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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended DECEMBER 31, 1995
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File No. 1-4289
GTI CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 05-0278990
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
9715 BUSINESS PARK AVENUE
SAN DIEGO, CALIFORNIA 92131
(Address of principal executive office) (Zip Code)
</TABLE>
(619) 537-2500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.04
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to
this form 10-K.
The aggregate market value of the registrant's voting Common Stock, held by
non-affiliates, based upon the closing price for registrant's Common Stock as
reported in the Wall Street Journal on March 1, 1996 was $42,087,429. This was
calculated by excluding shares of Common Stock and $35.00 Cumulative
Convertible Preferred Stock beneficially owned by Telemetrix PLC and by
directors and officers as a group from total outstanding shares solely for the
purposes of this response.
The number of shares of Common Stock of the registrant issued and outstanding
as of March 1, 1996: 8,973,475
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in the
following parts of this report:
Registrant's Definitive Proxy Statement which will be filed with the
Securities and Exchange Commission on or before April 8, 1996, in connection
with registrant's Annual Meeting of Stockholders to be held on May 15, 1996 is
incorporated by reference into Part III of this Report.
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PART I
ITEM 1. BUSINESS
GENERAL
GTI Corporation was originally incorporated under the laws of Rhode
Island in 1956 as Glass-Tite Industries, Inc. ("GTI-RI"). In March 1987,
pursuant to an Agreement and Plan of Merger, GTI-RI merged with and into GTI
Delaware, Inc., organized in the state of Delaware. At the effective time of
the merger, the name of the surviving corporation was changed to GTI
Corporation. GTI Corporation acquired Valor Electronics, Inc., ("Valor") in
July 1990 and Promptus Communications, Inc., ("Promptus") in January 1995. As
used herein, the term "Company" refers to GTI Corporation and, unless
specifically identified otherwise, all of its subsidiaries.
Since the acquisition of Valor, the Company has evolved into a
broad-based supplier of signal management components to original equipment
manufacturers ("OEMs") of local area networks ("LANs") and wide area networks
("WANs") for data communications. With the addition of Promptus, the Company
has broadened its involvement beyond signal management at the LAN interface to
include network access and intelligent bandwidth management for enterprise-wide
networking. The Company designs, manufactures, markets, and supports a broad
family of standards based magnetic components with application-specific
interface solutions for signal management in networking and internetworking
products. These signal management products provide signal processing and power
transfer functions, such as circuit isolation and impedance matching, signal
shaping and conditioning, noise reduction and filtering, and voltage
conversion. These electrical functions help enable the OEMs hardware and
software product architecture to transmit data over the LAN transmission media.
With the addition of Promptus, the Company intends to use its newly acquired
expertise in the areas of hardware design, software development, and telephony
to provide standards-based network access (with intelligent bandwidth
management capability) to the high-speed switched digital services provided by
public networks. These products are designed to work in an open environment to
provide corporations with a comprehensive solution to accessing high-speed
public switched digital services. Historically and presently, the Company's
product focus at Promptus has been to support user applications involving
videoconferencing, distance learning, and other applications, enabled by the
transmission speed offered by worldwide integrated service digital networks.
DISCONTINUED OPERATIONS
In May 1995, the Company announced a plan of divestiture of certain
non-core business units previously reported as two separate business segments
for financial reporting purposes, the electronic components and equipment
segment and the distribution products segment. As a result of the plan of
divestiture, the two business units have been classified as discontinued
operations for financial statement reporting purposes in accordance with
Accounting Principles Board Opinion No. 30 ("APB 30"). The electronic
components and equipment segment and the distribution products segment were
sold in separate transactions completed in December 1995 and in February 1996,
respectively.
BUSINESS SEGMENT INFORMATION
As a result of the sale of the business units representing the
electronic components and equipment segment and the distribution products
segment, the Company operates in one industry segment, networking products,
through its remaining principal continuing operations - Valor and Promptus.
Approximately 89% of 1995 sales were derived from the Company's Valor
subsidiary.
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PRODUCTS
The Company's principal product groupings are categorized as
magnetics-based components and network-access products. Magnetics-based
components are marketed under the Valor name (referred to herein as the "Valor
Products") and serve two product categories -- signal processing and power
transfer. Valor Products are compliant with the industry standards adopted by
the Institute of Electrical and Electronic Engineers ("IEEE") for the
conversion and transmission of data over copper wire and support the major
networking architectures ("LAN topologies"), which have evolved based on these
standards. Network-access products are marketed under the Promptus name
(referred to herein as the "Promptus Products") and serve videoconferencing
applications as well as (to a lesser extent) network dial backup and disaster
recovery applications. Promptus products are compliant with a comprehensive
selection of domestic and international Integrated Services Digital Network
("ISDN") call signaling protocols and provide users access to a wide variety of
switched digital services.
Magnetics-based components: The Company's magnetic-based components
include a broad family of standards-compliant, miniature, wire-wound
components; integrated modules; and subsystems serving two product categories
- -- signal processing and power transfer. The Company works closely with
networking customers and integrated circuit companies to design products that
complement the manufacturers' integrated circuit or chip set configuration with
the magnetics applications required to enable the integrated circuit to perform
its desired function, which is the conversion of the digital signal from inside
the computing device into an analog signal for transmission on the LAN medium
or cabling system. Valor Products are located at all interface points of the
LAN cabling system where signal conversion is required. For example, on the
desktop these products are found inside the computer on the network interface
adapter card. In addition, these products are located within external
connection devices such as transceivers. At the file server, these products
are found near the connection port of hubs or concentrators and routers as well
as inside multiple-access units.
Magnetics-based components are an integral part of electronic
circuitry. In LAN applications, circuits need to be isolated from each other,
impedances matched (voltage stepped up or down), unwanted signals suppressed or
noise emissions filtered, and voltage converted. The LAN topologies these
networking products support differ in their requirements for transmission
speed, wiring specifications, and signaling-access methods of the LAN; and, as
a result, the component mix, quantity, placement, and degree of component
integration for these products will vary depending upon the LAN topology used.
Signal-processing products consist of pulse transformers, chokes,
filters, and integrated filter modules. Pulse transformers provide electrical
isolation of circuits and match impedance's between different parts of
circuits, thus allowing for different circuits placed within close proximity on
the same board to handle voltage signals without causing data distortion or
circuit damage. In a LAN using copper wire as the transmission medium, pulse
transformers are used on network adapter cards, generally located inside the
computer, to isolate the wire (which is grounded) from the network adapter card
itself. This isolation prevents the wire from forming a loop which would
severely damage the circuits and destroy the signal. Chokes are used for
filtering and smoothing electrical signals and are often used in connection
with transformers. In a LAN, the required magnetics application for chokes is
signal conditioning and shaping at the network interface point to suppress
noise emission on the transmit and receive line. The Company's pulse
transformers and chokes support Ethernet over coax; 10Base-T and Token Ring LAN
topologies; and other high-speed LAN applications, such as 100Base-TX Fast
Ethernet, 155 Mbps Asychronous Transfer Mode ("ATM"), and fibre-channel
applications. Pulse transformers and chokes are also used in telecommunication
products with ISDN, T-1/CEPT, and S and U interface applications. Filter
products reduce or eliminate conducted noise from traveling along transmission
media as well as minimize large current or voltage spikes that would be deemed
excessive on the transmission cable. Filter products are designed to work with
the most commonly used integrated circuits and generally support both transmit
or receive functions. Filters are located at the transmit and receive
connection ports in such hardware as adapter cards, transceivers, intelligent
hubs, and routers, and may be placed discretely on printed-circuit boards or
into an integrated filter module. Integrated
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PRODUCTS (CONTINUED)
filter modules consist of a filter and a transformer and often a choke in one
single module and may also include resistors if the application is for
10Base-T. Integrated filter modules perform the combined functions of signal
isolation, impedance matching, signal conditioning, filtering, noise
suppression and overvoltage protection. The Company's filter products support
applications for Ethernet over coax, 10Base-T, Token Ring, and the PCMCIA
credit card-sized standard as well as 100Base-TX Fast Ethernet, FDDI over
copper, and 155 Mbps ATM.
Power-transfer products are principally DC/DC converters. DC/DC
converters take the bus or supply voltage, which generally operates at a higher
power level than the integrated circuit, and converts the voltage to a
regulated power level, two watts or less, to enable the integrated circuit to
function optimally. DC/DC converters are also suitable for flash memory and
distributed power applications. In a LAN, DC/DC converters are located in
adapter cards and hubs and support Ethernet over coax applications. Unshielded
cabling does not require a DC/DC converter.
Network-access products: The Company's network-access products
include a family of compatible network-access equipment called Open Access to
Switched Integrated Services ("OASIS ") and include system-level, network-
access and bandwidth management equipment, as well as board-level,
network-access cards. These products enable users to implement bandwidth
intensive applications with on-demand (dial-up) ISDN services. These products
serve the dial-up, switched digital services marketplace including switched 56,
64, Nx56/64, 384 and 1536 Kpbs services available from all major U.S.
long-distance carriers, local-exchange carriers and international PTTs. OASIS
products are available with inverse multiplexing based on the industry standard
developed by the Bandwidth on Demand Interoperability Group ("BONDING"). The
inverse multiplexing function operates by dividing high-speed data into
multiple channels (ISDN phone lines) after individually dialing these channels
over the public, switched-digital network. At the remote end, these channels
are phase aligned and synchronized to re-create the original data stream.
OASIS products are located at the customer premises and provide the interface
between LAN or video equipment and the public-telephone network. The system
products and board products share a wide variety of ISDN signaling protocols.
Switched Bandwidth Controllers are single-chassis connectivity devices
that establish high-speed digital connections. Controllers provide access to
ISDN Basic Rate Interface lines ("BRI") as well as ISDN Primary Rate Interface
lines ("PRI") to public, switched digital services. BRI controllers provide
dial-up capacity of 512 Kbps and support up to two application ports and
dialing ports. PRI controllers provide dial-up capacity up to 3Mbps on demand
and include one T1 interface (with the option of adding a second T1 interface),
two application ports, and two dialing ports. A substantial portion of
controllers sold by the Company are used as the ISDN access device for
videoconferencing room systems and roll-about systems. Other applications of
these controllers is to provide dynamic bandwidth allocation and inverse
multiplexing for network backup and overflow and disaster recovery applications
via ISDN access, principally in Europe.
Integrated Access Devices are modular, multi-port devices designed
with all the functionality of a controller but allow for additional
configuration flexibility and expansion to support multi-user environments.
Compatible with either T1 or the global E1 network-interface standard, these
devices support up to 8 T1/PRI network interfaces as well as up to 32 ports and
may be used in conjunction with a multi-point control unit to support
multi-point videoconferencing.
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PRODUCTS (CONTINUED)
Switched Digital Servers are modular, multi-port devices designed to
deliver ISDN switching capability to the customer's premises and may be used to
build corporate-wide ISDN networks. Servers provide access and bandwidth
management for up to 38 T1/PRI interfaces, up to 76 BRI ports, or up to 38
high-speed synchronous ports and, at present, are primarily suited for desktop
videoconferencing applications. Servers act like a network switch by
consolidating multiple ISDN BRI lines (within the customer's premises) onto
T1/PRI access lines for transmission outside the corporate-wide network. The
benefit of consolidation is to enable network managers to make multiple ISDN
BRI lines available to BONDING-compliant, desktop video users throughout an
organization at an affordable price.
Network Access Cards ("NACs") are intelligent PC/AT compatible boards
that feature a wide spectrum of ISDN communications protocols and software
developer's toolkits. NACs offer ISDN network-access technology for BRI
access, PRI access, and inverse multiplexing. The NAC product line of ISDN
access modules includes: single-line BRI access cards, multi-line BRI access
cards, PRI (T1 / E1) access cards, BONDING-inverse multiplexing option card,
and Dual Data / RS366 interface card. NACs supplement the traditional PC bus
with a separate high-speed / high-capacity bus designed to carry traffic
between circuit boards within a system. NACs are compliant with the
Multivendor Integration Protocol ("MVIP"), an industry standard interconnect
protocol for voice processing, fax, and communications board suppliers. The
software toolkits provide developers and OEMs of videoconferencing systems with
a high level Application Programming Interface ("API") across the entire family
of OASIS products. Toolkit features include software drivers, function
libraries, firmware, downloaders and demo programs for use with OASIS modules.
NACs are marketed primarily to OEMs and developers of PC-based
videoconferencing systems.
CUSTOMERS
The Valor Products are sold directly or indirectly to more than 3,000
customers, including the following OEMs:
Accton Technology Corporation
Artisoft, Inc.
AT&T
Bay Networks, Inc.
Cabletron Systems, Inc.
Cisco Systems, Inc.
Compaq Computer Corporation
Digital Equipment Corporation
Ericsson Telecom AB
Hewlett-Packard Company
Intel Corporation
International Business Machines Corp.
Motorola, Inc.
Networth Inc.
Racal Datacom
Standard Microsystems Corporation
Sun Microsystems, Inc
3Com Corporation
Ungermann-Bass, Inc.
Two customers, 3Com Corporation and Bay Networks, Inc., accounted for
16% and 14%, respectively, of the Company's total sales in 1995. One customer,
3Com Corporation, accounted for 22% of the Company's total sales in 1994. In
1993, two customers, SynOptics Communications, Inc., and 3Com Corporation
represented 17% and 13% of the Company's total sales, respectively.
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CUSTOMERS (CONTINUED)
The Company's Promptus Products are sold directly or indirectly to
more than 100 customers including major videoconferencing OEMs, regional bell
operating companies ("RBOC"), other major telecommunications OEMs, systems
integrators, and international telecommunications equipment manufacturers,
including the following:
Ameritech
AT&T
Bell Atlantic
Fujitsu Business Communications
GPT Business Systems Group
International Business Machines Corp.
MCI Telecommunications
Mitel
PictureTel
Racal-Datacomm
Soei Tsusho
Southwestern Bell
SPRINT
Tandberg AS
Tellabs
VideoServer
VTEL Corporation
Promptus's OASIS ISDN products are deployed and approved in 28
countries, including the United States, Canada, Japan, Hong Kong, Singapore,
China, New Zealand, Australia, Brunei, United Arab Emirates, South Africa, and
the European countries of Austria, Belgium, Denmark, Finland, France, Germany,
Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain,
Sweden, Switzerland, and the United Kingdom. Promptus continues to add to its
list of approved countries as such approvals are required.
SALES AND MARKETING
The Valor Products are sold through 22 manufacturers' representative
organizations employing over 125 sales engineers trained to sell the Company's
products. These products are also offered for sale through one national and
five regional electronics distributors with branches throughout the United
States and Canada. The largest distributor is Avnet Electronics (formerly
Hamilton/Hallmark). The efforts of the representative and distribution
organizations are directed by three regional managers who report to a vice
president of sales, North America. The international sales structure comprises
representative and distributor networks in Europe and the Pacific Rim. There
are directors of sales and marketing in Munich, Germany, and Hong Kong to
oversee sales in Europe and the Pacific Rim, respectively. The Company employs
customer service representatives to process purchase orders and respond to
customer inquiries.
The Promptus Products have historically been sold through multiple,
indirect distribution channels worldwide, including resellers, systems
integrators, OEMs, and Interexchange Carriers. The majority of OASIS systems
are sold through resellers and systems integrators, which may be private
companies, an RBOC, an Interexchange Carrier, or an OEM. The majority of OASIS
NACs are sold directly to systems integrators and OEMs for the PC-based
videoconferencing market. Of these channels, the Company relies upon its OEM
channel for a significant portion of total sales of Promptus Products. These
OEMs may offer OASIS system products under their own label or integrate OASIS
NACs into their desktop products. Average-selling prices from sales through
the OEM channel are lower than average-selling prices from sales through
end-user and other reseller channels. The continued concentration of sales
through the OEM channel may increase the Company's vulnerability to aggressive
marketing actions from competitors (many with greater financial resourses than
the Company) which could result in lower gross margins in future periods.
Promptus supports the activities of its indirect channel marketing partners
with its in-house sales and marketing organization. Promptus's sales and
marketing organization includes a direct sales force serving North America,
Europe, and the Pacific Rim. The sales force is supported with a customer
service staff, field engineers, and administrative personnel.
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COMPETITION
The market for magnetics-based components for LAN applications is
highly competitive. The Company's Valor Products have two principal
competitors, Pulse Engineering, Inc., (Technitrol) and Bel Fuse, Inc., each
offering a broad product line and competing with similar levels of
manufacturing and engineering capabilities. In addition, numerous
foreign-based firms, mainly Taiwanese with strong manufacturing capabilities,
offer specific products with capabilities similar to the Company's standard and
mature product lines. These firms tend to compete on a product-specific basis
or a protocol-specific basis but do not compete across all products and LAN
applications offered by the Company.
The number of competitors and the characteristics of competition for
Valor Products varies based on the degree of engineering and design related to
each product. Currently, competition is primarily based on engineering design,
availability, and price. Products with very little engineering requirements or
changes in design have more competitors and typically compete on price.
Products with a high degree of engineering design and component integration
have fewer competitors and typically compete on the ability to provide
solutions. The Company believes that its engineering program and relationship
with customers give it a competitive advantage over companies with fewer
engineering resources with respect to products requiring a high degree of
engineering and component integration.
The market for Ethernet and 10Base-T products is becoming increasingly
mature and, as a result, manufacturing companies are entering the marketplace
with standard products and have sought to compete on the basis of price. The
Company believes that it has been able to compete effectively in this
environment by focusing on higher degrees of engineering and functionality,
product quality, and availability as well as the ability to cost re-engineer
mature products.
The Company's Promptus Products for systems-level videoconferencing
applications have three principal competitors, Ascend Communications, Inc.,
Teleos Communications, Inc., and Adtran, Inc., all larger in terms of revenue
and installed customer base. The Company's Promptus Products for board-level
videoconferencing applications has competitors on a product-specific basis, for
example Primary Rate Incorporated (Xircom) competes with a line of ISDN PRI
cards, and SCII (European based) competes with a line of ISDN BRI cards.
Competitive factors for these products include core software technology,
breadth of product features, functionality, quality, international
certifications as well as customer service and support. Price is a factor in
the low-end, single-line-single-application ISDN access market for system-level
products as well as board-level products. The Company's strategy is to
differentiate itself from competitors by stressing its customer service and
technical support program.
MANUFACTURING AND SUPPLIERS
The manufacturing operations for the Company's Valor Products are
labor intensive and primarily involve the winding of magnetic cores, the
assembly and placement of discrete components onto printed circuit boards,
product encapsulation, testing, quality assurance, and product marking of the
final component. The Company conducts its manufacturing operations for Valor
Products in the Asia Pacific Region via seven facilities in the People's
Republic of China ("PRC") and one facility in the Philippines. The activities
of these manufacturing facilities are coordinated and supported by the
Company's Hong Kong-based regional headquarters. All of the manufacturing
facilities in the PRC and the Philippines are certified pursuant to ISO 9001.
During 1995, the Company consolidated its four directly operated PRC
facilities, which account for the majority of Chinese production, into two
existing facilities. The other five Chinese facilities are operated through
subcontracting arrangements over which the Company has direct product
supervision. Labor cost and facilities leases for the two directly operated
facilities are negotiated with the provincial government. The subcontract
arrangements are negotiated on a price-per-piece basis, renewable annually, and
generally provide the Company flexibility to adapt its production schedule in
response to fluctuations in market demand. The Hong Kong facility is the
support center for the Chinese plants and provides technical, managerial, and
material procurement functions.
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MANUFACTURING AND SUPPLIERS (CONTINUED)
The principal materials and fabricated components used in Valor
Products include ferrite cores and coilforms, leadframes, printed circuit
boards, epoxies, and discrete electronic components. The Company generally
uses standard parts and components for its products and, historically, has been
able to obtain adequate supplies from existing sources. During 1995, the
Company has sought to establish close supplier relationships for its principal
materials and components by concentrating the source of supply to one or two
designated vendors. The Company actively maintains pre-qualified alternative
sources for its principal materials and fabricated components and believes
that, in the case of non-critical components, there are a number of alternative
qualified vendors to supply parts in a timely manner. At present, Valor
Products' pin coilforms, which are used in approximately 30% of filter
products, are manufactured by a sole-sourced supplier. An interruption in the
supply of pin coilforms or the inability of the Company to procure this
component from alternative sources at acceptable prices within a reasonable
time would likely materially and adversely affect the Company's business,
operating results, and financial condition.
The manufacturing operation for the Promptus Products are comprised
principally of materials planning and procurement, final assembly, burn-in,
final system test, and quality control. The Company designs the hardware
subassemblies for its Promptus Products and contracts the services of various
third-party vendors specializing in the assembly and integration of printed
circuit boards, subassemblies, and components to deliver a complete hardware
module. The Company installs its proprietary software to add the required
intelligence to the product.
At present, the Company relies on the services of one specific
supplier for component procurement, assembly, and delivery of completed modules
representing approximately 90% of Promptus Product production. Although the
Company has not experienced any material adverse effects from the inability to
obtain timely delivery of Promptus Products, an interruption of supply or
unanticipated failure by the sole-source supplier for an extended period and
the time required for qualified alternative suppliers to produce desired
qualities would likely adversely effect the Company's business, operating
results, and financial condition.
PRODUCT DEVELOPMENT
The market for the Company's products is characterized by rapidly
changing technology, frequent new product introduction, and the requirement to
conform to evolving standards for networking architecture. The Company's
ability to develop and introduce new products to the market in a timely manner
or enhancements to existing products is crucial to its continued success.
Valor is developing its magnetics-based products for use in emerging
communications markets, such as Fast Ethernet, FDDI/CDDI, ATM, and PCMCIA
standards. Valor works closely with networking customers and integrated
circuits manufacturers with which Valor's products must interface and
participates as a member in the IEEE and ANSI Standards Committees. These
efforts give Valor early access to new technologies and new product plans,
which Valor believes provide it with advantages in the timely development of
its products. Concurrent engineering projects with key customers are also
becoming an important factor in developing new products and product
enhancements. Valor is also developing products for sale in broader
telecommunication markets (including ISDN) and products for flash memories, in
addition to developing subsystems with higher degrees of component integration
and value-added for its major customers. In 1995, 1994, and 1993, Valor
incurred engineering and product development costs of $4,705,000, $5,464,000,
and $3,945,000, respectively.
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PRODUCT DEVELOPMENT (CONTINUED)
Promptus is currently focusing its development of network-access
solutions in areas complementary to ISDN-based market opportunities,
particularly the emerging market for data applications for corporate networks.
Promptus continues to support the advancement of videoconferencing
applications, bandwidth management and distribution, LAN to WAN
interconnections, integrated voice/data/video access, and remote LAN access.
In 1995, Promptus incurred engineering and product development costs of
$2,625,000 compared to $2,025,000 in 1994.
FOREIGN OPERATIONS
Substantially all of the Company's manufacturing operations for Valor
Products and approximately 57% of its identifiable assets (excluding goodwill)
are located in Hong Kong, the People's Republic of China, and the Philippines.
See the discussion under Item 1. "Business - Manufacturing and Suppliers" and
under Item 2. "Properties." There are risks attendant to these foreign
operations, many of which are beyond the control of the Company. These risks
include exposure to the effects of political and economic instability and
significant changes to existing international treaties, market forces, and
foreign laws as well as difficulties in staffing and managing foreign
subsidiaries and oversight of subcontracting arrangements. Such risks could
result in interruptions of manufacturing capability or substantial increases in
operating costs, which if prolonged would have a material, adverse effect on
the Company's profitability. If the United States Government were to eliminate
current favorable trade legislation with China or increase customs duties, it
could have a material, adverse effect on a substantial majority of the
Company's foreign operations. Additionally, the sovereignty of the
British-administered territory of Hong Kong is scheduled to revert to the
People's Republic of China on July 1, 1997. The Company cannot predict what
impact, if any, the renewal of China's sovereignty over Hong Kong will have on
the Company or the political and economic climate within China. The Company
has currently submitted a formal application for approval to operate in China
as a Wholly Foreign-Owned Enterprise ("WFOE") and believes that conducting its
operations in China under the WFOE structure will potentially mitigate certain
risks and uncertainties associated with the existing contractual arrangements
in China.
INTERNATIONAL SALES
Sales to customers outside of the United States comprised
approximately 42.6% of the Company's total net sales in 1995, of which
approximately 20.4%, 19.4%, 0.8% and 2.0% were made to customers in the Pacific
Rim, Europe, Canada, and Puerto Rico, respectively. Sales to customers outside
the United States as a percentage of total sales were approximately 36.5% in
1994 and 28.8% in 1993. The majority of international sales are derived from
the Company's foreign operations, principally Valor Products. The Company also
exports products to international markets from its domestic operations for
Valor and Promptus. Additional geographic segment financial information is set
forth in Footnote 12 to the Financial Statements under the caption "Geographic
Segments," included herein.
The Company has established sales offices in Hong Kong and Munich,
Germany, to administer its international sales activities for Valor Products
and in the United Kingdom to administer its international sales activities for
Promptus Products. The Company believes that LANs, which require
magnetics-based components such as those manufactured by the Company, will make
further penetration into international markets, as has been the case in the
United States. Accordingly, the Company expects that international sales will
constitute a greater percentage of total sales in the future. International
sales are, however, subject to inherent risks, including changes in regulatory
requirements, fluctuating currency exchange rates, increases in tariff and
other barriers, difficulties in obtaining export licenses, and potentially
adverse tax consequences.
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BACKLOG
The backlog of unfilled orders as of December 31, 1995, was
$28,994,000, compared to $17,731,000 as of December 31, 1994. Backlog for the
Valor Products was $25,800,000 as of December 31, 1995, compared to $17,731,000
as of December 31, 1994. The Company generally manufactures its products
against firm orders and forecasted demand. The Company's backlog at the
beginning of each quarterly period is not sufficient to achieve anticipated
revenues for the quarter. As a result, the Company's sales for any future
period are dependent upon obtaining orders in a quarter for shipment within the
same quarter. Therefore, the Company's backlog may not be indicative of
actual revenues in the future quarterly period. While the Company believes
that the orders included in the backlog are firm, typical customer terms
generally include the ability to cancel or reschedule orders without
significant penalty. In addition, the Company commits its manufacturing and
expense levels according to monthly sales and production forecasts. If
anticipated sales do not meet these forecasts, the Company's operating results
would be adversely effected.
