<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 2 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) December 21, 1995
GTI CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
1-4289 05-0278990
(Commission File Number) (IRS Employer Identification No.)
9171 Towne Centre Drive, Suite 460, San Diego, California 92122
(Address of principal executive offices) (Zip Code)
THE COMPANY HEREBY AMENDS THE FOLLOWING ITEMS OF ITS CURRENT REPORTS DATED
JANUARY 5, 1996 AND JANUARY 16, 1996 ON FORM 8-K AS SET FORTH IN THE PAGES
ATTACHED HERETO:
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND
EXHIBITS.
Registrant's telephone number, including area code (619) 546-0531
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
In May of 1995, the board of directors of GTI Corporation, a
Delaware corporation (the "Company"), adopted a formal plan to sell its non-core
business units as part of the Company's strategic focus on the networking and
network access markets. At that time, the Company's non-core business units
consisted of its electronic components and equipment segment and its
distribution products segment.
Historically, these two business units have been reported as
separate business segments. The two segments each have separate and identifiable
assets, results of operations, and activities that are clearly distinguishable
from each other as well as from the Company's other assets and operations. In
connection with its decision to sell its non-core business units, the Company
began accounting for the electronic components and equipment segment and
distribution products segment as discontinued operations in accordance with
Accounting Principles Board Opinion No. 30.
As reported in the Company's previously filed form 10-Q for the
quarterly period ended September 30, 1995, during September and October the
Company entered into separate letters of intent to sell the assets of the
electronic components and equipment segment and the stock of the distribution
products segment.
SALE OF ELECTRONIC COMPONENTS AND EQUIPMENT SEGMENT
The Company; Component Intertechnologies, Inc., a Delaware
corporation, (the "Buyer"); and the Buyer's wholly-owned subsidiary,
Component-Ireland Holding Corporation, a Delaware corporation (the "Buyer's
Subsidiary"), entered into an asset purchase agreement dated as of December 16,
1995 (the "Agreement"). Pursuant to the Agreement, on December 21, 1995, the
Company sold substantially all of the assets of its electronic components
segment and certain related assets (together the "Division") as a going concern
to the Buyer and to the Buyer's Subsidiary in exchange for $12,500,000 (subject
to certain adjustments) and the assumption of certain liabilities. The Company
determined the amount of consideration for which it was willing to sell the
Division based on an initial estimation by management of the value of the
Division and on the response of various potential purchasers to the estimated
asking price. The Buyer is unrelated to the Company, its affiliates, directors,
officers, and associates of its directors and officers.
BUSINESS OF THE DIVISION
The Division develops, manufactures, markets, and sells glass
components, welded leads, glass-to-metal seals, welded resistor elements, pins,
and pinned arrays for the glass diode, resistor, automotive, and component
packaging markets and application-specific printed circuit boards for automotive
and electrical lighting manufacturers. The Division includes manufacturing
facilities in Hadley, Pennsylvania, and Hartselle, Alabama, and 24,999 shares
representing 100% of GTI-Ireland Limited which operates the Division's
manufacturing facility in Abbeyfeale, Republic of Ireland.
2
<PAGE> 3
TERMS OF THE DISPOSITION
The Buyer paid for the Division with cash in the amount of
$11,750,000, a $250,000 payment to an escrow account (subject to the terms of an
escrow agreement), and a promissory note in the principal amount of $500,000
maturing in three years at the latest and bearing interest at the rate of 8% per
annum.
In the Agreement, the Company undertook not to compete with the
Buyer in the businesses of the Division in the places where the Division does
business or has been doing business in the past five years. The Company also
indemnified the Buyer for losses arising out of any breaches of the Agreement or
certain related documents. Under certain circumstances, the Buyer has recourse
against the amount held in escrow to recover any losses for which the Buyer is
indemnified. The maximum claim under the indemnity in favor of the Buyer is
$12,500,000.
SALE OF DISTRIBUTION PRODUCTS SEGMENT
The Company; Insulectro, a California corporation (the "Buyer"); and
the Buyer's wholly-owned subsidiary, QI Electronics, a California corporation
(the "Buyer's Subsidiary"), entered into a stock purchase agreement dated as of
February 15, 1996 (the "Agreement"). Pursuant to the Agreement, on February 16,
1996 (the "Closing Date"), the Company sold all the issued and outstanding
shares of stock of the legal entities which operates the distribution products
segment. In exchange for 100% of the capital stock of ESCO Sales, Inc., a
Delaware corporation ("ESCO") and the 20% of the capital stock held by the
Company of ESCO's 80%-owned subsidiary, Electronic Supply Corporation, Inc., a
Delaware corporation (the "Subsidiary"), the Buyers and the Buyer's Subsidiary
agreed to pay an amount equal to the tangible net book value of ESCO on the
Closing Date. For purposes of determining the amount of consideration to be paid
on the Closing Date, the tangible net book value was estimated to be $4,118,000
(subject to certain adjustments).
The Buyer is unrelated to the Company, its affiliates, directors,
officers, and associates of its directors and officers.
BUSINESS OF THE SUBSIDIARY
The Subsidiary is a stocking distributor of interconnect, passive
and electromechanical components used in the medical instrumentation, power
supply, computer and computer peripheral, communications, controls, and
industrial equipment industries. The Subsidiary also provides value-added
capabilities in the manufacturing of cable assemblies. The Subsidiary serves
original equipment manufacturers located in the Western United Sates through its
principal administrative, marketing and distribution facility located in
Ontario, California, as well as through satellite sales offices located in San
Jose, California; San Diego, California; Tempe, Arizona; and Denver, Colorado.
3
<PAGE> 4
TERMS OF THE DISPOSITION
The Buyer paid for the stock of ESCO and the Subsidiary with cash in
the amount of $2,118,000, (subject to dollar-for-dollar adjustment based on the
difference between the final tangible net-book value and the estimated tangible
net-book value at the Closing Date), and a subordinated promissory note in the
principal amount of $1,900,000 maturing in six years, bearing interest at a rate
of six percent per annum, principal and interest payable semi-annually,
commencing August 1996 and ending February 2002. The promissory note is
subordinated in accordance with the terms of a subordination agreement.
In the Agreement, the Company agreed that, for a period of five
years from the Closing, in the event that the Company acquires, directly or
indirectly, a business that, in whole or in part, competes with the business of
the Subsidiary, then the Company shall have one year to dispose of such
competing business. The Company shall allow the Buyer the first offer to acquire
such business and if such offer is rejected, the Company will not sell or
transfer such business to a third party on materially more favorable terms to
such third party. The Company also indemnified the Buyer for losses arising out
of any breaches of the Agreement and certain related documents. The Buyer shall
be entitled to set-off against any amount due or payable to the Company under
the promissory note the amount of losses for which the Buyer is indemnified. The
maximum claim under the indemnity in favor of the Buyer is $4,118,000.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION, AND EXHIBITS.
(a) Financial Statements of the Division
Not required for disposition.
(b) Pro Forma Financial Information
The following unaudited, pro forma, condensed, consolidated financial statements
are filed with this report:
<TABLE>
<S> <C>
Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1995 ............. Page F-1
Pro Forma Condensed Consolidated Statements of Operations:
For The Year Ended December 31, 1994................................................ Page F-2
For The Nine Months Ended September 30, 1995........................................ Page F-3
Notes to the Pro Forma Condensed Consolidated Financial Information ................. Page F-4
</TABLE>
4
<PAGE> 5
The following unaudited, consolidated, pro forma financial
information represents the Pro Forma Consolidated Balance Sheet at September 30,
1995, giving effect to the disposal of the electronics components and equipment
segment (the "E-Group") and the distribution products segment ("ESCO") as if
they were consummated on this date. Also presented are the Pro Forma
Consolidated Statements of Operations for the year ended December 31, 1994, and
the nine months ended September 30, 1995, after giving effect to the disposals
as if they were consummated on January 1, 1994, and January 1, 1995,
respectively. The pro forma information is based on the historical, consolidated
financial statements of GTI Corporation giving effect to the disposal
transactions and the assumptions and adjustments outlined in the accompanying
Notes to the Consolidated Pro Forma Financial Information.
The unaudited pro forma information is provided for comparative
purposes only. It does not purport to be indicative of the results that actually
would have occurred if the disposals had been consummated on the dates indicated
or which may be obtained in the future. The consolidated pro forma financial
information should be read in conjunction with the notes thereto and the
historical of GTI Corporation consolidated financial statements and notes
thereto, as previously filed.
(c) Exhibits
(I) Exhibit 99 Stock Purchase Agreement dated as of February 15,
1996, among GTI Corporation; IQ Electronics; Insulectro; ESCO
Sales, Inc.; and Electronic Supply Corporation.
5
<PAGE> 6
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: March 5, 1996 GTI CORPORATION
By: /s/ Douglas J. Downs
-------------------------------
Douglas J. Downs
Vice President and Chief
Financial Officer
(signing as both
authorized officer
and Chief Financial
Officer)
6
<PAGE> 7
GTI CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
UNAUDITED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, 1995
---------------------------------------------------------------------------------------
Pro Forma
-------------------------------------------------------------------
Historical Adjustments
GTI E-Group ESCO Debit Credit Combined
---------- ----------------------------------------------------- --------
Assets
<S> <C> <C> <C> <C> <C> <C>
Cash $ 3,545 (A) $11,750 (E) $ 2,218 (I) $(13,968) $ 3,545
Net assets of discontinued
operations 18,218 (B) (7,509) (F) (10,709)
Other current assets 49,640 --
------
Total current assets 71,403 49,640
------
53,185
Property, plant & equipment,
net 15,844
Goodwill, net 15,844
and other assets 39,485 (C) 750 (G) 1,900
--------
Total assets $126,732 42,135
======== -------
$111,164
Liabilities and =======
Stockholders'
Investment
Short term borrowings $ 9,748 (I) (9,718) $ 30
Current portion of long
term debt 1,000 (I) (1,000) --
Other current liabilities 17,058 (J) 400 17,458
-------- --------
Total current liabilities 27,806 17,488
Long term debt and
other non current
liabilities 5,255 (I) (3,250) 2,005
Minority interest 838 838
Stockholders'
investment 92,833 (D) 4,991 (H) (6,591) (J) (400) 90,833
-------- --------
$126,732 $111,164
======== ========
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial information.
F - 1
<PAGE> 8
GTI CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the Year Ended December 31, 1994
---------------------------------------------------------------------------------
Pro Forma
-----------------------------------------------------------
Historical Adjustments
GTI E-Group ESCO Other Combined
---------- --------------------------------------- --------
<S> <C> <C> <C> <C> <C>
Sales $103,239 $103,239
Cost of sales 76,122 76,122
--------- -------
Gross profit 27,117 27,117
Selling, general and
administrative 23,695 23,695
------ ------
Operating profit 3,422 3,422
Other income (expense) 277 (M) 527 804
--------- -------
Income before income taxes and
minority interest 3,699 4,226
Provision for income taxes 264 (N) 211 475
Minority interest 136 136
--------- --------
Income from continuing
operations 3,299 3,615
Income from discontinued
operations,
net 1,962 (K) (1,906) (L) (56) --
Loss on disposal of discontinued
operations, net -- (D) 4,991 (H) (6,591) (J) (400) (2,000)
--------- --------
Net income $ 5,261 $ 1,615
========= ========
Earnings per common share:
Income from continuing
operations $0.32 $ 0.35
Income from discontinued
operations, net 0.20 --
Loss on disposal of discontinued
operations, net -- (0.20)
--------- --------
$ 0.52 $ 0.15
========= ========
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial information.
