability to defend against such claim for Damages. If Holdings gives to the
Sellers an agreement in writing, in a form reasonably satisfactory to counsel
the Sellers' Agent, to defend such claim for Damages, Holdings may, at its sole
expense, undertake the defense against such claim and may contest or settle
such claim on such terms, at such time and in such manner as Holdings, in its
sole discretion, shall elect and the Sellers shall execute such documents and
take such steps as may be reasonably necessary in the opinion of counsel for
Holdings to enable Holdings to conduct the defense of such claim for Damages.
If Holdings fails or refuses to defend any claim for Damages, Holdings may
nevertheless, at its own expense, participate in the defense of such claim by
the Sellers and in any and all settlement negotiations relating thereto. In
<PAGE>
any and all events, Holdings shall have such access to the records and files of
the Sellers relating to any claim for Damages as may be reasonably necessary to
effectively defend or participate in the defense thereof.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1. Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented only by written agreement
of all of the Sellers and Holdings.
12.2. Waiver of Compliance; Consents. Any failure of the Sellers
on the one hand, or Holdings on the other hand, to comply with any obligation,
covenant, agreement or condition herein may be waived in writing by Holdings or
the Sellers, respectively, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf
of any party hereto, such consent shall be given in writing in a manner
consistent with the requirements for a waiver of compliance as set forth in
this Section 12.2.
12.3. Investigations; Survival of Warranties. The respective
representations and warranties of the Sellers and Holdings contained herein or
in any certificates or other documents delivered prior to or at the Closing are
true, accurate and correct and shall not be deemed waived or otherwise affected
by any investigation made by any party hereto or by the occurrence of the
Closing including, without limitation, Holdings' environmental due diligence
regarding the use of trichloroethane (TCE) prior to the Closing Date. Each and
every such representation and warranty shall survive for a period of 27 months
from the Closing Date; provided, however, all claims for Damages relating to
the representations and warranties made pursuant to Sections 2.14, 2.18 and
2.24 or for Damages based on intentional or fraudulent actions,
misrepresentations or breaches shall expire upon the expiration of the
applicable statute of limitation. In the event that an indemnification claim
for Damages shall be pending as of the end of the applicable period referred to
above, such indemnity shall survive with respect to such indemnification claim
until the final disposition thereof.
12.4. Notices. Any notice, request, consent or communication
(collectively, a "Notice") under this Agreement shall be effective only if it
is in writing and (i) personally delivered, (ii) sent by certified or
registered mail, return receipt requested, postage prepaid, (iii) sent by a
<PAGE>
nationally recognized overnight delivery service, with delivery confirmed, or
(iv) telecopied, with receipt confirmed, addressed as follows:
(a) If to Paul Melech, Raymond Michael Murray, The R. Michael &
Joy A. Murray 1997 Unitrust, The Paul and Trish Melech 1997
Unitrust:
6312 78th Street
Riverview, Florida 33569
Telephone: (813) 671-2218
Telecopier: (813) 671-8464
If to Raymond E. Murray, The Raymond E. Murray 1997 Unitrust or The
Raymond E. Murray Revocable Trust:
5301 Cypress Street, Suite 307
Tampa, Florida 33607
Telephone: (813) 287-1010
Telecopier: (813) 287-5736
with a copy to:
Gregory C. Yadley, Esq.
Shumaker, Loop & Kendrick, LLP
Barnett Plaza, Suite 2800
101 East Kennedy Boulevard
Tampa, Florida 33602
Telephone: (813) 227-2238
Telecopier: (813) 229-1660
If to The Community Foundation of Tampa, Inc.:
Attn: George J. Baxter
4950 West Kennedy Boulevard, Suite 250
Tampa, Florida 33609
Telephone: (813) 282-1975
Telecopier: (813) 282-3119
If to O'Neal Sutton:
11502 Cerca Del Rio Place
Temple Terrace, Florida 33617
If to Denise R. Sutton:
12601 Selah Ranch Road
Thonotosassa, Florida 33592
If to O'Neal Sutton III:
1423 Kimberly Street
San Jose, California 94129
<PAGE>
If to Steven K. Sutton:
11926 Lakemist Circle
Temple Terrace, Florida 33617
If to Nicole F. Willier:
12601 Selah Ranch Road
Thonotosassa, Florida 33592
If to Kaitlyn M. Sutton:
1423 Kimberly Street
San Jose, California 95129
If to Jackson W. Sutton:
1423 Kimberly Street
San Jose, California 95129
If to Geraldine L. Brown:
2946 Alonzo Road
Jacksonville, Florida 32216
If to Jeanette E. Smith:
826 A1A Beach Blvd., Apt. #46
St. Augustine, Florida 32084
or to such other person or address as any Seller shall furnish to Holdings in
writing.
(a) If to Holdings to:
Thomas H. Quinn, President
Jordan Industries, Inc.
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60015
Telephone: 847-945-5591
Telecopier: 847-945-5698
with a copy to:
G. Robert Fisher, Esq.
Derek B. Guemmer, Esq.
