<PAGE>
As filed with the Securities and Exchange Commission on December __, 1997.
Registration No. 333-20299
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
GROUP TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 3672 59-2948116
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification
organization) Code Number) No.)
10901 Malcolm McKinley Drive
Tampa, Florida 33612
(813) 972-6000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Thomas W. Lovelock, President
Group Technologies Corporation
10901 Malcolm McKinley Drive
Tampa, Florida 33612
Telephone (813) 972-6000
Facsimile (813) 972-6978
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
With Copies to:
DAVID C. SHOBE, ESQ. ROBERT A. HEATH, ESQ.
Fowler, White, Gillen, Boggs, Wyatt, Tarrant & Combs
Villareal and Banker, P.A. 2800 Citizens Plaza
Suite 1700 500 West Jefferson Street
501 East Kennedy Boulevard Louisville, Kentucky 40202
Tampa, Florida 33602 Telephone (502) 562-7201
Telephone (813) 222-1123 Facsimile (502) 589-0309
Facsimile (813) 228-9401
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective and after conditions contained in the Reorganization Agreement have
been satisfied.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [_]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
(Letterhead of Group Technologies Corporation)
_________ __, 1998
To the Shareholders of Group Technologies Corporation:
You are cordially invited to attend a Special Meeting of Shareholders of
Group Technologies Corporation ("GTC") to be held at the Holiday Inn located at
2701 East Fowler Avenue, Tampa, Florida on ________, January __, 1998, at 10:00
a.m. local time (the "GTC Special Meeting").
At the GTC Special Meeting, you will be asked to approve: (i) the Second
Amended and Restated Agreement and Plan of Reorganization, dated as of November
25, 1997 (the "Reorganization Agreement"), by and among GTC, Group Financial
Partners, Inc. ("GFP"), Tube Turns Technologies, Inc. ("Tube Turns") and Bell
Technologies, Inc. ("Bell"), including the issuance of shares of GTC's voting
common stock, par value $.01 per share (the "GTC Common Stock") contemplated
thereby; (ii) amendments to GTC's Articles of Incorporation to increase the
authorized shares of voting common stock and to effect a 1-for-4 reverse stock
split (the "Reverse Stock Split"); and (iii) the reincorporation of GTC in
Delaware through the merger of GTC into a newly formed Delaware corporation
wholly-owned by GTC (the "Reincorporation"). Pursuant to the Reorganization
Agreement, the following events will occur, in chronological order: (i) all of
the outstanding shares of GFP Partners-V, Inc., Unison Commercial Group, Inc.
and BW Riverport, Inc. will be distributed to the shareholders of GFP; (ii) GFP
will merge with and into GTC; (iii) Tube Turns will merge with and into a newly
formed, wholly-owned subsidiary of GTC ("New Tube Turns"); (iv) Bell will merge
with and into a newly formed, wholly-owned subsidiary of GTC ("New Bell"); and
(v) GTC will contribute all of the assets of GTC (other than the shares of New
Tube Turns, New Bell, BT Holdings, Inc. and Metrum-Datatape, Inc., former
wholly-owned subsidiaries of GFP) into a newly formed, wholly-owned subsidiary
of GTC, and this subsidiary will assume all of the liabilities of GTC, all in
accordance with the Florida Business Corporation Act, as amended, and the
Kentucky Revised Statutes, as amended, (the "Reorganization"). Approval of the
Reorganization Agreement requires the affirmative vote of a majority of the
votes cast by holders of GTC Common Stock entitled to vote at the GTC Special
Meeting. Immediately after consummation of the Reorganization, GTC will effect
the Reverse Stock Split and the Reincorporation.
Because, under the Reorganization Agreement, the shares of GTC Common Stock
will be valued at no less than $2.50 per share, the shareholders of GFP, Tube
Turns and Bell (other than GTC as successor by merger to GFP) will bear the risk
of market fluctuations below $2.50 per share inasmuch as they will receive no
more than 37,597,842 (assuming the cash balances of GFP at the effective time of
the Reorganization to be $4,500,000), 709,000 and 1,760,405 shares,
respectively, in the aggregate, regardless of the actual trading price of shares
of GTC Common Stock. Similarly, under the Reorganization Agreement, the shares
of GTC Common Stock will be valued at no more than $4.50 per share, causing GTC
to bear the risk of market fluctuations above $4.50 per share inasmuch as GTC
will issue not less than 27,583,055 (assuming the cash balances of GFP at the
effective time of the Reorganization to be $4,500,000), 393,885 and 978,005
shares, respectively, in the aggregate to the shareholders of GFP, Tube Turns
and Bell (other than GTC, as successor by merger to GFP) regardless of the
actual trading price of shares of GTC Common Stock. The total aggregate
consideration to be received by the shareholders of GFP, Tube Turns and Bell
(other than GTC as successor by merger to GFP) is $109,511,132, $1,772,500 and
$4,401,012, respectively. The aggregate consideration to be received by
shareholders of GFP is calculated as the sum of: (i) $51,833,006, which
represents the consideration for the shares of Tube Turns Common Stock and Bell
Common Stock owned by GFP immediately prior to the effective time of the
Reorganization; (ii) $53,178,126, which represents the consideration for the
15,064,625 shares of GTC Common Stock owned by GFP immediately prior to the
effective time of the Reorganization, assuming a "GTC Average Closing Price" of
$3.53 per share calculated as of November 14, 1997; and (iii) $4,500,000, which
represents the consideration for the amount of cash of GFP at the effective time
of the Reorganization. The "GTC Average Closing Price" is the arithmetic average
of the closing price per share of the GTC Common Stock, as reported on the
Nasdaq Stock Market, for each of the ten (10) consecutive trading days ending
with the trading day which occurs immediately prior to the date of the approval
of the Reorganization by the
<PAGE>
shareholders of GTC. The valuations used in determining the total aggregate
consideration were determined by or under the direction of certain affiliates of
GTC who have conflicts of interest in this transaction, as more fully explained
in the accompanying Joint Proxy Statement/Prospectus under the heading
"Summary--Conflicts of Interest."