F - 2
<PAGE> 9
GTI CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1995
---------------------------------------------------------------------------------
Pro Forma
-----------------------------------------------------------
Historical Adjustments
GTI E-Group ESCO Other Combined
---------- --------------------------------------- --------
<S> <C> <C> <C> <C> <C>
Sales $95,344 $95,344
Cost of sales 64,921 64,921
--------- -------
Gross profit 30,423 30,423
Selling, general and administrative 25,075 25,075
--------- -------
Operating profit 5,348 5,348
Other income (expense) (891) (Q) 644 (247)
--------- -------
Income before income taxes and
minority interest 4,457 5,101
Provision for income taxes 877 (R) 266 1,143
Minority interest (income) expense (155) (155)
--------- -------
Income from continuing operations 3,735 4,113
Income from discontinued
operations, net 1,280 (O) (1,337) (P) 57 --
Loss on disposal of discontinued
operations, net -- (D) 4,991 (H) (6,591) (J) (400) (2,000)
--------- -------
Net income $ 5,015 $ 2,113
========= =======
Earnings per common share:
Income from continuing operations $0.34 $ 0.38
Income from discontinued
operations, net 0.12 --
Loss on disposal of discontinued
operations, net -- (0.18)
--------- -------
$ 0.46 $ 0.20
========= =======
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial information.
F - 3
<PAGE> 10
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(dollars in thousands)
Note 1 Pro Forma Adjustments:
The accompanying pro forma financial statements are presented in accordance with
Article 11 of Regulations S-X.
The unaudited, pro forma, consolidated balance sheet has been prepared as if the
disposal of the E-Group and ESCO were completed as of January 1, 1995.
The unaudited, pro forma, consolidated statements of operations for the year
ended December 31, 1994, and the nine months ended September 30, 1995, were
prepared as if the disposal of the E-Group and ESCO were completed as of
January 1, 1994, and January 1, 1995, respectively. The unaudited, pro forma,
consolidated statements of operations were prepared based upon historical
financial information from the consolidated GTI Corporation, the E-Group, and
ESCO financial statements for the periods indicated above.
The unaudited, pro forma financial information should be read in conjunction
with the historical, consolidated financial statements of GTI Corporation, as
previously filed.
The unaudited, pro forma financial information does not include an adjustment to
reduce or eliminate the Company's secondary public offering of 650,000 shares of
common stock in January 1995 in connection with the Company's acquisition of
approximately 71% of Promptus Communications, Inc. ("Promptus"). The proceeds
from the secondary public offering are assumed to be used to complete the
Promptus acquisition and for general corporate purposes. The unaudited, pro
forma statement of operations for the year ended December 31, 1994, includes an
adjustment related to the interest that could have been earned on the disposal
proceeds. Additionally, the unaudited pro forma statement of operations for the
nine months ended September 30, 1995, includes an adjustment for a reduction in
the interest costs associated with the acquisition of Promptus.
The following pro forma adjustments have been made to the pro forma,
consolidated financial statements:
(A) - Represents the cash proceeds from the disposal of the E-Group.
(B) - Represents the net assets of the E-Group sold.
(C) - Represents the note receivable in the amount of $500 and the escrow
account in the amount of $250 from the disposal of the E-Group.
(D) - Represents the gain on disposal of the E-Group.
(E) - Represents the cash proceeds from the disposal of ESCO.
F - 4
<PAGE> 11
NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(dollars in thousands)
Note 1 Pro Forma Adjustments (Continued):
(F) - Represents the net assets of ESCO sold.
(G) - Represents the note receivable in the amount of $1.9 million from the
disposal of ESCO.
(H) - Represents the loss on disposal of ESCO.
(I) - Represents the proceeds from the disposal of the electronics components
and equipment segment (the "E-Group") and the distribution products segment
("ESCO") used to repay the outstanding principle and interest of approximately
$4.25 million on the $5 million, bank long-term note payable. The remaining
proceeds of approximately $9.7 million were used to pay down the credit
facility.
(J) - Represents the accrual of divestiture costs and income tax payable related
to the disposal of the E-Group and ESCO.
(K) - Represents the E-Group's operating income, net of income taxes of $764,
for the year ended December 31, 1994.
(L) - Represents ESCO's operating income, net of income taxes of $321, for the
year ended December 31, 1994.
(M) - Reflects an assumed increase in interest income assuming a 5% interest
rate on the disposal proceeds net of cash generated by the E-Group and ESCO
during 1994.
(N) - Reflects an assumed increase in the income tax provision, assuming an
effective rate of 40%, associated with the increase in interest income in
adjustment (M).
(O) - Represents the E-Group's operating income, net of income taxes of $1,357,
for the nine months ended September 30, 1995.
(P) - Represents ESCO's operating loss, net of income taxes of $89, for the nine
months ended September 30, 1995.
(Q) - Represents an assumed decrease in interest expense incurred associated
with the bank borrowings in conjunction with the Company's acquisition of
Promptus.
(R) - Represents an assumed increase in the income tax provision, assuming an
effective tax rate of 40%, associated with the decrease in interest expense in
adjustment (Q) above.
F - 5
<PAGE> 1
EXHIBIT 99
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement"), dated as of February
15, 1996, is made by and among QI Electronics ("QI"), a California corporation,
Insulectro, a California corporation, GTI Corporation, a Delaware corporation
("GTI"), Esco Sales, Inc., a Delaware corporation ("Holdings") and Electronic
Supply Corporation, a Delaware corporation ("ESCO").
RECITALS
A. QI Electronics is a wholly owned subsidiary of Insulectro.
Insulectro and QI are referred to hereafter, individually and collectively, as
the "Buyers".
B. ESCO is eighty percent owned by Holdings and twenty percent owned
by GTI. Holdings is a wholly owned subsidiary of GTI. ESCO, Holdings and GTI are
referred to hereafter, individually and collectively, as the "Sellers".
C. ESCO is engaged in the business of distributing electronic
components (the "Business"). Holdings is a holding company and is not engaged in
any business except that of holding the stock of ESCO.
D. QI desires to purchase from GTI and GTI desires to sell to QI all
of the issued and outstanding shares of stock of Holdings and all of the ESCO
stock held by GTI (the "Shares"), pursuant to the terms and conditions set forth
in this Agreement.
AGREEMENT
In consideration of the mutual covenants, representations, warranties
and agreements set forth in this Agreement, the parties hereto agree as follows:
1. PURCHASE AND SALE OF STOCK.
1.1. Acquisition of Shares. Subject to the terms and conditions set
forth in this Agreement, on the Closing Date (as defined in Article 2,) the
Buyers hereby agree to purchase, and the Sellers hereby agree to sell all of the
issued and outstanding stock of Holdings and all of the stock of ESCO held by
GTI.
1.2. Purchase Price.
1.2.1. As consideration for the Shares, the Buyers agree to
pay to GTI an amount equal to the Tangible Net Book Value of Holdings as of the
close of business on the Closing Date (the "Purchase Price"). For this purpose,
"Tangible Net Book Value" means the excess of the consolidated assets of
Holdings and ESCO, but not including (i) goodwill or going concern value, (ii)
cash, or (iii) intercompany accounts, over the consolidated liabilities of
Holdings and ESCO, as adjusted and calculated in accordance with the procedure
established for determining the Closing Balance Sheet in Exhibit C. Tangible Net
Book Value shall be determined by using US generally accepted accounting
principles in a manner consistent with those used in preparing the audited
balance sheet of ESCO as of December 31, 1995 described in Section 6.12 (the
"Accounting Principles"), provided, however, that in determining the Tangible
Net Book Value, the reserve against the accounts receivable shall be $171,000
and the reserve against inventory shall be $156,000.
1
<PAGE> 2
1.2.2. For purposes of determining the amount of cash to be
paid at the Closing, the Tangible Net Book Value is hereby estimated to be
$4,118,000 (the "Estimated TNBV").
1.2.3. If the Tangible Net Book Value at the close of business
on the Closing Date is less than the Estimated TNBV, then the Purchase Price
shall be reduced dollar-for-dollar by the amount of such deficiency. If the
Tangible Net Book Value at the close of business on the Closing Date is greater
than the Estimated TNBV, then the Purchase Price shall be increased
dollar-for-dollar by the amount of such excess. Such difference is referred to
herein as the "Post-Closing Purchase Price Adjustment".
1.2.4. Within five business days after the determination of
the Post-Closing Purchase Price Adjustment is made, Insulectro or GTI, as the
case may be, shall deliver the Post-Closing Purchase Price Adjustment by wire
transfer of federal funds, together with interest on such amount from the
Closing Date until paid at a rate equal to 5% per annum.
1.3. Payment Terms. The Purchase Price shall be paid as follows:
(i) The first one million nine hundred thousand dollars
($1,900,000) of the Purchase Price shall be paid in the form of a six (6) year,
one million nine hundred thousand dollar ($1,900,000) subordinated promissory
note issued by Insulectro in the form attached hereto as Exhibit A (the
"Promissory Note") bearing interest at rate of six percent (6%) per annum,
principal and interest payable semi-annually. The Promissory Note shall be
subordinated in accordance with the terms of the subordination agreement
attached hereto as Exhibit B (the "Subordination Agreement").
In the event of an event of default (as defined in the Note) and if GTI
is successful in reducing the Note to a judgment against Insulectro, then the
amount of such judgment shall bear prejudgment interest at the rate of 10% per
annum from the date of the event of default provided that GTI has delivered to
Insulectro within 45 days of the Close, a copy of the policy or the policy
number and a general description thereof, e.g. "general liability" of each
liability insurance policy held by or for the benefit of ESCO, or any
predecessor in interest, since incorporation (the "Insurance Information"). In
the event that GTI fails to provide the Insurance Information during the
required period then there shall be no prejudgment increase in the stated 6%
interest rate payable under the Note in the event of an event of default.
(ii) The sum of $2,218,000 shall be paid by Buyers to GTI
on the Closing Date by wire transfer as follows:
Union Bank
San Diego Regional Office
530 B Street, 4th Floor
San Diego, CA 92101
Transit Routing Number: 122000496
For Credit to:
GTI Corporation
Account Number: 4000132123
2
<PAGE> 3
1.4 Closing Balance Sheet.
1.4.1. Preliminary and Adjusted Closing Balance Sheets.
Promptly after the Closing, GTI, (with such assistance as GTI shall reasonably
request of the Buyers and the other Sellers) shall prepare a consolidated
balance sheet of Holdings and ESCO as of the close of business on the Closing
Date (the "Preliminary Closing Balance Sheet"). The Preliminary Closing Balance
Sheet shall be prepared in accordance with the Accounting Principles. ESCO
conducted a physical inventory count on December 15, 1995 and such count, as
rolled forward to reflect transactions prior to the Closing, will be used as the
inventory count. GTI shall engage Arthur Andersen & Co., LLP, at its sole
expense, to perform the procedures described on Exhibit C hereto with respect to
the Preliminary Closing Balance Sheet and to deliver a report to the Buyers and
GTI of their findings. Based upon such report, GTI shall make such adjustments,
if any, to the Preliminary Closing Balance Sheet as shall be required to cause
the Preliminary Closing Balance Sheet to reflect fairly the adjustments
described in the report in accordance with the Accounting Principles and shall
deliver such revised balance sheet to the Buyers (the "Adjusted Closing Balance
Sheet").
1.4.2. Delivery of Adjusted Closing Balance Sheet. As soon as
practicable following the Closing, but in no event later than April 1, 1996, the
Adjusted Closing Balance Sheet shall be delivered by GTI to the Buyers. The
Buyers and their representatives shall be provided complete access to all work
papers and other information used by GTI in preparing the Adjusted Closing
Balance Sheet. The Adjusted Closing Balance Sheet, when delivered by GTI to the
Buyers, shall be deemed conclusive and binding on the parties for purposes of
determining the Post-Closing Purchase Price Adjustment, unless the Buyers notify
GTI in writing within 30 days after receipt of the Adjusted Closing Balance
Sheet of their disagreement therewith, which notice shall state with reasonable
specificity the reasons for any disagreement and identify the items and amounts
in dispute.