PROPRIETARY RIGHTS
Except for the Promptus Products, the Company believes that, because
its products are subject to rapidly changing design, patent and copyright
protection are less significant to the Company's competitive position than
factors such as the knowledge, ability, and experience of the Company's
personnel, new product development, product quality, market recognition, and
on-going customer support. To protect its proprietary rights in these
products, the Company primarily relies on trade secrets and nondisclosure
agreements. Copyright protection is somewhat more important in the case of the
Promptus Products, although the above mentioned factors and agreements are also
important to the competitive position of and proprietary rights related to the
Promptus Products, as applicable. Despite these precautions, it may be
possible for unauthorized third parties to copy aspects of the Company's
products or to obtain and use information the Company regards as proprietary.
The laws of some foreign countries do not protect the Company's proprietary
rights in the Company's products to the same extent as do the laws of the
United States.
EMPLOYEES
The number of persons employed by the Company as of March 1, 1996, was
8,075. Of these employees, 6,793 were employed by the Company through contracts
with the government of the People's Republic of China and are trained and
supervised by the Company to work in facilities leased by the Company. In
addition, approximately 3,554 persons, all of whom are located in China, are
employed by the Company's subcontractors to manufacture certain of the
Company's networking products. The Company considers its relationships with
its employees and subcontractors to be good.
ENVIRONMENTAL COMPLIANCE
The Company is subject to various federal, state, and local
environmental protection laws and regulations and, from time to time, has
incurred costs for environmental compliance, none of which to date has been
material. The Company has been studying and undertaking certain remedial
actions with respect to groundwater pollution and soil contamination conditions
at its closed facility in Leesburg, Indiana. The Company anticipates that
additional environmental expenses will be incurred in future years as the
Company continues its environmental studies and implements remediation plans.
Based on current knowledge, the Company does not believe that any future
expenses associated with environmental remediation will have a material impact
on the financial position of the Company.
- 10 -
<PAGE> 11
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names, ages, and offices held by
the Company's current executive officers:
<TABLE>
<CAPTION>
Name Age Office
---- --- ------
<S> <C> <C>
Albert J. Hugo-Martinez 50 President and Chief Executive
Officer and Director
Douglas J. Downs 40 Vice President Finance, Chief Financial
Officer, Treasurer and Secretary
Aurelio (Al) Lucci 61 Vice President-GTI Corporation,
Chairman and Chief Executive Officer-
Promptus Communications, Inc.
</TABLE>
There are no family relationships among the executive officers and
directors of the Company.
Albert J. Hugo-Martinez became president and chief executive officer
of the Company on March 13, 1996. From 1988 to 1995, Mr. Hugo-Martinez was
president and chief executive officer of Applied Micro Circuits Corp. in San
Diego, California. Prior thereto, he held various management positions with
TRW, Burr Brown Corporation, and Motorola Semiconductor. Mr. Hugo-Martinez is
a director of Microchip Corp. and the UCSD Cancer Center.
Douglas J. Downs was employed by the Company on May 1, 1990, as
director of financial analysis. On August 16, 1990, he became treasurer and
assistant secretary. He was named vice president-finance and secretary on May
3, 1991, and on December 13, 1991, he became chief financial officer of the
Company. From 1988 to April 1990, he was director of operations services for
SOLA/BARNES-HIND, an eye-care products company. From 1981 until 1988, Mr.
Downs served in a variety of financial positions with the Revlon Vision Care
Organization prior to the sale of Barnes-Hind, Inc., to Sola Ophthalmics.
Aurelio (Al) Lucci became a vice president of the Company on February
15, 1995. Mr. Lucci is currently chairman and chief executive officer of
Promptus Communications, Inc. Mr. Lucci founded Promptus in 1989. From 1977
until founding Promptus, Mr. Lucci was founder and chief executive officer and
chairman of the board of Avanti Communications Corporation in Newport, Rhode
Island, which marketed T1 multiplexers and transmission products for high-speed
data distribution in a local environment.
ITEM 2. PROPERTIES
The Company's corporate headquarters as well as the principal
executive, marketing, sales, product development, and warehousing facility of
Valor are located in a leased building in San Diego, California. The
manufacturing operations for Valor are performed in eight leased facilities
located in Hong Kong, the People's Republic of China, and the Philippines. The
Hong Kong facility serves as the Company's central administrative,
manufacturing process, and materials procurement center for the Asia Region as
well as the managerial and manufacturing support center for the Chinese and
Philippines plants.
The principal administrative, engineering, manufacturing, marketing,
and sales operations of Promptus are located in a single, leased building
located in Portsmouth, Rhode Island.
- 11 -
<PAGE> 12
ITEM 2. PROPERTIES (CONTINUED)
The majority of the Company's operations are conducted in leased
facilities. The following table sets forth the Company's principal, leased
facilities by location, square footage, segment and use, lease expiration, and
renewal options:
<TABLE>
<CAPTION>
Approximate Renewal
Square Segment Year of Lease Options
Location Footage Products/Uses Expiration #/Period
------------ ----------- ----------------------------------- ------------ --------
<S> <C> <C> <C> <C>
U.S.A.
San Diego, CA 40,000 Corporate Office 1997 2/2 years each
Networking Products/Valor
administration, product development
San Diego, CA 7,525 Networking Products/Valor 1997 1/5 years
warehouse, stockroom
Portsmouth, RI 28,160 Networking Products/Promptus 1997 None
administration, manufacturing,
engineering, sales
HONG KONG
Kowloon 12,450 Networking Products/Valor 1999 1/3 years
regional headquarters
PEOPLE'S REPUBLIC OF
CHINA(1)I
Factory 1 90,000 Networking Products/Valor 1996 None
signal processing, power transfer
Factory 2 80,000 Networking Products/Valor 1997 None
signal processing, power transfer
PHILIPPINES
Cabuyao 32,800 Networking Products/Valor 1997 None
signal processing, power transfer
</TABLE>
(1) The PRC facilities are operated directly by the Company under negotiated
contracts between the Company and the provincial government of China. In
addition to the manufacturing space indicated, each facility includes space for
staff quarters and dormitories. Such living quarters in the aggregate
represent 312,400 square feet of space.
In addition to its manufacturing and distribution facilities, the
Company leases sales offices elsewhere in the United States, United Kingdom,
and Germany. The Company also leases 8,831 square feet of office space for
certain administrative functions. The Company believes that its facilities are
well maintained, in good operating condition and adequate to support
anticipated operating needs over the next twelve months.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings and claims
arising in the ordinary course of business, none of which, in the opinion of
management, is expected to have a material adverse affect on the Company's
consolidated financial position.
- 12 -
<PAGE> 13
ITEM 3. LEGAL PROCEEDINGS (CONTINUED)
In December 1995, a class-action lawsuit was filed in the United
States District Court, Southern District of California, against the Company and
certain of its officers and directors alleging violations of the Securities
Exchange Act of 1934. Specifically, the complaint asserts, among other claims,
that the Company artificially inflated the value of its stock by making false
and misleading statements about expected financial results. The plaintiffs
seek an unspecified amount of damages based upon the decrease in market value
of the Company's stock. The Company has filed its initial response to the
complaint and intends to defend this action vigorously. Based upon its present
understanding of the facts, the Company believes it has meritorious defenses to
the claims alleged. Because the outcome of the claims are uncertain at this
time, no provision for any liability that may result upon adjudication has been
made in the accompanying consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1995.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's Common Stock is traded on the NASDAQ/NMS -- Symbol:
GGTI. The prices quoted below have been furnished by the NASDAQ/NMS. As of
December 31, 1995, there were approximately 1,750 holders of the Company's
Common Stock. The Company has not paid dividends on its Common Stock since
1982.
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------------------------------
Quarter High Low High Low
------- ---- --- ---- ---
<S> <C> <C> <C> <C>
1st 17 1/4 9 1/2 29 1/4 12 1/2
2nd 19 1/2 9 1/2 13 1/2 7 3/4
3rd 23 5/8 15 1/2 16 3/4 10
4th 19 7/8 10 1/2 18 1/4 12
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The income statement data of the Company presented below for each of
the five fiscal years ended December 31, 1995, and the balance sheet data as of
December 31, 1995, 1994, 1993, 1992, and 1991 have been derived from the
audited Consolidated Financial Statements of the Company that are included as
part of this Annual Report on Form 10-K and the Company's Annual Reports on
Form 10-K for the prior three fiscal years.
The selected consolidated financial data set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and Notes thereto included elsewhere as part of this Annual Report on Form
10-K.
- 13 -
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994 1993 1992 1991
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data
Sales $129,149 $103,239 $88,575 $63,985 $36,180
=================================================================================================================
Income from continuing operations $3,090 $3,299 $10,890 $7,032 $1,855
Income from discontinued operations,
net 856 1,962 2,310 1,998 2,423
Loss on disposal of discontinued
operations, net (2,000) --- --- --- ---
-----------------------------------------------------------------------------------------------------------------
Net income $1,946 $5,261 $13,200 $9,030 $4,278
=================================================================================================================
Net income per share of Common Stock
- primary and fully diluted
Income from continuing operations $0.28 $0.32 $1.09 $0.72 $0.20
Income from discontinued operations 0.08 0.20 0.23 0.21 0.25
Loss on disposal of discontinued
opertions (0.18) --- --- --- ---
-----------------------------------------------------------------------------------------------------------------
Net income $0.18 $0.52 $1.32 $0.93 $0.45
=================================================================================================================
Weighted average shares outstanding 10,873,000 10,187,000 10,023,000 9,713,000 9,561,000
=================================================================================================================
Balance Sheet Data
Total assets $120,808 $99,948 $89,648 $66,721 $52,720
=================================================================================================================
Working capital $34,777 $42,108 $38,055 $25,157 $24,473
=================================================================================================================
Long-term debt $--- $--- $--- $2,625 $3,375
=================================================================================================================
Stockholders' equity $88,995 $77,563 $71,772 $48,480 $39,551
=================================================================================================================
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and related notes. Dollar amounts below are
expressed in thousands.
BUSINESS ACQUISITION BY AND AMONG GTI CORPORATION AND PROMPTUS COMMUNICATIONS,
INC.
In January 1995, the Company acquired approximately 71% of the
outstanding capital stock of Promptus Communications, Inc., ("Promptus" or
"Promptus Products") for approximately $19.1 million in cash, net of cash
acquired. Promptus develops, manufactures, and markets high-speed, digital,
network-access products used principally in the videoconferencing industry by
OEMs and telecom equipment providers for corporate customers utilizing ISDN
connections. The acquisition was accounted for as a purchase. Accordingly,
the acquired assets and liabilities were recorded at their estimated,
fair-market
- 14 -
<PAGE> 15
BUSINESS ACQUISITION BY AND AMONG GTI CORPORATION AND PROMPTUS COMMUNICATIONS,
INC. (CONTINUED)
values on the acquisition date. Promptus's operating financial results are
included in the Company's consolidated financial results of operations
beginning January 1, 1995. The aggregate purchase price was paid using a
combination of bank borrowings, the sale of 650,000 shares of the Company's
common stock, and cash on hand. See Note 2 "Business Combination" in the Notes
to Consolidated Financial Statements and Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources for further discussion.
DISCONTINUED OPERATIONS
In May 1995, the Company's Board of Directors adopted a formal plan to
sell its non-core business segments, consisting of the electronic components
and equipment segment (the "E-Group") and the distribution products segment
("Esco") (collectively, the "Segments"), as a part of the Company's strategic
focus on networking and network-access markets. The Segments have been
accounted for as discontinued operations in accordance with APB 30, which among
other provisions, expects the plan of disposal to be carried out within one
year. All prior year amounts have been restated to reflect these segments for
financial accounting and presentation as discontinued operations. The E-Group
and Esco disposals were completed in December 1995 and February 1996,
respectively. See Note 3 "Discontinued Operations" in the Notes to
Consolidated Financial Statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources
for further discussion.
RESULTS OF OPERATIONS
The table below sets forth the Company's sales, cost of goods sold,
gross profit, operating expenses, operating profit, income from continuing
operations before income taxes and minority interest, provision for income
taxes, income from discontinued operations (net of income taxes), loss on
disposal of discontinued operations (net of income taxes), and net income as a
percentage of net sales for the years ended December 31, 1995, 1994, and 1993,
respectively:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Cost of goods sold 69.5 73.7 60.4
----- ----- -----
Gross profit 30.5 26.3 39.6
Selling, general and administrative
expenses 27.4 23.0 22.9
----- ----- -----
Operating profit 3.1 3.3 16.7
Income from continuing operations
before income taxes and minority
interest 2.4 3.6 16.4
---- ----- -----
Provision for income taxes 0.4 0.2 3.2
Income from discontinued operations,
net of income taxes 0.7 1.9 2.6
Loss on disposal of discontinued
operations, net of income taxes (1.5) -- --
---- ----- -----
Net income 1.5% 5.1% 14.9%
==== ===== =====
</TABLE>
OVERVIEW
In 1995, the Company's sales increased significantly as a result of
the inclusion of Promptus Products effective January 1, 1995, and continued
unit sales growth of Valor Electronics, Inc.'s, magnetics-based components
("Valor Products"). The increase in gross profit as a percentage of sales in
- 15 -
<PAGE> 16
OVERVIEW (CONTINUED)
1995 is primarily due to the inclusion of Promptus Products that generate
higher margins than LAN magnetics-based components. Selling, general and
administrative expenses increased as a percentage of sales due to the inclusion
of Promptus Products whose rate of spending was disproportionately high in
relation to its sales. Additionally, operating profit was adversely affected
by Promptus Products' operating loss of approximately $1,868 and certain
severance costs. Net income was also negatively impacted by the Company's
recording of an estimated loss on the combined disposal of both the E-Group and
Esco during the fourth quarter of 1995.
SALES
<TABLE>
<CAPTION>
1995 Change 1994 Change 1993
---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Sales $129,149 25.1% $103,239 16.6% $88,575
</TABLE>
The increase in consolidated sales of $25,910 in 1995 from 1994 is
primarily a result of the inclusion of Promptus Products effective January 1,
1995, and continued strong unit demand (an increase of 13% from the prior year)
for Valor Products' LAN magnetics-based components. The year-over-year sales
growth in Valor Products is a result of increased unit volume of signal-
management products such as filters and transformers. During 1995, Valor
Products did not experience significant average selling price erosion as
experienced during 1994. The increase in sales in 1994 from 1993 of $14,664
was due to overall market growth and strong demand for Valor Products.
However, due to competitive pressures, Valor Products' sales were negatively
impacted by a sharp decline in average selling prices. The decline in average
selling prices was offset by an increase in unit volume of approximately 32%.
International sales continue to remain strong during 1995 increasing 69%,
representing 41% of the Company's sales compared to 30% in 1994. The increase
in international sales is a result of the inclusion of Promptus Products and an
increase in Valor Products to customers outside of the United States.
<TABLE>
<CAPTION>
Sales by Major Product 1995 Change 1994 Change 1993
---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Valor Products $114,836 11.2% $103,239 16.6% $88,575
Percentage of total sales 88.9% 100.0% 100.0%
Promptus Products $14,313 67.9% $8,525 52.7% $5,584
Percentage of total sales 11.1% 0.0% 0.0%
</TABLE>
Valor Products
Valor Products' sales increased in 1995 and 1994, when compared to
1993, principally due to overall market growth and strong unit demand for
signal-management products. The growth in sales reflects increased unit volume
across, substantially, all product families supplied to OEMs for LAN and
internetworking products. In 1995, unit volume continued to be strong with
increasing demand by OEMs in the 10Base-T interface card market and the rapidly
growing internetworking market for stackable hubs used in LAN segmentation.
During 1995, Valor Products did not experience significant average selling
price erosion as experienced during 1994. In 1994, compared to 1993, the
growth in sales was a result of significantly increased unit volumes offset by
rapid erosion in average selling prices for filter products. During 1994,
average selling prices for filter products decreased approximately 22% while
unit volume increased 54%, when compared to 1993. International sales for Valor
Products in 1995 were approximately $17,188 or 55%, increasing to 37% from 30%
and 25% in 1994 and 1993, respectively. Substantially all of the increase was
a result of increased sales by Valor Products' Pacific Rim operations to
existing international OEM customers.
Collectively, two Valor Products' OEM customers accounted for 34% of 1995
sales, while individually they represented 18% and 16% of sales, compared to
22% and less than 10% in 1994. The sales
- 16 -
<PAGE> 17
SALES (CONTINUED)
percentage from these and other OEM customers has historically fluctuated and
may continue to vary in future periods. Management believes that future sales
concentration to these customers is likely to continue; consequently, such
concentration may adversely affect both average selling prices and future sales
growth.
Promptus Products
Promptus Products' sales increased in 1995 from 1994 and 1993 as a
result of overall market growth of high-speed, digital, network-access products
for videoconferencing. The growth in sales reflects increased unit volume of
NACs and Network Systems to video-conferencing OEMs and large telecom
customers. During 1995, Promptus Products experienced a decline in average
selling prices for certain Network System products. These products experienced
average selling price decreases of approximately 19% from the prior year offset
by unit volume increases of approximately 182%. International sales for
Promptus Products represented approximately 30% of sales in 1995, an increase
of 261% from 14% in 1994. Substantially all of the increase was a result of
higher sales to existing OEM customers in Europe.
Collectively, two Promptus Products' customers accounted for 41% of
1995 sales while, individually, these customers accounted for 28% and 13% of
sales. Management believes that future unit volume and sales concentration
with these significant customers is likely to continue; consequently, such
concentration may have an adverse affect on average selling prices, gross
profit, and gross profit as a percentage of sales.
COST OF GOODS SOLD
<TABLE>
<CAPTION>
1995 Change 1994 Change 1993
---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Cost of goods sold $89,749 17.9% $76,122 42.3% $53,491
Percentage of sales 69.5% 73.7% 60.4%
Gross profit $39,400 45.3% $27,117 (22.7)% $35,084
Percentage of sales 30.5% 26.3% 39.6%
</TABLE>
The year-over-year increase in gross margin in absolute dollars is a
result of increased unit volumes and the inclusion of Promptus Products
effective January 1, 1995. Gross profit as a percentage of sales increased in
1995 from 1994 but decreased from 1993. The increase in gross profit as a
percentage of sales in 1995 is primarily due to the inclusion of Promptus
Products that generate higher margins than LAN magnetics-based components.
Additionally, Valor Products' gross margins increased from the prior period as
a result of stabilized product pricing, particularly for filter products,
reduced manufacturing costs, and increased unit volume.
<TABLE>
<CAPTION>
Cost of Goods Sold by Major Product 1995 Change 1994 Change 1993
----------------------------------- ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Valor Products $82,729 8.7% $76,122 42.3% $53,491
Percentage of sales 72.0% 73.7% 60.4%
Gross profit $32,107 18.4% $27,117 (22.7)% $35,084
Percentage of sales 28.0% 26.3% 39.6%
Promptus Products $7,020 80.4% $3,891 9.9% $3,540
Percentage of sales 49.1% 45.6% 63.4%
Gross profit $7,293 57.3% $4,634 126.7% $2,044
Percentage of sales 50.9% 54.4% 36.6%
</TABLE>
- 17 -
<PAGE> 18
COST OF GOODS SOLD (CONTINUED)
Valor Products
The year-over-year increase in gross profit in absolute dollars is a
result of increased unit volumes. The increase in gross profit as a percentage
of sales of 1.7% from 1994 is a result of stabilized product average selling
prices, particularly filter products; reduced raw material costs per unit;
reduced manufacturing costs; and, to a lesser extent, economies of scale
associated with increased manufacturing volumes. During 1994, manufacturing
costs increased as a result of Valor Products adding two assembly facilities to
meet demand for higher-volume products. Further, these products were subject
to sharp declines in average selling prices during 1994. Based on the current
fixed-cost structure associated with maintaining the current manufacturing
capacity to produce significant volume efficiently and if actual volumes
manufactured are significantly less, the actual cost per unit and gross margins
could be adversely affected.
Promptus Products
The decrease in gross profit as a percentage of sales of approximately
2.9% is primarily a result of reduced, average selling prices of Network System
products sold to one OEM customer. Management believes that future unit volume
and sales concentration with this significant OEM customer is likely to
continue; consequently, such concentration may have an adverse affect on
average selling prices, gross profit, and gross profit as a percentage of
sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
1995 Change 1994 Change 1993
---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Selling, general and
administrative expenses $35,386 49.3% $23,695 16.9% $20,267
Percentage of sales 27.4% 22.9% 22.9%
</TABLE>
During 1995, the increase in selling, general and administrative
expenses in absolute dollars is due to the inclusion of Promptus Products
effective January 1, 1995; the inclusion of goodwill amortization expense of
$845 associated with the Promptus acquisition; increased selling costs
associated with Valor Products' higher sales volume; and a nonrecurring,
one-time charge of approximately $1,376 relating to certain severance costs.
The increase in selling, general and administrative expenses, as a percentage
of sales, during 1995 is a result of Promptus Products' selling, marketing, and
engineering spending that is disproportionately high in relation to its sales
and the inclusion of nonrecurring, one-time charges of certain severance costs.
In 1994, the approximate $3,428 increase in spending is primarily a result of
increased selling costs associated with higher sales and increased costs
associated with product development and investments in additional people and
systems to support Valor Products' geographically disbursed, worldwide
operations.
<TABLE>
<CAPTION>
Selling, General and Administrative
-----------------------------------
Expense by Major Product 1995 Change 1994 Change 1993
------------------------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Valor Products $19,914 1.1% $19,690 18.1% $16,675
Percentage of sales 17.3% 19.1% 18.8%
Promptus Products $9,160 51.3% $6,054 40.6% $4,307
Percentage of sales 64.0% 71.0% 77.1%
</TABLE>
- 18 -
<PAGE> 19
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (CONTINUED)
Valor Products
During 1995, the increase in Valor Products' selling, general and
administrative expenses in absolute dollars, as compared to 1994 and 1993, is
primarily a result of increased selling costs associated with higher selling
volume. The decrease in selling, general and administrative expenses as a
percentage of sales is a result of administrative efficiencies in relation to
sales growth and a decrease in selling costs as a percentage of sales. In
1994, the increase in spending in absolute dollars was related to higher
selling costs commensurate with the increase in sales. Selling, general and
administrative costs as a percentage of sales for 1994 were essentially
identical to those in 1993. Management believes that selling, general and
administrative expenses may vary as a percentage of future sales.
Promptus Products
During 1995, the increase in Promptus Products' selling, general and
administrative expenses in absolute dollars, as compared to 1994 and 1993, is
primarily associated with the increase in personnel costs in the sales,
marketing, and engineering infrastructure. These investments in sales and
support personnel and new product development were made to support anticipated
future sales growth. The decrease in selling, general and administrative
expenses as a percentage of sales for 1995 and 1994, as compared to 1993, are a
result of significant, year-over-year, sales growth. The Company believes that
Promptus Products' selling, general and administrative expense may continue to
vary as a percentage of future sales until Promptus Products generates and
sustains a base of sales sufficient to support the current and future level of
spending.
NON-OPERATING INCOME AND EXPENSE
<TABLE>
<CAPTION>
1995 Change 1994 Change 1993
---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Non-operating income (expense), net $(894) (422.7)% $277 199.6% $(278)
Percentage of sales (0.7)% 0.3% (0.3)%
</TABLE>
Non-operating income (expense), net, consists primarily of interest
income and expense and net foreign currency translation costs. The decrease in
interest income, net, from 1994 is primarily a result of increased interest
expense related to significant bank borrowings associated with the Promptus
acquisition and increased borrowings on the credit facility to facilitate
growth in Valor Products and Promptus Products. In December 1995, the Company
used the proceeds of $11.75 million from the E-Group disposal to repay $4.1
million outstanding on the $5-million, bank term loan and a significant portion
of the credit facility, both of which were originally used in connection with
the Promptus acquisition.
PROVISION FOR INCOME TAXES
<TABLE>
<CAPTION>
1995 Change 1994 Change 1993
---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Provision for income taxes $506 91.7% $264 (90.7)% $2,826
Percentage of sales 0.4% 0.3% 3.2%
Effective tax rate 16.2% 7.1% 19.4%
</TABLE>
- 19 -
<PAGE> 20
PROVISION FOR INCOME TAXES (CONTINUED)
A significant portion of Valor Products' operations resides in foreign
countries with lower tax rates than the United States. These foreign
operations generated a significant portion of the Company's total earnings in
1995, 1994, and 1993, and account for the significantly lower, effective income
tax rate than the statutory United States corporate income tax rate.
Additionally, the Company did not benefit from Promptus's operating loss during
1995. Management believes the Company's future effective tax rate could
fluctuate based on the geographic origin of Valor Products' earnings and
Promptus's future financial performance.
INCOME FROM CONTINUING OPERATIONS
<TABLE>
<CAPTION>
1995 Change 1994 Change 1993
---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Income from continuing operations $3,090 (6.3)% $3,299 (69.7)% $10,890
Percentage of sales 2.4% 3.2% 12.3%
Earnings per share $0.28 $0.32 $1.09
</TABLE>
The decrease in income from continuing operations is primarily due to
the inclusion of Promptus Products' financial results effective January 1,
1995, and the charges to income for certain severance costs. The dilutive
effect of Promptus Products' operating loss, net of minority interest income
and including the goodwill amortization expense, was approximately $2,170 or
approximately $0.20 per share of Common Stock. The Promptus Products' dilution
excludes acquisition-related interest expense and the issuance of 650,000
common shares in January 1995.
INCOME FROM DISCONTINUED OPERATIONS, NET
<TABLE>
<CAPTION>
1995 Change 1994 Change 1993
---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Income from discontinued operations $856 (56.4)% $1,962 (15.1)% $2,310
Income from discontinued operations
per share $0.08 $0.20 $0.23
</TABLE>
The decrease in income from discontinued operations in 1995, as
compared to 1994 and 1993, is due to Esco's operating loss offset by increased
E-Group profitability. Subsequent to December 1995, Esco has not incurred any
operating losses.