The accompanying Joint Proxy Statement/Prospectus and the appendices
thereto provide information about each of the proposals your Board of Directors
will be recommending at the GTC Special Meeting. These documents contain
detailed information concerning the proposed Reorganization and certain
additional information, including, without limitation, the information set forth
under the heading "Risk Factors," which describes, among other items, risks
inherent in the proposed Reorganization, all of which you are urged to read
carefully. It is important that your GTC Common Stock be represented at the GTC
Special Meeting, regardless of the number of shares you hold. Therefore, please
sign, date and return your proxy card as soon as possible, whether or not you
plan to attend the GTC Special Meeting. This will not prevent you from voting
your shares in person if you subsequently choose to attend the GTC Special
Meeting.
Shareholders of GTC may obtain the actual GFP Conversion Ratio (as defined
in the Reorganization Agreement) by calling GTC at (800) ___-____ after 4:30
p.m. (Eastern Time) on the trading day immediately prior to the date of the GTC
Special Meeting.
A Special Committee of your Board of Directors consisting of the
independent directors has recommended the Reorganization for the reasons set
forth in the accompanying Joint Proxy Statement/Prospectus. The Special
Committee engaged J.C. Bradford & Co., LLC ("Bradford"), a nationally recognized
investment banking firm, to advise the Special Committee in connection with the
Reorganization. Bradford has delivered its opinion to the Special Committee, a
copy of which is attached hereto, to the effect that the merger of GFP with and
into GTC and the merger of Tube Turns and Bell with and into the New Tube Turns
and the New Bell, respectively, are fair to the shareholders of GTC, other than
GFP, from a financial point of view. Based on the foregoing, the Special
Committee and your Board of Directors believes that the Reorganization is fair
to, and in the best interests of, GTC and its shareholders. Based on the
recommendation of the Special Committee, the Board has approved the
Reorganization Agreement and recommends that you vote to approve the
Reorganization Agreement and the issuance of GTC Common Stock pursuant to the
Reorganization Agreement. Certain members of the Board of Directors of GTC have
conflicts of interests in this transaction, but these persons were not members
of the Special Committee of your Board of Directors. See "The Reorganization--
Conflicts of Interest" in the accompanying Joint Proxy Statement/Prospectus.
The Board of Directors also recommends that you vote to approve the
amendment to the GTC Articles of Incorporation to increase the authorized shares
of voting common stock, the Reverse Stock Split and the Reincorporation.
Sincerely,
Thomas W. Lovelock
President and Chief Executive Officer
<PAGE>
GROUP TECHNOLOGIES CORPORATION
______________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY __, 1998
To the Shareholders of Group Technologies Corporation:
Notice is hereby given that a Special Meeting of Shareholders of Group
Technologies Corporation ("GTC") has been called by the Board of Directors and
will be held at the Holiday Inn, located at 2701 East Fowler Avenue, Tampa,
Florida on _____, January __, 1998 at 10:00 a.m. local time, for the following
purposes:
1. To consider and vote upon a proposal to approve the Second Amended
and Restated Agreement and Plan of Reorganization dated as of November 25, 1997
(the "Reorganization Agreement"), by and among GTC, Group Financial Partners,
Inc., Tube Turns Technologies, Inc. and Bell Technologies, Inc. including the
issuance of shares of GTC's voting common stock, par value $.01 per share ("GTC
Common Stock"), contemplated thereby;
2. To consider and vote upon a proposal to amend the Articles of
Incorporation of GTC to increase the authorized shares of GTC Common Stock from
40,000,000 shares to 60,000,000 shares;
3. To consider and vote upon a proposal to amend the Articles of
Incorporation of GTC to effect a 1-for-4 reverse stock split;
4. To consider and vote upon a proposal to reincorporate GTC in
Delaware through the merger of GTC with and into a newly formed Delaware
corporation wholly-owned by GTC; and
5. To transact other business incidental to the conduct of the
Special Meeting or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on December 31,
1997 as the record date for the determination of the holders of GTC Common Stock
entitled to notice of and to vote at the Special Meeting. The Reorganization
Agreement and related matters and other proposals to be considered at the
Special Meeting are more fully described in the accompanying Joint Proxy
Statement/Prospectus, and the Appendices thereto, which form a part of this
Notice.