1.4.3. Arbitration. If any disagreement concerning the
Post-Closing Purchase Price Adjustment is not resolved by the Buyers and GTI
within 30 days following delivery by the Buyers of its notice or objection to
the Adjusted Closing Balance Sheet, the undisputed amount shall be paid in
accordance with Section 1.2, and the Buyers and GTI shall promptly engage on
standard terms and conditions for a matter of such nature a nationally
recognized firm of independent accountants to resolve such dispute. The firm of
independent accountants shall be proposed in writing by the Buyers to GTI. In
the absence of agreement on the identity of the independent accountants within
five (5) business days, the Orange County, California office of the accounting
firm of Price Waterhouse LLP shall be engaged by the parties. The engagement
agreement with the independent accountants shall require the independent
accountants to make their determination with respect to the items in dispute
within 90 days following the delivery by the Buyers of their notice of objection
to the Adjusted Closing Balance Sheet. The Buyers and GTI shall each pay
one-half of the cost of the fees and expenses of such independent accountants at
the time of payment of the Post-Closing Purchase Price Adjustment. The
resolution by the independent accountants of any dispute concerning the
Post-Closing Purchase Price Adjustment shall be final, binding and conclusive
upon the parties and shall be the parties' sole and exclusive remedy regarding
any dispute concerning the Post-Closing Purchase Price Adjustment.
1.4.4. Final Closing Balance Sheet. The Adjusted Closing
Balance Sheet, as modified by the parties' agreement and by any determination by
the independent accountants as described in this Section 1.4, shall be the
"Closing Balance Sheet".
3
<PAGE> 4
2. THE CLOSING.
Upon the terms and subject to the conditions contained in this
Agreement, the closing of the transactions contemplated by this Agreement
(referred to herein as the "Close" and sometimes as the "Closing") will take
place at the offices of Johnson, Poulson & Slater at 10880 Wilshire Boulevard,
Suite 1800, Los Angeles, California, at 9:00 a.m. (local time) on February 16,
1996 or at such other place or time or both as the parties mutually designate in
writing. The time and date of Closing are called the "Closing Date."
3. REPRESENTATIONS AND WARRANTIES BY THE SELLERS.
ESCO, Holdings and GTI jointly and severally, represent and warrant to
Insulectro and QI that:
3.1. Organization, Standing and Qualification.
3.1.1. ESCO is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Delaware and has all
necessary corporate powers to own its properties and to carry on its business as
now owned and operated by it. ESCO is duly qualified to do intrastate business
and is in good standing in each state or other jurisdiction listed on Schedule
3.1.1.
3.1.2. Holdings is a corporation duly organized, validly
existing, and in good standing under the laws of the state of Delaware and has
all necessary corporate powers to own its properties and to operate its business
as now owned and operated by it. Neither the ownership of its properties nor the
nature of its business require Holdings to be qualified in any jurisdiction
other than the state of its incorporation.
3.2. Capital Structure.
3.2.1. The authorized capital stock of ESCO consists of 1,000
shares of common stock, of which 1,000 are issued and outstanding.
3.2.2. The authorized capital stock of Holdings consists of
1,000 shares of common stock, of which 1,000 are issued and outstanding.
3.2.3. All of the shares described above are validly issued,
fully paid, and nonassessable, and such shares have been so issued in full
compliance with all federal and state securities laws. There are no outstanding
subscriptions, options, rights, warrants, convertible securities, or other
agreements or commitments obligating ESCO or Holdings to issue or to transfer
from treasury any additional shares of their respective capital stock of any
class.
3.3. Title to the Shares.
3.3.1. GTI is the owner, beneficially and of record of 1,000
shares of common stock of Holdings and GTI holds such shares free and clear of
all liens, encumbrances, security agreements, equities, options, claims,
charges, and restrictions, other than as listed in Schedule 3.3. Such shares
represent all of the issued and outstanding shares of capital of stock of
Holdings. GTI has full power to transfer its shares to the Buyers without
obtaining the consent or approval of any other person or governmental authority.
3.3.2. GTI and Holdings, respectively, are the owners,
beneficially and of record, of 200 and 800 shares, respectively, of the common
stock of ESCO. GTI and Holdings each holds their respective shares free and
clear of all liens, encumbrances, security agreements, equities, options,
claims, charges, and restrictions, other than as listed in Schedule 3.3. Such
shares represent all of the issued and outstanding shares of capital of stock of
ESCO. GTI has full power to transfer its shares to the Buyers without obtaining
the consent or approval of any other person or governmental authority.
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3.4. Corporate Documents. The Sellers have furnished or will furnish to
the Buyers for their examination prior to the Close (1) copies of the articles
of incorporation and the bylaws of ESCO and Holdings, respectively; (2) the
minute book of ESCO and Holdings, respectively, containing all records of all
proceedings, consents, actions, and meetings of the shareholders and board of
directors of ESCO and Holdings, respectively; and (3) the stock transfer books
of ESCO and Holdings, respectively, setting forth all issuances and transfers of
any capital stock.
3.5. Officers and Directors.
3.5.1. Schedule 3.5.1 contains a list of all officers and
directors of ESCO, stating the rates of compensation payable to each.
3.5.2. Schedule 3.5.2 contains a list of all officers and
directors of Holdings, stating the rates of compensation payable to each.
3.6. Authority and Consents. Each of the Sellers has the right, power,
legal capacity, and authority to enter into and perform their respective
obligations under this Agreement; and no approvals or consents of any persons
other than the Sellers are necessary in connection with it. The execution and
delivery of this Agreement by the Sellers have been duly authorized by all
necessary corporate action.
3.7. Interest in Customers, Suppliers and Competitors. To the Sellers'
knowledge, neither any of the Sellers; nor any officer, director, or employee of
GTI, Holdings or ESCO; nor any spouse or child of any of them has any direct or
indirect material interest in any material competitor, supplier, or customer of
ESCO or in any entity person from whom or to whom ESCO or Holdings leases any
real or personal property, except as disclosed by Schedule 3.7.
3.8. Authority. Schedule 3.8 lists (1) the names and addresses of all
persons holding a power of attorney on behalf of ESCO or Holdings and (2) the
names and addresses of all banks or other financial institutions in which
Holdings or ESCO has an account, deposit, or safe deposit box, with the names of
all persons authorized to draw on these accounts or deposits or to have access
to these boxes.
3.9. Financial Statements. Sellers have delivered true and correct
copies of the management prepared financial statements of ESCO and Holdings for
each of the calendar years ended 1991, 1992, 1993 and 1994 and the audited
financial statements for the year ended December 31, 1995 (the "Annual Financial
Statements") and interim financial statements for the month of January 1996 (the
"Interim Financial Statements"). The Annual Financial Statements and the Interim
Financial Statements (individually and collectively, the "Financial Statements")
have been prepared in accordance with generally acceptable accounting principles
consistently applied and fairly present the financial position of ESCO as of
their respective dates and for the periods covered thereby except that only the
Annual Financial Statements for 1995 contain footnotes and the Interim Financial
Statements do not contain customary year end audit adjustments.
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3.10. Absence of Specified Changes. Except as disclosed on Schedule
3.10, since December 31, 1995 there has not been any:
3.10.1. Transaction by Holdings or ESCO except in the ordinary
course of business as conducted on that date;
3.10.2. Capital expenditures by Holdings or ESCO totaling more
than $10,000.00;
3.10.3. Material adverse change in the financial condition,
liabilities, assets, business, or prospects of ESCO or Holdings;
3.10.4. Destruction, damage to, or loss of any asset of ESCO
or Holdings (whether or not covered by insurance) that materially and adversely
affects the financial condition, business, or prospects of ESCO or Holdings;
3.10.5. Change in accounting methods or practices (including,
without limitation, any change in depreciation or amortization policies or
rates) by ESCO or Holdings;
3.10.6. Revaluation by ESCO or Holdings of any of their
respective assets other than as set forth in Schedule 3.12;
3.10.7. Declaration, setting aside, or payment of a dividend
or other distribution in respect to the capital stock of ESCO or Holding, or any
direct or indirect redemption, purchase, or other acquisition by ESCO or
Holdings of any of their respective shares of capital stock;
3.10.8. Increase in the salary or other compensation payable
or to become payable by ESCO or Holdings to any of its officers, directors, or
employees, or the declaration, payment, or commitment or obligation of any kind
for the payment, by ESCO or Holdings, of a bonus not in the ordinary course of
business or other additional salary or compensation to any such person, without
the prior written approval of the Buyers.
3.10.9. Sale or transfer of any asset, including cash, of ESCO
or Holdings, except in the ordinary course of business;
3.10.10. Amendment or termination of any contract, agreement,
or license to which ESCO or Holdings is a party, except in the ordinary course
of business;
3.10.11. Loan by ESCO or Holdings to any person or entity
(other than travel and similar advances to employees in the ordinary course of
business) or guaranty by ESCO or Holdings of any loan;
3.10.12. Mortgage, pledge, or other encumbrance of any asset
of ESCO or Holdings;
3.10.13. Waiver or release of any right or claim of ESCO or
Holdings, except in the ordinary course of business;
3.10.14. Commencement or notice (or threat of commencement
known to the Sellers), of any civil litigation or any governmental proceeding
against or investigation of ESCO or Holdings or the affairs of either of them;
3.10.15. To the Sellers' knowledge, there has been no labor
trouble or claim of wrongful discharge or other unlawful labor practice or
action relating to or in any way involving ESCO or Holdings;
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3.10.16. Issuance or sale by ESCO or Holdings of any shares of
their respective capital stock of any class, or of any other of their respective
securities;
3.10.17. Agreement by ESCO or Holdings to do any of the things
described in section 3.10.1. through 3.10.17;
3.10.18. Other event or condition of any character known to
the Sellers that has or might reasonably have a material and adverse effect on
the financial condition, business, assets, liabilities, or prospects of ESCO or
Holdings.
3.11. Absence of Undisclosed Liabilities. Neither ESCO nor Holdings has
any debt, liability, or obligation of any nature (whether accrued, absolute, or
to the Sellers' knowledge contingent), and whether due or to become due, that is
not reflected or reserved against in the balance sheet for the year ended
December 31, 1995 or set forth in Schedule 3.11 to this Agreement, except for
(i) those that are not required by generally accepted accounting principles to
be included in a balance sheet; and (ii) those incurred after December 31, 1995,
all of which have been incurred in the ordinary course of business and are usual
and normal in amount both individually and in the aggregate.
3.12. Inventory. All items included in the inventories of raw
materials, work in process, and finished goods (collectively called
"Inventories") shown on the balance sheet of ESCO for the year ended December
31, 1995 are the property of ESCO, except for sales made in the ordinary course
of business since the date of the balance sheet; for each of these sales, either
the purchaser has made full payment or the purchaser's liability to make payment
is reflected in the books of ESCO. No items included in the Inventories have
been pledged as collateral or are held by ESCO on consignment from others except
as set forth on Schedule 3.12.
3.13. Other Tangible Personal Property. Schedule 3.13 to this Agreement
is a complete and accurate schedule describing, and specifying the location of,
all trucks, automobiles, machinery, equipment, furniture, supplies, tools, dies,
rigs, molds, patterns, drawings, and all other tangible personal property owned
by, in the possession of, or used by ESCO in connection with its business,
except inventories of raw materials, work in process, and finished goods. The
property listed on Schedule 3.13 constitutes all such tangible personal property
customarily used in or necessary for the conduct of business by ESCO as now
conducted. All the motor vehicles listed in Schedule 3.13 are in good condition
and repair.
3.13.1. Except as stated on Schedule 3.13, no personal
property used by ESCO in connection with its business is held under any lease,
security agreement, conditional sales contract, or other title retention or
security arrangement, or is located other than in the possession of ESCO.
3.14. Accounts Receivable. Schedule 3.14 to this Agreement is a
complete and accurate schedule of the accounts receivable of ESCO as of December
31, 1995, as reflected in the balance sheet for the year ended December 31,
1995, together with an accurate aging of these accounts. Except as set forth on
Schedule 3.14, these accounts receivable, and all accounts receivable of ESCO
created after that date, arose from valid sales in the ordinary course of
business.