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS
<TABLE>
<CAPTION>
1995 Change 1994 Change 1993
---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Loss on disposal of discontinued
operations $(2,000) (100.0)% $-- 0.0% $--
Loss on disposal of discontinued
operations per share $(0.18) $-- $--
</TABLE>
The loss on disposal of the discontinued operations is a result of a
gain on disposal of the E-Group of approximately $3.0 million, net of income
taxes, and an estimated loss on disposal of Esco of $5.0 million, net of income
tax benefits. The net loss of $2,000 or $0.18 per share on disposal of both
discontinued operations is primarily due to increased income tax provision and
a lower selling price for Esco than management originally estimated. The
Company does not anticipate recognizing an additional loss on disposal of the
discontinued businesses.
- 20 -
<PAGE> 21
NET INCOME AND NET INCOME PER SHARE
<TABLE>
<CAPTION>
1995 Change 1994 Change 1993
---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Net income $1,946 (63.0)% $5,261 (60.1)% $13,200
Net income per share $0.18 $0.52 $1.32
</TABLE>
Net income and net income per share of Common Stock decreased in 1995,
as compared to 1994, due to the operating loss of Promptus Products, certain
severance and management costs, decreased income from discontinued operations,
and a loss on disposal of discontinued operations offset by Valor Products'
increased profitability. The decrease in these same measures in 1994 from 1993
is due to Valor Products' decreased profitability.
PROSPECTIVE INFORMATION
The Company believes that its future operating results will be
influenced by a number of factors including, but not limited to, general
economic conditions; the continued growth of the LAN, internetworking, and
videoconferencing markets; timely new product introductions; dependence on key
OEM customers; market acceptance of the new networking technologies,
videoconferencing and desktop videoconferencing; the future operating and
financial performance of Valor Products and Promptus Products; and numerous
competitive forces. It is anticipated that the Company's operating results in
the foreseeable future will remain dependent on the success of Valor Products
in identifying, developing, manufacturing, and marketing new products or
enhancing existing product offerings and Promptus Products' ability to expand
its customer base; reduce reliance on significant OEM customers; and identify,
develop, manufacture, and market new products. The Company is subject to
technological changes, which could cause management to reassess its estimate of
the realizability of goodwill and/or its amortization period.
The Company's future operating results will also depend on the growth
of broad-band, global services and high-speed, digital, network applications.
Promptus's growth will depend on several factors including, but not limited to,
the deployment and expansion of switched-digital services and the related
market for ISDN customer-premise equipment, the effectiveness of marketing
activities, and expansion of its product line and customer base as well as the
ability to compete effectively in the videoconferencing access market and in
applications other than videoconferencing. The Promptus acquisition required
significant capital and equity investments as well as investments in the sales,
marketing, and product development infrastructure. Since Promptus Product's
sales are currently disproportionate with these investments, Promptus is likely
to continue to be dilutive to net income in the near term. It will continue to
be dilutive unless, and until, Promptus is able to significantly increase sales
and profitability.
The majority of Valor Products' sales continue to be derived from
products that support Ethernet and 10Base-T applications. Valor Products'
operating results could be affected if there is an unexpected change in such
technologies or if Valor does not respond appropriately to expected changes.
Valor Products are supplying OEMs product compliant with all relevant IEEE,
ANSI, and ATM forum standards for 100Base-TX Fast Ethernet, TP/PMD (FDDI over
copper), and 155 Mbps ATM applications. The success of these new products is
dependent on many factors, such as the Company's ability to manufacture these
products in sufficient quantities to meet anticipated demand and the overall
market acceptance of these new technologies. The inability of these advanced
networking modes to gain market acceptance or potential delays of the
widespread installation of such products could subject Valor Products' existing
products to increased competition and pricing pressures, which would adversely
affect the Company's operating results.
The Company's future performance will also be affected by the volume,
mix, and timing of orders received during a particular quarterly period. The
Company's backlog at the beginning of any particular quarter is not sufficient
to achieve expected sales or profitability for that quarter. To achieve its
sales and profitability objectives in a quarter, the Company is dependent upon
obtaining substantial
- 21 -
<PAGE> 22
PROSPECTIVE INFORMATION (CONTINUED)
orders in that quarter for shipment during that quarter. There can be no
assurance that orders from existing customers will continue at the levels of
previous years or that the Company will be able to obtain orders from new
customers. Additionally, there can be no assurance that orders received and
requested for shipment in a specific quarter will not be canceled or the
requested date of shipment changed to a subsequent quarter. If anticipated
orders do not develop or changes in delivery schedules or cancellation of
orders occur, the per-unit manufacturing costs, expenditures, and inventory
levels could be disproportionately high in relation to sales. This could have
an adverse affect on the Company's operating results for that quarterly period.
There is one key component that Valor Products use in its
manufacturing and assembly process that is currently available only from a
single source. There can be no assurance that this supplier will be able to
meet future demand for components in a timely and cost-effective manner. The
Company's operating results and customer relationships could be adversely
affected by either price increases or an interruption or reduction in products
shipped due to an interruption or reduction in supply of any key components.
The Company's future earnings and stock price have been, and may
continue to be, subject to significant volatility, particularly on a quarterly
basis. Any shortfall in sales or earnings could have an immediate and
significant adverse affect on the trading price of the Company's Common Stock
in any given quarterly period.
Because of the factors mentioned above, as well as other factors,
historical operating results should not be relied upon as an indicator of
future financial performance.
In December 1995, a class-action lawsuit was filed in the United
States District Court, Southern District of California, against the Company and
certain of its officers and directors alleging violations of the Securities
Exchange Act of 1934. Specifically, the complaint asserts, among other claims,
that the Company artificially inflated the value of its stock by making false
and misleading statements about expected financial results. The plaintiffs
seek an unspecified amount of damages based upon the decrease in market value
of the Company's stock. The Company has filed its initial response to the
complaint and intends to defend this action vigorously. Based upon its present
understanding of the facts, the Company believes it has meritorious defenses to
the claims alleged. Because the outcome of the claims are uncertain at this
time, no provision for any liability that may result upon adjudication has been
made in the accompanying consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are cash, cash
equivalents, and available borrowings on the domestic and foreign credit
facilities. On December 31, 1995, 1994, and 1993, cash and cash equivalents
totaled $2.6 million, $4.2 million, and $10.0 million, respectively. Net cash
provided (used) by continuing operations was $(1.6) million, $(3.8) million,
and $10.7 million, respectively. Cash used by continuing operations improved
approximately $2.2 million in 1995, as compared to 1994, as a result of
increased depreciation and amortization expense and increased accounts payable
and accrued liabilities offset by reduced profitability and increased accounts
receivable, inventories, and other assets. The increase in depreciation and
amortization is due to the inclusion of Promptus's goodwill amortization during
1995 and a full year of depreciation for Valor Products' capital expenditures
during 1994. The increase in inventories and accounts payable is due to
increased unit volume and continued growth in Valor Products and Promptus
Products. The increase in accounts receivable is due to increased sales during
the fourth quarter of 1995, when compared to the fourth quarter of 1994, for
both Valor Products and Promptus Products. The average collection period
remained stable in 1995, when compared to 1994 and 1993.
- 22 -
<PAGE> 23
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company made capital expenditures of approximately $5.9 million
during 1995, a significant portion of which was expended by Valor Products for
additional equipment to support increased manufacturing volume. The remaining
portion was expended by Promptus Products for increased test equipment,
computer equipment, and furnishings for the increase in personnel and new
product development. During 1994, Valor Products' capital expenditures of $7.7
million were primarily used to add one new assembly plant and one new
subcontractor operation in China. The Company currently estimates its 1996
capital expenditures to be approximately $8.7 million; substantially, all of
which will be invested in Valor Products. The Company anticipates that all
capital expenditures will be funded through cash generated from operations.
In January 1995, concurrent with the Company's acquisition of
Promptus, the Company utilized the $5.0-million, five-year term note,
approximately $4.4 million on the $10.0-million, domestic credit facility, and
proceeds of $9.7 million (net of issuance costs) from the issuance of 650,000
shares of Common Stock (of which 250,000 were Treasury Shares).
In December 1995, the total cash proceeds of $11.75 million from the
disposal of the E-Group were used to repay the outstanding principal and
interest on the $5.0-million, bank term loan of $4.1 million. The remaining
proceeds were used to pay down the domestic credit facility. The remaining
E-Group selling price of $750 is composed of a $500 note receivable due in 1998
with interest due semi-annually and an escrow amount (the "Escrow Funds") of
$250. The Escrow Funds are subject to certain purchase-price adjustments, if
any, by the buyer. Currently, management does not anticipate any such
adjustments to the purchase price. The Escrow Funds will remain in escrow
until June 1997, at which time, if no purchase-price adjustment occurs, all
Escrow Funds will be remitted to the Company.
In February 1996, the Company used the total cash proceeds of $2.2
million from the disposal of Esco to pay down existing indebtedness on the
domestic credit facility. The remaining Esco selling price of $1.9 million is
composed of a note receivable due in equal, semi-annual installments plus
interest commencing in August 1996 and ending August 2002.
The Company is currently satisfying all working capital and capital
expenditure requirements through internally generated cash flow from operations
and borrowings available on its domestic and foreign credit facilities.
Management believes that its financial position, future earnings, and available
borrowings on its domestic and foreign credit facilities will be sufficient to
finance working capital and estimated capital expenditures at least through
1996.
Dividends on the Company's 8,110 shares of outstanding, cumulative
convertible Preferred Stock accrue at a rate of $35.00 per share, per year,
payable quarterly. In 1995, dividends totaling $284 were paid.
In connection with the acquisition of Promptus, the Company entered
into an agreement for the contingent purchase of the remaining 1.6 million
shares or approximately 29% of Promptus's capital stock. The first mutual
put/call right occurs January 1997 for 30% of the remaining Promptus shares.
The price to be paid will be based upon a predetermined formula using forecast
and actual results of Promptus in 1997, 1998, and 1999. Because of the
determinants, it is not presently possible to assess whether the condition for
this contingent purchase will be satisfied nor is it possible to estimate the
price at which such shares might be purchased. In the event the mutual
put/call right is exercised, the Company will be obligated to pay up to $4.80
per share in cash and may pay the amount in excess of $4.80 in cash, Common
Stock, or a combination thereof.
- 23 -
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company are annexed to
this Report as pages F-3 through F-21. An index to such materials appears on
page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is set forth in the 1996 Proxy
Statement under the captions "Election of Directors-Nominees for Election as
Directors" and "Compensation and Other Transactions with Officers and
Directors" and "Compliance with Section 16 of the Exchange Act" and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included in the 1996 Proxy
Statement under the caption "Compensation and Other Transactions with Officers
and Directors" (excluding the information under the subcaption "Compensation
Committee Report") and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information related to security ownership of certain beneficial owners
and security ownership of management is set forth in the 1996 Proxy Statement
under the captions "Principal Stockholders" and "Election of
Directors-Aggregate Stock Ownership of Directors and Officers" and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included in the 1996 Proxy
Statement under the captions "Election of Directors-Nominees for Election as
Directors" and note 2 to the table under "Election of Directors-Aggregate Stock
Ownership of Directors and Officers" and "Certain Relationships and Related
Transactions" and is incorporated herein by reference.
- 24 -
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Consolidated Financial Statement Schedules
Index to consolidated financial statements and consolidated
financial statement schedules appears on page F-1.
(b) Exhibits
The documents listed on the Exhibit Index appearing at pages 27
through 32 of this Report are filed herewith. The 1996 Proxy Statement shall
be deemed to have been "filed" only to the extent portions thereof are
expressly incorporated herein by reference. Copies of the exhibits listed in
the Exhibit Index will be furnished, upon request, to holders or beneficial
owners of the Company's Common Stock as of March 22, 1996, subject to payment
in advance of a fee of $.15 per page to reimburse the Company for reproduction
costs.
Each management contract or compensatory plan or arrangement
listed in the Exhibit Index has been marked with the letter "C" to identify it
as such.
(c) Reports on Form 8-K
The following report on Form 8-K was filed during the fourth
quarter of 1995:
Report dated December 14, 1995, reporting under Item 5 an
announcement of a class-action lawsuit filed against the Company and certain of
its officers and directors.
- 25 -
<PAGE> 26
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . F-2
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994, AND 1993 . . . . . . . . . . . . . . F-3
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1995, AND 1994 . . . . . F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993 . . . . . . . . F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994, AND 1993 . . . . . . . . . . . . . . F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . F-7
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES . . . . . . . . F-22
SCHEDULE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-23
</TABLE>
F-1
<PAGE> 27
Report of Independent Public Accountants
To the Stockholders and Board of Directors, GTI Corporation:
We have audited the accompanying consolidated balance sheets of GTI Corporation
(a Delaware corporation) and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of GTI Corporation and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Diego, California
February 14, 1996
F-2
<PAGE> 28
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------------------------------
1995 1994 1993
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $129,149 $103,239 $88,575
Cost of goods sold 89,749 76,122 53,491
------------------------------------------------------------------------------------------------------------
Gross profit 39,400 27,117 35,084
Selling, general and administrative expense 35,386 23,695 20,267
------------------------------------------------------------------------------------------------------------
Operating profit 4,014 3,422 14,817
Other income (expense), net
Interest income 93 173 220
Interest expense (1,207) (122) (192)
Other 220 226 (306)
------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes and
minority interest 3,120 3,699 14,539
Provision for income taxes 506 264 2,826
Minority interest (income) expense in earnings of (476) 136 823
subsidiaries
------------------------------------------------------------------------------------------------------------
Income from continuing operations 3,090 3,299 10,890
Income from discontinued operations, net of income taxes of
$515, $1,085, and $1,527 for 1995, 1994, and 1993, 856 1,962 2,310
respectively
Loss on disposal of discontinued operations, net of income
taxes of $1,186 (2,000) --- ---
------------------------------------------------------------------------------------------------------------
Net income $ 1,946 $ 5,261 $13,200
============================================================================================================
Net income (loss) per share of Common Stock:
Income from continuing operations $0.28 $0.32 $1.09
Income from discontinued operations 0.08 0.20 0.23
Loss on disposal of discontinued operations (0.18) --- ---
------------------------------------------------------------------------------------------------------------
$0.18 $0.52 $1.32
============================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 29
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
As of December 31,
------------------------------------------------------------------------------------------------------------
1995 1994
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
$ 2,553 $ 4,226
Cash and cash equivalents 22,257 18,776
Receivables, less allowances of $297 and $143 31,318 20,287
Inventories 4,036 1,832
Prepaid expenses and other 3,623 17,438
------------------------------------------------------------------------------------------------------------
Net assets of discontinued operations
Total current assets 63,787 62,559
Property, plant, and equipment, net 17,109 14,480
Goodwill, less accumulated amortization of $4,360 and $2,747, and other 39,912 22,909
------------------------------------------------------------------------------------------------------------
$120,808 $ 99,948
============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 4,234 $ 1,655
Acquisition liability --- 500
Accounts payable, accrued and other liabilities 24,776 18,296
------------------------------------------------------------------------------------------------------------
Total current liabilities 29,010 20,451
------------------------------------------------------------------------------------------------------------
Deferred income taxes and other non-current liabilities 2,367 1,373
------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 9)
Minority interest in subsidiary 436 561
------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred Stock, authorized 1,000,000 shares, first series, $35.00
cumulative convertible, issued and outstanding 8,110 shares 8,110 8,110
Common Stock, par value $0.04 per share, authorized 12,000,000
shares, issued 8,973,475 in 1995 and 8,459,350 in 1994 359 339
Additional paid-in capital 44,082 34,567
Retained earnings 36,399 34,737
Treasury Stock (250,000 shares in 1994), at cost --- (1,040)
Cumulative translation adjustments 45 850
------------------------------------------------------------------------------------------------------------
Total stockholders' equity 88,995 77,563
------------------------------------------------------------------------------------------------------------
$120,808 $ 99,948
============================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE> 30
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Years Ended December 31, First Additional Cumulative
1995 Series Common Paid-in Retained Treasury Translation
Preferred Stock Capital Earnings Stock Adjustments
Stock
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $8,110 $332 $25,049 $16,844 $(2,703) $848
Net income --- --- --- 13,200 --- ---
Sale of 400,000 shares of
Common Stock issued from
Treasury Stock in connection
with the purchase of 6.4% of
Common Stock of Valor
Electronics, Inc. --- --- 8,535 --- 1,663 ---
Issuance of 93,275 shares
of Common Stock under stock
option plans --- 5 685 --- --- ---
Preferred Stock dividend --- --- --- (284) --- ---
Translation adjustment --- --- --- --- --- (512)
----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 8,110 337 34,269 29,760 (1,040) 336
Net Income --- --- --- 5,261 --- ---
Issuance of 56,825 shares
of Common Stock under stock
option plans --- 2 298 --- --- ---
Preferred Stock dividend --- --- --- (284) --- ---
Translation adjustment --- --- --- --- --- 514
----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 8,110 339 34,567 34,737 (1,040) 850
Net income --- --- --- 1,946 --- ---
Sale of 650,000 shares of
Common Stock, of which 250,000
shares were issued from
Treasury Stock, in connection
with the 71% acquisition of
Promptus Communications, Inc.
--- 16 8,655 --- 1,040 ---
Issuance of 114,125 shares
of Common Stock under stock
option plans --- 4 860 --- --- ---
Preferred Stock dividend --- --- --- (284) --- ---
Cumulative translation gain
on sale of assets of the E- --- --- --- --- --- (835)
Group
Translation adjustment --- --- --- --- --- 30
----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 $8,110 $359 $44,082 $36,399 $--- $ 45
======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 31
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------------------------------------
1995 1994 1993
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 1,946 $ 5,261 $13,200
Adjustments to reconcile net income to net cash provided
(used) by
continuing operations:
Income from discontinued operations (856) (1,962) (2,310)
Loss on disposal of discontinued operations 2,000 --- ---
Depreciation and amortization 6,216 3,124 2,529
Minority interest (income) expense in earnings of (476) 136 823
subsidiary
Loss on disposal of equipment 188 --- ---
Deferred income taxes 71 291 501
Changes in assets and liabilities:
Receivables (1,803) (8,520) (1,614)
Inventories (9,494) (8,904) (1,466)
Other assets (2,665) (163) (512)
Accounts payable and accrued liabilities 2,736 6,085 67
Other non-current liabilities 567 883 (493)
--------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by continuing operations (1,570) (3,769) 10,725
Net cash provided by discontinued operations 823 4,447 3,091
--------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (747) 678 13,816
--------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Purchases of plant and equipment (5,943) (7,687) (5,146)
Capital expenditures of discontinued operations (544) (971) (848)
Purchase of Promptus, net of cash acquired (19,089) --- --
Purchase of Valor minority shares --- --- (10,550)
Proceeds from disposal of discontinued operation 11,750 --- ---
--------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (13,826) (8,658) (16,544)
--------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Short-term borrowings, net 2,579 1,655 ---
Repayment of short-term borrowings and debt --- --- (3,977)
Issuance of Common Stock 10,575 300 10,888
Preferred Stock dividend paid (284) (284) (284)
--------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 12,870 1,671 6,627
--------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 30 498 (270)
--------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,673) (5,811) 3,629
Cash and cash equivalents at beginning of period 4,226 10,037 6,408
--------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 2,553 $ 4,226 $10,037
====================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include the
accounts of GTI Corporation (the "Company"); its wholly-owned subsidiaries,
Valor Electronics, Inc., ("Valor") and Esco Sales, Inc., ("Esco") (see Note 3);
and its majority-owned subsidiary, Promptus Communications, Inc., ("Promptus").
All significant intercompany balances and transactions have been eliminated.
Financial Statement Preparation - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions. These estimates and assumptions affect the
reported amounts of assets, liabilities, revenues and expenses, and disclosure
of contingent assets and liabilities. Actual results could differ from
management's estimates.
Cash Equivalents - Cash equivalents consist of short-term, highly liquid
investments purchased with a maturity date of three months or less. Cash
equivalents are stated at cost, which approximates market value.
Concentration of Credit Risk and Geographic Operations - The Company invests a
portion of its excess cash in debt instruments of financial institutions with
strong credit ratings and has established guidelines relative to
diversification and maturities that maintain safety and liquidity. The Company
has not experienced any losses on its cash equivalents. The Company sells its
products to customers in diversified industries worldwide. The Company performs
ongoing credit evaluations of its customers' financial condition and maintains
allowances for potential credit losses. Actual losses and allowances have been
within management's expectations. At December 31, 1995, one large customer
represented approximately 20% of the Company's net accounts receivable balance.
A significant portion of the Company's operations are concentrated in the
Pacific Rim, more specifically in the People's Republic of China (the "PRC").
At December 31, 1995, a significant amount of the Company's physical
inventories were concentrated in one facility located in the PRC.
Inventories - Inventories are stated at the lower of cost (first-in, first-out)
or market and include direct labor, materials, and manufacturing overhead.
Property, Plant, and Equipment - Property, plant, and equipment are stated at
cost less accumulated depreciation. Depreciation is computed using the
straight-line method over estimated useful lives of 7 to 25 years for buildings
and improvements and 3 to 7 years for machinery, equipment, furniture, and
fixtures. Expenditures for property additions together with major renewals and
improvements are capitalized. Maintenance, repairs, and minor renewals and
betterments are charged to expense.
Excess Cost over Net Assets of Acquired Companies - The excess of acquisition
cost over the fair value of net assets of businesses acquired (goodwill) is
being amortized using the straight-line method over 40 years for Esco, 35 years
for Valor, and 20 years for Promptus. The Company periodically re-evaluates
the original assumptions and rationale utilized in the establishment of the
carrying value and estimated lives of these assets. Management believes that
there has been no impairment of the goodwill as reflected in the Company's
consolidated financial statements as of December 31, 1995. The Company is
subject to technological changes, which could cause management to reassess its
estimate of the realizability of goodwill and/or its amortization period. The
determinants used for this evaluation include management's estimate of the
asset's continuing ability to generate positive income from operations and
positive cash flow in future periods as well as the strategic significance of
the intangible asset to the Company's business objectives. Cost in excess of
net assets of Valor, net of amortization, was $20,542
F-7
<PAGE> 33
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and $22,440 at December 31, 1995, and 1994, respectively. Cost in excess of
net assets of Promptus, net of amortization, was $15,979 at December 31, 1995.
Cost in excess of net assets of Esco, net of amortization, was $6,246 and
$6,440 at December 31, 1995, and 1994, respectively, and is included in the
balance sheet caption net assets of discontinued operations.
Income Taxes - The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." This
statement requires an asset and liability approach to account for income taxes.
The Company provides deferred income taxes for temporary differences that will
result in taxable or deductible amounts in future years based on the reporting
of certain costs in different periods for financial statement and income tax
purposes.
Foreign Currency Translation - Assets and liabilities of the Company's foreign
operations are translated into U.S. dollars at the exchange rate in effect at
the balance sheet date, and revenue and expenses are translated at the average
exchange rate for the period. Translation gains or losses of the Company's
foreign subsidiaries are not included in net income but are reported as a
separate component of stockholders' equity. The functional currency of those
subsidiaries is the primary currency in which the subsidiary operates.
Substantially all of the Company's worldwide sales are conducted in U.S.
dollars. Gains and losses on transactions in denominations other than the
functional currency of the Company's foreign operations, while not material in
amount, are included in the results of operations. The Company does not enter
into foreign exchange transactions to hedge certain balance sheet exposures and
intercompany balances against movements in foreign exchange rates.
Net Income Per Share of Common Stock - Net income per share of Common Stock for
1995, 1994, and 1993 is computed on the basis of the weighted average shares of
Common Stock outstanding plus common equivalent shares arising from the effect
of cumulative convertible Preferred Stock, using the if-converted method, and
dilutive stock options, using the treasury-stock method. The number of shares
used for the calculation are 10,873,000, 10,187,000, and 10,023,000 in 1995,
1994, and 1993, respectively. Fully diluted earnings per share are
approximately the same as primary earnings per share for all years presented.
Reclassifications - The consolidated financial statements for all periods
presented have been restated to reflect the E-Group and Esco as discontinued
operations in accordance with APB 30 (see Note 3).
Recent Accounting Pronouncements - The Company implemented early adoption of
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
effective January 1, 1995. The adoption of this statement had no material
affect on the Company's consolidated financial statements. The Financial
Accounting Standards Board has issued Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation,"
which provides companies the option to account for employee stock compensation
awards based on their estimated fair value at the date of grant resulting in a
charge to income in the period the awards are granted or to present pro forma
footnote disclosure describing the effect to the Company's net income and net
income per share data. SFAS 123 is effective for companies with fiscal years
beginning after December 15, 1995. The Company has not yet determined how it
will adopt SFAS 123 and the impact, if any, on the Company's consolidated
financial position or disclosure to its consolidated financial statements
F-8
<PAGE> 34
NOTE 2 BUSINESS COMBINATION
In January 1995, the Company completed the acquisition of approximately 71% of
the issued and outstanding capital stock of Promptus for approximately $19.1
million in cash, net of cash acquired. Promptus is engaged in the development,
manufacturing, and marketing of high-speed, digital network-access products.
The acquisition was financed through a combination of secured bank borrowings
of approximately $9.9 million; proceeds, net of issuance costs, from the
issuance of 650,000 shares of Common Stock (of which 250,000 were from Treasury
Shares) of approximately $9.7 million; and $500 of cash on hand. In addition
to the purchase price, the Company provided approximately $1.0 million to
Promptus employees in the form of secured promissory notes for use in the
exercise of stock options, which occurred at the transaction's closing.
The acquisition was accounted for as a purchase. Accordingly, the purchase
price was allocated to assets acquired and liabilities assumed based on their
estimated fair-market value. This resulted in approximately $17.2 million of
costs in excess of the net assets acquired, which are being amortized using the
straight-line method over 20 years. Promptus's results of operations have been
included in the Company's consolidated results of operations effective January
1, 1995.