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING.
TO ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, HOWEVER, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. A
POSTAGE-PREPAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. ANY SHAREHOLDER ATTENDING
THE SPECIAL MEETING MAY VOTE IN PERSON EVEN IF THAT SHAREHOLDER HAS RETURNED A
PROXY. ANY SHAREHOLDER MAY REVOKE HIS PROXY AT ANY TIME BEFORE THE SPECIAL
MEETING BY WRITTEN NOTICE TO SUCH EFFECT, BY SUBMITTING A SUBSEQUENTLY DATED
PROXY OR BY ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON. WRITTEN
REVOCATIONS OF A PROXY OR SUBSEQUENT DATED PROXIES MAY BE DELIVERED BY FACSIMILE
TO THE ATTENTION OF THE UNDERSIGNED, FACSIMILE NUMBER (813) 972-6715, AND WILL
BE ACCEPTED ON THE DAY OF THE SPECIAL MEETING UP UNTIL VOTING IS CLOSED ON ANY
SPECIFIC MATTER AS TO WHICH SUCH PROXY RELATES.
By Order of the Board of Directors,
Michael L. Schuman
Secretary
Tampa, Florida
_____ __, 1998
<PAGE>
GROUP TECHNOLOGIES CORPORATION
REVOCABLE PROXY
(SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF GROUP TECHNOLOGIES
CORPORATION FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY __, 1998)
The undersigned hereby appoints Roger W. Johnson, Henry F. Frigon and
Sidney R. Petersen, and any of them, with full power of substitution, as
attorneys and proxies for the undersigned, to represent and vote shares of
common stock of Group Technologies Corporation, a Florida corporation ("GTC")
standing in my name on the books and records of GTC at the close of business on
December 31, 1997, which the undersigned is entitled to cast at the Special
Meeting of Shareholders to be held at the Holiday Inn located at 2701 East
Fowler Avenue, Tampa, Florida, on _____, January __, 1998 at 10:00 a.m. local
time, and at any and all adjournments or postponements, as follows:
1. To approve the Second Amended and Restated Agreement and Plan of
Reorganization dated as of November 25, 1997 (the "Reorganization Agreement") by
and among GTC, Group Financial Partners, Inc., Tube Turns Technologies, Inc. and
Bell Technologies, Inc., including the issuance of shares of GTC voting common
stock, par value $.01 per share ("GTC Common Stock"), contemplated thereby.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Conditioned upon the approval of proposal 1, to approve an
amendment to GTC's Articles of Incorporation to increase the authorized shares
of GTC Common Stock from 40,000,000 shares to 60,000,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Conditioned upon the approval of proposal 1, to approve an
amendment to GTC's Articles of Incorporation to effect a 1-for-4 reverse stock
split.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Conditioned upon the approval of proposal 1, to approve the
reincorporation of GTC in Delaware through the merger of GTC with and into a
newly formed Delaware corporation wholly-owned by GTC.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSAL(S) STATED ABOVE IF
NO CHOICE IS MADE HEREON.
To vote in their discretion upon other matters incidental to the
conduct of the Special Meeting or any adjournment thereof.
Should the undersigned be present and elect to vote at the Special
Meeting or at any adjournment thereof and, after notification to the Secretary
of GTC at the Special Meeting of the shareholder's decision to terminate this
Proxy, then the power of said attorneys and proxies shall be deemed terminated
and of no further force and effect.
The undersigned acknowledges receipt of a Notice of Special Meeting
called for the ___ day of January, 1998 and the Joint Proxy Statement/Prospectus
dated the ___ day of _____, 1998 prior to the execution of this Proxy.
DATE:______________________________
___________________________________
Print Name of Shareholder
___________________________________
Signature of Shareholder
DATE:______________________________
___________________________________
Print Name of Shareholder
___________________________________
Signature of Shareholder
(Please sign exactly as your name appears on the envelope in
which this card was mailed. When signing as attorney, executor,
administrator, trustee or guardian, please give your full title. If
more than one trustee, all should sign. If shares are held jointly,
each holder should sign.)
<PAGE>
(Letterhead of Group Financial Partners, Inc.)
_____ __, 1998
To the Shareholders of Group Financial Partners, Inc.:
You are cordially invited to attend a Special Meeting of Shareholders
of Group Financial Partners, Inc. ("GFP") to be held at 455 South Fourth Avenue,
Suite 350, Louisville, Kentucky, on _____, January __, 1998 at the hour of 3:00
p.m. local time (the "GFP Special Meeting").