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3.15. Trade Names, Trademarks and Copyrights. ESCO has the exclusive
right to use the corporate name "Electronic Supply Corporation" in Delaware and
has registered to do business in California, Colorado as a foreign corporation
under that name and in Arizona as a foreign corporation in Arizona under the
name "Electronic Supply Corporation of Delaware." Sellers make no other
representations regarding the names ESCO, Electronic Supply Corporation or ESCO
Sales, Inc. Schedule 3.15 to this Agreement is a schedule of all trade names,
trademarks, service marks, and copyrights and their registrations, owned by ESCO
or Holdings or in which ESCO or Holdings has any rights or licenses, together
with a brief description of each and statement of each state and country where
such rights exists. The Sellers have no knowledge of any infringement or alleged
infringement by others of any such trade name, trademark, service mark, or
copyright. Neither ESCO nor Holdings have infringed, and they are not now
infringing, on any trade name, trademark, service mark, or copyright belonging
to any other person, firm, or corporation. Except as set forth on Schedule 3.15,
neither ESCO nor Holdings is a party to any license, agreement, or arrangement,
whether as licensor, licensee, franchisor, franchisee, or otherwise, with
respect to any trademarks, service marks, trade names, or applications for them,
or any copyrights. ESCO and Holdings own, or hold adequate licenses or other
rights to use, all trademarks, service marks, trade names, and copyrights
necessary to the Business as now conducted by ESCO (including without limitation
those listed on Schedule 3.15), that use does not, and to Sellers' knowledge,
will not, conflict with, infringe on, or otherwise violate any rights of others.
3.16. Patents and Patent Rights. Schedule 3.16 to this Agreement is a
complete schedule of all patents, inventions, and applications for patents owned
by ESCO or Holdings or in which they have any material rights, or licenses. The
patents and applications for patents listed on Schedule 3.16 are valid and in
full force and effect and are not subject to any taxes, maintenance fees, or
actions falling due within ninety (90) days after the Closing Date. Except as
set forth on Schedule 3.16, there have been no interference actions or other
judicial, arbitration, or other adversary proceedings concerning the patents or
applications for patents listed on Schedule 3.16. Each patent application is
awaiting action by its respective patent office except as otherwise indicated on
Schedule 3.16. The manufacture, use, or sale of the inventions, models, designs,
and systems covered by the patents and applications for patents listed on
Schedule 3.16 does not, to the Sellers' knowledge, violate or infringe on any
patent or any proprietary or personal right of any person, firm or corporation;
and neither ESCO nor Holdings have infringed or are now infringing on any patent
or other right belonging to any person, firm or corporation. Except as set forth
on Schedule 3.16, neither ESCO nor Holdings are a party to any license,
agreement, or arrangement, whether as licensee, licensor, or otherwise, with
respect to any patent, application for patent, invention, design, model,
process, trade secret or formula. ESCO and Holdings have the right and authority
to use such inventions, trade secrets, processes, models, designs, and formulas
as are necessary to enable the Buyers to conduct and to continue to conduct all
phases of the business in the manner presently conducted by ESCO, and that use
does not, and will not to the Sellers' knowledge, conflict with, infringe on, or
violate any patent or other rights of others.
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3.17. Trade Secrets. Schedule 3.17 to this Agreement is a true and
complete list, without extensive or revealing descriptions, of the material
trade secrets of ESCO and Holdings (the "Trade Secrets"), including all secret
formulas, pricing lists, customer lists, tooling, drilling, punching and
fabricating processes, know-how, computer programs, routines, and other
technical data. The specific location of each trade secret's documentation, and
other material relating to it, is also set forth with it in Schedule 3.17. The
Sellers shall use their best efforts to insure that the Trade Secrets'
documentation is current, accurate, and sufficient in detail and content to
identify and explain it and to allow its full and proper use by the Buyers
without reliance on the special knowledge or memory of others. In addition,
after the Close, the Sellers shall demonstrate and provide such additional
information as may reasonably be required by the Buyers to understand and use
the Trade Secrets.
3.17.1. The Trade Secrets are free and clear of any liens,
encumbrances, restrictions, or legal or equitable claims of others, except as
specifically set forth on Schedule 3.17. ESCO and Holdings have each taken all
reasonable security measures to protect the secrecy, confidentiality, and value
of the Trade Secrets; any of their employees and any other persons who, either
alone or in concert with others, developed, invented, discovered, derived,
programmed, or designed these secrets, or who have knowledge of or access to
information relating to them, have been put on notice and, if appropriate, have
entered into agreements that the Trade Secrets are proprietary to ESCO and
Holdings and not to be divulged or misused.
3.17.2. All the Trade Secrets are presently valid and
protectable and are not part of the public knowledge or literature; nor to the
Sellers' knowledge have they been used, divulged, or appropriated for the
benefit of any past or present employees or other persons, or to the detriment
of ESCO or Holdings.
3.18. Real Property. Neither Holdings nor ESCO own any real property.
Schedule 3.18 to this Agreement contains the address and a legal description of
each parcel of real property leased to ESCO or Holdings. All the leases listed
in Schedule 3.18 are valid and in full force, and there does not exist any
default or event that with notice or lapse of time, or both, would constitute a
default under any of these leases.
3.19. Insurance Policies. Schedule 3.19 to this Agreement contains a
description of all insurance policies held by ESCO or Holdings concerning the
business and properties. All these policies are in the respective principal
amounts set forth on Schedule 3.19. Neither ESCO nor Holdings is in default with
respect to payment of premiums on any such policy. Except as set forth on
Schedule 3.19, no claim is pending under any such policy.
3.20. Other Contracts. Except the agreements listed on Schedule 3.20,
copies of which have been furnished or made available to Buyers, neither ESCO
nor Holdings is a party to, nor is the property of ESCO or Holdings bound by,
any distributor's or manufacturer's representative or agency agreement; any
output or requirements agreement; any agreement not entered into in the ordinary
course of business; any indenture, mortgage, deed of trust, or lease; or any
agreement requiring the performance by ESCO or Holdings of any obligation for a
period of time extending beyond one year from Closing Date or calling for
consideration of more than $10,000.00. There is, to the Sellers' knowledge, no
default or event that, with notice or lapse of time or both, would constitute a
default by any party to any of these agreements. Except as set forth on Schedule
3.20, none of the Sellers have received notice that any party to any of these
agreements intends to cancel or terminate any of these agreements or to exercise
or not exercise any options under any of these agreements.
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3.21. Title to Assets. ESCO and HOLDINGS each have good and marketable
title to all of their respective assets and interests in assets, except for
those leasehold interests set forth on Schedules 3.13, 3.18, and 3.21 whether
real, personal, mixed, tangible, or intangible which are used in the business of
ESCO or Holdings (the "Non-Leasehold Assets"). The Non-Leasehold Assets are free
and clear of restrictions on or conditions to transfer or assignment, and free
and clear of mortgages, liens, pledges, charges, encumbrances, equities, claims,
easements, rights of way, covenants, conditions, or restrictions, except for (1)
those disclosed in the balance sheet for the year ended December 31, 1995, or on
Schedule 3.21; and (2) the lien of current taxes not yet due and payable.
Neither ESCO nor Holdings is in default or in arrears in any material respect
under any lease. All real property and tangible personal property of ESCO and
Holdings, in the aggregate, is in good operating condition and repair, ordinary
wear and tear excepted. Holdings and ESCO are in possession of all premises
leased to them from others. To the Sellers' knowledge, neither ESCO, Holdings
nor GTI; nor any of their respective officers, directors, or employees; nor any
spouse, child, or other relative of any of these persons, owns, or has any
interest, directly or indirectly, in any of the real or personal property owned
by or leased to ESCO or Holdings or any copyrights, patents, trademarks, trade
names, or trade secrets licensed by ESCO or Holdings. Neither ESCO nor Holdings
occupy any real property in material violation of any law, regulation, or
decree.
3.22. Tax Returns and Audits.
3.22.1. Within the times and in the manner prescribed by law,
ESCO and Holdings have filed all federal, state, and local tax returns required
by law (the "Tax Returns") and have paid all taxes, assessments, and penalties
due and payable. Except for the GTI combined return for 1991 and 1992 for
California, the federal income tax and state income tax returns of ESCO and
Holdings have been closed by applicable statute of limitations and all
liabilities in respect thereto have been finally determined by audit for all
taxable periods prior to and including the taxable year ended December 31, 1991.
Except for the GTI combined return for 1991 and 1992 for California, no tax
returns of ESCO or Holdings have been or are presently being audited, and as to
the unaudited Tax Returns of ESCO and Holdings, no deficiency has been proposed
as of the date hereof. GTI's combined returns for 1991 and 1992 for California
are presently being audited but no proposed deficiency or issues have been
raised relating to Holdings or ESCO.
3.22.2. The provisions for taxes reflected in balance sheet
for the year ended December 31, 1995 and the Closing Balance Sheet are adequate
for any and all federal, state, county, and local taxes for the period ending on
the date of that balance sheet and for all prior periods, whether or not
disputed, except as explained on Schedule 3.11. There are no present disputes as
to taxes of any nature payable by ESCO or Holdings.
3.22.3. The Sellers have or will deliver to the Buyers a copy
of all schedules relating to ESCO or Holdings on the consolidated Tax Returns
filed by GTI since and including 1990.
3.23. Compliance with Laws.
3.23.1. ESCO and Holdings have each complied in all material
respects with all federal, state, and local environmental protection laws and
regulations and have not been cited for any violation of any such law or
regulation. No material capital expenditures are presently required for
compliance with any applicable federal, state, or local laws or regulations now
in force relating to the protection of the environment. There is no pending
audit known to Sellers by any federal, state, or local governmental authority
with respect to groundwater, soil, or air monitoring; the storage, burial,
release, transportation, or disposal of hazardous substances; or the use of
underground storage tanks by ESCO or Holdings or relating to the facilities of
ESCO or Holdings. None of the Sellers have any agreement with any third party or
federal, state, or local governmental authority relating to any such
environmental matter or any such environmental cleanup.
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3.23.2. ESCO and Holdings have each complied with all
requirements of the Occupational Safety and Health Act and its applicable state
law equivalents and regulations promulgated under any such legislation, the
consequences of a violation of which could have a material adverse effect on its
operations, and with all orders, judgments, and decrees of any tribunal under
such legislation that apply to its business or properties.
3.23.3. Neither ESCO nor Holdings is in violation of any
provision of the Export Administration Act of 1979 or the Foreign Corrupt
Practices Act of 1977.
3.23.4. ESCO and Holdings have each complied in all material
respects with, and they are not in material violation of, any applicable
federal, state, or local statute, law, or regulation (including, without
limitation, any applicable building, zoning, environmental protection, or other
law, ordinance, or regulation) affecting its properties or the operation of its
business.
3.24. Zoning. The zoning of each parcel of property described on
Schedule 3.18 permits the presently existing improvements and the continuation
of the business presently being conducted on such parcel. Neither ESCO nor
Holdings have commenced, nor have the Sellers received notice of the
commencement of, any proceeding that would affect the present zoning
classification of any such parcel.
3.25. Environmental Compliance. ESCO and Holdings are, and each have at
all times been, in compliance in all material respects with all applicable
federal, state and local laws and requirements (including permit requirements)
relating to the protection of health or the environment in connection with the
ownership, operation and conditions of its properties and business
("Environmental Laws"). Neither ESCO nor Holdings have ever been issued any
environmental permits, licenses or other authorizations by any federal, state or
local governmental agency, including, but not limited to, the United States
Environmental Protection Agency. None of the Sellers has any knowledge of any
facts or circumstances relating to ESCO, Holdings, or their predecessors
interest, that could adversely affect or render significantly more costly in the
future the compliance with existing Environmental Laws by ESCO, Holdings or
their respective successors in interest. No Contaminants have ever been
generated, handled, discharged, disposed of, released, placed or dumped on or
under any premises or facilities presently or previously owned, leased or used
by ESCO or Holdings, whether by ESCO, Holdings or any other person, in a manner
which violates any Environmental Law. To the best of Sellers' knowledge, no
polychlorinated biphennyls, asbestos, or underground storage tanks are or were
ever used in the construction or operation of, or located on, the premises or
facilities presently or previously owned, leased or used by ESCO or Holdings.