The following summarized, unaudited, pro forma results of operations for the
years ended December 31, 1994, and 1993, assume the acquisition occurred as of
the beginning of the respective periods. The pro forma information includes
adjustments for: (i) the amortization of goodwill, (ii) the interest expense
related to the borrowings associated with the acquisition, (iii) minority
interest income, and (iv) the increase in common stock associated with the
financing of the acquisition. The following pro forma information is based on
historical information and is not necessarily indicative of the actual results
that would have occurred or is it indicative of future results of operations of
the combined companies:
<TABLE>
<CAPTION>
For the Year Ended December 31,
1994 1993
---- ----
<S> <C> <C>
Net sales $111,764 $94,159
======== =======
Income from continuing operations $ 200 $ 7,218
Income from discontinued operations, net
of income taxes 1,962 2,310
--------- -------
Net income $ 2,162 $ 9,528
========= =======
Net income per common share of Common Stock:
Income from continuing operations $ 0.02 $ 0.67
Income from discontinued operations 0.18 0.22
--------- -------
Net income $ 0.20 $ 0.89
========= =======
</TABLE>
NOTE 3 DISCONTINUED OPERATIONS
In May 1995, the Company's Board of Directors adopted a formal plan to sell its
non-core business segments, consisting of the E-Group and Esco, as a part of
the Company's strategic focus on networking and network-access markets. The
Segments have been accounted for as discontinued operations in accordance with
APB 30, which among other provisions, requires the plan of disposal to be
carried out within one year (the "Divestiture Period").
F-9
<PAGE> 35
NOTE 3 DISCONTINUED OPERATIONS (CONTINUED)
The Electronic Components and Equipment Segment (the "E-Group") - In December
1995, the Company completed the divestiture of certain assets and liabilities
of the E-Group for approximately $12.5 million, resulting in a gain of
approximately $3.0 million, net of income taxes of $2.5 million. The Company
received $11.75 million in cash paid at the closing, $250 in Escrow Funds, and
a $500 promissory note due in three years. The Escrow Funds are governed by an
escrow agreement whereby certain purchase-price adjustments could be claimed by
the buyer. Currently, management does not anticipate any such adjustments to
the purchase price. The Escrow Funds will remain in escrow until June 1997, at
which time, if no purchase-price adjustment occurs, all Escrow Funds will be
remitted to the Company. The gain on the E-Group transaction has been deferred
to offset the estimated loss on disposal of Esco.
The Distribution Products Segment ("Esco") - In October 1995, the Company
entered into a letter of intent to sell 100% of Esco's common stock. In
December 1995, the letter of intent was amended such that the purchase price
for Esco's common stock was approximately $4.1 million, consisting of $2.2
million in cash and a $1.9 million promissory note due in equal installments
over six years. In February 1996, the Company completed the disposal of Esco
(see Note 13), resulting in a loss on disposal of approximately $5.0 million,
net of income tax benefits of approximately $1.3 million.
Based on management's periodic review of the assumptions used in determining
the estimated gain or loss from the disposals of the E-Group and Esco, the
Company recorded a provision of $2.0 million, net of income taxes, for the
combined loss on disposal of both discontinued businesses in the fourth quarter
of 1995. This change in the previously reported, estimated, combined gain on
disposal of discontinued operations resulted from a reduction of the expected
selling price for Esco and a revision in the estimated income tax provision
from the disposal of both discontinued businesses. Management's current
estimate indicates that total sale proceeds from the Segments' disposal will
approximate the net assets of discontinued operations as of December 31, 1995.
Esco did not incur operating losses during the remaining Divestiture Period.
The operating results of the discontinued operations are summarized as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Sales $40,459 $38,668 $39,466
======= ======= =======
Income before tax provision $ 1,371 $3,047 $3,837
Income tax provision 515 1,085 1,527
--- ----- -----
Net income $ 856 $1,962 $2,310
======== ====== ======
Net income per common share $0.08 $0.20 $0.23
===== ===== =====
</TABLE>
F-10
<PAGE> 36
NOTE 3 DISCONTINUED OPERATIONS (CONTINUED)
The net assets of discontinued operations are summarized as follows:
<TABLE>
<CAPTION>
As of December 31,
1995 1994
---- ----
<S> <C> <C>
Current assets $6,010 $11,272
Plant and equipment, net 139 2,922
Goodwill, net of amortization and
other assets 6,272 6,471
Current liabilities (1,276) (3,227)
Deferral of E-Group gain (5,522) ---
Provision for estimated loss on disposal of
discontinued operations (2,000) ---
------- -------
Net assets of discontinued operations $3,623 $17,438
====== =======
</TABLE>
NOTE 4 SUPPLEMENTAL STATEMENTS OF CASH FLOWS DISCLOSURE
Supplemental cash flow information for the years ended December 31, 1995, 1994,
and 1993, are summarized as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Interest paid $ 1,207 $ 342 $ 229
========= ======= =======
Income taxes paid $ 1,559 $1,727 $3,308
========= ====== ======
Business acquisition, net of cash acquired
Working capital, other than cash acquired $ (644) $ --- $ ---
Plant and equipment (1,314) --- ---
Purchase price in excess of the net assets
acquired (17,230) --- ---
Other assets (1,183) --- ---
Noncurrent liabilities 1,282 --- ---
--------- --------- ---------
Net cash used to acquire Promptus $ 19,089 $ --- $ ---
======== ======== ========
</TABLE>
In January 1995, the Company financed the acquisition of Promptus through a
combination of secured bank borrowings of approximately $9.9 million; proceeds,
net of issuance costs, from the issuance of 650,000 shares of Common Stock of
approximately $9.7 million; and $500 of cash on hand. In addition to the
purchase price, the Company provided approximately $1.0 million to Promptus
employees in the form of secured promissory notes for use in the exercise of
stock options, which occurred at the transaction's closing.
In connection with the disposal of the E-Group in December 1995, the Company
used the cash proceeds of approximately $11.75 million to repay the outstanding
principal and interest on a $5-million, bank term loan of $4.1 million and
repaid the remaining $7.65 million against the outstanding principal amount on
a bank credit facility. The term loan and credit facility were both used in
connection with the acquisition of Promptus.
F-11
<PAGE> 37
NOTE 4 SUPPLEMENTAL STATEMENT OF CASH FLOWS DISCLOSURE (CONTINUED)
In connection with the purchase of 6.4% of Valor, effective June 30, 1993, the
Company issued promissory notes totaling $10.4 million. In August 1993, the
promissory notes totaling $10.4 million were paid in full.
NOTE 5 ACQUISITION OF MINORITY INTEREST
In connection with the 1990 acquisition of 90.8% of the outstanding capital
stock of Valor, the Company and the minority shareholders of Valor have been
subject to an agreement governing the contingent purchase of the remaining
Valor Common Stock ("Valor Minority Shares"). The agreement set forth the
determinants used for re-calculating the total value of Valor at each exercise
period as well as the formula to determine the purchase price to be paid for
the Valor Minority Shares subject to purchase at each exercise period.
In August 1994, the Company acquired 1.4% of the Valor Minority Shares eligible
for purchase at the second exercise period. Based upon the predetermined
method for re-calculating the total value for Valor, no consideration was paid
for the shares acquired. Consistent with prior purchase accounting, the
Company recorded a $518 reduction to the purchase price (goodwill) representing
the amount of previously recorded minority interest in subsidiary for the 1.4%
of Valor stock no longer held by the minority shareholders. Concurrently, the
Company re-evaluated the value of the estimated purchase liability for the
third and final exercise in August 1995 and reduced the recorded amount of the
liability by approximately $4,000. As of December 31, 1994, the remaining
estimated liability was valued at $500.
In August 1995, the Company acquired the final 1.4% of the outstanding Valor
Minority Shares based upon the predetermined valuation formula. Accordingly,
the total value of Valor has been recalculated; and no additional consideration
was paid for the Valor Minority Shares. Therefore, the acquisition liability
has been reduced to zero; and goodwill has been reduced by $500. Additionally,
minority interest and goodwill have been reduced by $583, representing the
amount of previously recorded minority interest in subsidiary for the 1.4% of
Valor stock no longer held by the minority shareholders.
NOTE 6 SUPPLEMENTARY FINANCIAL INFORMATION
Inventory consisted of the following at December 31, 1995, and 1994:
<TABLE>
<CAPTION>
1995 1994
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and supplies $10,604 $ 8,171
Work in process 10,574 6,898
Finished goods 10,140 5,218
--------------------------------------------------------------------------------------------------------------
$31,318 $20,287
==============================================================================================================
</TABLE>
Property, plant, and equipment consisted of the following at
December 31, 1995, and 1994:
<TABLE>
<CAPTION>
1995 1994
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 12 $ --
Buildings and improvements 5,101 2,592
Machinery and equipment 19,678 14,294
Furniture and fixtures 2,824 3,902
27,615 20,788
Less accumulated depreciation 10,506 6,308
--------------------------------------------------------------------------------------------------------------
$17,109 $14,480
==============================================================================================================
</TABLE>
F-12
<PAGE> 38
NOTE 6 SUPPLEMENTARY FINANCIAL INFORMATION (CONTINUED)
Accounts payable and accrued liabilities consisted of the following at
December 31, 1995, and 1994:
<TABLE>
<CAPTION>
1995 1994
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accounts payable $10,788 $ 8,202
Employee compensation 4,892 4,811
Federal, local, foreign, and other taxes 4,279 2,051
Other accrued liabilities 3,109 3,232
Accrued severance costs 1,708 ---
--------------------------------------------------------------------------------------------------------------
$24,776 $18,296
==============================================================================================================
</TABLE>
NOTE 7 CREDIT AGREEMENTS
Domestic Credit Agreement - The domestic credit agreement provides for a bank
revolving credit facility for $10 million at the bank's prime rate of interest
plus one-half of one percent (9.0% at December 31, 1995). The facility is
secured by the Company's domestic accounts receivable, inventory, and
equipment; and borrowings are limited to specific levels of eligible accounts
receivable. Based on eligible accounts receivable at December 31, 1995, the
entire $10-million facility is available for borrowing. At December 31, 1995,
there were approximately $3.2 million of outstanding borrowings under this
agreement. There were no borrowings on the revolving loan facility during
1994; and at December 31, 1994, there were no outstanding borrowings under the
revolving loan facility.
Foreign Credit Facility - The foreign credit agreement is a stand-alone credit
facility with a foreign bank for approximately $2.2 million. The foreign
credit facility is secured by an irrevocable letter of credit and borrowings
bear interest at 1% over the Hong Kong Banking Association's prime interest
rate (9.75% at December 31, 1995). The Company has approximately $1.0 million
and $1.6 million of borrowings outstanding under this agreement at December 31,
1995, and 1994, respectively.
All the credit agreements contain certain minimum net-worth and various
financial-ratio requirements.
NOTE 8 INCOME TAXES
The components of the provision (benefit) for income taxes from continuing
operations for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal - current $ (358) $ (963) $ 721
Deferred (762) 120 405
Foreign - current 1,714 884 1,168
Deferred 71 393 405
State and local (159) (170) 127
- -----------------------------------------------------------------------------------------------------
$ 506 $ 264 $2,826
=====================================================================================================
</TABLE>
F-13
<PAGE> 39
NOTE 8 INCOME TAXES (CONTINUED)
The components of the income-tax provision were based on the sources of income
(loss) from continuing operations before taxes and minority interest for the
years ended December 31 as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $(5,865) $(2,433) $ 4,905
Foreign 8,985 6,132 9,634
----------------------------------------------------------------------------------------------------
$ 3,120 $ 3,699 $14,539
====================================================================================================
</TABLE>
The components of the current, net deferred, tax asset at December 31, 1995,
and 1994, were as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Accelerated depreciation $ 223 $ 94
Vacation pay and accrued compensation 1,035 248
Reserves 633 761
NOL, capital loss, R and D credit carryovers 4,977 ---
Other 503 (293)
7,371 810
---------------------------------------------------------------------------------------------------
Valuation reserve (4,545) ---
---------------------------------------------------------------------------------------------------
$ 2,826 $ 810
===================================================================================================
</TABLE>
The valuation reserve relates primarily to the Promptus net-deferred tax assets
of $3,900, which are fully reserved as of December 31, 1995. Tax carryforwards
related to Promptus consist principally of $2,768 of net operating losses that
currently expire in 2005 through 2010. The net operating loss carryforward may
be utilized to offset only taxable income generated by Promptus and is subject
to an annual limitation. The Company's management has determined that the
Promptus deferred tax assets, or a portion thereof, will not be realized until
Promptus generates taxable income. In the fourth quarter of 1995, the Company
recorded a deferred tax asset of approximately $1,900 for the estimated capital
loss associated with the sale of Esco, of which $400 is reserved as of December
31, 1995.
F-14
<PAGE> 40
NOTE 8 INCOME TAXES (CONTINUED)
The component of the non-current, deferred, income tax liability at December
31, 1995, and 1994, is as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------
Accelerated depreciation on foreign assets $1,156 $1,085
=====================================================================================================
</TABLE>
A reconciliation for continuing operations from the federal income tax
provision at the statutory rate to the effective rate for the years ended
December 31 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Statutory federal tax on income before $1,061 $1,211 $4,663
income taxes and minority interest
Utilization of foreign operating loss --- --- (54)
carryforwards
Effect of foreign losses with no tax --- (82) 98
benefit
State income taxes, net of federal (191) (154) 234
benefit
Differences between U.S. and foreign tax (1,050) (771) (1,747)
rates
Unavailable NOL 658 --- ---
Nondeductible expenses 28 141 (214)
Other --- (81) (154)
- ----------------------------------------------------------------------------------------------------
$ 506 $ 264 $2,826
====================================================================================================
</TABLE>
Income tax provision is not recorded for U.S. Federal income taxes on the
undistributed earnings of foreign subsidiaries as such earnings are intended to
be permanently reinvested in those operations. Such earnings would become
taxable upon the sale or liquidation of these foreign subsidiaries or upon the
remittance of dividends. Accumulated, undistributed earnings of foreign
subsidiaries on which U.S. taxes have not been provided are approximately
$45,600, which would result in a related tax liability of approximately $9,800
if such earnings were repatriated.
NOTE 9 COMMITMENTS AND CONTINGENCIES
The Company leases machinery and equipment, computer equipment, and office
furniture and conducts certain operations in leased facilities, which expire on
various dates through 2000. Under the terms of most of the leases, the Company
is required to pay all taxes, insurance, and maintenance. The total future,
minimum, annual lease payments under the operating lease agreements are as
follows:
F-15
<PAGE> 41
NOTE 9 COMMITMENTS AND CONTINGENCIES (CONTINUED)
<TABLE>
<CAPTION>
Year Ended December 31,
<S> <C>
1996 $3,694
1997 2,426
1998 595
1999 408
2000 106
Thereafter ---
- ---------------------------------------------------------------------------------------------------------------------------
$7,229
===========================================================================================================================
</TABLE>
Rental expense amounted to $3,614, $3,852, and $2,983 in 1995, 1994, and 1993,
respectively.
Litigation - In December 1995, a class-action lawsuit was filed in the United
States District Court, Southern District of California, against the Company and
certain of its officers and directors alleging violations of the Securities
Exchange Act of 1934. Specifically, the complaint asserts, among other claims,
that the Company artificially inflated the value of its stock by making false
and misleading statements about expected financial results. The plaintiffs
seek an unspecified amount of damages based upon the decrease in market value
of the Company's stock. The Company has filed its initial response to the
complaint and intends to defend this action vigorously. Based upon its present
understanding of the facts, the Company believes it has meritorious defenses to
the claims alleged. Because the outcome of the claims are uncertain at this
time, no provision for any liability that may result upon adjudication has been
made in the accompanying consolidated financial statements.
The Company is involved in various legal proceedings and claims arising in the
ordinary course of business, none of which, in the opinion of management, is
expected to have a material affect on the Company's consolidated financial
position.
Contingent Purchase of the Promptus Minority Interest - Concurrent with the
Promptus acquisition, the Company and the minority shareholders of Promptus
entered into an agreement to govern the contingent purchase of the remaining
29% of the outstanding capital stock of Promptus. Under the agreement,
beginning in January 1997 and each year thereafter through January 1999, the
minority shareholders of Promptus have the right, but not the obligation, to
require the Company to acquire the remaining shares in predefined percentage
increments; and the Company has the right, but not the obligation, to purchase
the remaining shares. The price to be paid is based upon a predetermined
formula using a combination of forecasted and actual results of Promptus for
the period January 1, 1997, through December 31, 1999. The percentage
increment established for the first mutual put/call option in January 1997 may
not exceed 30% of the minority shares. In management's opinion, there is no
assurance that the minority shareholders will exercise their rights nor is it
presently possible to assess the probability of whether the Company will
purchase the minority shares. In addition, due to the determinants involved in
establishing a price for the minority shares, it is not presently possible to
estimate the price at which such shares might be purchased. Accordingly, no
accounting recognition has been provided for this contingency in the
accompanying consolidated financial statements.
F-16
<PAGE> 42
NOTE 10 STOCKHOLDERS' EQUITY
Preferred Stock - The Preferred Stock is convertible at the discretion of the
holder, at a rate of 234.314 shares of Common Stock per share of Preferred
Stock, into 1,900,287 shares of the Company's Common Stock. Dividends accrue at
the rate of $35.00 per share, per year and are payable quarterly. The preferred
shares have a liquidation preference of $1,000 per share and a par value of
$1.00 per share.
Common Stock - In connection with the Company's acquisition of approximately
71% of Promptus in January 1995, the Company completed a secondary public
offering of 650,000 common shares (of which 250,000 were from Treasury Stock)
for proceeds of approximately $9.7 million (net of issuance costs).
Stock Option Plans - The Company has stock option plans that provide for the
granting of either incentive stock options or non- qualified stock options to
key employees and non-employee members of the Company's Board of Directors.
All current outstanding options are non-qualified stock options. The options
granted under these plans are to purchase Common Stock at not less than fair-
market value at the date of grant. Employee options are generally exercisable
one year from date of grant in cumulative annual installments of 25 percent,
while non-employee director options are exercisable in full at the date of
grant. The options have terms of six to ten years. The following table
summarizes stock option activity:
<TABLE>
<CAPTION>
Shares Price Range
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 892,050 $2.125 to $35.00
Granted 257,000 $14.50 to $22.25
Exercised (114,125) $2.125 to $15.75
Forfeitures (224,675) $3.125 to $35.00
- --------------------------------------------------------------------------------------------------
Balance at December 31, 1995 810,250 $11.50 to $35.00
- --------------------------------------------------------------------------------------------------
Exercisable at December 31, 1995 349,125 $11.50 to $35.00
==================================================================================================
</TABLE>
The average price of all options outstanding at December 31, 1995, is $20.58
per share; the outstanding options expire at various dates through December
2005. At December 31, 1995, there were 274,050 shares available for future
grant under all plans.
NOTE 11 EMPLOYEE BENEFIT PLANS
The Company has a domestic, defined contribution plan that qualifies as a cash
or deferred profit sharing plan under Sections 401(a) and 401(k) of the
Internal Revenue Code available to substantially all domestic employees. Under
the plan, participating employees may defer between 1% to 15% of their pre-tax
compensation. The Company contributes fifty cents for each dollar contributed
by the employee, with a maximum contribution of 6% of the employee's defined
compensation. In addition, the plan provides for an employer, profit-sharing
contribution in such amounts as the Board of Directors may annually determine.
The Company also has similar plans for foreign employees, governed by the laws
of the country in which they are established. These foreign plans generally
include a salary deferral element and Company matching contribution. Company
contributions under all plans in the aggregate were $398, $363, and $127 in
1995, 1994, and 1993, respectively. There were no amounts paid relating to the
employer, profit-sharing provision during 1995, 1994, and 1993.
F-17
<PAGE> 43
NOTE 11 EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company had no other programs that required payment by the Company of
post-retirement benefits to current or retired employees.
NOTE 12 SEGMENT INFORMATION AND MAJOR CUSTOMERS
In 1995, two customers, when combined, represented approximately 30% of the
Company's sales or approximately 16% and 14%, individually. In 1994, one
customer represented approximately 22% of the Company's sales; and in 1993 two
customers represented approximately 30% of the total Company's sales or
approximately 17% and 13%, individually.
Export sales amounted to $7,385, $6,751, and $4,425 in 1995, 1994, and 1993,
respectively, principally to countries in the Pacific Rim, Europe, and Puerto
Rico.
The Company operates in one industry segment through its principal operations -
Valor and Promptus. Valor is a manufacturer and distributor of magnetic-based
components, integrated modules, and subsystems for signal processing and
power-management functions in networking and internetworking products.
Promptus is a developer, manufacturer, and marketer of high-speed, digital
network-access products. Valor Products are used principally in data
communications industry by OEM's for local area networks and wide area
networks. Promptus Products are used principally in the videoconferencing
industry by OEM's and telecom equipment providers for corporate customers
utilizing ISDN services.
Valor operates predominately in the United States, the People's Republic of
China, Hong Kong, Germany, and the Philippines while Promptus operates in the
United States and the United Kingdom. Transfers between geographic areas
primarily represent intercompany export sales between the related companies.
In computing income from continuing operations before income taxes and minority
interest, no allocations of general corporate expenses have been made.
Identifiable assets include those assets directly identified to those
operations in each geographical area. The United States' assets consist of
operating assets and goodwill.
F-18
<PAGE> 44
GEOGRAPHIC SEGMENTS (dollars in thousands)
<TABLE>
<CAPTION>
Adjustments
and
United Pacific Europe Eliminations Consolidated
States Rim
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Sales to unaffiliated customers $80,984 $33,373 $14,792 $--- $129,149
Transfers between geographic segments (2) 67,846 --- (67,844) ---
--- ------ --- -------- ---
Total sales $80,982 $101,219 $14,792 $(67,844) $129,149
======= ======== ======= ========= ========
Income (loss) before income taxes and $(5,865) $7,951 $1,034 $--- $3,120
======== ====== ====== ==== ======
minority interest
Identifiable assets $69,473 $48,522 $2,813 $--- $120,808
==============================================================================================================================
Year ended December 31, 1994
Sales to unaffiliated customers $72,262 $16,051 $14,926 $--- $103,239
Transfers between geographic segments 11,654 75,473 --- (87,127) ---
------ ------ --- -------- ---
Total sales $83,916 $91,524 $14,926 $(87,127) $103,239
======= ======= ======= ========= ========
Income (loss) before income taxes and $(2,433) $4,728 $1,404 $--- $3,699
======== ====== ====== ==== ======
minority interest
Identifiable assets $60,218 $35,956 $3,774 $--- $99,948
==============================================================================================================================
Year ended December 31, 1993
Sales to unaffiliated customers $66,643 $14,205 $7,727 $--- $88,575
Transfers between geographic segments 20,835 54,102 --- (74,937) ---
------ ------ --- -------- ---
Total sales $87,478 $68,307 $7,727 $(74,937) $88,575
======= ======= ====== ========= =======
Income before income taxes and minority $4,905 $9,443 $191 $--- $14,539
====== ====== ==== ==== =======
interest
$67,160 $20,920 $1,568 $--- $89,648
==============================================================================================================================
</TABLE>
NOTE 13 SUBSEQUENT EVENT - BUSINESS DISPOSAL
In February 1996, the Company completed the divestiture of Esco for
approximately $4.1 million. The Company received $2.2 million in cash at the
closing and a $1.9 million promissory note due in equal installments over six
years. Under terms of the purchase agreement, the purchase price is subject to
adjustment based on the closing financial statements of Esco, as defined in the
purchase agreement. The net assets of discontinued operations of $3,623 as of
December 31, 1995, represents management's best estimate of the ultimate
amounts expected to be realized.
F-19
<PAGE> 45
NOTE 14 QUARTERLY FINANCIAL DATA (UNAUDITED)
The Company's condensed quarterly results from operations for the years ended
December 31, 1995,and 1994, are as follows:
<TABLE>
<CAPTION>
1995 First Second Third Fourth
Quarter Quarter Quarter Quarter(1) Total
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $27,015 $33,020 $35,308 $33,806 $129,149
- -----------------------------------------------------------------------------------------------------------------
Gross profit 8,029 10,681 11,712 8,978 39,400
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes and minority interest (350) 1,832 2,975 (1,337) 3,120
Provision (benefit) for income taxes (81) 367 591 (371) 506
Minority interest (income) in subsidiary (47) (42) (66) (321) (476)
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations (222) 1,507 2,450 (645) 3,090
Income (loss) from discontinued operations,
net of income taxes 413 470 397 (424) 856
Loss on disposal of discontinued
operations, net of income taxes --- --- --- (2,000) (2,000)
- -----------------------------------------------------------------------------------------------------------------
Net income (loss) $191 $1,977 $2,847 $(3,069) $1,946
=================================================================================================================
Net income (loss) per share--primary and
fully diluted:
Income (loss) from continuing operations $(0.02) $0.14 $0.22 $(0.06) $0.28
Income (loss) from discontinued operations 0.04 0.04 0.04 (0.04) 0.08
Loss on disposal of discontinued operations --- --- --- (0.18) (0.18)
- -----------------------------------------------------------------------------------------------------------------
Net income (loss) $0.02 $0.18 $0.26 $(0.28) $0.18
=================================================================================================================
</TABLE>
F-20
<PAGE> 46
NOTE 14 QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
1994 First Second Third Fourth
Quarter Quarter Quarter Quarter(1) Total
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $21,321 $24,728 $27,216 $29,974 $103,239
------------------------------------------------------------------------------------------------------------------
Gross profit 7,164 6,466 7,947 5,540 27,117
------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before
income taxes and minority interest 1,369 1,031 1,982 (683) 3,699
Provision (benefit) for income taxes 282 163 408 (589) 264
Minority interest in subsidiary 49 36 50 1 136
------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations 1,038 832 1,524 (95) 3,299
------------------------------------------------------------------------------------------------------------------
Income from discontinued operations, net of
income taxes 263 618 469 612 1,962
------------------------------------------------------------------------------------------------------------------
Net income $1,301 $1,450 $1,993 $517 $5,261
==================================================================================================================
Net income (loss) per share -- primary and fully
diluted:
Income (loss) from continuing operations $0.10 $0.08 $0.15 $(0.01) $0.32
Income from discontinued operations 0.03 0.06 0.05 0.06 0.20
------------------------------------------------------------------------------------------------------------------
Net income $0.13 $0.14 $0.20 $0.05 $0.52
==================================================================================================================
</TABLE>
________________________
(1) Based upon management's periodic review of the assumptions used in
determining the estimated gain or loss from the disposals of the E-Group
and Esco, during the fourth quarter of 1995, the Company recorded a
provision of $2.0 million, net of income taxes, for the combined loss on
disposal of both discontinued businesses in the fourth quarter of 1995.