At the GFP Special Meeting, you will be asked to approve the Second
Amended and Restated Agreement and Plan of Reorganization dated as of November
25, 1997 (the "Reorganization Agreement"), by and among Group Technologies
Corporation ("GTC"), Tube Turns Technologies, Inc. ("Tube Turns"), Bell
Technologies, Inc. ("Bell") and GFP. Pursuant to the Reorganization Agreement,
the following events will occur, in chronological order: (i) all of the
outstanding shares of GFP Partners-V, Inc., Unison Commercial Group, Inc. and BW
Riverport, Inc. will be distributed to the shareholders of GFP; (ii) GFP will
merge with and into GTC; (iii) Tube Turns will merge with and into a newly
formed, wholly-owned subsidiary of GTC ("New Tube Turns"); (iv) Bell will merge
with and into a newly formed, wholly-owned subsidiary of GTC ("New Bell"); and
(v) GTC will contribute all of the assets of GTC (other than the shares of New
Tube Turns, New Bell, BT Holdings, Inc. and Metrum-Datatape, Inc., former
wholly-owned subsidiaries of GFP) into a newly formed, wholly-owned subsidiary
of GTC, and this subsidiary will assume all of the liabilities of GTC, all in
accordance with the Florida Business Corporation Act, as amended, and the
Kentucky Revised Statutes, as amended (the "Reorganization"). Approval of the
Reorganization Agreement requires the affirmative vote of a majority of the
votes cast by holders of the common stock, no par value per share of GFP (the
"GFP Common Stock"), entitled to vote at the GFP Special Meeting.
Because, under the Reorganization Agreement, the shares of GTC voting
common stock, par value $.01 per share ("GTC Common Stock") will be valued at no
less than $2.50 per share, the shareholders of GFP, Tube Turns and Bell (other
than GTC as successor by merger to GFP) will bear the risk of market
fluctuations below $2.50 per share inasmuch as they will receive no more than
37,597,842 (assuming the cash balances of GFP at the effective time of the
Reorganization to be $4,500,000), 709,000 and 1,760,405 shares, respectively, in
the aggregate, regardless of the actual trading price of shares of GTC Common
Stock. Similarly, under the Reorganization Agreement, the shares of GTC Common
Stock will be valued at no more than $4.50 per share, causing GTC to bear the
risk of market fluctuations above $4.50 per share inasmuch as GTC will issue not
less than 27,583,055 (assuming the cash balances of GFP at the effective time of
the Reorganization to be $4,500,000), 393,885 and 978,005 shares, respectively,
in the aggregate to the shareholders of GFP, Tube Turns and Bell (other than GTC
as successor by merger to GFP) regardless of the actual trading price of shares
of GTC Common Stock. The total aggregate consideration to be received by the
shareholders of GFP is $109,511,132. The aggregate consideration to be received
by shareholders of GFP is calculated as the sum of: (i) $51,833,006, which
represents the consideration for the shares of Tube Turns Common Stock and Bell
Common Stock owned by GFP immediately prior to the effective time of the
Reorganization; (ii) $53,178,126, which represents the consideration for the
15,064,625 shares of GTC Common Stock owned by GFP immediately prior to the
effective time of the Reorganization, assuming a "GTC Average Closing Price" of
$3.53 per share calculated as of November 14, 1997; and (iii) $4,500,000, which
represents the consideration for the amount of cash of GFP at the effective time
of the Reorganization. The "GTC Average Closing Price" is the arithmetic average
of the closing price per share of the GTC Common Stock, as reported on the
Nasdaq Stock Market, for each of the ten (10) consecutive trading days ending
with the trading day which occurs immediately prior to the date of the approval
of the Reorganization by the shareholders of GTC. The valuations used in
determining this aggregate consideration were determined by or under the
direction of certain affiliates of GTC who have conflicts of interest in this
transaction, as more fully explained in the Joint Proxy Statement/Prospectus
under the heading "Summary--Conflicts of Interest."
<PAGE>
The accompanying Joint Proxy Statement/Prospectus and the appendices
thereto provide detailed information concerning the proposed Reorganization and
certain additional information, including, without limitation, the information
set forth under the heading "Risk Factors," which describes, among other items,
risks inherent in the proposed Reorganization, all of which you are urged to
read carefully. It is important that your GFP Common Stock be represented at the
GFP Special Meeting, regardless of the number of shares you hold. Therefore,
please sign, date and return your proxy card as soon as possible, whether or not
you plan to attend the GFP Special Meeting. This will not prevent you from
voting your shares in person if you subsequently choose to attend the GFP
Special Meeting.
Shareholders of GFP may obtain the actual GFP Conversion Ratio (as
defined in the Reorganization Agreement) by calling GTC at (800) ___-____ after
4:30 p.m. (Eastern Time) on the trading day immediately prior to the date of the
GFP Special Meeting.
Your Board of Directors believes that the Reorganization is fair to,
and in the best interests of, GFP and its shareholders. The Board of Directors
has unanimously approved the Reorganization Agreement and unanimously recommends
that you vote to approve the Reorganization Agreement. Members of the Board of
Directors of GFP have conflicts of interest in this transaction. See "The
Reorganization--Conflicts of Interest" in the accompanying Joint Proxy
Statement/Prospectus.