For purposes of this section 3.25., the term "Contaminant" means any pollutant,
contaminant, petroleum, crude oil or any fraction thereof, or hazardous
substance (as such terms are defined in the federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, and any
implementing regulations, or any similar state or local legal requirements).
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3.26. Litigation. Except as set forth on Schedule 3.26, there is
neither pending, nor, to the best knowledge of the Sellers, threatened, any
suit, action, arbitration, or legal, administrative, or other proceeding, or
governmental investigation against or affecting ESCO, Holdings or any of their
respective businesses, assets, or financial condition. The matters set forth on
Schedule 3.26, if decided adversely to ESCO or Holdings, will not result in a
material adverse change in the business, assets, or financial condition of ESCO
or Holdings. The Sellers have furnished or made available to the Buyers copies
of all relevant court papers and other documents relating to the matters set
forth on Schedule 3.26. Neither ESCO nor Holdings are in default with respect to
any order, writ, injunction, or decree of any federal, state, local, or foreign
court, department, agency, or instrumentality. Except as set forth on Schedule
3.26, neither ESCO nor Holdings are presently engaged in any legal action to
recover moneys due to any of them or damages sustained by any of them.
3.27. Agreement Will Not Cause Breach or Violation. Except as set forth
on Schedule 3.27, the execution and delivery of this Agreement does not and will
not, (1) violate any provision of the articles of incorporation or bylaws of
either ESCO or Holdings; (2) violate any provision of, or result in the
acceleration of any obligation under, or result in the imposition of any lien or
encumbrance on any asset of ESCO or Holdings pursuant to the terms of any
mortgage, note, lien, lease, franchise, license, permit, agreement, instrument,
order, arbitration award, judgment, or decree; (3) result in the termination of
any license, franchise, lease, or permit to which either ESCO or Holdings is a
party or by which ESCO or Holdings is bound; or (4) violate or conflict with any
other restriction of any kind or character to which either ESCO or Holdings is
subject.
3.28. Employment Contracts and Benefits.
3.28.1. Set forth in Schedule 3.28 is a list of all persons
who are employed by ESCO or Holdings on the date hereof, together with their
then existing rate of compensation, title, original date of hire and vacation
benefits. Except as set forth in Schedule 3.28, none of the employees listed has
indicated his or her intention to cancel or otherwise terminate his or her
relationship with ESCO or Holdings or his or her intention not to be employed by
ESCO or Holdings following the Close. Schedule 3.28 contains a list and
description of all employment contracts and collective bargaining agreements,
and all pension, bonus, profit-sharing, stock option, or other agreements or
arrangements providing for employee remuneration or benefits to which either
ESCO or Holdings is a party or by which ESCO or Holdings is bound. All these
contracts and arrangements are in full force and effect, and neither ESCO,
Holdings nor any other party is in default under them. There have been no claims
of defaults and, to the best knowledge of the Sellers, there are no facts or
conditions that if continued, or on notice, will result in a default under these
contracts or arrangements. There is no pending or, to the Sellers' knowledge,
threatened labor dispute, strike, or work stoppage affecting the business of
ESCO or Holdings. ESCO and Holdings have each complied in all material respects
with all applicable laws for each of its employee benefit plans, including the
provisions of the Employee Retirement Income Security Act (ERISA) if and to the
extent applicable. There are no pending or to the Sellers' knowledge threatened,
claims by or on behalf of any such benefit plan, by or on behalf of any employee
covered under any such plan, or otherwise involving any such benefit plan, that
allege a breach of fiduciary duties or violation of other applicable state or
federal law, nor is there, to the Sellers' knowledge, any basis for such a
claim. Except as set forth on Schedule 3.28, neither ESCO nor Holdings have
entered into any severance or similar arrangement in respect to any present or
former employee that will result in any obligation, absolute or contingent, of
the Buyers, ESCO or Holdings, to make any payment to any present or former
employee following termination of employment.
3.28.2. Schedule 3.28 of ESCO contains a chart showing
employees and their families with respect to whom Sellers have incurred medical
related costs in excess of $5,000, in the aggregate, since January 1, 1995.
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3.28.3. Except as set forth on Schedule 3.28, neither ESCO nor
Holdings has any employees or family members of employees entitled to COBRA
coverage.
3.29. Brokers. All negotiations relating to this Agreement and the
transactions contemplated hereby have been carried out without the intervention
of any person acting on behalf of the Sellers in such a manner to give rise to
any valid claim against the Sellers or the Buyers for any brokerage of finder's
commission, fee or similar compensation.
3.30. Customers and Sales. Schedule 3.30 to this Agreement is a correct
and current list of all customers of ESCO to whom sales in excess of $10,000, in
the aggregate, were made during the calendar years ended December 31, 1994 and
December 31, 1995, respectively. None of the Sellers has any information, or is
aware of any facts, indicating that any of these customers intend to cease doing
business with ESCO or materially alter the amount of business they are presently
doing with ESCO.
3.31. Fictitious Names and Predecessors. Schedule 3.31 sets forth a
true, correct and complete list of all fictitious business names, trade names
and corporate names ever used by ESCO or Holdings or any of their respective
predecessor's in interest, listed by state. Schedule 3.31 sets forth each
predecessor in interest to ESCO and Holdings, respectively and all entities
which have been merged into either ESCO or Holdings.
3.32. Governmental Contracts. ESCO and Holdings are, and have at all
times been, in compliance in all material respects with all applicable federal,
state and local laws and requirements relating to their direct sales and
indirect sales to all customers with contracts with governmental departments
and/or agencies.
3.33. Full Disclosure. None of the representations and warranties made
by the Sellers, or made in any certificate or memorandum furnished or to be
furnished by any of them or on their behalf, contains or will contain any untrue
statement of a material fact, or omits to state any material fact necessary to
make the statements made, in the light of the circumstances under which they
were made, not misleading.
3.34. Deferred Tax Benefits. Schedule 3.34 sets forth a chart showing
items relating to ESCO and reflected on Schedule M of Sellers' consolidated
federal income tax returns (estimated for 1995). The Sellers have not taken any
tax deduction on any such returns for any of such items.
4. REPRESENTATIONS AND WARRANTIES BY BUYER.
QI and Insulectro, jointly and severally, represent and warrant to the
Sellers:
4.1. Organization. Insulectro, and QI are each corporations duly
organized, validly existing, and in good standing under the laws of the state of
California. QI Electronics which is a wholly owned subsidiary of Insulectro.
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4.2. Corporate Power and Action. Insulectro and QI each have the
corporate power to execute and deliver this Agreement and such other documents
and agreements to be produced under this Agreement to which they are a party,
(collectively the "Agreements") and have taken all actions required by law,
their articles of incorporation, their bylaws, or otherwise, to authorize the
execution and delivery of this Agreement and the Agreements. This Agreement and
the Agreements are valid and binding agreements of Insulectro and QI in
accordance with their respective terms, to the extent that Insulectro or QI is a
party to such agreement.
4.3. Ability to Perform. The Buyers have sufficient assets and
resources to consummate the transactions contemplated by this Agreement.
4.4. Brokers. All negotiations relating to this Agreement and the
transactions contemplated hereby have been carried out without the intervention
of any person acting on behalf of the Buyers in such a manner to give rise to
any valid claim against the Buyers or the Sellers for any brokerage of finder's
commission, fee or similar compensation.
4.5. Full Disclosure. None of the representations and warranties made
by Buyer, or made in any certificate or memorandum furnished or to be furnished
by Seller or on its behalf, contains or will contain any untrue statement of a
material fact, or omits to state any material fact necessary to make the
statements made, in the light of the circumstances under which they were made,
not misleading.
4.6. Financial Statements. Insulectro has or will deliver a true and
correct copy of its audited consolidated financial statements for the year ended
December 31, 1994, together with a management prepared financial statements for
the year ended December 31, 1995 and an interim financial statement for the
month ended January 31, 1996 ("Insulectro's Financial Statements"). Insulectro's
Financial Statements have been prepared in accordance with generally accepted
accounting principles consistently applied, and fairly present the financial
position of Insulectro, as of the respective dates of the balance sheets
included in Insulectro's Financial Statements, and the results of its operations
for the period indicated.
5. COVENANTS OF THE PARTIES.
5.1. Access to Premises and Information. Prior to the Closing, the
Buyers shall be entitled, directly and through their accountants, attorneys and
other representatives, to conduct a complete investigation of any and all
aspects of the assets, liabilities, business and operations of ESCO and Holdings
including, without limitation, an investigation of ESCO or Holdings' title to
real and personal property, the condition of their properties, confirmation of
cash, inventories, account receivable, liabilities and other financial statement
items, and a review of their sales, suppliers, products and costs. ESCO and
Holdings shall permit the Buyers and their representatives to have full access
to the premises, books and records, employees, customers and suppliers of ESCO
or Holdings, prior to the Closing at reasonable hours, and ESCO and Holdings
shall furnish the Buyers with such documents, financial and operating data and
other information with respect to their business and properties as the Buyers or
their representatives may reasonably request. The Buyers shall further have the
right to communicate directly with the Sellers' customers and suppliers as the
Buyers may reasonably desire. The Buyers agree to keep confidential until the
Close all information concerning ESCO or Holdings obtained by them pursuant to
this Section 5.1, except to the extent such information is already known by the
Buyers, from sources other than Sellers, or becomes publicly available.
Except where the Buyers have actual knowledge, the Buyer's'
investigation shall not affect (1) the representations and warranties of the
Sellers contained or provided for in this Agreement, (2) the Buyer's' right to
rely on those representations and warranties, or (3) the Buyers' right to
terminate this Agreement as provided in Article 10 of this Agreement.
5.2. Planning Meetings; No Public Announcements.
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5.2.1. At such time and place as Insulectro may select,
Insulectro management shall have the right to hold a meeting with such key
personnel at ESCO as Insulectro may select, to discuss and develop a post
Closing business plan and to discuss such other matters as they may desire.
5.2.2. The parties hereto shall not, individually or
collectively, issue any press releases or otherwise make any public statements
with respect to the terms of this Agreement and the transaction contemplated
hereby, except as mutually authorized by the parties or required by law.
5.3. Further Assurances. Subject to the terms and conditions of this
Agreement, each of the parties hereto will use all reasonable efforts to take,
or cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated hereby. From time to
time after the date hereof, without further consideration, the Sellers will
execute and deliver such documents as the Buyers may reasonably request in order
to effect the transactions contemplated hereby.
5.4. Consents. Each of the parties hereto will use its best efforts to
obtain consents of all persons and governmental authorities necessary for the
consummation of the transactions contemplated by this Agreement.
5.5. Filings. Each of the parties will make or cause to be made all
such filings and submissions as may be required under applicable laws and
regulations, if any, for the consummation of the transactions contemplated by
this Agreement. The parties will coordinate and cooperate with one another in
exchanging such information and reasonable assistance as another may request in
connection with all of the foregoing.
5.6. Interim Conduct of Business.
The Sellers each covenant and agree that from the date of this
Agreement until the Closing:
5.6.1. Neither ESCO nor Holdings will (1) amend their articles
of incorporation or Bylaws (2) issue any shares of their capital stock; (3)
issue or create any warrants, obligations, subscriptions, options, convertible
securities, or other commitments under which any additional shares of its
capital stock of any class might be directly or indirectly authorized, issued,
or transferred from treasury; or (4) agree to do any of the acts listed above.