This change in the previously reported, estimated, combined gain on
disposal of discontinued operations resulted from a reduction of the
expected selling price for Esco and a revision in the estimated income
tax provision from the disposal of both discontinued businesses.
Management's current estimate indicates that total sale proceeds from the
Segments' disposal will approximate the net assets of discontinued
operations as of December 31, 1995. Esco did not incur operating losses
during the remaining Divestiture Period.
The 1994 fourth quarter reflects increased manufacturing costs due to
rapid expansion of production capacity to meet market demand for
networking products.
F-21
<PAGE> 47
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To the Stockholders and Board of Directors, GTI Corporation:
We have audited in accordance with generally accepted auditing standards
the consolidated financial statements included in this Form 10-K, and have
issued our report thereon dated February 14, 1996. Our audits of the
consolidated financial statements were made for the purpose of forming an
opinion on those statements taken as a whole. The supplemental Schedule II is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
supplemental schedule has been subjected to the auditing procedures applied in
the audits of the basic financial statements and, in our opinion, fairly states
in all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
San Diego, California,
February 14, 1996
F-22
<PAGE> 48
GTI CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Additions
-------------------------
Balance at Charged to Balance
Beginning of Costs and at end
Description Period Expenses Other (A) Deductions (B) of Year
----------- ------ -------- --------- -------------- -------
<S> <C> <C> <C> <C> <C>
Allowance for
doubtful accounts
Year Ended December
31, 1995 $143 $90 $102 $38 $297
Year Ended December
31, 1994 $131 $12 $--- $--- $143
Year Ended December
31, 1993 $439 $(253) $--- $55 $131
</TABLE>
________________
(A) Amount represents Promptus's allowance for doubtful accounts balance on
the acquisition date.
(B) Amount represents accounts written off.
F-23
<PAGE> 49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
GTI CORPORATION (Registrant)
By: Albert J. Hugo-Martinez
-------------------------------- March 28, 1996
Albert J. Hugo-Martinez
President and
Chief Executive Officer
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 date indicated.
<TABLE>
<S> <C> <C>
Timothy M. Curtis Director March 28, 1996
- --------------------------------------
Timothy M. Curtis
Edmund B. Fitzgerald Director March 28, 1996
- ------------------------------
Edmund B. Fitzgerald
Andre R. Horn Director March 28, 1996
- --------------------------------------
Andre R. Horn
Henry N. Huta Director March 28, 1996
- --------------------------------------
Henry N. Huta
Albert J. Hugo-Martinez President March 28, 1996
- -------------------------------------- Chief Executive
Albert J. Hugo-Martinez Officer and Director
(Principal Executive Officer)
Kenneth E. Maud Chairman of the March 28, 1996
- --------------------------------------
Kenneth E. Maud Board and Director
Jesse Rifkind Director March 28, 1996
- --------------------------------------
Jesse Rifkind
Robert E. Venter Director March 28, 1996
- --------------------------------------
Robert E. Venter
Douglas J. Downs Vice President - March 28, 1996
- -------------------------------------- Finance and Chief
Douglas J. Downs Financial Officer
(Principal Financial
and Accounting Officer)
</TABLE>
-26-
<PAGE> 50
EXHIBIT INDEX
The following Exhibits to this report are filed herewith, or if marked
with an asterisk (*), are incorporated herein by reference. Each management
contract or compensatory plan or arrangement has been marked with the letter
"C" to identify it as such.
<TABLE>
<CAPTION>
Management
Contract or Prior Filing or
Exhibit Compensatory Sequential Page
Number Description Plan or Arrangement Number Herein
------ ----------- ------------------- -------------
<S> <C> <C> <C>
3.1 *Certificate of Incorporation of GTI Exhibit 3.01 to Form 8-B filed
Corporation with the Commission on July 11,
1987**
3.2 *Certificate of Merger of GTI Corporation into Exhibit 3.02 to Form 8-B filed
GTI Delaware, Inc., as filed with Delaware with the Commission on July 11,
Secretary of State 1987**
3.3 *Articles of Merger of GTI Corporation into GTI Exhibit 3.03 to Form 8-B filed
Delaware, Inc., as filed with Rhode Island with the Commission July 11,
Secretary of State 1987**
3.4 *Certificate of Designation of the $35.00 Exhibit 4.01 to Report on Form
Cumulative Convertible Preferred Stock By-Laws 8-K dated November 2, 1988**
of GTI Corporation, as amended
3.5 *By-Laws of GTI Corporation, as amended as of Exhibit 3.5 to Annual Report on
February 26, 1992 Form 10-K for year ended
December 31, 1991**
4.1 *Credit Agreement and Note dated as of December Exhibit 4.1 to Annual Report on
1, 1992, between GTI Corporation and Union Bank Form 10-K for year ended
December 31, 1991**
4.2 *First Amendment to Credit Agreement and Note Exhibit 99.02 to Amendment No. 1
between GTI Corporation and Union Bank dated to Registration Statement on
May 7, 1993 Form S-3 (No. 33-65086) filed on
July 16, 1993
4.3 *Second Amendment to Credit Agreement and Note Exhibit 99.03 to Amendment No. 1
between the Company and Union Bank dated July to Registration Statement on
15, 1993 Form S-3 (No. 33-65086) filed on
July 16, 1993
4.4 *Third Amendment to Credit Agreement and Note Exhibit 4.4 to Annual Report on
dated as of March 24, 1994 Form 10-K for year ended
December 31, 1993**
10. 1 *GTI Corporation 1980 Employees Stock Option C Exhibit 4.4 to Annual Report on
Plan Form 10-K for year ended
December 31, 1993**
10.2 *Amendments to 1980 Employees Stock Option Plan C Exhibit 10.1 to Post-Effective
adopted May 8, 1981 Amendment No. 1 to Form S-8
Registration Statement (No.
2-68202) filed on May 12, 1981
</TABLE>
-27-
<PAGE> 51
<TABLE>
<CAPTION>
Management
Contract or Prior Filing or
Exhibit Compensatory Sequential Page
Number Description Plan or Arrangement Number Herein
- ------ ----------- ------------------- -------------
<S> <C> <C> <C>
10.3 *Amendments to 1980 Employees Stock Option Plan C Exhibit 4.03 to Post-Effective
dated June 4, 1987 Amendment No. 2 to Form S-8
Registration Statement (No.
2-68202) filed on July 1, 1987
10.4 *Amendment to 1980 Employees Stock Option Plan C Exhibit 4.03 to Post-Effective
dated December 13, 1989 Amendment No. 3 to Form S-8
Registration Statement (No.
2-68202) filed on May 7, 1990
10.5 *Amendment to 1980 Employees Stock Option Plan C Exhibit 10.5 to Annual Report on
dated February 9, 1994 Form 10-K for the year ended
December, 31, 1993**
10.6 *GTI Corporation 1982 Employees Stock Option C Exhibit 10.5 to Annual Report on
Plan Form 10-K for the year ended
December, 31, 1992**
10.7 *Amendments to 1982 Employees Stock Option Plan C Exhibit 5.01 to Post-Effective
adopted June 4, 1987 Amendment No. 1 to Form S-8
Registration Statement (No.
2-86797) filed on July 1, 1987
10.8 *Amendment to 1982 Employees Stock Option Plan C Exhibit 4.03 to Post-Effective
adopted May 3, 1990 Amendment No. 2 to Form S-8
Registration Statement (No.
2-86797) filed on May 7, 1990
10.9 *Amendment to 1982 Employees Stock Option Plan C Exhibit 10.9 to Annual Report on
dated February 9, 1994 Form 10-K for the year ended
December, 31, 1993**
10.10 *GTI Corporation 1985 Sock Option Plan for Non- C Exhibit A to definitive Proxy
Employee Directors Statement dated March 28, 1986
10.11 *Amendment to GTI Corporation 1985 Stock Option C Exhibit 10.11 to Annual Report
Plan for Non-Employee Directors on Form 10-K for year ended
December 31, 1993**
10.12 *GTI Corporation Stock Incentive Plan (1989) C Exhibit 4.01 to Form S-8
Registration Statement (No.
33-34667) filed May 7, 1990
10.13 *Amendment to GTI Corporation Stock Incentive C Exhibit 10.10 to Annual Report
Plan (1989) on Form 10-K for year ended
December 31, 1991**
10.14 *Amendments to GTI Corporation Stock Incentive C Exhibit 10.14 to Annual Report
Plan (1989) on Form 10-K for year ended
December 31, 1993**
10.15 *GTI Corporation 1989 Stock Option Plan for C Exhibit 4.01 to Form S-8
Non-Employee Directors Registration Statement (No.
33-34668) filed May 7, 1990
</TABLE>
-28-
<PAGE> 52
<TABLE>
<CAPTION>
Management
Contract or Prior Filing or
Exhibit Compensatory Sequential Page
Number Description Plan or Arrangement Number Herein
------ ----------- ------------------- -------------
<S> <C> <C> <C>
10.16 *Amended and Restated Cash of Deferred Profit C Exhibit 10.13 to Annual Report
Sharing plan For Employees of GTI Corporation on Form 10-K for year ended
and its Affiliates December 31, 1991**
10.17 *Guarantee of GTI Corporation dated September Exhibit 10.13 to Annual Report
24, 1982, for the obligations of GTI-Ireland, on Form 10-K for year ended
Ltd. December 31, 1992**
10.18 *Guarantee of GTI Corporation dated July 10, Exhibit 10.14 to Annual Report
1982, to Allied Irish Banks Ltd. In relation to on Form 10-K for year ended
leasing of machinery and equipment by GTI- December 31, 1992**
Ireland Ltd.
10.19 *Allied Irish Banks Ltd. And GTI-Ireland Ltd. Exhibit 10.15 to Annual Report
master agreement dated July 10, 1982, in on Form 10-K for year ended
relation to leasing future equipment and December 31, 1992**
machinery
10.20 *Agreement dated October 12, 1982, among Exhibit 10.16 to Annual Report
GTI-Ireland Ltd., GTI Corporation, and the on Form 10-K for year ended
Industrial Development Authority (of Ireland) December 31, 1992**
10.21 *Employment Agreement dated April 13, 1989, C Exhibit 10.15 to Annual Report
between GTI Corporation and Gary L. Luick on Form 10-K for year ended
December 31, 1989**
10.22 *Letter Agreement dated May 12, 1990, between C Exhibit 10.18 to Annual Report
GTI Corporation and Jack VanderKnyff on Form 10-K for year ended
December 31, 1992**
10.23 *Employment Agreement dated March 9, 1992, C Exhibit 10.19 to Annual Report
between GTI Corporation and R. Bert McClung on Form 10-K for year ended
December 31, 1992**
10.24 *Indemnification Agreement dated June 23, 1987, Exhibit 10.20 to Form 8-B filed
between GTI Corporation and John C. Brittain with the Commission on July 11,
1987**
10.25 *Indemnification Agreement dated May 5, 1989, Exhibit 10.24 to Annual Report
between GTI Corporation and Gary L. Luick on Form 10-K for year ended
December 31, 1989**
10.26 *Indemnification Agreement dated August 27, Exhibit 19.5 to Report on Form
1990, between GTI Corporation and Douglas J. 10-Q for quarter ended September
Downs. 30, 1990**
10.27 *Indemnification Agreement dated August 27, Exhibit 10.24 to Annual Report
1991, between GTI Corporation and Andre R. Horn on Form 10-K for year ended
December 31, 1992**
10.28 *Indemnification Agreement dated February 26, Exhibit 10.26 to Annual Report
1992, between GTI Corporation and Arthur S. on Form 10-K for year ended
Walsh December 31, 1992**
</TABLE>
-29-
<PAGE> 53
<TABLE>
<CAPTION>
Management
Contract or Prior Filing or
Exhibit Compensatory Sequential Page
Number Description Plan or Arrangement Number Herein
- ------ ----------- ------------------- -------------
<S> <C> <C> <C>
10.29 *Indemnification Agreement dated May 26, 1992, Exhibit 10.27 to Annual Report
between GTI Corporation and Henry N. Huta on Form 10-K for year ended
December 31, 1992**
10.30 *Indemnification Agreement dated May 12, 1993, Exhibit 10.30 to Annual Report
between GTI Corporation and Jesse Rifkind on Form 10-K for year ended
December 31, 1993**
10.31 *Indemnification Agreement dated May 12, 1993, Exhibit 10.31 to Annual Report
between GTI Corporation and Edmund B. on Form 10-K for year ended
Fitzgerald December 31, 1993**
10.32 *Indemnification Agreement dated May 12, 1993, Exhibit 10.32 to Annual Report
between GTI Corporation and Robert E. Venter on Form 10-K for year ended
December 31, 1993**
10.33 *Indemnification Agreement dated February 9, Exhibit 10.33 to Annual Report
1994, between GTI Corporation and Timothy M. on Form 10-K for year ended
Curtis December 31, 1993**
10.34 *Indemnification Agreement dated May 3, 1991, Exhibit 10.34 to Annual Report
between GTI Corporation and Jack VanderKnyff on Form 10-K for year ended
December 31, 1993**
10.35 *Indemnification Agreement dated May 15, 1992, Exhibit 10.35 to Annual Report
between GTI Corporation and R. Bert McClung on Form 10-K for year ended
December 31, 1993**
10.36 *Indemnification Agreement dated August 1993 Exhibit 10.36 to Annual Report
between GTI Corporation and Donald J. Moore on Form 10-K for year ended
December 31, 1993**
10.37 *GTI Corporation Stock Option Agreement C Exhibit 10.25 to Annual Report
(Nonstatutory Stock Options) dated as of May 5, on Form 10-K for year ended
1989, between GTI Corporation and Gary L. Luick December 31, 1989**
(1980 Plan)
10.38 *GTI Corporation Stock Option Agreement C Exhibit 10.26 to Annual Report
(Nonstatutory Stock Options) dated as of May 5, on Form 10-K for year ended
1989, between GTI Corporation and Gary L. Luick December 31, 1989**
(1982 Plan)
10.39 *Management Shares Agreement dated as of June C Exhibit 2.02 to Report on Form
29, 1990, among GTI Corporation, Valor 8-K dated September 12, 1990
Electronics, Inc., and the Shareholders named
therein
10.40 *Letter Agreement dated June 22, 1993, relating Exhibit 99.01 to Registration
to purchase of Valor minority shares Statement on Form S-3 (No.
33-65086) filed on June 25, 1993
10.41 *Letter Agreement dated September 2, 1993, C Exhibit 10.41 to Annual Report
between GTI Corporation and John C. Brittain on Form 10-K for year ended
December 31, 1993**
</TABLE>
-30-
<PAGE> 54
<TABLE>
<CAPTION>
Management
Contract or Prior Filing or
Exhibit Compensatory Sequential Page
Number Description Plan or Arrangement Number Herein
- ------ ----------- ------------------- -------------
<S> <C> <C> <C>
10.42 *GTI Corporation Key Executive Long-Term C Exhibit 10.42 to Annual Report
Incentive Plan and Trust Agreement on Form 10-K for year ended
December 31, 1993**
10.43 *Amendment to GTI Corporation 1989 Stock C Exhibit 10.14 to Annual Report
Incentive Plan on Form 10-K for year ended
December 31, 1993**
10.44 *Placement Agency Agreement dated January 5, Exhibit 1.1 Report on Form 8-K
1995, between the Company and Needham & dated January 6, 1995
Company, Inc., as Agent, including Subscription
Form and Escrow Agreement
10.45 *Consent and Fifth Amendment to Credit Exhibit 99.1 to Report on Form
Agreement and Note between the Company and 8-K dated January 6, 1995
Union Bank dated as of November 30, 1994
10.46 *Merger Agreement dated as of October 15, 1994, Exhibit 2.1 to Report on Form
among the Company, GTI Acquisition Corp., 8-K dated January 6, 1995
Promptus, and certain shareholders of Promptus
10.47 *Amendment dated as of January 6, 1995, to Exhibit 2.2 to Report on Form
Merger Agreement dated as of October 15, 1994, 8-K dated January 6, 1995
among the Company, GTI Acquisition Corp.,
Promptus, and certain shareholders of Promptus
10.48 *Management Shares Agreement dated January 5, C Exhibit 10.48 to Annual Report
1995, between the Company, Promptus on Form 10-K for year ended
Communications, Inc., and the Shareholders December 31, 1994
named therein
10.49 *Indemnification Agreement dated October 12, Exhibit 10.49 to Annual Report
1994, between GTI Corporation and Richard C. on Form 10-K for year ended
Barron December 31, 1994
10.50 *Indemnification Agreement dated February 15, Exhibit 10.50 to Annual Report
1995, between GTI Corporation and Kirk M. on Form 10-K for year ended
D'Orazio December 31, 1994
10.51 *Indemnification Agreement dated February 15, Exhibit 10.51 to Annual Report
1995, between GTI Corporation and Aurelio Lucci on Form 10-K for year ended
December 31, 1994
10.52 *Amendment to Employment Agreement dated March C Exhibit 10.52 to Annual Report
29, 1995, between GTI Corporation and Gary L. on Form 10-K for year ended
Luick December 31, 1994
10.53 Stock Purchase Agreement dated February 15, Exhibit 99.1 to Current Report
1996, by and among GTI Corporation and on Form 8-K, as amended, dated
Insulectro December 21, 1995
</TABLE>
-31-
<PAGE> 55
<TABLE>
<CAPTION>
Management
Contract or Prior Filing or
Exhibit Compensatory Sequential Page
Number Description Plan or Arrangement Number Herein
- ------ ----------- ------------------- -------------
<S> <C> <C> <C>
10.54 Asset Purchase Agreement dated December 16, Exhibit 99.1 to Current Report
1995, by and among GTI Corporation and on Form 8-K, as amended, dated
Component InterTechnologies, Inc. December 21, 1995
10.55 Consent and Sixth Amendment to Credit Agreement
and Note between the Company and Union Bank
dated June 29, 1995
10.56 Consent and Seventh Amendment to Credit
Agreement and Note between the Company and
Union Bank dated December 19, 1995
10.57 Consent and Eighth Amendment to Credit
Agreement and Note between the Company and
Union Bank dated February 15, 1996
10.58 Indemnification Agreement dated May 10, 1995,
between GTI Corporation and Kenneth E. Maud
10.59 Employment Agreement effective March 13, 1996, C
between GTI Corporation and Albert J. Hugo-
Martinez
11.1 Calculations of Income Per Share
21.1 List of Subsidiaries of the Registrant
23.1 Consent of Independent Public Accountants
99.1 *Letter Agreement dated August 25, 1992, Exhibit 28.01 to Registration
between GTI Corporation and Telemetrix PLC, re: Statement on Form S-3 (No.
California tax matter 33-52386) filed September 24, 1992
</TABLE>
-32-
<PAGE> 1
EXHIBIT 10.55
SIXTH AMENDMENT TO CREDIT AGREEMENT AND NOTE
THIS SIXTH AMENDMENT TO CREDIT AGREEMENT AND NOTE ("Sixth Amendment"),
made and entered into as of the 29th day of June, 1995, by and between GTI
CORPORATION, a California corporation ("Company"), and UNION BANK, a California
banking corporation ("Bank"),
W I T N E S S E T H:
WHEREAS, on December 17, 1992, the Company and the Bank entered into a
certain Credit Agreement and Note (as amended by those certain First, Second,
Third, Fourth and Fifth Amendments to Credit Agreement and Note, dated as of May
7, 1993, July 14, 1993, March 24, 1994, June 24, 1994 and November 30, 1994,
respectively, the "Credit Agreement") pursuant to which the Bank agreed to
extend to the Company and the Company agreed to accept from the Bank certain
credit facilities more particularly described therein; and
WHEREAS, the Company and the Bank desire to amend the Credit Agreement
to modify (i) certain of the financial and reporting covenants with which the
Company is to comply, and (ii) to provide for certain ancillary matters;
NOW, THEREFORE, for and in consideration of the premises hereof, and
other good and valuable consideration the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. All capitalized terms used in this Sixth Amendment shall, unless
otherwise defined herein or unless the context otherwise requires, have the
meanings given thereto in the Credit Agreement.
2. Subsection 2.01(c) of the Credit Agreement is amended by deleting
therefrom the date "December 31, 1993" where it appears in the second line of
such subsection and by substituting in lieu thereof the date "December 31,
1994".
3. Subsection 2.01(d) of the Credit Agreement is amended by deleting
therefrom the date "September 30, 1994" where it appears in the second line of
such subsection and by substituting in lieu thereof the date "March 31, 1995".
4. Subsection 2.02(b) of the Credit Agreement is amended to read as
follows:
(b) The Company shall have delivered to the Bank statements in
form and detail satisfactory to the Bank showing the aging and
adjustment of the accounts receivable of the Company, Valor, ESC and
Promptus (and collections
-1-
<PAGE> 2
thereon) as at the end of the calendar month most recently ended (or as
at the end of the next preceding calendar month if the requested
Revolving Loan is to be made during the first fifteen (15) days of a
calendar month);
5. Subsection 3.01(b) of the Credit Agreement is amended to read as
follows:
(b) Authority. The execution, delivery and performance by the
Company of this Agreement and the other Facility Documents, and the
execution, delivery and performance by Valor, ESC, GIL and Promptus, as
the case may be, of such corporation's Continuing Guaranty (and, in the
case of Valor, ESC and Promptus, such corporation's Security Agreement
(Chattel Mortgage)), are within the corporate power of the Company,
Valor, ESC, GIL or Promptus, as the case may be, have been duly
authorized by all necessary corporate action, do not require any
registration with, consent or approval of, license or permit from, or
notice to any Person, do not contravene any law, rule or regulation,
any order, writ, decree or judgment of any Person, or the constitutive
documents of the Company, Valor, ESC, GIL or Promptus, as the case may
be, do not violate or constitute a default under any mortgage,
indenture, lease, contract or other agreement or instrument binding
upon the Company, Valor, ESC, GIL, Promptus or any other Subsidiary,
and will not result in or require the creation of any lien on the
property, assets or revenue of the Company, Valor, ESC, GIL, Promptus
or any other Subsidiary (except such liens as may be created in favor
of the Bank pursuant to this Agreement and the other Facility
Documents).
6. Subsection 3.01(c) of the Credit Agreement is amended to read as
follows:
(c) Enforceability. This Agreement and the other Facility Documents
constitute legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, and
the Continuing Guaranties of Valor, ESC, GIL and Promptus (and the
Security Agreements (Chattel Mortgage) of Valor, ESC and Promptus)
constitute legal, valid and binding obligations of Valor, ESC, GIL or
or Promptus, as the case may be, enforceable against it in accordance
with its or their terms, except, in each case, as limited by
bankruptcy, insolvency or other laws of general application relating
to or affecting the enforcement of creditors' rights and general
principles of equity.
7. Subsection 3.01(g) of the Credit Agreement is amended by deleting
therefrom the date "December 31, 1993" where it appears in the second line of
such subsection and by substituting in lieu thereof the date "December 31,
1994".
-2-
<PAGE> 3
8. Subsection 3.01(h) of the Credit Agreement is amended by deleting
therefrom the phrase "the Fifth Amendment" where it appears in the third line of
such subsection and by substituting in lieu thereof the phrase "the Sixth
Amendment".
9. Subsection 4.01(a) of the Credit Agreement is amended by deleting
therefrom Subsection 4.01(a)(i).
10. Subsection 4.01(a)(vi) of the Credit Agreement is amended by
deleting therefrom the phrase "Subsections 4.01(a)(i), (ii) and (iv) hereof"
where it appears in the second and third lines of such subsection and by
substituting in lieu thereof the phrase "Subsections 4.01(a)(ii) and (iv)
hereof".
11. Subsection 4.01(a)(ix) of the Credit Agreement is amended to read
as follows:
(ix) Not later than the fifteenth (15th) day after the end of
each calendar month, but only if Revolving Loans are then outstanding
under the Revolving Loan Facility, statements in form and detail
satisfactory to the Bank showing the aging and adjustment of the
accounts receivable of the Company, Valor, ESC and Promptus (and
collections thereon) as at the end of such calendar month;
12. Subsection 4.02(h) of the Credit Agreement is amended to read as
follows:
(h) Tangible Net Worth. The Company will not, as at the end of
any fiscal quarter of the Company ending after March 31, 1995, permit
its consolidated Tangible Net Worth to be less than the sum of (i)
Forty Million Eight Hundred Seventy-eight Thousand Dollars
($40,878,000.00), (ii) seventy-five percent (75%) of the cumulative
consolidated after tax net profits of the Company for all fiscal
quarters of the Company ending after March 31, 1995 and on or prior to
the date of computation (without reduction, however, for consolidated
after tax net losses sustained by the Company for any of such fiscal
quarters), and (iii) the aggregate amount of all infusions of equity
made on or after April 1, 1995.
13. Subsection 4.02(l) of the Credit Agreement is amended to read as
follows:
(l) Cash Coverage Ratio. The Company will not permit the ratio
of (i) the sum of (A) its consolidated net profit before taxes, (B) its
consolidated interest expenses, (C) its consolidated depreciation
expenses, and (D) its consolidated minimum lease payments (in the case
of each clause of this Subsection 4.02(l)(i), for the four (4)
consecutive fiscal quarters of the Company ending on the
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date of computation), to (ii) the sum of (A) the current portion of its
consolidated long term liabilities, (B) its consolidated interest
expenses, and (C) its consolidated minimum lease payments (in the case
of clause (A) of this Subsection 4.02(l)(ii), as at the date of
computation, and in the case of clauses (B) and (C) of this Subsection
4.02(l)(ii), for the four (4) consecutive fiscal quarters of the
Company ending on the date of computation), to be less than 1.50:1.00
as at the end of any fiscal quarter of the Company ending after March
31, 1995.