Bryan Cave LLP
1200 Main, Suite 3500
Kansas City, Missouri 64105
Telephone: 816-374-3200
Telecopier: 816-374-3300
or such other persons or addresses as shall be furnished in writing by any
party to the other party. A Notice shall be deemed to have been given as of
the date
<PAGE>
when (i) personally delivered, (ii) five (5) days after the date when deposited
with the United States mail properly addressed, (iii) when receipt of a Notice
sent by an overnight delivery service is confirmed by such overnight delivery
service, or (iv) when receipt of the telecopy is confirmed, as the case may be,
unless the sending party has actual knowledge that a Notice was not received by
the intended recipient.
12.2. Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
Sellers without the prior written consent of Holdings. Holdings shall not
assign its rights hereunder except to an Affiliate (as that term is defined by
the federal securities laws), or to a lending institution as security.
12.3. Governing Law; Dispute Resolution.
(a) This Agreement shall be governed by the laws of the State of
Florida (regardless of the laws that might otherwise govern under applicable
principles of conflicts of law of the state of Florida) as to all matters
including, but not limited to, matters of validity, construction, effect,
performance and remedies.
(b) Any dispute between any of the parties hereto or any claim by
a party against another party arising out of or relating to this Agreement or
relating to any alleged breach thereof including, without limitation, the
calculation of the Closing Financials and Computations and the payments
pursuant to Section 1.4, shall be determined by arbitration in accordance with
the rules then in force of the American Arbitration Association. The
arbitration proceedings shall take place in Tampa, Florida or such other
location as the parties in dispute may agree upon. The arbitration proceedings
shall be subject to the substantive laws of the state of Florida. There shall
be one arbitrator, as shall be agreed upon by the parties in dispute, who shall
be an individual skilled in the legal and business aspects of the subject
matter of this Agreement and of the dispute. In the absence of such an
agreement, each party in dispute shall select one arbitrator and the
arbitrators so selected shall select a third arbitrator. In the event the
arbitrators cannot agree upon the selection of a third arbitrator such third
arbitrator shall be appointed by the American Arbitration Association at the
request of any of the parties in dispute. The arbitrator shall be an
individual skilled in the legal and the business aspects of the subject matter
of this Agreement and of the dispute. The decision rendered by the arbitrator
mutually agreed upon or the third party arbitrator, as the case may be, shall
be accompanied by a written opinion in support thereof. Such decision shall be
final and binding upon the parties in dispute without right of appeal.
<PAGE>
Judgment upon any such decision may be entered into in any court having
jurisdiction thereof, or application may be made to such court for a judicial
acceptance of the decision in an order of enforcement. Costs of the
arbitration shall be assessed by the arbitrator against all or any of the
parties in dispute and shall be paid promptly by the party or parties so
assessed. The arbitration proceeding required by this Agreement may be held
as part of an arbitration proceeding required by any other agreement entered
into in connection with this Agreement.
12.4. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.5. Neutral Interpretation. This Agreement constitutes the
product of the negotiation of the parties hereto and the enforcement hereof
shall be interpreted in a neutral manner, and not more strongly for or against
any party based upon the source of the draftsmanship hereof.
12.6. Headings. The article and section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
12.7. Entire Agreement. This Agreement, which term as used
throughout includes the Exhibits hereto, embodies the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, representations, warranties,
covenants or undertakings other than those expressly set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement as of the date first hereinabove set forth.
TELEPHONE SERVICES HOLDINGS, INC.
By /s/ Thomas Caffrey
Thomas Caffrey, Vice President
SELLERS:
/s/ Raymond E. Murray R. MICHAEL & JOY A. MURRAY 1997
Raymond E. Murray UNITRUST
/s/ Raymond Michael Murray BY: PRIVATE CAPITAL GROUP OF STI
Raymond Michael Murray CAPITAL MANAGEMENT, N.A., AS TRUSTEE
/s/ Paul Melech By: /s/ Julio E. Castro III
Paul Melech Julio E. Castro III, Senior Vice
President
/s/ O'Neil Sutton THE RAYMOND E. MURRAY 1997
O'Neal Sutton UNITRUST
/s/ Denise R. Sutton BY: PRIVATE CAPITAL GROUP OF STI
Denise R. Sutton CAPITAL MANAGEMENT, N.A., AS
CO-TRUSTEE
/s/ O'Neil Sutton III
O'Neal Sutton III By: /s/ Julio C. Castro III
Julio C. Castro III, Senior Vice
President
/s/ Steven K. Sutton
Steven K. Sutton THE RAYMOND E. MURRAY 1997 UNITRUST
/s/ Nicole F. WIllier By: /s/ Gary Saling
Nicole F. Willier Gary Saling, as Co-Trustee
/s/ Kaitlyn M. Sutton THE RAYMOND E. MURRAY REVOCABLE
Kaitlyn M. Sutton TRUST
/s/ Jackson W. Sutton
Jackson W. Sutton By: /s/ Raymond E. Murray
Raymond E. Murray, Co-Trustee
/s/ Geraldine L. Brown
Geraldine L. Brown By: /s/ Nancy Murray
Nancy Murray, Co-Trustee
<PAGE>
THE PAUL AND TRISH MELECH 1997
/s/ Jeanette E. Smith UNITRUST
Jeanette E. Smith
By: PRIVATE CAPITAL GROUP OF STI
CAPITAL MANAGEMENT, N.A., AS TRUSTEE
By: /s/ Julio E. Castro III
Julio E. Castro III, Senior Vice
President
THE COMMUNITY FOUNDATION OF
TAMPA BAY, INC.