Please note that immediately after the Reorganization, GTC proposes to
engage in two additional transactions: (i) a 1-for-4 reverse stock split (the
"Reverse Stock Split") and (ii) the reincorporation of GTC in Delaware through
the merger of GTC into a newly formed Delaware corporation wholly-owned by GTC
(the "Reincorporation"). While you will not have the right to vote on either of
these transactions, your rights as a post-Reorganization shareholder of GTC will
be affected by these transactions. Accordingly, you are urged to review the
information on the Reverse Stock Split and the Reincorporation contained in the
accompanying Joint Proxy Statement/Prospectus.
Sincerely,
Jeffrey T. Gill
President and Chief Executive Officer
<PAGE>
GROUP FINANCIAL PARTNERS, INC.
________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY __, 1998
To the Shareholders of Group Financial Partners, Inc.:
Notice is hereby given that a Special Meeting of Shareholders of Group
Financial Partners, Inc., a Kentucky corporation ("GFP"), has been called by the
Board of Directors and will be held at 455 South Fourth Avenue, Suite 350,
Louisville, Kentucky, on _____, January __, 1998 at the hour of 3:00 p.m. local
time, for the following purposes:
1. To consider and vote upon a proposal to approve the Second Amended and
Restated Agreement and Plan of Reorganization dated as of November 25, 1997 (the
"Reorganization Agreement"), by and among Group Technologies Corporation, Tube
Turns Technologies, Inc., Bell Technologies, Inc. and GFP.
2. To transact such other business incidental to the conduct of the
Special Meeting or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on December 31, 1997
as the record date for the determination of the holders of the common stock, no
par value per share, of GFP entitled to notice of and to vote at the Special
Meeting or any adjournments or postponements thereof. The Reorganization and
other related matters are more fully described in the accompanying Joint Proxy
Statement/Prospectus, and the Appendices thereto, which form a part of this
Notice.
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. TO
ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, HOWEVER, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. A
POSTAGE-PREPAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. ANY SHAREHOLDER MAY
REVOKE HIS PROXY AT ANY TIME BEFORE THE SPECIAL MEETING BY WRITTEN NOTICE TO
SUCH EFFECT, BY SUBMITTING A SUBSEQUENTLY DATED PROXY OR BY ATTENDING THE
SPECIAL MEETING AND VOTING IN PERSON. WRITTEN REVOCATIONS OF A PROXY OR
SUBSEQUENT DATED PROXIES MAY BE DELIVERED BY FACSIMILE TO THE ATTENTION OF THE
UNDERSIGNED, FACSIMILE NUMBER (502) 585-1602, AND WILL BE ACCEPTED ON THE DAY OF
THE SPECIAL MEETING UP UNTIL VOTING IS CLOSED ON ANY SPECIFIC MATTER AS TO WHICH
SUCH PROXY RELATES.
By Order of the Board of Directors,
R. Scott Gill
Secretary
Louisville, Kentucky
_____ __, 1998
<PAGE>
GROUP FINANCIAL PARTNERS, INC.
REVOCABLE PROXY
(SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
GROUP FINANCIAL PARTNERS, INC. FOR A SPECIAL MEETING
OF SHAREHOLDERS TO BE HELD ON JANUARY __, 1998)
The undersigned hereby appoints Anthony C. Allen and Richard L. Davis,
and either of them, with full power of substitution, as attorneys and proxies
for the undersigned, to represent and vote shares of common stock of Group
Financial Partners, Inc., a Kentucky corporation ("GFP"), standing in my name on
the books and records of GFP at the close of business on December 31, 1997,
which the undersigned is entitled to cast at the Special Meeting of Shareholders
to be held at 455 South Fourth Avenue, Suite 350, Louisville, Kentucky, on
_____, January __, 1998 at the hour of 3:00 p.m. local time, and at any and all
adjournments or postponements, as follows:
1. To approve the Second Amended and Restated Agreement and Plan of
Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"),
by and among Group Technologies Corporation, Tube Turns Technologies, Inc., Bell
Technologies, Inc. and GFP.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY WILL BE VOTED FOR THE PROPOSAL STATED ABOVE IF NO CHOICE IS
MADE HEREON.
To vote in their discretion upon other matters incidental to the
conduct of the Special Meeting or any adjournment thereof.
Should the undersigned be present and elect to vote at the Special
Meeting or at any adjournment thereof and, after notification to the Secretary
of GFP at the Special Meeting of the shareholder's decision to terminate this
Proxy, then the power of said attorneys and proxies shall be deemed terminated
and of no further force and effect.
The undersigned acknowledges receipt of a Notice of Special Meeting
called for the ___ day of January, 1998 and the Joint Proxy Statement/Prospectus
dated the __ day of _____, 1998 prior to the execution of this Proxy.