14. The definition of "Eligible Accounts" set forth in Section 7.01 of
the Credit Agreement is amended to read as follows:
"Eligible Accounts" shall mean those of the accounts receivable of the
Company, Valor, ESC and Promptus which the Bank in its sole discretion
elects to use to determine the extent of availability of Revolving
Loans under the Revolving Loan Facility, which Eligible Accounts shall,
unless otherwise specifically consented to be the Bank, exclude
accounts receivable which are outstanding and unpaid more than ninety
(90) days after the invoice date; accounts receivable subject to offset
(contras); accounts receivable relating to disputed or pre-billed items
or consigned or guaranteed sales; accounts receivable due from a
foreign account debtor, unless covered by the Foreign Credit Insurance
Association (or similar insurer) or transacted by letters of credit or
sight drafts (acceptable to the Bank); accounts receivable owed by any
shareholder, director, officer, employee, sales representative or
Subsidiary of the Company or by any Person who is an Affiliate of the
Company or who is an Affiliate of any shareholder, director, officer,
employee, sales representative or Subsidiary of the Company; note
receivables; and accounts receivable the assignment of which is subject
to any requirements set forth in the Assignment of Claims Act of 1940,
as amended from time to time, or in any Federal, state, county or
municipal statute, regulation, ordinance, constitution or charter, now
or hereafter existing, similar in effect thereto, as determined by the
Bank in its sole discretion.
15. The Credit Agreement is amended by deleting therefrom Exhibit C
thereto and by substituting in lieu thereof a new Exhibit C in the form appended
to this Sixth Amendment as Exhibit I.
16. This Sixth Amendment shall become effective on the date on which
the Bank shall have received the following:
(a) this Sixth Amendment, duly executed by the Company;
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(b) Four (4) written consents to entry by the Company into this
Sixth Amendment, each in form and substance satisfactory to the Bank
and its counsel, one (1) duly executed by each of Valor, ESC, GIL and
Promptus; and
(c) Such other documents and agreements as the Bank may
reasonably request to effectuate the purposes of this Sixth Amendment.
17. Except as expressly provided herein, the Credit Agreement is
unchanged and remains in full force and effect.
18. This Sixth Amendment shall be governed by and construed in
accordance with the laws of the State of California.
19. This Sixth Amendment may be executed in any number of identical
counterparts, any set of which signed by both parties hereto shall be deemed to
constitute a complete, executed original for all purposes.
IN WITNESS WHEREOF, the Bank and the Company have caused this Sixth
Amendment to be executed as of the day and year first above written.
UNION BANK GTI CORPORATION
By: /s/ Richard C. Petrie By: /s/ Douglas J. Downs
----------------------------- ------------------------------
Title: Vice President Title: Vice President Finance and
Chief Financial Officer
By: /s/ Joseph Otting By: /s/ Gary L. Luick
----------------------------- ------------------------------
Title: Senior Vice President Title: President and
Chief Executive Officer
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<PAGE> 1
EXHIBIT 10.56
CONSENT AND SEVENTH AMENDMENT TO CREDIT AGREEMENT AND NOTE
THIS CONSENT AND SEVENTH AMENDMENT TO CREDIT AGREEMENT AND NOTE
("Seventh Amendment"), made and entered into as of the 19th day of December,
1995, by and between GTI CORPORATION, a Delaware corporation ("Company"), and
UNION BANK, a California banking corporation ("Bank"),
W I T N E S S E T H
WHEREAS, on December 17, 1992, the Company and the Bank entered into a
certain Credit Agreement and Note (as amended by those certain First, Second,
Third, Fourth, Fifth and Sixth Amendments to Credit Agreement and Note, dated as
of May 7, 1993, July 14, 1993, March 24, 1994, June 24, 1994, November 30, 1994
and June 29, 1995, respectively, the "Credit Agreement") pursuant to which the
Bank agreed to extend to the Company and the Company agreed to accept from the
Bank certain credit facilities more particularly described therein; and
WHEREAS, the Company has (i) advised the Bank that the Company proposes
to sell to Component Intertechnologies, Inc. (A) the assets and certain of the
liabilities of the Company's electronics division (which assets are located in
Hadley, Pennsylvania and Hartselle, Alabama), and (B) one hundred percent
(100%) of the capital stock of the Company's wholly-owned subsidiary,
GTI-Ireland Limited ("GIL"), on the terms and conditions more particularly
described in the memorandum (the "Clark Memorandum") from the Company's
Controller, Blake Clark, to Richard Petrie dated December 6, 1995 (the "E-Group
Transaction"), and (ii) requested that the Bank (A) consent to the consummation
of the E-Group Transaction, (B) release the assets so to be sold by the Company
in connection with the E-Group Transaction (the "E-Group Assets") from the lien
of those four (4) certain Security Agreements (Chattel Mortgage), each dated
November 25, 1992, executed by the Company in favor of the Bank, and (C)
release that certain Continuing Guaranty, dated November 30, 1994, executed by
GIL in favor of the Bank with respect to the obligations of the Company to the
Bank arising under this Agreement and the other Facility Documents (the "GIL
Guaranty"); and
WHEREAS, the Company has also (i) advised the Bank that the Company
proposes to sell to a wholly-owned subsidiary of Insulactro one hundred percent
(100%) of the capital stock of the Company's wholly-owned subsidiary, ESCO
Sales, Inc. ("ESCO"), on the terms and conditions more particularly described
in the Clark Memorandum (the "ESCO Transaction"), and (ii) requested that the
Bank (A) consent to the consummation of the ESCO Transaction, (B) release that
certain Continuing Guaranty, dated November 30, 1994, executed by ESCO's
wholly-owned subsidiary, Electronic Supply Corporation ("ESC"), in favor of the
Bank with respect to
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the obligations of the Company to the Bank arising under this Agreement and the
other Facility Documents (the "ESC Guaranty"), and (C) release that certain
Security Agreement (Chattel Mortgage), dated November 25, 1992, executed by ESC
in favor of the Bank with respect to the obligations of ESC to the Bank arising
under the ESC Guaranty (the "ESC Security Agreement"); and
WHEREAS, the Bank is willing to consent to the consummation by
the Company of the E-Group Transaction and the ESCO Transaction on the terms and
conditions more particularly described in the Clark Memorandum and, in
connection therewith, is willing to release its lien on the E-Group Assets and
to release the GIL Guaranty, the ESC Guaranty and the ESC Security Agreement,
subject, however, to the terms and conditions of this Seventh Amendment; and
WHEREAS, the Company and the Bank desire (i) to evidence the
consent of the Bank to the consummation by the Company of the E-Group
Transaction and the ESCO Transaction, (ii) to establish the procedures pursuant
to which the Bank will release its lien on the E-Group Assets and release the
GIL Guaranty, the ESC Guaranty and the ESC Security Agreement, and (iii) to
amend the Credit Agreement (A) to reflect the full and final repayment of the
Acquisition Term Loan to be effected from the proceeds of the E-Group
Transaction and/or the ESCO transaction, (B) to reflect that the accounts
receivable of ESC will no longer be included within the definition of Eligible
Accounts, (C) to modify certain of the representations made by the Company, (D)
to modify certain of the covenants with which the Company is to comply, and (E)
to provide for certain ancillary matters;
NOW, THEREFORE, for and in consideration of the premises hereof,
and other good and valuable consideration the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. All capitalized terms used in this Seventh Amendment shall,
unless otherwise defined herein or unless the context otherwise requires, have
the meanings given thereto in the Credit Agreement.
2. The Bank hereby consents to the Company's consummation of the
E-Group Transaction and the ESCO Transaction and waives any Event of Default
which might heretofore have occurred as a result thereof; provided, however,
that such consent and waiver shall not extend to, nor shall the same be
construed as extending to, any event, condition or occurrence arising out of or
resulting from the consummation of either or both of the E-Group Transaction
and the ESCO Transaction which would cause a violation of any representation,
warranty or covenant set forth in the Credit Agreement, except to the extent
that any such
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<PAGE> 3
event, condition or occurrence is specifically addressed in, and rendered
permissible by, a modification to the Credit Agreement effected by this Seventh
Amendment. The consent herein given is specific to the Company's consummation
of the E-Group Transaction and the ESCO Transaction and is not intended to be,
nor shall the same be construed as, a consent to any other action (whether or
not similar to either or both of the E-Group Transaction and the ESCO
Transaction) the taking of which by the Company is not otherwise authorized or
permitted under the terms and conditions of the Credit Agreement as amended by
this Seventh Amendment.
3. Subsection 1.01(b) of the Credit Agreement is amended to read as
follows:
(b) Notice of Revolver Borrowing. The Company shall request the
Bank to make each Revolving Loan by an irrevocable notice to the Bank
(a "Notice of Revolver Borrowing") which specifies:
(i) Whether the requested Revolving Loan is to be (A) a loan
which bears interest as provided in Subsection 1.01(c)(i) hereof
(individually a "Reference Rate Revolving Loan" and collectively
the "Reference Rate Revolving Loans"), or (B) a loan which bears
interest as provided in Subsection 1.01(c)(ii) hereof (individually
a "LIBOR Revolving Loan" and collectively the "LIBOR Revolving
Loans");
(ii) The amount of the requested Revolving Loan, which shall
be Twenty-five Thousand Dollars ($25,000.00) or an integral
multiple thereof;
(iii) The date of the requested Revolving Loan, which shall
be a Banking Day; and
(iv) If the requested Revolving Loan is to be a LIBOR
Revolving Loan, the initial Interest Period selected by the Company
for such loan in accordance with Subsection 1.01(e)(i) hereof.
The Company shall give each Notice of Revolver Borrowing to the
Bank (x) in the case of a LIBOR Revolving Loan, not later than the
third (3rd) Banking Day prior to the date of such loan, or (y) in
the case of a Reference Rate Revolving Loan, not later than the
date of such loan, and shall do so by telephone, telex or telecopy
to the Bank's San Diego Regional Office, located at the address
shown in Subsection 8.01(a) hereof, during the hours specified in
Subsection 8.01(b) hereof. The Company shall immediately confirm
each Notice of Revolver Borrowing in a writing to the Bank in the
form appended hereto as Exhibit A.
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<PAGE> 4
4. Subsection 1.01(h) of the Credit Agreement is amended to read as
follows:
(h) Commitment Fee. From the date hereof until the Revolver
Termination Date, the Company shall pay to the Bank a commitment fee of
one-eighth of one percent (1/8 of 1%) per annum on the average daily
undisbursed amount of the Revolving Loan Commitment during each
calendar quarter or portion thereof (the "Commitment Fee"). The
Commitment Fee shall be payable quarterly in arrears on the last day in
each March, June, September and December (commencing December 31,
1992), and at maturity (whether by acceleration or otherwise). For
purposes of computing the Commitment Fee, the Revolving Loan Commitment
shall be deemed to be Ten Million Dollars ($10,000,000.00),
irrespective of whether a shortfall in Eligible Accounts otherwise
limits the aggregate principal amount of Revolving Loans available to
the Company at any given time.
5. Subsection 1.01(i) of the Credit Agreement is amended to read as
follows:
(i) Purpose. Revolving Loans shall be used only for the general
working capital purposes of the Company.
6. Section 1.01 of the Credit Agreement is amended by deleting
therefrom Subsection 1.01(g).
7. Subsection 1.03(a) of the Credit Agreement is amended to read as
follows:
(a) Facility Account. The obligation of the Company to repay the
Revolving Loans and to pay interest thereon as herein provided shall be
evidenced by an account or accounts maintained by the Bank on its books
(collectively, the "Facility Account"). The Company hereby authorizes
the Bank to record in the Facility Account:
(i) The principal amount and the date of each Revolving Loan;
(ii) The interest rates applicable to each Revolving Loan and
the effective dates of all changes in such rates;
(iii) The date and amount of each payment of principal,
interest or other expenses made by or on behalf of the Company with
respect to each Revolving Loan; and
(iv) Such other matters as the Bank shall deem necessary or
desirable for the computation of amounts
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<PAGE> 5
required to be paid by the Company under this Agreement or the
other Facility Documents.
The Company agrees that all notations made by the Bank in the Facility
Account shall constitute prima facie evidence of the matters noted.
8. Subsection 1.03(b)(i) of the Credit Agreement is amended to
read as follows:
(i) Except as otherwise provided in Subsection 1.01(e)(i) hereof
with respect to a LIBOR Revolving Loan, whenever any payment due
hereunder (whether pursuant to the provisions of Section 1.01 hereof
or otherwise) shall fall due on a day other than a Banking Day, such
payment shall be made on the next succeeding Banking Day, and such
extension of time shall be included in the computation of interest or
fees, as the case may be.
9. The first sentence of Subsection 1.03(c) of the Credit
Agreement is amended to read as follows:
All amounts due or to become due hereunder are secured and/or
supported, as the case may be, by (i) four (4) Security Agreements
(Chattel Mortgage), each dated November 25, 1992, and each executed by
the Company, (ii) a Continuing Guaranty, dated November 30, 1994,
executed by Valor Electronics, Inc. ("Valor"), which Continuing
Guaranty is in turn secured by a Security Agreement (Chattel Mortgage),
dated October 6, 1992, executed by Valor, (iii) a Continuing Guaranty,
dated January 16, 1995, executed by Promptus, which Continuing Guaranty
is in turn secured by a Security Agreement (Chattel Mortgage), dated
November 16, 1994, executed by Promptus, and (iv) three (3) Security
Agreements -- Pledge, each dated November 30, 1994, and each executed
by the Company.
10. Subsection 1.03(d) of the Credit Agreement is amended by
deleting therefrom the phrase "and the Acquisition Term Loan" where it appears
in the second and third lines of such subsection.
11. Section 1.03 of the Credit Agreement is amended by deleting
therefrom Subsection 1.03(e).
12. Section I of the Credit Agreement is amended by deleting
therefrom Section 1.02.
13. Section 2.01 of the Credit Agreement is amended to read as
follows:
2.01. Conditions Precedent to the Utilization of the Facilities. The
obligation of the Bank to make any extensions of credit pursuant to the
Facilities is subject to
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<PAGE> 6
the receipt by the Bank, on or prior to the date the first of such
Facilities is proposed to be used, of the following, each in form and
substance satisfactory to the Bank and its counsel:
(a) A certificate of the Company's secretary or an assistant
secretary, dated prior to the date of the Seventh Amendment, certifying
the following documents, copies of which shall be attached to or
incorporated in such certificate: (i) resolutions, adopted by the
Company's Board of Directors and continuing in effect, which authorize
the execution, delivery and performance by the Company of this
Agreement and the other Facility Documents, and (ii) all other
documents evidencing additional corporate action and governmental or
other approvals, if any, necessary for the execution, delivery and
performance by the Company of this Agreement and the other Facility
Documents;
(b) A certificate of the Company's secretary or an assistant
secretary, dated prior to the date of the Seventh Amendment, certifying
the incumbency and signatures of the officers of the Company authorized
to execute, deliver and perform this Agreement and the other Facility
Documents on behalf of the Company;
(c) A copy of the audited Financial Statement of the Company for
the fiscal year ended December 31, 1994, prepared by independent
certified public accountants selected by the Company and acceptable to
the Bank, together with the unqualified opinion of such accountants;
(d) A copy of the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1995;
(e) Four (4) Security Agreements (Chattel Mortgage) and three (3)
Security Agreements -- Pledge, each on the Bank's standard form, each
dated prior to the date of the Seventh Amendment and each duly executed
by the Company, granting to the Bank a security interest in the therein
described assets of the Company as security for the Obligations of the
Company arising hereunder and under the other Facility Documents;
(f) Two (2) Continuing Guaranties, each on the Bank's standard
form, each dated prior to the date of the Seventh Amendment, one (1)
duly executed by each of Valor and Promptus;
(g) Two (2) Security Agreements (Chattel Mortgage), each on the
Bank's standard form, each dated prior to the date of the Seventh
Amendment, one (1) duly executed by each of Valor and Promptus,
granting to the Bank a security
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interest in the therein described assets of Valor or Promptus, as the
case may be, as security for the obligations of Valor or Promptus, as
the case may be, arising under such corporation's respective Continuing
Guaranty;
(h) A certificate of the secretary or an assistant secretary of
each of Valor and Promptus, each dated prior to the date of the Seventh
Amendment, certifying the following documents, copies of which shall be
attached to or incorporated in such certificate: (i) resolutions,
adopted by the Board of Directors of Valor or Promptus, as the case may
be, and continuing in effect, which authorize the execution, delivery
and performance by Valor or Promptus, as the case may be, of such
corporation's Continuing Guaranty and Security Agreement (Chattel
Mortgage), and (ii) all other documents evidencing additional corporate
action and governmental or other approvals, if any, necessary for the
execution, delivery and performance by Valor or Promptus, as the case
may be, of such corporation's Continuing Guaranty and Security
Agreement (Chattel Mortgage); together with a certificate of the
secretary or an assistant secretary of each of Valor and Promptus, each
dated prior to the date of the Seventh Amendment, certifying the
incumbency and signatures of the officers of Valor or Promptus, as the
case may be, authorized to execute, deliver and perform on behalf of
Valor or Promptus, as the case may be, such corporation's Continuing
Guaranty and Security Agreement (Chattel Mortgage);
(i) Evidence that all steps necessary in the opinion of the Bank
to perfect the security interests granted to the Bank by the Security
Agreements (Chattel Mortgage) referred to in Subsections 2.01(e) and
(g) hereof, and by the Security Agreements -- Pledge referred to in
Subsection 2.01(e) hereof, as first priority security interests in the
assets described therein have been duly taken (including the filing of
all appropriate UCC-1 Financing Statements); and
(j) Such other evidence as the Bank may reasonably request to
establish the accuracy and completeness of the representations and
warranties and the compliance with the terms and conditions contained
in this Agreement and the other Facility Documents.
14. Section 2.02 of the Credit Agreement is amended to read as
follows:
2.02. Conditions Precedent to the Making of Each Revolving Loan. The
obligation of the Bank to make each Revolving Loan shall be subject to
the conditions precedent set forth in Section 2.01 hereof and shall be
subject to the following further conditions precedent:
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<PAGE> 8
(a) The Company shall have given the Bank a Notice of Revolver
Borrowing;
(b) The Company shall have delivered to the Bank statements in
form and detail satisfactory to the Bank showing the aging and
adjustment of the accounts receivable of the Company, Valor and
Promptus (and collections thereon) as at the end of the calendar month
most recently ended (or as at the end of the next preceding calendar
month if the requested Revolving Loan is to be made during the first
fifteen (15) days of a calendar month); and
(c) On the date such Revolving Loan is to be made, the following
shall be true and correct:
(i) The representations and warranties set forth in Section
3.01 hereof are true and correct; provided, however, that the
representations and warranties set forth in Subsection 3.01(g)
hereof shall be deemed to be made with respect to the Company's
most recent Financial Statement, Quarterly Report on Form 10-Q or
Annual Report on Form 10-K delivered to the Bank;
(ii) No Event of Default or Unmatured Event of Default shall
have occurred and be continuing; and
(iii) Each of the Facility Documents remains in full force and
effect.
The submission by the Company to the Bank of each Notice of Revolver
Borrowing shall be deemed to be a representation and warranty by the
Company as of the date of each such notice as to the matters set forth
in this Subsection 2.02(c).
15. Section II of the Credit Agreement is amended by deleting
therefrom Section 2.03.
16. Subsection 3.01(b) of the Credit Agreement is amended to read as
follows:
(b) Authority. The execution, delivery and performance by the
Company of this Agreement and the other Facility Documents, and the
execution, delivery and performance by Valor and Promptus, as the case
may be, of such corporation's Continuing Guaranty and Security
Agreement (Chattel Mortgage), are within the corporate power of the
Company, Valor or Promptus, as the case may be, have been duly
authorized by all necessary corporate action, do not require any
registration with, consent or approval of, license or permit from, or
notice to any Person, do not contravene any law, rule or regulation,
any order, writ, decree or judgment of any Person, or the constitutive
documents of the Company,
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Valor or Promptus, as the case may be, do not violate or constitute a
default under any mortgage, indenture, lease, contract or other
agreement or instrument binding upon the Company, Valor, Promptus or
any other Subsidiary, and will not result in or require the creation of
any lien on the property, assets or revenue of the Company, Valor,
Promptus or any other Subsidiary (except such liens as may be created
in favor of the Bank pursuant to this Agreement and the other Facility
Documents).
17. Subsection 3.01(c) of the Credit Agreement is amended to read as
follows:
(c) Enforceability. This Agreement and the other Facility
Documents constitute legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their
terms, and the Continuing Guaranties and Security Agreements (Chattel
Mortgage) of Valor and Promptus constitute legal, valid and binding
obligations of Valor or Promptus, as the case may be, enforceable
against it in accordance with their terms, except, in each case, as
limited by bankruptcy, insolvency or other laws of general application
relating to or affecting the enforcement of creditors' rights and
general principles of equity.
18. Subsection 3.01(h) of the Credit Agreement is amended by deleting
therefrom the phrase "the Sixth Amendment" where it appears in the third line
of such subsection and by substituting in lieu thereof the phrase "the Seventh
Amendment".
19. Subsection 4.01(a)(ix) of the Credit Agreement is amended to read
as follows:
(ix) Not later than the fifteenth (15th) day after the end of
each calendar month, but only if Revolving Loans are then outstanding
under the Revolving Loan Facility, statements in form and detail
satisfactory to the Bank showing the aging and adjustment of the
accounts receivable of the Company, Valor and Promptus (and collections
thereon) as at the end of such calendar month;
20. Subsection 4.01(a)(xiv) of the Credit Agreement is amended to
read as follows:
(xiv) Prompt notice of any change in the location at which any
inventory of the Company, Valor or Promptus is or will be kept, other
than for temporary processing, temporary storage or similar purposes,
or at which records relating to the accounts receivable of the Company,
Valor or Promptus are or will be kept; and
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21. Subsection 4.01(f) of the Credit Agreement is amended to read as
follows:
(f) Use of Proceeds. The Company will use the Facilities and the
proceeds of the Revolving Loans only for the purposes, and in the
manner, specifically set forth in Subsection 1.01(i) hereof. No part
of the proceeds of the Facilities hereunder will be used, directly or
indirectly, for the purpose of purchasing or carrying any Margin Stock
or for the purpose of purchasing or carrying or trading in any
securities under such circumstances as to involve the Company or the
Bank in a violation of Regulations G, T, U or X issued by the Board of
Governors of the Federal Reserve System.
22. Subsection 4.02(e) of the Credit Agreement is amended to read as
follows:
(e) Unsecured Indebtedness, Investments, Advances and Guaranties.
The Company will not, and will not permit any Subsidiary to, incur any
unsecured Indebtedness, advance funds to (whether by way of loan, stock
purchase, capital contribution, or otherwise) or incur any Indebtedness
with respect to the obligations of, any Person, or acquire by purchase
of stock or by purchase of assets, in exchange for cash or shares of
capital stock or other securities of the Company or any other Person,
all or any substantial division or portion of the assets and business
of any other Person; provided, however, that (i) the Company may (A)
acquire a controlling interest in Promptus pursuant to the terms and
conditions of the Merger Agreement and that certain Management Shares
Agreement, dated October 15, 1994, by and among the Company, Promptus
and certain former shareholders or Promptus, (B) finance not more than
Five Hundred Thousand Dollars ($500,000.00) of the consideration to be
paid by the purchaser in connection with the E-Group Transaction, and
(C) finance not more than Eight Hundred Thousand Dollars ($800,000.00)
of the consideration to be paid by the purchaser in connection with the
ESCO Transaction, and (ii) the Company and its Subsidiaries may (A)
make advances to each other for general working capital purposes, (B)
make advances to finance sales in the ordinary course of business, (C)
incur trade debt in the ordinary course of business, and (D) purchase
certificates of deposit from banks with deposits in excess of Five
Hundred Million Dollars ($500,000,000.00), securities issued by the
United States government and commercial paper rated A-1 by Standard &
Poors or Prime-1 by Moody's.
23. Subsection 4.02(f) of the Credit Agreement is amended to read as
follows:
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(f) Change of Name, etc. The Company will not, and will not
permit any Subsidiary to, change its name. Additionally, the Company
(i) will not, and will not permit Valor to, establish its chief
executive office or keep its records relating to Collateral at any
location outside the State of California, and (ii) will not permit
Promptus to establish its chief executive office or keep its records
relating to Collateral at any location outside the States of California
or Rhode Island.
24. Section 5.01 of the Credit Agreement is amended to read as
follows:
5.01. Unavailability of LIBOR Funding or Inability to Determine Rates.
If, on or before the first day of any Interest Period for a LIBOR
Revolving Loan, the Bank determines that (a) deposits in the amount of
such loan for such Interest Period are not available to the Bank in the
offshore interbank market(s) from which the Bank is then funding loans
which bear interest computed with respect to the LIBO Rate, or (b) the
LIBO Rate for such Interest Period cannot be adequately and reasonably
determined due to circumstances affecting such offshore interbank
markets, which determination by the Bank shall be conclusive and
binding upon the Company, the Bank shall immediately give notice
thereof to the Company. After the giving of any such notice and until
the Bank shall otherwise notify the Company that the circumstances
giving rise to such condition no longer exist, the Company's right to
request the making of or conversion to, and the Bank's obligation to
make or convert to, a LIBOR Revolving Loan shall be suspended. Any
LIBOR Revolving Loan outstanding at the commencement of any such
suspension shall be converted, at the end of the then current Interest
Period for such loan, to a Reference Rate Revolving Loan, unless such
suspension has then ended.
25. Section 5.03 of the Credit Agreement is amended to read as
follows:
5.03. Increased Costs. If, after the date of this Agreement, any
Change of Law:
(a) Shall subject the Bank to any tax, duty or other charge with
respect to a LIBOR Revolving Loan or the Bank's obligation to make such
a loan, or shall change the basis of taxation of payments by the
Company to the Bank on or in respect to such a loan under this
Agreement (except for changes in the rate of taxation on the overall
net income of the Bank); or
(b) Shall impose, modify or hold applicable any reserve, special
deposit or similar requirement against assets held by, deposits or
other liabilities in or for the
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<PAGE> 12
account of, advances or loans by, or any other acquisition of funds by
the Bank for a LIBOR Revolving Loan (except for any reserve, special
deposit or other requirement included in the determination of the LIBO
Rate); or
(c) Shall impose on the Bank any other condition directly related
to any LIBOR Revolving Loan;
and the effect of any of the foregoing is to increase the cost to the
Bank of making, renewing or maintaining a LIBOR Revolving Loan beyond
any adjustment made by the Bank in determining the applicable interest
rate for such loan, or to reduce any amount receivable by the Bank
hereunder, then the Company shall from time to time, upon demand by the
Bank, pay to the Bank additional amounts sufficient to reimburse the
Bank for such increased costs or to compensate the Bank for such
reduced amounts. A certificate as to the amount of such increased
costs or reduced amounts, submitted to the Company by the Bank, shall,
in the absence of manifest error, be conclusive and binding on the
Company for all purposes.