By: /s/ George J. Baxter
George J. Baxter, President
CONSENT
Mrs. Kathryn L. Sutton hereby consents to the execution of this Agreement by
her husband, O'Neal Sutton III and further consents to the consummation of the
transactions contemplated by this Agreement including, without limitation, the
sale of the stock issued by the Company to O'Neal Sutton III.
Dated: , 1997
/s/ Kathry L. Sutton
Kathryn L. Sutton
<PAGE>
SCHEDULE OF EXHIBITS TO
AGREEMENT FOR PURCHASE AND SALE OF STOCK
Exhibits Title
S Exhibit 1.2(a) Allocation of Cash Portion of Purchase Price and
Subordinated Notes
H Exhibit 1.2(b) Five Year Subordinated Note
H Exhibit 1.2(c) Six Year Subordinated Note
S Exhibit 1.2(d) Allocation of Reserve Amount
S Exhibit 1.2(e) Allocation of APPs
S Exhibit 1.3(a) Owners' Equity Example
S Exhibit 1.3(b) Permitted Distributions
S Exhibit 1.5 Allocation of Purchase Price
S Exhibit 2.1.1 Foreign Qualifications
S Exhibit 2.1.2 Certificate or Articles of Incorporation, Bylaws
and Certificates of Authority of the Company
S Exhibit 2.2 Schedule of Authorized, Issued and Outstanding Capital
Stock of the Company
S Exhibit 2.3 Schedule of Subsidiaries and Affiliates
S Exhibit 2.5 Restrictions on Ability to Perform
S Exhibit 2.7 Financial Statements
S Exhibit 2.10 Schedule of Contracts
S Exhibit 2.12 Title and Related Matters
S Exhibit 2.12(d) Disposed Assets
S Exhibit 2.13 Legal Proceedings and Judgments
S Exhibit 2.14.1 Certain Tax Matters
S Exhibit 2.14.2 Tax Returns
S Exhibit 2.16 Copies of Reports and Inspections
S Exhibit 2.18.1 Welfare Benefit Plans; Retiree Health Benefits
<PAGE>
S Exhibit 2.18.2 Pension Benefits Plans
S Exhibit 2.18.3 Other Benefit Plans Including Vacation
S Exhibit 2.18.4 Other Plan Deliveries
S Exhibit 2.18.5 Consents and Agreements
S Exhibit 2.19 Schedule of Intellectual Property Rights
S Exhibit 2.20 Warranties and Claims Under Warranties
S Exhibit 2.21 Labor Relations
S Exhibit 2.22 Schedule of Insurance
S Exhibit 2.24 Environmental Matters
S Exhibit 2.25 Schedule of Capital Expenditures
S Exhibit 2.27 Schedule of Contracts with Affiliates
S Exhibit 2.29 Bank Accounts
S Exhibit 2.30 Compensation Schedule
H Exhibit 6.3(a) Consulting and Noncompetition Agreement
H Exhibit 6.4 Noncompetition Agreement
H Exhibit 6.6 Additional Purchase Price Agreement
H Exhibit 6.7 Subscription and Stockholders Agreement
H Exhibit 6.8 Bonus Plan Agreement
H Exhibit 6.9 Release
H Exhibit 6.10 Asset Purchase Agreement
H Exhibit 6.11 Employment and Noncompetition Agreement
H. Exhibit 6.12 Payoff Letter
H Exhibit 7.1 Certificate of Fulfillment of Conditions by Sellers and
the Company
H Exhibit 7.3 Opinion of the Sellers' Counsel
H Exhibit 7.6 Solvency Certificate
H Exhibit 7.13 Estoppel Certificate
H Exhibit 7.14 Withholding Certificate
<PAGE>
H Exhibit 8.1 Certificate of Fulfillment of Conditions of Holdings
H Exhibit 8.3 Opinion of Holdings' Counsel
S - First draft to be prepared by counsel for the Sellers
H - First draft to be prepared by counsel for Holdings
KC01 153291.5 4
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KC01 153291.5
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KC01 153291.5
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KC01 153291.5
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 8,988
<SECURITIES> 0
<RECEIVABLES> 46,600
<ALLOWANCES> (867)
<INVENTORY> 41,815
<CURRENT-ASSETS> 102,492
<PP&E> 55,992
<DEPRECIATION> (20,660)
<TOTAL-ASSETS> 334,514
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43,490
0
<COMMON> 10
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<SALES> 257,010
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<CGS> 163,926
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<INCOME-PRETAX> (12,000)
<INCOME-TAX> (1,676)
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<EXTRAORDINARY> (479)
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<NET-INCOME> (11,346)
<EPS-PRIMARY> 0
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</TABLE>