5.6.2. ESCO and Holdings will each carry on its business and
activities diligently and in substantially the same manner as they previously
have been carried out and shall not make or institute any unusual or novel
methods of manufacture, purchase, sale, lease, management, accounting, or
operation that vary materially from those methods used by ESCO and Holdings as
of the date of this Agreement.
5.6.3. The Sellers will use their best efforts, without making
any commitments on behalf of the Buyers, to preserve the organizations of ESCO
and Holdings intact, to keep available to the Buyers the present officers and
employees of ESCO and Holdings, and to preserve the present relationships of
ESCO and Holdings with their suppliers, customers, and others having business
relationships with ESCO or Holdings.
5.6.4. ESCO and Holdings will each continue to carry their
existing insurance, subject to variations in amounts required by the ordinary
operations of its business.
5.6.5. The Sellers will not do, or agree to do, any of the
following acts: (1) make any change in compensation payable or to become payable
by any of them, to any officer, employee, sales agent, or representative; (2)
make any change in benefits payable to any officer, employee, sales agent,
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or representative under any bonus or pension plan or other contract or
commitment; or (3) modify any collective bargaining agreement to which either of
them is a party or by which either may be bound.
5.6.6. Neither ESCO nor Holdings will do or agree to do,
without Buyers' written consent, any of the following: (i) Enter into any
contract, commitment, or transaction not in the usual and ordinary course of its
business; (ii) Except for purchases of materials in the ordinary course of
business, enter into any contract, commitment, or transaction in the usual and
ordinary course of business involving an amount exceeding $5,000.00
individually, or $10,000.00 in the aggregate; (iii) Make any capital
expenditures in excess of $5,000.00, for any single item or $10,000.00 in the
aggregate, or enter into any leases of capital equipment or property under which
the annual lease charge is in excess of $1,000.00; or (iv) Sell or dispose of
any capital assets with a net book value exceeding $1,000.00, individually, or
$5,000.00 in the aggregate.
5.6.7. Neither ESCO nor Holdings will (1) declare, set aside,
or pay any dividend or make any distribution in respect of its capital stock;
(2) directly or indirectly purchase, redeem, or otherwise acquire any shares of
its capital stock; or (3) enter into any agreement obligating it to do any of
the fore going prohibited acts, without the prior written consent of the Buyers,
except that GTI may continue to sweep excess cash and reduce the intercompany
account balance in the usual and ordinary course of business.
5.6.8. Neither ESCO nor Holdings will do, or agree to do, any
of the following: (1) pay any obligation or liability, fixed or contingent,
other than current liabilities; (2) waive or compromise any right or claim; or
(3) cancel, without full payment, any note, loan, or other obligation owing to
ESCO or Holdings, without the prior written consent of the Buyers.
5.7. Risk of Loss. The Sellers shall assume all risk of loss or damage
from any cause whatsoever to the assets and business of ESCO or Holdings
occurring prior to the Closing.
5.8. Transfer of Employees.
5.8.1. ESCO's credit manager (the "Credit Manager") is on a
leave of absence and it is unknown whether he will recover or will ever be able
to return to work in any capacity. GTI shall continue to cover the Credit
Manager on its self-insured health plan and as of the Close he will be an
employee of GTI and not an employee of ESCO. GTI shall, indemnify, defend, and
hold Insulectro, QI, ESCO, Holdings and each of their respective subsidiaries,
officers, directors employees, agents and successors in interest, harmless, from
and against any and all losses, liabilities, costs, expenses, judgments,
assessments, penalties, damages, deficiencies, suits, actions, claims,
proceedings, demands, and causes of action, including but not limited to
reasonable attorney fees, court costs, and related expenses whether such losses
were known or unknown to the Sellers, related to the Credit Manager.
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5.8.2. GTI shall indemnify, defend, and hold Insulectro, QI,
ESCO, Holdings and each of their respective subsidiaries, officers, directors,
employees, agents and successors in interest, harmless, from and against any and
all losses, liabilities, costs, expenses, judgments, assessments, penalties,
damages, deficiencies, suits, actions, claims, proceedings, demands, and causes
of action, including but not limited to reasonable attorney fees, court costs,
and related expenses whether such losses were known or unknown to the Sellers,
relating to Howard Alexander or William Phillips or arising out of their former
employment relationship with ESCO or Holdings.
5.8.3. GTI has a contract dated January 17, 1996 with RCG
Management relating to a temporary controller at ESCO. GTI will keep this
contract in force until March 17, 1996. GTI hereby agrees to bear all cost and
expense of such contract and to indemnify, defend, and hold Insulectro, QI,
ESCO, Holdings and each of their respective subsidiaries, officers, directors,
employees, agents and successors in interest, harmless, from and against any and
all losses, liabilities, costs, expenses, judgments, assessments, penalties,
damages, deficiencies, suits, actions, claims, proceedings, demands, and causes
of action, including but not limited to reasonable attorney fees, court costs,
and related expenses whether such losses were known or unknown to the Sellers,
arising out of such contract except for the payments under section 4 of such
contract which the Buyers shall bear if they elect to employ such controller.
5.9. Use of Name. GTI covenants and agrees that after the Close it will
never use, directly or indirectly, the name or words "ESCO," "Esco Sales," or
"Electronic Supply" alone, or in combination with any other name or symbols, in
connection with the manufacture, sale or distribution of electronic components,
electronic assemblies or electronic materials.
5.10. Agreement Not To Compete. In order to protect the value of the
assets and goodwill being acquired by the Buyers in the acquisition contemplated
by this transaction, GTI has agreed to be bound to certain restrictions on its
ability to compete with the Buyers in the future.
5.10.1. In the event, for a period of five (5) years from the
Close, GTI acquires, directly or indirectly, a business that, in whole or in
part, competes with ESCO's existing business, then GTI shall have one (1) year
to dispose of such competing business. GTI will allow Insulectro to make the
first offer to acquire such business and if such offer is rejected, GTI will not
sell or transfer such business to a third party on materially more favorable
terms to such third party. Insulectro will have one month from the date GTI
notifies it in writing of the acquisition to make the offer.
5.10.2. GTI recognizes that it has occupied a position of
trust with respect to the business and technical information of a secret or
confidential nature which is the property of ESCO and Holdings and part of the
assets subject to the acquisition contemplated by this Agreement. GTI shall not
at any time whether during the term hereof or thereafter, use or disclose
directly or indirectly any confidential information or trade secrets of ESCO or
Holdings, or their successors in interest, to any person or entity.
5.10.3. For purposes of this Section 5.10, "confidential
information or trade secrets" of ESCO or Holdings shall include all information
of any nature and in any form which is owned by ESCO or Holdings prior to the
Close, which had been treated by ESCO or Holdings as confidential and which is
not at the time publicly available or generally known to persons engaged in
business similar to that of ESCO or Holdings, including, but not limited to,
patents and patent applications; inventions and improvements, whether patentable
or not; development projects; computer software and related documentation and
materials; designs, practices, processes, methods, know-how and other facts
related to the Business; practices, processes, methods, know-how and other facts
related to sales, advertising, distribution, promotions, financial matters,
customers, customer lists, or customers' purchases of goods or services from
ESCO or Holdings; and all other trade secrets and information of a confidential
and proprietary nature.
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5.10.4. GTI acknowledges that (1) the covenants and the
restrictions contained in this section 5.10 are necessary, fundamental, and
required for the protection of the goodwill of the Business; (2) such covenants
relate to matters which are of a special, unique and extraordinary character
that gives each of such covenants a special, unique and extraordinary value; and
(3) a breach of such covenants or any other provision of this Section 5.10 will
result in irreparable harm and damages to the affected party which cannot be
adequately compensated by a monetary award. Accordingly, it is expressly agreed
that in addition to all other remedies available at law or in equity, the Buyers
shall be entitled to the immediate remedy of a temporary restraining order,
preliminary injunction, or such other form of injunctive or equitable relief as
may be used by any court of competent jurisdiction to restrain or enjoin any of
the parties hereto from breaching any such covenant or provision or to
specifically enforce the provisions hereof.
5.10.5. In the event that any provision of this Section 5.10
is more restrictive than permitted by the law of the jurisdiction in which the
Buyers seek enforcement thereof, the provisions of this Section 5.10 shall be
limited only to the extent that a judicial determination finds the same to be
unreasonable or otherwise unenforceable. Such invalidity or unenforceability
shall not affect any other terms herein, but such terms shall be deemed deleted,
and such deletion shall not affect the validity of the other terms hereof. In
addition, if any one or more of the terms contained in this section 5.10 shall
for any reason be held to be excessively broad, or of an overly long duration,
that term shall be construed in a manner to enable it to be enforced to the
extent compatible with applicable law. Moreover, notwithstanding any judicial
determination that any provision of this section 5.10 is not specifically
enforceable, the parties intend that the Buyers shall nonetheless be entitled to
recover monetary damages as a result of any breach hereof.
5.11. VALOR Distribution Agreement. Contemporaneously with the Close,
GTI shall cause it subsidiary Valor Electronics, Inc. ("Valor") to amend the
existing distribution agreement extending the term thereof for five years and
amending the terms thereof in accordance with the amendment attached hereto as
Exhibit D (the "Distribution Agreement").
5.12. Health Insurance Matters.
5.12.1. Insulectro will assume responsibility for providing
health coverage to those ESCO employees that are actively at work at the time of
the Close, subject to the terms and provisions of Insulectro's group health
insurance contracts. GTI shall be responsible for, and shall indemnify and hold
the Buyers harmless from, the COBRA rights of any employee or the family of an
employee who became entitled to such COBRA rights prior to the Closing
5.12.2. GTI shall be responsible for, and shall indemnify and
hold the Buyers harmless from, any and all liability, cost or expense for health
related claims incurred on or before the Close.
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5.13. Tax Matters. GTI shall include the income of Holdings and ESCO on
GTI's consolidated federal income tax return and combined California State
income tax return for all periods up to and including the Closing Date and will
pay any tax due thereon. GTI also shall pay any federal or state income tax of
ESCO or Holdings for all taxable periods up to and including the Closing Date.
The income of ESCO and Holdings shall be apportioned for the period up to and
including the Closing Date and the period from after the Closing Date, by
closing the books of ESCO and Holdings as of the close of business on the
Closing Date. All tax sharing arrangements between GTI and Holdings or ESCO
shall be terminated as of the close of business on the day of the Close, and
ESCO and Holdings shall be released from any and all obligations to GTI for any
and all federal and state income taxes for the period ending on the close of
business on the Closing Date.
5.14. Mutual Cooperation. GTI and the Buyers shall each provide the
other, and the Buyers shall cause Holdings and ESCO to provide to GTI, with such
assistance as may reasonably be requested by any of them in connection with the
preparation of any financial statement or tax return, tax audit, or any judicial
or administrative proceedings relating to any financial statements or tax
returns, and each will retain and provide the other with any records or
information that may be relevant to such items. The party requesting assistance
hereunder shall reimburse the other for the direct expenses incurred in
providing such assistance.
5.15. Expenses.
5.15.1. Except as otherwise provided in this Agreement, each
of the parties shall bear their own respective expenses incurred in connection
with this Agreement or the obligations required to be performed by such party
under this Agreement.
5.15.2. Notwithstanding anything to the contrary herein, GTI
shall reimburse and pay to Insulectro at the Close the sum of $7,975 to
reimburse Insulectro for a portion of the attorney's fees and costs incurred by
Insulectro in connection with the preparation and distribution of this
Agreement, including all prior drafts of this Agreement, resulting from changes
by GTI to the transaction contemplated by this Agreement.
5.16. Insurance Policies. The Sellers shall use their best efforts to
locate and deliver to the Buyers, following the Close, a copy of each liability
insurance policy held by or for the benefit of ESCO, or any predecessor in
interest, since incorporation or a policy number and a general description, e.g.