DATE:______________________________
___________________________________
Print Name of Shareholder
___________________________________
Signature of Shareholder
DATE:______________________________
___________________________________
Print Name of Shareholder
___________________________________
Signature of Shareholder
(Please sign exactly as your name appears on the
envelope in which this card was mailed. When signing as
attorney, executor, administrator, trustee or guardian,
please give your full title. If more than one trustee, all
should sign. If shares are held jointly, each holder should
sign.)
<PAGE>
(Letterhead of Tube Turns Technologies, Inc.)
_____ __, 1998
To the Shareholders of Tube Turns Technologies, Inc.:
You are cordially invited to attend a Special Meeting of Shareholders
of Tube Turns Technologies, Inc. ("Tube Turns") to be held at 2820 West
Broadway, Louisville, Kentucky, on _____, January __, 1998 at the hour of 11:30
a.m. local time (the "Tube Turns Special Meeting").
At the Tube Turns Special Meeting, you will be asked to approve the
Second Amended and Restated Agreement and Plan of Reorganization dated as of
November 25, 1997 (the "Reorganization Agreement"), by and among Group
Technologies Corporation ("GTC"), Bell Technologies, Inc. ("Bell"), Group
Financial Partners, Inc. ("GFP") and Tube Turns. Pursuant to the Reorganization
Agreement, the following events will occur, in chronological order: (i) all of
the outstanding shares of GFP Partners-V, Inc., Unison Commercial Group, Inc.
and BW Riverport, Inc. will be distributed to the shareholders of GFP; (ii) GFP
will merge with and into GTC; (iii) Tube Turns will merge with and into a newly
formed, wholly-owned subsidiary of GTC ("New Tube Turns"); (iv) Bell will merge
with and into a newly formed, wholly-owned subsidiary of GTC ("New Bell"); and
(v) GTC will contribute all of the assets of GTC (other than the shares of New
Tube Turns, New Bell, BT Holdings, Inc. and Metrum-Datatape, Inc., former
wholly-owned subsidiaries of GFP) into a newly formed, wholly-owned subsidiary
of GTC, and this subsidiary will assume all of the liabilities of GTC, all in
accordance with the Florida Business Corporation Act, as amended, and the
Kentucky Revised Statutes, as amended (the "Reorganization"). Approval of the
Reorganization Agreement requires the affirmative vote of a majority of the
votes cast by holders of the common stock, no par value per share of Tube Turns
(the "Tube Turns Common Stock"), entitled to vote at the Tube Turns Special
Meeting.
Because, under the Reorganization Agreement, the shares of GTC voting
common stock, par value $.01 per share ("GTC Common Stock") will be valued at no
less than $2.50 per share, the shareholders of GFP, Tube Turns and Bell (other
than GTC as successor by merger to GFP) will bear the risk of market
fluctuations below $2.50 per share inasmuch as they will receive no more than
37,597,842 (assuming the cash balances of GFP at the effective time of the
Reorganization to be $4,500,000), 709,000 and 1,760,405 shares, respectively, in
the aggregate, regardless of the actual trading price of shares of GTC Common
Stock. Similarly, under the Reorganization Agreement, the shares of GTC Common
Stock will be valued at no more than $4.50 per share, causing GTC to bear the
risk of market fluctuations above $4.50 per share inasmuch as GTC will issue not
less than 27,583,055 (assuming the cash balances of GFP at the effective time of
the Reorganization to be $4,500,000), 393,885 and 978,005 shares, respectively,
in the aggregate to the shareholders of GFP, Tube Turns and Bell (other than GTC
as successor by merger to GFP) regardless of the actual trading price of shares
of GTC Common Stock. The total aggregate consideration to be received by the
shareholders of Tube Turns (other than GTC as successor by merger to GFP) is
$1,772,500. The valuation used in determining this aggregate consideration was
determined by or under the direction of certain affiliates of Tube Turns who
have conflicts of interest in this transaction, as more fully explained in the
accompanying Joint Proxy Statement/Prospectus under the heading "Summary--
Conflicts of Interest."
The accompanying Joint Proxy Statement/Prospectus and the appendices
thereto provide detailed information concerning the proposed Reorganization and
certain additional information, including, without limitation, the information
set forth under the heading "Risk Factors," which describes, among other items,
risks inherent in the proposed Reorganization, all of which you are urged to
read carefully. It is important that your Tube Turns Common Stock be represented
at the Tube Turns Special Meeting, regardless of the number of shares you hold.
Therefore, please sign, date and return your proxy card as soon as possible,
whether or not you plan to attend the Tube Turns Special Meeting. This will not
prevent you from voting your shares in person if you subsequently choose to
attend the Tube Turns Special Meeting.
<PAGE>
Shareholders of Tube Turns may obtain the actual Tube Turns Conversion
Ratio (as defined in the Reorganization Agreement) by calling GTC at (800) ___-
____ after 4:30 p.m. (Eastern Time) on the trading day immediately prior to the
date of the Tube Turns Special Meeting.