26. Section 6.02 of the Credit Agreement is amended by deleting
therefrom the phrase "or the Acquisition Term Loan" where it appears in the
seventh line of such section.
27. Section 6.03 of the Credit Agreement is amended by deleting
therefrom the phrase "or the Acquisition Term Loan" where it appears in the
third line of such section.
28. The definition of "Acquisition Term Loan" set forth in Section
7.01 of the Credit Agreement is amended to read as follows:
"Acquisition Term Loan" shall mean the term loan in the original
principal amount of Five Million Dollars ($5,000,000.00) made by the
Bank to the Company in connection with the Promptus Acquisition.
29. The definition of "Collateral" set forth in Section 7.01 of the
Credit Agreement is amended to read as follows:
"Collateral" shall mean all personal property of the Company, Valor or
Promptus which is now or hereafter assigned to the Bank as security or
in which the Bank now has or hereafter acquires a security interest.
30. The definition of "Eligible Accounts" set forth in Section 7.01
of the Credit Agreement is amended by deleting therefrom the phrase "accounts
receivable of the Company, Valor, ESC and Promptus" where it appears in the
first and second lines of such definition and by substituting in lieu thereof
the phrase "accounts receivable of the Company, Valor and Promptus".
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<PAGE> 13
31. The definition of "ESC" set forth in Section 7.01 of the Credit
Agreement is amended to read as follows:
"ESC" shall have the meaning given to that term in the third recital to
the Seventh Amendment.
32. The definition of "Facilities" set forth in Section 7.01 of the
Credit Agreement is amended to read as follows:
"Facilities" shall mean the Revolving Loan Facility.
33. The definition of "GIL" set forth in Section 7.01 of the Credit
Agreement is amended to read as follows:
"GIL" shall have the meaning given to that term in the second recital
to the Seventh Amendment.
34. The definition of "Guaranty" set forth in Section 7.01 of the
Credit Agreement is amended by deleting therefrom the phrase "Subsections
1.03(c)(ii), (iii), (iv) and (v)" where it appears in the second line of such
definition and by substituting in lieu thereof the phrase "Subsections
1.03(c)(ii) and (iii)".
35. The definition of "Interest Period" set forth in Section 7.01 of
the Credit Agreement is amended to read as follows:
"Interest Period" shall mean, with respect to a LIBOR Revolving Loan,
the time period selected by the Company pursuant to Subsection
1.01(b)(iv) or 1.01(d)(iii) hereof which commences on the first day of
such loan and ends on the last day of such time period and, thereafter,
each subsequent time period selected by the Company pursuant to
Subsection 1.01(e)(ii) hereof which commences on the last day of the
immediately preceding time period and ends on the last day of that time
period.
36. The definition of "Yield Rate" set forth in Section 7.01 of the
Credit Agreement is amended to read as follows:
"Yield Rate" shall mean, as of any date for a LIBOR Revolving Loan
being prepaid (in whole or in part) on such date, the per annum rate at
which the Bank could, on or about such date, purchase marketable
securities issued by the United States Treasury in an amount comparable
to the amount of principal of such LIBOR Revolving Loan so being
prepaid and for a term comparable to the remainder of the then current
Interest Period for such LIBOR Revolving Loan. The Bank's determination
of such per annum rate shall be conclusive in the absence of manifest
error, whether or not such securities are actually purchased by the
Bank.
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<PAGE> 14
37. Section 7.01 of the Credit Agreement is amended by deleting
therefrom the definitions of "Acquisition Term Loan Facility Fee", "CD Rate",
"Initial Term Loan", "Instalment Note", "Notice of Acquisition Term Loan
Borrowing", "Revolving Loan Facility Renewal Fee", "Straight Note" and "Term
Loan Facility".
38. Section 7.01 of the Credit Agreement is further amended by the
addition thereto of the following definitions in proper alphabetic order:
"Clark Memorandum" shall have the meaning given to that term in the
second recital to the Seventh Amendment.
"E-Group Assets" shall have the meaning given to that term in the
second recital to the Seventh Amendment.
"E-Group Transaction" shall have the meaning given to that term in the
second recital to the Seventh Amendment.
"ESC Guaranty" shall have the meaning given to that term in the
third recital to the Seventh Amendment.
"ESC Security Agreement" shall have the meaning given to that term in
the third recital to the Seventh Amendment.
"ESCO" shall have the meaning given to that term in the third recital
to the Seventh Amendment.
"ESCO Transaction" shall have the meaning given to that term in the
third recital to the Seventh Amendment.
"GIL Guaranty" shall have the meaning given to that term in the
second recital to the Seventh Amendment.
"Seventh Amendment" shall mean that certain Seventh Amendment to Credit
Agreement and Note, dated as of December 19, 1995, by and between the
Company and the Bank.
"Seventh Amendment Effective Date" shall mean the date on which the
Seventh Amendment becomes effective as provided in Paragraph 42
thereof.
39. The first sentence of Subsection 8.01(b) of the Credit Agreement
is amended to read as follows:
Each Notice of Revolver Borrowing, Notice of Revolver Conversion and
Notice of Revolver Interest Period Selection shall be given by the
Company to the Bank's San Diego Regional Office, located at the address
referred to in Subsection 8.01(a) hereof, between 8:30 a.m. and 3:00
p.m., California time, on a Banking Day.
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<PAGE> 15
40. The Credit Agreement is amended by deleting therefrom Exhibits A
and C and by substituting in lieu thereof new Exhibits A and C in the forms
appended to this Seventh Amendment as Exhibits I and II, respectively.
41. The Credit Agreement is further amended by deleting therefrom
Exhibit B.
42. This Seventh Amendment shall become effective on the date on which
both of the following conditions have been met; provided, however, that this
Seventh Amendment shall not become effective, and the Credit Agreement as
amended through the Sixth Amendment thereto shall continue in full force and
effect, if both of such conditions have not been met on or prior to 3:00 p.m.,
California time, on Wednesday, January 3, 1996 (or such later date to which the
Bank may consent in writing):
(a) The Bank shall have received each of the following:
(i) This Seventh Amendment, duly executed by the Company;
(ii) Two (2) written consents to entry by the Company into
this Seventh Amendment, each in form and substance satisfactory to
the Bank and its counsel, one (1) duly executed by each of Valor
and Promptus; and
(iii) Copies of the fully executed agreements pursuant to
which the E-Group Transaction and the ESCO Transaction are to be
effected, together with all exhibits and schedules to such
agreements; and
(b) Either the E-Group Transaction or the ESCO Transaction shall
have closed and, in connection therewith, the Bank shall have received,
by wire transfer of immediately available funds, proceeds of such
transaction in an amount not less than Eleven Million Five Hundred
Thousand Dollars ($11,500,000.00) in the case of the E-Group
Transaction or Four Million Two Hundred Thousand Dollars
($4,200,000.00) in the case of the ESCO Transaction.
43. By its execution of this Seventh Amendment, the Company
irrevocably authorizes the Bank to apply to the repayment of the Acquisition
Term Loan and to the prepayment of the Revolving Loans such portion of the
proceeds received by the Bank in connection with the closing of the E-Group
Transaction or the ESCO Transaction, whichever is the first to occur, as may be
necessary to repay in full the unpaid principal amount of, and all accrued but
unpaid interest on, the Acquisition Term Loan, and to prepay the Revolving Loans
by such extent as may be required so that the principal amount of the
Obligations outstanding under the Revolving Loan Facility after the making of
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<PAGE> 16
such prepayment does not exceed the amount of the Revolving Loan Commitment
which would have been in effect had the most recent accounts receivable aging
and adjustment statement delivered by the Company to the Bank pursuant to
Subsection 4.01(a)(ix) of the Agreement been adjusted to subtract therefrom
either the Eligible Accounts of the Company to be sold in connection with the
E-Group Transaction if the E-Group Transaction shall be the first to close or
the Eligible Accounts of ESC if the ESCO Transaction shall be the first to
close, and to credit any remaining portion of such proceeds to account no.
4000132123 maintained by the Company at the Bank's San Diego Regional Office.
If such proceeds shall be insufficient to make such repayment and prepayment,
the Company shall pay to the Bank the amount of such shortfall within five (5)
Banking Days following the Bank's written demand therefor.
44. By its execution of this Seventh Amendment, the Company also
irrevocably authorizes the Bank to apply to the prepayment of the Revolving
Loans such portion of the proceeds received by the Bank in connection with the
closing of the E-Group Transaction or the ESCO Transaction, whichever is the
second to occur, as may be necessary to prepay the Revolving Loans by such
further extent as may be required so that the principal amount of the
Obligations outstanding under the Revolving Loan Facility after the making of
such prepayment does not exceed the amount of the Revolving Loan Commitment
which would have been in effect had the most recent accounts receivable aging
and adjustment statement delivered by the Company to the Bank pursuant to
Subsection 4.01(a)(ix) of the Agreement been adjusted to subtract therefrom both
the Eligible Accounts of the Company to be sold in connection with the E-Group
Transaction and the Eligible Accounts of ESC, and to credit any remaining
portion of such proceeds to account no. 4000132123 maintained by the Company at
the Bank's San Diego Regional Office. If such proceeds shall be insufficient to
make such prepayment, the Company shall pay to the Bank the amount of such
shortfall within five (5) Banking Days following the Bank's written demand
therefor.
45. In order to facilitate the closing of the E-Group Transaction, the
Bank shall, as promptly as practicable following its receipt of the documents
more particularly described in Subparagraphs 42(a)(i), (ii) and (iii) hereof,
deliver to an escrow agent acceptable to each of the Bank, the Company and
Component Intertechnologies, Inc. (a) a letter on the Bank's letterhead
evidencing the Bank's consent to the E-Group Transaction, the release of the
Bank's lien on the E-Group Assets and the release of the GIL Guaranty, (b) the
original GIL Guaranty, and (c) an instruction letter authorizing such escrow
agent either (i) to deliver the letter referred to in clause (a) above to the
Company, and to deliver the original guaranty referred to in clause (b) above to
GIL, upon such escrow agent's receipt of facsimile confirmation from the Bank
that the Bank has
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<PAGE> 17
received proceeds of the E-Group Transaction in an amount not less than Eleven
Million Five Hundred Thousand Dollars ($11,500,000.00), or (ii) to return such
letter and original guaranty to the Bank by courier if the escrow agent has not
received the Bank's facsimile confirmation by 3:00 p.m., California time, on
Wednesday, January 3, 1996 (or such later date to which the Bank may consent in
writing). In connection with the foregoing, the Bank hereby agrees that it
will transmit facsimile confirmation that it has received proceeds of the
E-Group Transaction in the required amount as promptly as practicable following
its receipt of such proceeds.
46. In order to facilitate the closing of the ESCO Transaction, the
Bank shall, as promptly as practicable following its receipt of the documents
more particularly described in Subparagraphs 42(a)(i), (ii) and (iii) hereof,
deliver to an escrow agent acceptable to each of the Bank, the Company and
Insulectro (a) a letter on the Bank's letterhead evidencing the Bank's consent
to the ESCO Transaction, the release of the ESC Guaranty and the release of the
ESC Security Agreement, (b) the original ESC Guaranty and the original ESC
Security Agreement, (c) a duly executed UCC-2 Financing Statement Change Form
evidencing the release of the lien created by the ESC Security Agreement, and
(d) an instruction letter authorizing such escrow agent either (i) to deliver
the letter, original guaranty, original security agreement and financing
statement change form referred to in clauses (a), (b) and (c) above to ESC upon
such escrow agent's receipt of facsimile confirmation from the Bank that the
Bank has received proceeds of the ESCO Transaction in an amount not less than
Four Million Two Hundred Thousand Dollars ($4,200,000.00), or (ii) to return
such letter and original guaranty to the Bank by courier if the escrow agent
has not received the Bank's facsimile confirmation by 3:00 p.m., California
time, on Wednesday, January 3, 1996 (or such later date to which the Bank may
consent in writing). In connection with the foregoing, the Bank hereby agrees
that it will transmit facsimile confirmation that it has received proceeds of
the ESCO Transaction in the required amount as promptly as practicable
following its receipt of such proceeds.
47. If the E-Group Transaction shall close but the ESCO Transaction
shall not close within the time periods referred to in Paragraphs 45 and 46
hereof, the Bank and the Company shall, upon the written request of the
Company, enter into an eighth amendment to the Agreement, which eighth
amendment shall restore to the terms and conditions of the Agreement those
provisions relating to the ESC Guaranty, the ESC Security Agreement and the
inclusion of the accounts receivable of ESC within the definition of Eligible
Accounts which were deleted from the Agreement by this Seventh Amendment. If
the ESCO Transaction shall close but the E-Group Transaction shall not close
within the time periods referred to in Paragraphs 45 and 46 hereof, the Bank
and the
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<PAGE> 18
Company shall, upon the written request of the Bank, enter into an eighth
amendment to the Agreement, which eighth amendment shall restore to the terms
and conditions of the Agreement those provisions relating to the GIL Guaranty
which were deleted from the Agreement by this Seventh Amendment.
48. Except as expressly provided herein, the Credit Agreement is
unchanged and remains in full force and effect.
49. This Seventh Amendment shall be governed by and construed in
accordance with the laws of the State of California.
50. This Seventh Amendment may be executed in any number of
counterparts, any set of which signed by both parties hereto shall be deemed to
constitute a complete, executed original for all purposes.
IN WITNESS WHEREOF, the Company and the Bank have caused this Seventh
Amendment to be executed as of the day and year first above written.
UNION BANK GTI CORPORATION
By: /s/ Richard A. Petrie By: /s/ Douglas J. Downs
------------------------- ------------------------
Title: Vice President Title: Vice President and
Chief Financial Officer
By: /s/ M.E. Conboy By:
------------------------- ------------------------
Title: Vice President Title:
---------------------
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<PAGE> 1
EXHIBIT 10.57
CONSENT AND EIGHTH AMENDMENT TO CREDIT AGREEMENT AND NOTE
THIS CONSENT AND EIGHTH AMENDMENT TO CREDIT AGREEMENT AND NOTE
("Eighth Amendment"), made and entered into as of the 15th day of February,
1996, by and between GTI Corporation, a Delaware corporation ("Company"), and
UNION BANK, a California banking corporation ("Bank"),
W I T N E S S E T H:
WHEREAS, on December 17, 1992, the Company and the Bank entered into a
certain Credit Agreement and Note (as amended by those certain First, Second,
Third, Fourth, Fifth, Sixth and Seventh Amendments to Credit Agreement and
Note, dated as of May 7, 1993, July 14, 1993, March 24, 1994, June 24, 1994,
November 30, 1994, June 29, 1995 and December 19, 1995, respectively, the
"Credit Agreement") pursuant to which the Bank agreed to extend to the Company
and the Company agreed to accept from the Bank certain credit facilities more
particularly described therein; and
WHEREAS, the Company has (i) advised the Bank that the ESCO
Transaction has been restructured in the manner more particularly described in
that certain Stock Purchase Agreement (the "ESCO Stock Purchase Agreement"),
dated as of January 31, 1996, by and among QI Electronics, Insulectro, the
Company, ESCO and ESC (the "Restructured ESCO Transaction"), and (ii) requested
that the Bank consent to the consummation of the Restructured ESCO Transaction
and release the ESC Guaranty and the ESC Security Agreement; and
WHEREAS, the Bank is willing to consent to the consummation by the
Company of the Restructured ESCO Transaction on the terms and conditions more
particularly described in the ESCO Stock Purchase Agreement and, in connection
therewith, is willing to release the ESC Guaranty and the ESC Security
Agreement, subject, however, to the terms and conditions of this Eighth
Amendment; and
WHEREAS the Company and the Bank desire (i) to evidence the consent of
the Bank to the consummation by the Company of the Restructured ESCO
Transaction, (ii) to establish the conditions pursuant to which the Bank will
release the ESC Guaranty and the ESC Security Agreement, and (iii) to amend the
Credit Agreement to modify certain of the covenants with which the Company is
to comply and to provide for certain ancillary matters;
NOW, THEREFORE, for and in consideration of the premises hereof, and
other good and valuable consideration the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
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<PAGE> 2
1. All capitalized terms used in this Eighth Amendment shall, unless
otherwise defined herein or unless the context otherwise requires, have the
meanings given thereto in the Credit Agreement.
2. The Bank hereby consents to the Company's consummation of the
Restructured ESCO Transaction and waives any Event of Default which might
heretofore have occurred as a result thereof; provided, however, that such
consent and waiver shall not extend to, nor shall the same be construed as
extending to, any event, condition or occurrence arising out of or resulting
from the consummation of the Restructured ESCO Transaction which would cause a
violation of any representation, warranty or covenant set forth in the Credit
Agreement, except to the extent that any such event, condition or occurrence is
specifically addressed in, and rendered permissible by, a modification to the
Credit Agreement effected by this Eighth Amendment. The consent herein given is
specific to the Company's consummation of the Restructured ESCO Transaction and
is not intended to be, nor shall the same be construed as, a consent to any
other action (whether or not similar to the Restructured ESCO Transaction) the
taking of which by the Company is not otherwise authorized or permitted under
the terms and conditions of the Credit Agreement as amended by this Eighth
Amendment.
3. Subsection 4.02(e) of the Credit Agreement is amended to read as
follows:
(e) Unsecured Indebtedness, Investments, Advances and Guaranties.
The Company will not, and will not permit any Subsidiary to, incur any
unsecured Indebtedness, advance funds to (whether by way of loan, stock
purchase, capital contribution, or otherwise) or incur any Indebtedness
with respect to the obligations of, any Person, or acquire by purchase
of stock or by purchase of assets, in exchange for cash or shares of
capital stock or other securities of the Company or any other Person,
all or any substantial division or portion of the assets and business
of any other Person; provided, however, that (i) the Company may (A)
acquire a controlling interest in Promptus pursuant to the terms and
conditions of the Merger Agreement and that certain Management Shares
Agreement, dated October 15, 1994, by and among the Company, Promptus
and certain former shareholders of Promptus, (B) finance not more than
Five Hundred Thousand Dollars ($500,000.00) of the consideration to be
paid by the purchaser in connection with the E-Group Transaction, and
(C) finance not more than One Million Nine Hundred Thousand Dollars
($1,900,000.00) of the consideration to be paid by the purchaser in
connection with the Restructured ESCO Transaction, and (ii) the Company
and its Subsidiaries may (A) make advances to each other for general
working capital purposes, (B) make advances to finance sales in the
ordinary
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<PAGE> 3
course of business, (C) incur trade debt in the ordinary course of
business, and (D) purchase certificates of deposit from banks with
deposits in excess of Five Hundred Million Dollars ($500,000,000.00),
securities issued by the United States government and commercial paper
rated A-1 by Standard & Poors or Prime-1 by Moody's.
4. Subsection 4.02(j) of the Credit Agreement is amended to read as
follows:
(j) Net Income. Except for the fiscal quarter of the Company
ended December 31, 1995, for which the Company may sustain a
consolidated before tax net loss not to exceed Three Million Two
Hundred Thousand Dollars ($3,200,000.00), the Company will not permit
its consolidated net income before taxes for any fiscal quarter of the
Company to be less than One Dollar ($1.00).
5. Subsection 4.02(k) of the Credit Agreement is amended to read as
follows:
(k) Current Ratio. The Company will not permit the ratio of its
consolidated current assets (exclusive of the current portion of
amounts owed to the Company or to any Subsidiary of the Company under
the Insulectro Note) to its consolidated current liabilities to be less
than 1.25:1.00 as at the end of any fiscal quarter of the Company.
6. The definition of "Tangible Net Worth" set forth in Section 7.01 of
the Credit Agreement is amended to read as follows:
"Tangible Net Worth" shall mean, with respect to any given Person, the
difference between (i) the gross book value of the assets of such
Person, and (ii) the sum of (A) the amount of all intangibles such as
goodwill, patents, trademarks, organization expense, unamortized debt
discount and expense and deferred charges, (B) the amount of reserves
established by such Person for anticipated losses and expenses, (C) all
amounts due to such Person from officers, directors and/or shareholders
of such Person, (D) the amount of all liabilities of such Person,
including accrued but deferred income taxes, and (E) but only in the
case of the Company or a Subsidiary of the Company, all amounts owed to
the Company or to a Subsidiary of the Company under the Insulectro
Note.
7. Section 7.01 of the Credit Agreement is amended by the addition
thereto of the following definitions in proper alphabetic order:
"Eighth Amendment" shall mean that certain Eighth Amendment to Credit
Agreement and Note, dated as of February 15, 1996, by and between
the Company and the Bank.
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<PAGE> 4
"Eighth Amendment Effective Date" shall mean the date on which the Eighth
Amendment becomes effective as provided in Paragraph 8 thereof.
"ESCO Stock Purchase Agreement" shall have the meaning given to that term
in the second recital to the Eighth Amendment.
"Insulectro Note" shall mean that certain subordinated promissory note of
Insulectro in the original principal amount of One Million Nine Hundred
Thousand Dollars ($1,900,000.00) to be delivered by Insulectro to the
Company in connection with the Restructured ESCO Transaction pursuant to
Section 1.2.1(i) of the ESCO Stock Purchase Agreement, as such subordinated
promissory note may be amended, modified, supplemented or replaced from
time to time.
"Restructured ESCO Transaction" shall have the meaning given to that term
in the second recital to the Eighth Amendment.
8. This Eighth Amendment shall become effective on the date on which the
Bank shall have received the following:
(a) This Eighth Amendment, duly executed by the Company;
(b) Two (2) written consents to entry by the Company into this Eighth
Amendment, each in form and substance satisfactory to the Bank and its
counsel, one (1) duly executed by each of Valor and Promptus; and
(c) A copy of the final draft of the ESCO Stock Purchase Agreement.
In addition to the foregoing, the Company shall, as promptly as practicable
following the consummation of the Restructured ESCO Transaction, deliver to the
Bank a copy of the fully executed ESCO Stock Purchase Agreement (said fully
executed copy thereof to contain no material changes from the final draft of
such agreement delivered to the Bank pursuant to clause (c) of this
Paragraph 8), together with all exhibits and schedules to such agreement.
9. In order to facilitate the closing of the Restructured ESCO
Transaction, the Bank shall, as promptly as practicable following the Eighth
Amendment Effective Date, deliver to the Company (a) a letter on the Bank's
letterhead evidencing the Bank's consent to the Restructured ESCO Transaction,
the release of the ESC Guaranty and the release of the ESC Security Agreement,
(b) the original ESC Guaranty, (c) the original ESC Security Agreement, and (d)
a duly executed UCC-2 Financing Statement Change Form evidencing the release of
the lien created by the ESC Security Agreement. The Company hereby agrees that
it
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<PAGE> 5
shall, prior to 3:00 p.m., California time, on Friday, March 1, 1996 (or such
later date to which the Bank may consent in writing), return to the Bank such
consent letter, the original ESC Guaranty, the original ESC Security Agreement
and such UCC-2 Financing Statement Change Form if the Restructured ESCO
Transaction shall not have by then closed.
10. If the Restructured ESCO Transaction shall not close within the
time period referred to in Paragraph 9 hereof, the Bank and the Company shall,
upon the written request of the Company, enter into a ninth amendment to the
Agreement, which ninth amendment shall restore to the terms and conditions of
the Agreement those provisions relating to the ESC Guaranty, the ESC Security
Agreement and the inclusion of the accounts receivable of ESC within the
definition of Eligible Accounts which were deleted from the Agreement by the
Seventh Amendment.
11. Except as expressly provided herein, the Credit Agreement is
unchanged and remains in full force and effect.
12. This Eighth Amendment shall be governed by and construed in
accordance with the laws of the State of California.
13. This Eighth Amendment may be executed in any number of
counterparts, any set of which signed by both parties hereto shall be deemed to
constitute a complete, executed original for all purposes.
IN WITNESS WHEREOF, the Company and the Bank have caused this Eighth
Amendment to be executed as of the day and year first above written.
UNION BANK GTI CORPORATION
By: /s/ Richard A. Petrie By: /s/ Douglas J. Downs
----------------------------- -----------------------------
Title: V.P. Title: V.P. FINANCE & CFO
------------------------- --------------------------
By: /s/ Joseph Otting By:
----------------------------- -----------------------------
Title: S.V.P. Title:
------------------------- --------------------------
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<PAGE> 1
EXHIBIT 10.58
INDEMNIFICATION AGREEMENT
THIS AGREEMENT made the 10th day of May 1995 by and between
GTI Corporation, a Delaware corporation (hereinafter the "Corporation"),
Kenneth E. Maud (hereinafter "Indemnitee").
WHEREAS, Indemnitee is a member of the Board of Directors; and
WHEREAS, the Certificate of Incorporation and the By-laws of
the Corporation provide for indemnification of and advancement of expenses to
certain persons acting on behalf of the Corporation; and
WHEREAS, such Certificate of Incorporation and By-laws and the
indemnification provision of Section 145 of Title 8 of the Delaware Code
(hereinafter the "State Statute") provide that they are not exclusive of any
other rights under any agreement, and thus, contemplate that agreements may be
entered into between the Corporation and the members of its Board of Directors
or officers with respect to indemnification and advancement of expenses to such
directors and officer; and
WHEREAS, such By-laws and State Statute permit the Corporation
to purchase and maintain insurance on behalf of certain persons acting on
behalf of the Corporation against any liability asserted against and incurred
by such persons in any capacity as such; and
WHEREAS, recent developments with respect to the availability
of such insurance and the terms on which it may be procured have raised
uncertainties concerning the adequacy and reliability of the protection
afforded thereby; and
WHEREAS, in order to ameliorate such uncertainties and to
induce Indemnitee to continue to serve the Corporation, the Corporation has
determined it to be in its interest to enter into this Agreement with
Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued
service to the Corporation after the date hereof, the parties hereto, intending
to be legally bound hereby, agree as follows:
1. Authorized Representative. For the purposes of this
Agreement, the term "authorized representative" shall mean a director, officer,
employee or agent of the Corporation or of any subsidiary of the Corporation,
or a trustee, custodian, administrator, committeeman or fiduciary of any
employee benefit plan established and maintained by the Corporation or by any
1
<PAGE> 2
other corporation, partnership, joint venture, trust or other enterprise in any
of the foregoing capacities at the request of the Corporation.