"general liability", of each such policy (the" Insurance Information"). After
the close, GTI shall continue to use its best efforts to deliver to Insulectro
all of the Insurance Information within 45 days of the Close not delivered prior
to the Close. In the event GTI fails to deliver all of the Insurance Information
to Insulectro within 45 days of the Close, Insulectro shall have the right, at
GTI's expense, to retain an advisor of its choice to locate or recreate such
missing Insurance Information.
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5.17 Obligations Regarding Write offs. The parties acknowledge that
Sellers have written off approximately nine hundred ten thousand dollars
($910,000) on ESCO's financial statements as described Section 6.12.2 hereof,
and that the purchase price discussed between the parties earlier has been
reduced as a result of such write off. Buyers, Holdings and ESCO agree to
provide such cooperation as GTI may reasonably request in order to investigate
further the cause of such write off and to pursue any recovery from insurers,
employees, or other third parties provided that ESCO shall have the right to
decline to have a lawsuit filed in its name if such would expose ESCO to
unreasonable litigation risks. In the event any portion of such write off is
recovered and received by any party other than GTI, such party shall pay such
amount to GTI. In no event shall ESCO, Holdings and Buyers be liable to GTI for
any portion of such writeoff except to the extent of funds actually received by
them. GTI agrees to reimburse ESCO, Holdings and Buyers for any reasonable out
of pocket expenses, including reasonable compensation for time devoted to the
matter by ESCO employees they may incur and to indemnify them against any loss,
damage, cost or expense they may incur in connection with the matters described
in this subsection. ESCO shall be entitled to retain from any recovery it may
receive an amount sufficient to reimburse expenses incurred by ESCO in
connection with such matters.
5.18 Leases. GTI is a guarantor on certain leases for the benefit of
ESCO. The parties agree to take such actions as may be reasonable in order to
obtain a release of GTI from any liability thereunder. To the extent necessary
to reduce or eliminate GTI's liability, Insulectro shall assume GTI's liability
as guarantor thereunder with respect to liabilities arising after the Close
unless included in the liabilities on the Closing Balance Sheet. GTI shall bear
the costs of any fees, costs or expenses charged by the lessors to review or
process such releases or assumption of liability.
6. CONDITIONS PRECEDENT TO BUYERS' OBLIGATION TO CLOSE.
The Buyers' obligation to consummate the transaction contemplated by
this Agreement is subject to the satisfaction, on or before the Closing Date, of
the following conditions:
6.1. Performance of Acts and Undertakings. Each of the acts and
undertakings of the Sellers to be performed on or before the Closing Date
pursuant to the terms of this Agreement shall have been duly performed in all
material respects.
6.2. Certified Resolutions.
6.2.1. ESCO, and Holdings shall each have furnished the Buyers
with a copy, certified by their respective secretaries of a resolution or
resolutions duly adopted by each corporation's board of directors authorizing
and approving this Agreement.
6.2.2. GTI shall have furnished the Buyers with a copy,
certified by its secretary, of a resolution or resolutions duly adopted by GTI's
board of directors authorizing and approving this Agreement.
6.3. Accuracy of Representations and Warranties. All of the
representations and warranties of the Sellers contained in this Agreement shall
be true in all material respects on and as of the Closing Date, with the same
effect as though such representations and warranties had been made on and as of
that date; and the Buyers shall have received at the Closing a certificate,
dated the Closing Date and executed by the president or a vice president of
ESCO, Holdings and GTI, respectively, containing a representation and warranty
to that effect.
6.4. Opinion by Counsel. The Buyers shall have received an opinion of
counsel from Kirkpatrick & Lockhart, counsel to the Sellers in substantially the
same form and substance as the opinion letter attached hereto as Exhibit E.
6.5. Intentionally omitted
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6.6. Consents. All consents of other parties to the mortgages, notes,
leases, franchises, agreements, licenses, and permits of ESCO or Holdings
necessary to permit consummation of the Agreement or their waiver shall have
been obtained.
6.7. Employee Matters. The Buyers' reasonable satisfaction such key
employees of ESCO or Holdings as the Buyers may desire, will agree to be
employed by the Buyers, on terms and conditions acceptable to the Buyers, after
the Effective Date.
6.8. Consents. Approval of the transactions contemplated by this
Agreement by the Buyers' credit facility, senior lenders and Insulectro's Board
of Directors, to the extent such consent is required. This conditioned shall
deemed to be satisfied upon the Buyers' execution of this Agreement.
6.9. Delivery of Documents. The Sellers shall have delivered to the
Buyers the items required by Section 8.1.
6.10. Board Resignations. Each member of the Board of Directors of
Holdings and ESCO, respectively, shall have delivered his or her resignation
effective as of the Closing.
6.11 Preliminary Balance Sheet. Sellers shall have delivered to Buyers
a preliminary balance sheet reflecting Sellers' estimate of the Tangible Net
Book Value of ESCO as the close of business on February 16, 1996. The
preliminary balance sheet and the Estimated TNBV shall be subject to the Buyers'
satisfaction, in the Buyers' sole discretion, that (i) the preliminary balance
sheet and the Estimated TNBV reflected thereon were prepared in accordance with
the Accounting Principles; and (ii) the preliminary balance sheet and the
Estimated TNBV fairly represent the financial condition of ESCO and Holdings at
the close of business on February 16, 1996. By their execution hereof, Buyers
acknowledge that they have received such balance sheet and that this condition
to closing has been satisfied.
6.12. Audited Financial Statements.
6.12.1. The Buyers have received an audited financial statements
of ESCO, prepared as of December 31, 1995, and audited by Arthur Andersen & Co.
LLP.
6.12.2. The Buyers have received the analysis by Arthur Andersen
& Co. LLP of the transactions and related postings in ESCO's accounts effected
by the approximate $910,000 write off as of December 31, 1995.
6.12.3. The Buyers have received the systems application review
as of February 9, 1996 performed by the computer risk management group at Arthur
Andersen & Co. LLP.
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7. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE.
The Sellers' obligation to consummate the transaction contemplated by
this Agreement is subject to the satisfaction on or prior to the Closing Date of
the following conditions:
7.1. Performance of Acts and Undertakings. Each of the acts and
undertakings to be performed by the Buyers on or before the Closing Date
pursuant to this Agreement shall have been performed in all material respects.
7.2. Certified Resolutions. Insulectro and QI shall have furnished the
Sellers with certified copies of the resolutions duly adopted by the board of
directors or the strategic planning committee of the Board of Insulectro and QI
respectively, authorizing and approving the execution and delivery of this
Agreement and authorizing the consummation of the transactions contemplated by
this Agreement.
7.3. Accuracy of Representations and Warranties. The representations
and warranties of the Buyers contained in this Agreement shall be true in all
material respects on and as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of that date; and
the Sellers shall have received at the closing a certificate, dated the Closing
Date and executed on behalf of Insulectro by its president or any vice
president, containing a representation and warranty to that effect.
7.4. Opinion of Counsel. The Sellers shall have received an opinion of
counsel from Johnson, Poulson & Slater, counsel to Insulectro, which shall be
substantially similar to the form and substance of the opinion letter attached
hereto as Exhibit F.
7.5. Delivery of Documents. The Buyers shall have delivered to the
Sellers the items required by Section 8.2.
8. DELIVERIES AT CLOSING
8.1. Deliveries by Sellers. At the Closing, Sellers will deliver, or
cause to be delivered, the following to Buyers:
8.1.1. The certified resolutions required by Section 6.2.
8.1.2. The certificate required by Section 6.3.
8.1.3. The legal opinions required by Section 6.4.
8.1.4. A receipt for the payment required to be delivered to
GTI by the Buyers.
8.1.5. Stock certificates representing all of the issued and
outstanding shares of Holdings' stock, duly endorsed by GTI in favor of QI
Electronics.
8.1.6. Stock certificates representing all of the issued and
outstanding shares of ESCO's stock with a certificated representing 800 shares
duly issued to ESCO Sales, Inc and a certificate representing GTI's 200 shares,
duly endorsed by GTI in favor of QI Electronics.
8.1.7. Such other documentation as may be required pursuant
to this Agreement or reasonably requested by the Buyers or their counsel.
8.1.8. A certificate of the Secretary of State of the States
of California and Delaware, respectively, as to the good standing of ESCO and a
certificate of the Secretary of State of the State of Delaware as to the good
standing of Holdings, each dated within five (5) days prior to the Closing Date.
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8.1.9. The Articles of Incorporation of ESCO and Holdings,
each certified by the Secretary of State of their respective states of
incorporation as of a date within thirty days prior to the Closing Date.
8.1.10. Executed releases in respect to the UCC Financing
Statements and other items listed on Schedule 8.1.10.
8.1.11. A counter part of the Distribution Agreement fully
executed by Valor.
8.1.12. The preliminary balance sheet reflecting the Estimated
TNBV.
8.1.13. A counter part of the Subordination Agreement fully
executed by GTI.
8.2. Deliveries by the Buyers at the Closing . At the Closing, the
Buyers will deliver or cause to be delivered the following:
8.2.1. The fully executed Promissory Note required by Section
1.2.2.
8.2.2. The certified resolutions required by Section 7.2.
8.2.3. The certificate required by Section 7.3.
8.2.4. The legal opinion required by Section 7.4.
8.2.5. Such other documentation as may be required pursuant to
this Agreement or reasonably requested by Sellers or its counsel.
8.2.6. A counter part of the Distribution Agreement fully
executed by Insulectro.
9. INDEMNIFICATION AND RELATED MATTERS
9.1. Indemnification By GTI. Notwithstanding investigations of the
Buyers before the Closing Date, and notwithstanding the fact that the Buyers may
be deemed satisfied as to certain matters investigated by the Buyers, GTI shall
indemnify, defend, and hold Insulectro, QI, ESCO, Holdings and each of their
respective subsidiaries, officers, directors employees, agents and successors in
interest (the "Buyers' Indemnified Parties"), harmless, from and against any and
all losses, liabilities, costs, expenses, judgments, assessments, penalties,
damages, deficiencies, suits, actions, claims, proceedings, demands, and causes
of action, including but not limited to reasonable attorney fees, court costs,
and related expenses (collectively, "Acquisition Damages"), whether such losses
were known or unknown to the Sellers, that were caused by, arose as a result of,
or related to (i) any inaccuracy in any representation or warranty or any breach
of any warranty of the Sellers under this Agreement or any Schedule,
certificate, instrument, or other document delivered pursuant to this Agreement;
or (ii) any failure of the Sellers duly to perform or observe any term,
provision, covenant, or agreement to be performed or observed by them pursuant
to this Agreement, and any schedule, certificate, agreement, or other document
entered into or delivered pursuant to this Agreement No indemnity shall be
payable to any member of the Buyer's Indemnified Parties with respect to any
claim under this Section 9.1 unless the aggregate amount due thereunder with
respect to all claims exceeds twenty-five thousand dollars ($25,000) (the
"Basket Amount"), whereupon all amounts then or thereafter due with respect to
such claims in excess of the Basket Amount shall be payable. The Basket Amount
shall not apply to claims arising from any breach of warranty or representation
relating to (i) Taxes, (ii) title to the Shares, or the warranties and
representations set forth in Section 3.25 (relating to environmental matters) as
to which there shall be no Basket Amount.
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9.1.1. The Sellers' representations and warranties included or
provided for in this Agreement or in any Schedule or certificate or other
document delivered pursuant to this Agreement shall survive the Closing Date for
a period of three (3) years from the Closing, except that (i) representations
and warranties relating to any liability for taxes or litigation shall survive
for the applicable statute of limitations, (ii) representations and warranties
with respect to title to the Shares or the Non-Leasehold Assets shall survive
without limit; (iii) the representations and warranties set forth in Section
3.25 (relating to environmental matters) shall survive for the applicable
statute of limitations, and (iv) the representations and warranties relating to
Section 3.7 and 3.30 shall survive for one (1) year from the Closing Date, (in
each case, the applicable "Survival Period"); provided, however, that no claim
for a breach of a representation or warranty may be brought under this Agreement
by any person unless written notice of such claim (stating the date of discovery
thereof and basis therefor) shall be given on a date prior to the last day of
the applicable Survival Period (in which event each such representation and
warranty shall survive (with respect to such asserted claims only) until such
claim is finally resolved and all obligations with respect thereto are fully
satisfied) or until such claim is barred by applicable statutes of limitation.