Your Board of Directors believes that the Reorganization is fair to,
and in the best interests of, Tube Turns and its shareholders. The Board of
Directors has unanimously approved the Reorganization Agreement and unanimously
recommends that you vote to approve the Reorganization Agreement. Certain
members of the Board of Directors of Tube Turns have conflicts of interest in
this transaction. See "The Reorganization--Conflicts of Interest" in the
accompanying Joint Proxy Statement/Prospectus.
Please note that immediately after the Reorganization, GTC proposes to
engage in two additional transactions: (i) a 1-for-4 reverse stock split (the
"Reverse Stock Split") and (ii) the reincorporation of GTC in Delaware through
the merger of GTC into a newly formed Delaware corporation wholly-owned by GTC
(the "Reincorporation"). While you will not have the right to vote on either of
these transactions, your rights as a post-Reorganization shareholder of GTC will
be affected by these transactions. Accordingly, you are urged to review the
information on the Reverse Stock Split and the Reincorporation contained in the
accompanying Joint Proxy Statement/Prospectus.
Sincerely,
John M. Kramer
President and Chief Executive Officer
<PAGE>
TUBE TURNS TECHNOLOGIES, INC.
________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY __, 1998
To the Shareholders of Tube Turns Technologies, Inc.:
Notice is hereby given that a Special Meeting of Shareholders of Tube
Turns Technologies, Inc., a Kentucky corporation ("Tube Turns"), has been called
by the Board of Directors and will be held at 2820 West Broadway, Louisville,
Kentucky on _____, January __, 1998 at the hour of 11:30 a.m. local time, for
the following purposes:
1. To consider and vote upon a proposal to approve the Second Amended
and Restated Agreement and Plan of Reorganization dated as of November 25, 1997
(the "Reorganization Agreement"), by and among Group Technologies Corporation,
Bell Technologies, Inc., Group Financial Partners, Inc. and Tube Turns.
2. To transact such other business incidental to the conduct of the
Special Meeting or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on December 31,
1997 as the record date for the determination of the holders of the common
stock, no par value per share, of Tube Turns entitled to notice of and to vote
at the Special Meeting or any adjournments or postponements thereof. The
Reorganization and other related matters are more fully described in the
accompanying Joint Proxy Statement/Prospectus, and the Appendices thereto, which
form a part of this Notice.
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING.
TO ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, HOWEVER, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. A
POSTAGE-PREPAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. ANY SHAREHOLDER MAY
REVOKE HIS PROXY AT ANY TIME BEFORE THE SPECIAL MEETING BY WRITTEN NOTICE TO
SUCH EFFECT, BY SUBMITTING A SUBSEQUENTLY DATED PROXY OR BY ATTENDING THE
SPECIAL MEETING AND VOTING IN PERSON. WRITTEN REVOCATIONS OF A PROXY OR
SUBSEQUENT DATED PROXIES MAY BE DELIVERED BY FACSIMILE, TO THE ATTENTION OF THE
UNDERSIGNED, FACSIMILE NUMBER (502) 774-6336, AND WILL BE ACCEPTED ON THE DAY OF
THE SPECIAL MEETING UP UNTIL VOTING IS CLOSED ON ANY SPECIFIC MATTER AS TO WHICH
SUCH PROXY RELATES.
By Order of the Board of Directors,
Norman E. Zelesky
Secretary
Louisville, Kentucky
_____ __, 1998
<PAGE>
TUBE TURNS TECHNOLOGIES, INC.
REVOCABLE PROXY
(SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
TUBE TURNS TECHNOLOGIES, INC. FOR A SPECIAL MEETING
OF SHAREHOLDERS TO BE HELD ON JANUARY __, 1998)
The undersigned hereby appoints John M. Kramer and Russell H. Johnson,
and either of them, with full power of substitution, as attorneys and proxies
for the undersigned, to represent and vote shares of common stock of Tube Turns
Technologies, Inc., a Kentucky corporation ("Tube Turns"), standing in my name
on the books and records of Tube Turns at the close of business on December 31,
1997, which the undersigned is entitled to cast at the Special Meeting of
Shareholders to be held at 2820 West Broadway, Louisville, Kentucky, on _____,
January __, 1998 at the hour of 11:30 a.m. local time, and at any and all
adjournments or postponements, as follows:
1. To approve the Second Amended and Restated Agreement and Plan of
Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"),
by and among Group Technologies Corporation, Bell Technologies, Inc., Group
Financial Partners, Inc. and Tube Turns.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY WILL BE VOTED FOR THE PROPOSAL STATED ABOVE IF NO CHOICE IS
MADE HEREON.
To vote in their discretion upon other matters incidental to the
conduct of the Special Meeting or any adjournment thereof.
Should the undersigned be present and elect to vote at the Special
Meeting or at any adjournment thereof and, after notification to the Secretary
of Tube Turns at the Special Meeting of the shareholder's decision to terminate
this Proxy, then the power of said attorneys and proxies shall be deemed
terminated and of no further force and effect.