2. Indemnity. The Corporation hereby agrees to hold
harmless and indemnify Indemnitee, to the fullest extent now or hereafter
permitted by law, in the event that Indemnitee was or is made is threatened to
be made a party to or a witness in any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that Indemnitee was or is an authorized representative of
the Corporation, against all expenses (including attorneys' fees and
disbursements) judgments, fines (including excise taxes and penalties) and
amounts paid in settlement actually and reasonably incurred by Indemnitee in
connection with such action, suite or proceeding.
3. Advancement of Expenses. Subject to the obligations
of Indemnitee set forth in paragraph 11 (b) hereof, upon request by Indemnitee,
the Corporation shall, within 45 days of such request, pay all expenses
(including attorneys' fees and disbursements) incurred by Indemnitee by reason
of his participation in such action, suit or proceeding referred to in
paragraph 2 in advance of the final disposition of such action, suit or
proceeding.
4. Maintenance of Insurance.
(a) The Corporation may purchase and maintain
insurance on behalf of Indemnitee against certain liabilities asserted against
and incurred by Indemnitee.
(b) The Corporation shall not be required to
maintain the insurance referred to in subparagraph 4(a) hereof if such
insurance is not available on terms satisfactory to the then existing Board of
Directors of the Corporation (hereinafter the "Board") or if, in the business
judgment of the then existing Board, either (i) the premium cost for such
insurance is substantially disproportionate to the amount of coverage, or (ii)
the coverage provided by such insurance is so limited by exclusions that there
is insufficient benefit from such insurance.
5. Liability to the Corporation or the Stockholders.
(a) Subject only to subparagraph (b) hereof, the
Corporation agrees that Indemnitee shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of any
fiduciary duty owing to the Corporation by reason of Indemnitee's position with
the Corporation.
(b) Subparagraph (a) hereof shall not operate to
eliminate the liability of Indemnitee to the extent that such elimination of
liability is expressly prohibited under the State Statute.
2
<PAGE> 3
6. Changes in the Law; Partial Indemnity.
(a) In the event of any changes, after the date of
this Agreement, in any applicable law, statute, or rule which expend the right
of the Corporation to indemnify a person serving in a capacity referred to in
paragraph 2 hereof, such change shall be within the purview of Indemnitee's
rights and the Corporation's obligations, under this Agreement. In the event
of any changes in any applicable law, statute, or rule which narrow the right
of the Corporation to indemnify a person serving in a capacity referred to in
paragraph 2 hereof, such changes, to the extent not otherwise required by such
law, statute or rule to be applied to this Agreement shall have no effect on
this Agreement or the parties' rights and obligations hereunder.
(b) The indemnification provided by this
Agreement shall not be deemed exclusive of any rights to which Indemnitee may
be entitled under the Corporation's Certificate of Incorporation, its By-laws,
any agreement, any vote of stockholders or disinterested directors, the State
Statute, or otherwise, both as to action in Indemnitee's official capacity and
as to action in another capacity while holding such office.
(c) If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Corporation for some or a portion
of the expenses, judgments, fines or penalties actually or reasonably incurred
by Indemnitee in the preparation, investigation, defense, appeal or settlement
of any civil or criminal action, suit or proceeding, but not, however, for the
total amount thereof, the Corporation shall nevertheless indemnify Indemnitee
for the portion of such expenses, judgments, fines or penalties to which
Indemnitee is entitled.
7. Contribution. If the indemnification provided in
paragraph 2 is unavailable and may not be paid to Indemnitee because such
indemnification is not permitted by law, then in respect to any threatened,
pending or completed action, suit or proceeding in which the Corporation is
jointly liable with Indemnitee (or would be if joined in such action, suit or
proceeding), the Corporation shall contribute to the amount of expenses
(including attorneys' fees and disbursements), judgments, fines (including
excise taxes and penalties) and amounts paid in settlement actually and
reasonably incurred and paid or payable by Indemnitee in such proportion as is
appropriate to reflect (i) the relative benefits received by the Corporation on
the one hand and Indemnitee on the other hand from the transaction from which
such action, suit or proceeding arose, and (ii) the relative fault of the
Corporation on the one hand and of Indemnitee on the other in connection with
the events which resulted in such expenses, judgments, fines or settlement
amounts, as well as any other relevant equitable considerations. The relative
fault of the Corporation on the one hand and of Indemnitee on the other shall
be determined by reference to, among other things, the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
the circumstances resulting in such expenses, judgments, fines or settlement
amounts. The Corporation agrees that it would not be just and equitable if
contribution pursuant to this paragraph 7 were determined by pro rata
allocation or any other method of allocation which does not take account of the
foregoing equitable consideration.
3
<PAGE> 4
8. Exclusions.
(a) The Corporation shall not be liable to make any
payment hereunder (whether in the nature of indemnification or contribution) to
the extent payment is actually made to Indemnitee under a valid, enforceable
and collectible insurance policy (the "Insurance Policy") or by a fund, or
under the Certificate of Incorporation or By-laws of the Corporation or
otherwise. If Indemnity is required to pay any amount that the Corporation is
obligated to pay hereunder except for the exclusion in this subsection, before
payment is reasonably expected to be made under the Insurance Policy or by the
Fund or otherwise, the Corporation shall promptly advance the amount Indemnitee
is required to pay for which the Corporation is liable hereunder. Any advance
by the Corporation shall be made with the undertaking of Indemnitee, which
hereby is given, that he shall immediately pay over to the Corporation, from
the funds Indemnitee later receives under the Insurance Policy or from the Fund
or otherwise, an amount equal to the amount which the Corporation advanced
pursuant to this subsection.
(b) The Corporation shall not be liable hereunder for
amounts paid in settlement of a proceeding effected without its written
consent, which consent may not be unreasonably withheld.
9. Continuation of Indemnity. All obligations of the
Corporation contained herein shall continue during the period Indemnitee is an
authorized representative of the Corporation and shall continue thereafter so
long as Indemnitee shall be subject to any possible claim or threatened or
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that Indemnitee was an
authorized representative of the Corporation.
10. Enforcement. In the event Indemnitee is required to
bring any action to enforce rights or to collect moneys due under this
Agreement and is successful in such action, the Corporation shall reimburse
Indemnitee for all of Indemnitee's reasonable expenses (including attorneys'
fees and disbursements) in bringing and pursuing such action. The burden of
proving that indemnification or advances are not appropriate shall be on the
Corporation.
11. Obligations of Indemnitee.
(a) Promptly after receipt by Indemnitee of notice of the
commencement of any action, suit or proceeding in which Indemnitee is made or
is threatened to be made a party or a witness, Indemnitee shall notify the
Corporation of the commencement of such action, suit or proceeding; but the
omission so to notify the Corporation shall not relieve the Corporation from
any obligation it may have to indemnify or advance expenses to Indemnitee
otherwise than under this Agreement.
4
<PAGE> 5
(b) Indemnitee agrees that Indemnitee shall reimburse the
Corporation for all or an appropriate portion of the expenses advanced to
Indemnitee pursuant to paragraph 3 hereof if it shall be finally adjudicated
that Indemnitee is not entitled to be indemnified, or not entitled to be fully
indemnified because indemnification in the particular circumstances is not
permitted under the applicable law.
(c) Indemnitee shall not settle any claim or action in
any manner which would impose on the Corporation any penalty, constraint, or
obligation to hold harmless or indemnify Indemnitee pursuant to this Agreement
without the Corporation's prior written consent, which consent shall not be
unreasonably withheld.
12. Defense of Claim. If any action, suit or proceeding,
or any claim thereof, commenced against Indemnitee is also commenced against
the Corporation, the Corporation shall be entitled to participate therein at
its own expense and, except as otherwise provided herein below, to the extent
that it may wish, the Corporation shall be entitled to assume the defense
thereof. After notice from the Corporation to Indemnitee of its election to
assume the defense of any action, suit or proceeding, the Corporation shall not
be obligated to Indemnitee under this Agreement for any legal or other expenses
subsequently incurred by Indemnitee in connection with the defense thereof
other than reasonable costs of investigation, travel and lodging expenses
arising out of Indemnitee's participation in such action, suit or proceeding.
Indemnitee shall have the right to employ Indemnitee's own counsel in such
action, suit or proceeding, but the fees and expenses of such counsel incurred
after notice from the Corporation to Indemnitee of its assumption of the
defense thereof shall be at the expense of Indemnitee unless (i) otherwise
authorized by the Corporation, (ii) Indemnitee shall have reasonably concluded,
and so notified the Corporation, that there may be a conflict of interest
between the Corporation and Indemnitee in the conduct of the defense of such
action, suit or proceeding, or (iii) the Corporation shall not in fact have
employed counsel to assume the defense of such action, suit or proceeding, in
which cases the fees and expenses of Indemnitee's counsel shall be at the
expense of the Corporation. The Corporation shall not be entitled to assume
the defense of any action, suit or proceeding brought by or on behalf of the
Corporation or its stockholders or as to which Indemnitee shall have made the
conclusion set forth in (ii) of this paragraph 12.
13. Severability. Wherever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
14. Miscellaneous.
(a) This Agreement shall be deemed to be a contract made
under and governed by the laws of the State of Delaware.
5
<PAGE> 6
(b) This Agreement shall be binding upon Indemnitee, his
heirs, personal representatives and permitted assigns, and upon the
Corporation, its successors and assigns. This Agreement shall inure only to
the benefit of Indemnitee, his heirs, personal representatives and permitted
assigns and to the benefit of the Corporation, its successors and assigns and
shall not inure to the benefit of any other party. No assignment of this
Agreement or of any duty, obligation, money due or to become due hereunder
shall be made in whole or in part by Indemnitee without the prior written
consent of the Corporation, which consent shall not be unreasonably withheld.
Any assignment by Indemnitee or the Corporation shall not relieve the assignor
of any duty or obligation of such assignor under this Agreement.
(c) No amendment, modification, termination or claimed waiver
of any of the provisions hereof shall be valid unless in writing and signed by
the party or an authorized representative of the party against whom such
modification is sought to be enforced.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on and as of the day and year first above written.
GTI Corporation
By: /s/ Gary L. Luick
----------------------
Gary L. Luick
Title: President
INDEMNITEE
By: /s/ Kenneth E. Maud
----------------------
Kenneth E. Maud
Member of the Board of Directors
6
<PAGE> 1
EXHIBIT 10.59
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated as of March 13, 1996
(the "Effective Date") is made by and between GTI Corporation, a Delaware
Corporation having its principal offices at 9171 Towne Centre Drive, Suite 460,
San Diego, California 92122-1229 (the "Company") and Albert J. Martinez
("Employee").
AGREEMENT
0. Effective Date.
Employee's employment will commence on March 13, 1996. The terms of this
agreement will become effective upon signature of this Agreement. Employee's
employment relationship with the Company is at-will.
1. Employment Duties.
. Title/Responsibilities. Employee shall hold the title of President and
Chief Executive Officer of the Company, and shall have the powers and duties
consistent with such position. Employee shall also perform all duties which
from time to time are assigned to him by the Board of Directors ("Board").
a. Full Time Attention. Employee shall devote substantially all of his
business time and attention, energy and skills to the Company during the time
he is employed under this Agreement. The Company acknowledges that Employee
currently sits on the board of directors of the following companies: (1)
MicroChip Corporation, Arizona; and (2) UCSD Cancer Center, San Diego. The
Company and Employee agree that no conflict of interest arises from Employee's
present board of director involvement. Employee agrees to notify and obtain
approval from the Company's Board prior to accepting any additional board of
director positions.
b. Policy Compliance. Employee is required to comply with the Company
policy, practice and procedure in effect during his employment. The Company or
Employee may terminate the employment relationship for any reason or no reason.
1
<PAGE> 2
2. Compensation.
. Base Salary. The Company shall pay to Employee an initial annual Base
Salary of Three Hundred Thousand Dollars ($300,000). Any increase to the
monthly Base Salary is within the sole discretion of the Company.
a. Bonus Compensation. In addition to the compensation provided above,
the Company will pay Employee an incentive bonus for each full year
starting with 1997 during the employment relationship. For 1996, Employee is
eligible for a pro-rata portion of the annual targeted amount. Such bonus
shall be calculated according to the Company Bonus Plan in effect at the time
of the calculation. Generally, Employee will receive fifty percent (50%) of
base salary if the Target is attained and up to a maximum of seventy five
percent (75%) of base salary if the Target is exceeded by twenty percent(20%).
Bonuses are payable on March 1 of each year, provided Employee remains in his
position with the Company on that date. All bonus arrangements are subject to
annual review and establishment by the Board.
b. Hiring Bonus. Within seven (7) days of the commencement of Employee's
employment with the Company, the Company shall pay to Employee a net hiring
bonus of Fifteen Thousand Dollars ($15,000).
c. Stock Options. Employee will be granted options to purchase 100,000
shares of the Company's common stock under the GTI Stock Incentive Plan (1989),
as amended, at a price which is the fair market value of the stock at close of
business on the date of commencement of employment, March 13, 1996. The option
to purchase will remain open for as long as the Employee is in employment or
for 6 years from the grant, whichever is the shorter period. Twenty percent
(20%) of the option shares will vest upon commencement of employment. Of the
remaining eighty percent (80%), twenty percent (20%) of the option shares will
vest on each of the first four anniversaries after the grant. The details of
this grant are formalized in the Stock Plan to be provided by the Company to
Employee. In the event of an acquisition of the Company, including an offer by
Telemetrix to acquire one hundred percent (100%) of GTI, full vesting will
occur.
d. Fringe Benefits.
(0) Vacation. During the Term of this Agreement, Employee shall be
entitled to three (3) weeks (fifteen (15) working days) annual paid vacation in
addition to customary paid holidays. Vacation will increase annually by one
day per year of service with a maximum of twenty (20) days of vacation per
year. Employee may carry over unused vacation from the prior year, but will
cease to accrue vacation once he has accrued a maximum of forty
2
<PAGE> 3
(40) days. Employee will not accrue any more vacation until he has taken
enough vacation to bring his accrued vacation below the maximum.
(1) Health Benefits. During his Employment, the Company agrees
to provide Employee with comprehensive health insurance benefits.
(2) 401K Participation. Employee may participate in any 401K or
other employee retirement plan according to the requirements of those plans.
(3) Life Insurance. The Company shall maintain a term life
insurance policy providing for payment of four (4) times base salary to
Employee's designated beneficiaries should Employee die during his Employment.
(4) Director and Officer Insurance. During his term as Director
of the Company, Employee will be covered according to the terms of the Company's
Director and Officer Insurance.
(5) Automobile. During his employment, the Company agrees to
provide Employee with an automobile allowance in the amount of $800.00 per month
towards an automobile to be used in connection with the Company's business.
Reasonable costs associated with the use of this automobile will be assumed by
the Company.
e. Reimbursement of Expenses. During his Employment, with approval by the
Chairman of the Board, Employee shall be entitled to reimbursement of
reasonable and actual expenses, incurred on behalf of the Company, including
but not limited to travel and entertainment expenses, supplies and cellular
phone expenses.
3
<PAGE> 4
3. Confidentiality.
. Proprietary Information. Employee agrees that he will not disclose any
Proprietary Information (as hereinafter defined) to any individual or entity at
any time while he is employed by the Company or at any time thereafter, except
as is necessary and appropriate in the ordinary course of performing Employee's
duties to the Company during his employment under this Agreement, or unless
such disclosure has been authorized in writing by the Chairman of the Board, or
unless such disclosure is required by law. For purposes of this Agreement, the
term "Proprietary Information" shall mean any information that was developed
by, became known by, or was assigned or otherwise conveyed to the Company, and
which has commercial value in the Company's business. Proprietary Information
includes, but is not limited to, trade secrets, financial information, customer
lists and information, marketing plans, strategies, business forecasts,
computer programs, product plans, research and development information, testing
methods and results, inventions, improvements, formulas, processes, techniques,
designs, know-how and data. Proprietary Information also includes, without
limitation, any information which is generally regarded as confidential in the
Company's industry or which is generally treated as confidential by the
Company.
a. Return Of Property. Employee agrees that all documents, records,
apparatus, equipment and other physical property which is furnished or obtained
by Employee in the course of his employment with the Company shall be and
remain the sole property of the Company. Employee agrees that, upon the
termination of his employment, he shall return all such property (whether or
not it pertains to Proprietary Information), and agrees not to make or retain
copies, reproductions or summaries of any such property.
4. Non Competition. During the term of his employment, Employee shall not,
directly or indirectly, either as an employee, employer, consultant, corporate
officer, director, or in any other individual or representative capacity,
engage or participate in any business that is in competition in with the
business of the Company in any location, unless such participation or interest
is fully disclosed to the Company and approved by the Board.
5. Severance. Employee shall be eligible for severance payments upon
termination of the employment relationship as follows:
. Termination for Any Reason Other than Gross Misconduct. As set forth
above, the employment relationship between the parties is at-will, terminable
by either party for any reason or no reason. The Company may, nonetheless,
find that Employee has acted with gross misconduct in the performance of his
duties. Where Employee is discharged for reasons other than gross misconduct,
death or disability, Employee is eligible for severance payments equivalent to
twelve months of base pay paid over a twelve (12) month period.
4
<PAGE> 5
a. Resignation. Where Employee voluntarily resigns his employment at his
own initiative with the Company, the Company at its option may offer for
severance payments up to twelve (12) monthly payments of salary, if and only if
he agrees to extend the non-competition requirements set forth in paragraph 5
above for the severance period. The Company reserves the right to cease any
remaining Severance Payments in the event Employee violates this Agreement.
b. Discharge after Gross Misconduct. Where Employee is discharged as a
result of gross misconduct, he is not eligible for severance.
6. Dispute Resolution Procedures: Any controversy or claim arising out of
or relating to this Agreement or the breach thereof, or the interpretation
thereof, shall be settled by binding arbitration in accordance with the Rules
of the American Arbitration Association; and judgment upon the award rendered
in such arbitration shall be final and may be entered in any court having
jurisdiction thereof. However, the selection of the arbitrator is not limited
to the AAA roster. Notice of the demand for arbitration shall be filed in
writing with the other party to this Agreement and with the American
Arbitration Association. In no event shall the demand for arbitration be made
after the date when institution of legal or equitable proceedings based on such
claim, dispute or other matter in question would be barred by the applicable
statute of limitations. This agreement to arbitrate shall be specifically
enforceable under the prevailing arbitration law. Any party desiring to
initiate arbitration procedures hereunder shall serve written notice on the
other party. The parties agree that an arbitrator shall be selected pursuant
to these provisions within thirty (30) days of the service of the notice of
arbitration. In the event of any arbitration pursuant to these provisions, the
parties shall retain the rights of all discovery provided pursuant to the
California Code of Civil Procedure, and the Rules thereunder. All rights,
causes of action, remedies and defenses available under California law and
equity are available to the parties and shall be applicable as though in a
court of law.
7. General Provisions.
. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of California.
a. Assignment. Employee may not assign, pledge or encumber his interest
in this Agreement or any part thereof.
b. No Waiver Of Breach. The failure to enforce any provision of this
Agreement will not be construed as a waiver of any such provision, nor prevent
a party thereafter from enforcing the provision or any other provision of this
Agreement. The rights granted the
5
<PAGE> 6
parties are cumulative, and the election of one will not constitute a waiver of
such party's right to assert all other legal and equitable remedies available
under the circumstances.
c. Severability. The provisions of this Agreement are severable, and if
any provision will be held to be invalid or otherwise unenforceable, in whole
or in part, the remainder of the provisions, or enforceable parts of this
Agreement, will not be affected.
d. Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter of this Agreement, and
supersedes all prior and contemporaneous negotiations, agreements and
understandings between the parties, oral or written.
e. Modification; Waivers. No modification, termination or attempted
waiver of this Agreement will be valid unless in writing, signed by the party
against whom such modification, termination or waiver is sought to be enforced.
f. Fees and Expenses. If any proceeding is brought for the enforcement or
interpretation of this Agreement, or because of any alleged dispute, breach,
default or misrepresentation in connection with any provisions of this
Agreement, the successful or prevailing party will be entitled to recover from
the other party reasonable attorneys' fees and other costs incurred in that
proceeding (including, in the case of an arbitration, arbitration fees and
expenses), in addition to any other relief to which such party may be entitled.
g. Amendment. This Agreement may be amended or supplemented only by a
writing signed by both of the parties hereto.
h. Duplicate Counterparts. This Agreement may be executed in duplicate
counterparts, each of which shall be deemed an original; provided, however,
such counterparts shall together constitute only one instrument.
i. Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
j. Drafting Ambiguities. Each party to this Agreement and its counsel
have reviewed and revised this Agreement. The rule of construction that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of this Agreement or any of the amendments to this
Agreement.
k. English Language. All reports, data, information, notices, schedules,
plans, records and other information required to be provided hereunder by
either party shall be in
6
<PAGE> 7
the English language. If a translation is made of this Agreement, it shall be
made for the convenience of the parties and the English language of this
Agreement shall be controlling.
Dated: March 13, 1996 GTI Corporation
--------------
By: /s/ Kenneth E. Maud
-------------------
Kenneth E. Maud, Chairman
of the Board
Dated: March 13, 1996 /s/ Albert J. Martinez
-------------- ----------------------
Albert J. Martinez
7
<PAGE> 1
EXHIBIT 11.1
GTI CORPORATION AND SUBSIDIARIES
CALCULATIONS OF INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Three Months Twelve Months Twelve Months
Ended Ended Ended Ended
12/31/95 12/31/94 12/31/95 12/31/94
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Income (loss) from
continuing operations $(645,000) $(95,000) $3,090,000 $3,299,000
Income (loss) from
discontinued operations (424,000) 612,000 856,000 1,962,000
Loss on disposal of
discontinued opertions (2,000,000) --- $(2,000,000) ---
---------------------------------------------------------------------------------
Net income (loss) $(3,069,000) $ 517,000 $ 1,946,000 $5,261,000
=================================================================================
Weighted average common
and common equivalent
shares outstanding:
Weighted average common 8,961,089 8,207,434 8,912,115 8,192,320
---------------------------------------------------------------------------------
Weighted average common
equivalent outstanding:
Convertible preferred
stock 1,900,287 1,900,287 1,900,287 1,900,287
---------------------------------------------------------------------------------
Dilutive stock options 77,380 111,015 60,993 94,174
Weighted average common
and common equivalent
shares outstanding 10,938,756 10,218,736 10,873,395 10,186,781
=================================================================================
Net income per common and
common equivalent shares:
Income (loss) from
continuing operations $(0.06) $(0.01) $ 0.28 $0.32
Income (loss) from
discontinued operations (0.04) 0.06 0.08 0.20
Loss on disposal of
discontinued operations (0.18) --- (0.18) ---
---------------------------------------------------------------------------------
Net income $ (0.28) $ 0.05 $ 0.18 $0.52
=================================================================================
</TABLE>
<PAGE> 1
EXHIBIT 21.1
GTI CORPORATION
SUBSIDIARIES OF THE REGISTRANT
Electronic Supply Corporation, a Delaware corporation and wholly-owned
subsidiary of Esco Sales, Inc.
Esco Sales, Inc., a Delaware corporation
Valor Electronics, Inc., a California corporation
Valor East Electronics, Ltd., a Hong Kong corporation and wholly-owned
subsidiary of Valor Electronics, Inc.
Barnfinch, Ltd., a Hong Kong corporation and wholly-owned subsidiary of Valor
Electronics, Inc.
Valor Electronics GmbH, a German corporation and wholly-owned subsidiary of
Valor Electronics, Inc.
Valor Electronics Philippines, Inc., a Philippines corporation and wholly-owned
subsidiary of Valor Electronics, Inc.
Val Pan Am, S.A., a Mexican corporation and wholly-owned subsidiary of Valor
Electronics, Inc.
Sierracin, S.A., a Mexican corporation and wholly-owned subsidiary of Valor
Electronics, Inc.
Valor Electronics Investments BV, a Netherlands corporation and wholly-owned
subsidiary of Valor Electronics, Inc.
Valor Electronics Cayman, Inc., a Cayman Islands corporation and wholly-owned
subsidiary of Valor Electronics, Inc.
Promptus Communications, Inc., a Rhode Island corporation
Promptus Communications (UK) Ltd., a United Kingdom corporation and
wholly-owned subsidiary of Promptus Communications, Inc.
Promptus Communications Pty. Ltd., an Australian corporation and wholly-owned
subsidiary of Promptus Communications, Inc.
The financial statements of the foregoing subsidiaries are included in
the Company's consolidated financial statements.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K into GTI Corporation's
previously filed Registration Statements Files No. 2-68202, No. 2-86797, No.
33-13711, No. 33-34667, No. 33-78930 and No. 33-48101.
ARTHUR ANDERSEN LLP
San Diego, California
March 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 2,553
<SECURITIES> 0
<RECEIVABLES> 22,554
<ALLOWANCES> 297
<INVENTORY> 31,318
<CURRENT-ASSETS> 63,787
<PP&E> 27,615
<DEPRECIATION> 10,506
<TOTAL-ASSETS> 120,808
<CURRENT-LIABILITIES> 29,010
<BONDS> 0
<COMMON> 359
0
8,110
<OTHER-SE> 80,526
<TOTAL-LIABILITY-AND-EQUITY> 120,808
<SALES> 129,149
<TOTAL-REVENUES> 129,149
<CGS> 89,749
<TOTAL-COSTS> 35,386
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,207
<INCOME-PRETAX> 3,120
<INCOME-TAX> 506
<INCOME-CONTINUING> 3,090
<DISCONTINUED> 1,144
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,946
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