9.1.2. From time to time, the Buyers shall be entitled to
set-off against any amount due or payable to GTI under the Promissory Note the
Acquisition Damages incurred by the Buyer's Indemnified Parties.
9.1.3. GTI's liability for Acquisition Damages under this
Section 9.1 shall not exceed the amount of the Purchase Price.
9.2. Indemnification by the Buyers. The Buyers, jointly and severally,
hereby indemnify and agree to hold harmless GTI from any and all losses,
liabilities, costs, expenses, judgments, assessments, penalties, damages,
deficiencies, suits, actions, claims, proceedings, demands, and causes of
action, including but not limited to reasonable attorney fees, court costs, and
related expenses, whether such losses were known or unknown to the Buyers, that
were caused by, arose as a result of, or relate to (i) any breach or inaccuracy
of any representation or warranty by the Buyers, (ii) any breach or violation of
any covenant or agreement by the Buyers contained in this Agreement, and/or
(iii) any liability related to the conduct of the Business by the Buyers after
the Close. No indemnity shall be payable to GTI with respect to any claim under
this Section 9.2 unless the aggregate amount due thereunder with respect to all
claims exceeds the Basket Amount, whereupon all amounts then or thereafter due
with respect to such claims in excess of the Basket Amount shall be payable.
9.3. Indemnification Procedures
9.3.1. Any party seeking indemnification (the "Indemnified
Party") shall give the party from whom indemnification is requested (the
"Indemnifying Party") written notice as promptly as practicable after the
Indemnified Party has received notice or knowledge of the matter that has given
or could give rise to a right of indemnification under this Agreement. Such
notice shall state the amount of losses, if any, and the method of computation
thereof, all with reasonable particularity and shall contain a reference to the
provisions of this Agreement in respect of which such right of indemnification
is claimed.
9.3.2. With respect to any losses arising from any third party
claim (a "Third Party Claim"), the Indemnified Party shall give the Indemnifying
Party written notice as promptly as practicable after receiving notice of any
Third Party Claim. If the Indemnifying Party acknowledges in writing its
obligation to indemnify the Indemnified Party hereunder against any losses that
may result from any Third Party Claim (subject to the limitations set forth in
this Article 9), then the Indemnifying Party shall be entitled, at its option,
to assume and control the defense of such Third Party Claim at its expense and
through counsel of its choice upon giving written notice of its intention to do
so to the Indemnified Party. In such case, the Indemnified Party shall be
permitted, at its option, to participate in the defense of any such Third Party
Claim with counsel of its own choosing and at its own expense. If the
Indemnifying Party does not elect to assume and control the defense of such
Third Party Claim, then the Indemnified Party may, at its option, elect to
assume and control such defense at the reasonable expense of the
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Indemnifying Party (subject to the consent of the Indemnifying Party, not to be
unreasonably withheld or delayed) and through counsel of the Indemnified Party's
choice. If the Indemnifying Party exercises its right to undertake the defense
of any such Third Party Claim as provided above, the Indemnified Party shall
cooperate with the Indemnifying Party and make available to the Indemnifying
Party all pertinent records, materials and information in its possession or
under its control as is reasonably requested by the Indemnifying Party.
Similarly, if the Indemnified Party rightfully undertakes the defense of any
Third Party Claim, the Indemnifying Party shall cooperate with the Indemnified
Party and make available to it all such records, materials and information in
the Indemnifying Party's possession or under its control relating thereto as are
reasonably requested by the Indemnified Party. No Third Party Claim may be
settled by the Indemnifying Party or the Indemnified Party without the written
consent, not to be unreasonably withheld or delayed, of the other party;
provided, however, that if such settlement involves the payment of money only
and the Indemnified Party is fully indemnified with respect to such payment and
the Indemnified Party refuses to consent thereto, the Indemnifying Party shall
cease to be obligated with respect to such Third Party Claim. In no event will
either party conduct the defense of any Third Party Claim in a manner that will
unreasonably detract from or otherwise interfere with or disrupt the other
party's business or customers.
9.3.3. The parties shall make appropriate adjustments for
insurance coverage in determining the amount of losses or claims for purposes of
this Article 9, provided that the indemnifiable losses shall then be increased
by any additional expense or liability associated with the obtaining of benefits
under such coverage, to the extent of and as a result of such losses or claims.
10. TERMINATION AND ABANDONMENT.
10.1. Termination. This Agreement may be terminated at any time prior
to the Close:
10.1.1. By mutual consent of the parties;
10.1.2. By the Buyers if there has been a material violation
or breach by Seller of any agreement, representation or warranty contained in
this Agreement which has rendered the satisfaction of any condition to the
obligations of the Buyers impossible and such violation or breach has not been
expressly waived in writing by the Buyers or cured by the Sellers within five
(5) business days after notice of such violation from the Buyers;
10.1.3. By the Sellers if there has been a material violation
or breach by the Buyers of any agreement, representation or warranty contained
in this Agreement which has rendered the satisfaction of any condition to the
obligations of the Sellers impossible and such violation or breach has not been
expressly waived in writing by the Sellers or cured by the Buyers within five
(5) business days after notice of such violation from the Sellers;
10.1.4. By the Buyers if the Buyers have reasonably determined
that any of the conditions precedent in Article 6 have not been met or if the
Buyers have reasonably determined that the business, assets, or financial
condition of ESCO or Holdings, taken as a whole, have been materially and
adversely affected, whether by reason of changes, developments, or operations in
the ordinary course of business or otherwise;
10.1.5. By the Sellers if the Sellers have reasonably
determined that any of the conditions precedent in Article 7 have not been met;
10.1.6. If the Agreement has not been consummated by February
16, 1996 then this Agreement may be terminated by any party to this Agreement at
any time thereafter, provided that such party seeking to terminate the Agreement
is not in breach of such party's duties and obligations under the Agreement.
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10.2. Procedure and Effect of Termination. In the event that this
Agreement is terminated and the transactions contemplated hereby by any or all
of the parties pursuant to Section 10.1, written notice thereof shall forthwith
be given to the other parties and this Agreement shall terminate and the
transactions contemplated hereby shall be abandoned, without further action by
any of the parties hereto. If this Agreement is terminated as provided herein:
10.2.1. All filings, applications and other submission made
pursuant to Section 5.5 shall, to the extent practicable, be withdrawn from the
agency or other person to which made.
10.2.2. The Confidentiality Agreement between the Buyers and
the Sellers attached hereto as Exhibit E (the "Confidentiality Agreement") shall
continue to remain in full force and effect.
11. MISCELLANEOUS PROVISIONS.
11.1. Notices. All notices, requests, demands, and other communications
under this Agreement shall be in writing and shall be deemed given if delivered
personally or by facsimile transmission, telexed or mailed by registered or
certified mail (return receipt requested) postage prepaid, to the parties at the
addresses for such party set forth on Schedule 11.1. (or such other address for
a party as shall be specified by like notice).
11.2. Amendments. Subject to applicable law, this Agreement may be
amended, modified or supplemented only by written agreement of the parties
hereto at any time with respect to any of the terms contained herein.
11.3. Entire Agreement. Except for the Confidentiality Agreement, this
Agreement (with its Schedules and Exhibits and the other agreements referred to
herein or entered into in connection herewith) contains, and is intended as, a
complete statement of all of the terms of the arrangement between the parties
with respect to the matters provided for herein, supersedes any previous
agreements and understandings between the parties with respect to those matters,
and cannot be changed or terminated orally but only by a writing signed by each
party hereto.
11.4. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California applicable to agreements
made and to be performed in California without reference to the choice of law
principles of such laws.
11.5. Schedules; Table of Contents and Headings. The Section and other
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Unless
specifically provided otherwise, as used in this Agreement, the terms "herein",
"hereof" and "hereunder" refer to this Agreement in its entirety and are not
limited to any specific paragraph. Unless specifically provided otherwise, all
references to Sections numbers in this Agreement are references to Sections of
this Agreement. All references to exhibits and schedules in this Agreement are
references to exhibits and schedules attached to this Agreement, which exhibits
and schedules are incorporated herein by this reference.
11.6. Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns. Nothing in this Agreement shall create or be deemed to
create any third party beneficiary rights in any person or entity, including
employees, not a party to this Agreement. Except as hereinafter provided, no
assignment of this Agreement or of any rights or obligations hereunder may be
made by any party hereto (by operation of law or otherwise) without the prior
written consent of the other parties (which consent shall not be unreasonably
withheld) and any attempted assignment without the required consent shall be
void.
11.7. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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11.8. Attorneys' Fees. In the event any party brings any suit or other
proceeding with respect to the subject matter or enforcement of this Agreement
or with respect to a breach of a representation or warranty hereunder, the
prevailing party (as determined by the court, agency, or other authority before
which such suit or proceeding is commenced) shall, in addition to such other
relief as may be awarded, be entitled to recover attorneys' fees, expenses and
costs of investigation as actually incurred (including, without limitation,
attorneys' fees, expenses and costs of investigation incurred in appellate
proceedings, costs incurred in establishing the right to indemnification, or in
any action or participation in, or in connection with, any case or proceeding
under Chapter 7, 11 or 13 of the Bankruptcy Code, 11 United States Code Sections
101 et seq., or any successor statutes).
11.9. Arbitration. Any dispute arising under or pursuant to or
affecting the subject matter of this Agreement shall be resolved in arbitration
in Los Angeles, California under the arbitration provisions of the California
Code of Civil Procedure Sections 1280 et seq. Any judgment upon the award may be
confirmed and entered in any court having jurisdiction thereof. The
arbitrator(s) shall be required to, in all determinations, apply California law.
Further, the arbitrator(s) are afforded the jurisdiction to provide and order
all provisional remedies, including, without limitation, injunctive relief,
writs for recovery or possession or such similar relief as may be necessary to
protect the interests of either of the parties or their property rights. In the
event that it is determined that the arbitrator(s) do not have the jurisdiction
to grant those remedies conferred upon them by this provision and requested by
the parties, then such remedies shall be reserved to a court of competent
jurisdiction. The prevailing party in said arbitration shall be awarded by the
arbitrator(s) the costs of arbitration (inclusive of the arbitrator(s)' fees and
costs), as allocated by the arbitrator(s).
11.10. "Knowledge" Definition. As used herein, the expressions
"knowledge", best of knowledge", "aware" or similar expressions include only the
actual knowledge of an individual and the knowledge such individual should
reasonably have by virtue of his or her position, authority, responsibilities
and activities, including all such information as in the files under the control
of or used by such individual. When such terms are used in connection with the
knowledge of a corporate entity, such knowledge shall include only the actual
knowledge of the executive officers, directors or managers of that corporate
entity, and the knowledge such officer, director or manager should reasonably
have by virtue of his or her position, authority, responsibilities and
activities, including all such information as is in the files under the control
of or used by such officer, director or manager.
THE REST OF THIS PAGE WAS INTENTIONALLY LEFT BLANK
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed
on its behalf by its duly authorized officers, all as of the day and year first
above written.
INSULECTRO QI ELECTRONICS
a California corporation a California corporation
By: By:
---------------------------- -------------------------
Donald M. Redfern, President Donald M. Redfern, President
GTI CORPORATION, ESCO SALES, INC.,
a Delaware corporation, a Delaware corporation
By: By:
---------------------------- -------------------------
ELECTRONIC SUPPLY CORPORATION,
a California corporation
By:
----------------------------
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