The undersigned acknowledges receipt of a Notice of Special Meeting
called for the ___ day of January, 1998 and the Joint Proxy Statement/Prospectus
dated the __ day of _____, 1998 prior to the execution of this Proxy.
DATE:______________________________
___________________________________
Print Name of Shareholder
___________________________________
Signature of Shareholder
DATE:______________________________
___________________________________
Print Name of Shareholder
___________________________________
Signature of Shareholder
(Please sign exactly as your name appears on the envelope in
which this card was mailed. When signing as attorney,
executor, administrator, trustee or guardian, please give
your full title. If more than one trustee, all should sign.
If shares are held jointly, each holder should sign.)
<PAGE>
(Letterhead of Bell Technologies, Inc.)
_____ __, 1998
To the Shareholders of Bell Technologies, Inc.:
You are cordially invited to attend a Special Meeting of Shareholders of
Bell Technologies, Inc. ("Bell") to be held at 6120 Hanging Moss Road, Orlando,
Florida, on _____, January __, 1998 at the hour of 3:00 p.m. local time (the
"Bell Special Meeting").
At the Bell Special Meeting, you will be asked to approve the Second
Amended and Restated Agreement and Plan of Reorganization dated as of November
25, 1997 (the "Reorganization Agreement"), by and among Group Technologies
Corporation ("GTC"), Tube Turns Technologies, Inc., Group Financial Partners,
Inc. and Bell. Pursuant to the Reorganization Agreement, the following events
will occur, in chronological order: (i) all of the outstanding shares of GFP
Partners-V, Inc., Unison Commercial Group, Inc. and BW Riverport, Inc. will be
distributed to the shareholders of GFP; (ii) GFP will merge with and into GTC;
(iii) Tube Turns will merge with and into a newly formed, wholly-owned
subsidiary of GTC ("New Tube Turns"); (iv) Bell will merge with and into a newly
formed, wholly-owned subsidiary of GTC ("New Bell"); and (v) GTC will contribute
all of the assets of GTC (other than the shares of New Tube Turns, New Bell, BT
Holdings, Inc. and Metrum-Datatape, Inc., former wholly-owned subsidiaries of
GFP) into a newly formed, wholly-owned subsidiary of GTC, and this subsidiary
will assume all of the liabilities of GTC, all in accordance with the Florida
Business Corporation Act, as amended, and the Kentucky Revised Statutes, as
amended (the "Reorganization"). Approval of the Reorganization Agreement
requires the affirmative vote of a majority of the votes cast by holders of the
common stock, par value $.01 per share of Bell (the "Bell Common Stock"),
entitled to vote at the Bell Special Meeting.
Because, under the Reorganization Agreement, the shares of GTC voting
common stock, par value $.01 per share ("GTC Common Stock") will be valued at no
less than $2.50 per share, the shareholders of GFP, Tube Turns and Bell (other
than GTC as successor by merger to GFP) will bear the risk of market
fluctuations below $2.50 per share inasmuch as they will receive no more than
37,597,842 (assuming the cash balances of GFP at the effective time of the
Reorganization to be $4,500,000), 709,000 and 1,760,405 shares, respectively, in
the aggregate, regardless of the actual trading price of shares of GTC Common
Stock. Similarly, under the Reorganization Agreement, the shares of GTC Common
Stock will be valued at no more than $4.50 per share, causing GTC to bear the
risk of market fluctuations above $4.50 per share inasmuch as GTC will issue not
less than 27,583,055 (assuming the cash balances of GFP at the effective time of
the Reorganization to be $4,500,000), 393,885 and 978,005 shares, respectively,
in the aggregate to the shareholders of GFP, Tube Turns and Bell (other than GTC
as successor by merger to GFP) regardless of the actual trading price of shares
of GTC Common Stock. The total aggregate consideration to be received by the
shareholders of Bell (other than GTC as successor by merger to GFP) is
$4,401,012. The valuation used in determining this aggregate consideration was
determined by or under the direction of certain affiliates of Bell who have
conflicts of interest in this transaction, as more fully explained in the
accompanying Joint Proxy Statement/Prospectus under the heading "Summary--
Conflicts of Interest."
The accompanying Joint Proxy Statement/Prospectus and the appendices
thereto provide detailed information concerning the proposed Reorganization and
certain additional information, including, without limitation, the information
set forth under the heading "Risk Factors," which describes, among other items,
risks inherent in the proposed Reorganization, all of which you are urged to
read carefully. It is important that your Bell Common Stock be represented at
the Bell Special Meeting, regardless of the number of shares you hold.
Therefore, please sign, date and return your proxy card as soon as possible,
whether or not you plan to attend the Bell Special Meeting. This will not
prevent you from voting your shares in person if you subsequently choose to
attend the Bell Special Meeting.
<PAGE>
Shareholders of Bell may obtain the actual Bell Conversion Ratio (as
defined in the Reorganization Agreement) by calling GTC at (800) ___-____ after
4:30 p.m. (Eastern Time) on the trading day immediately prior to the date of the
Bell Special Meeting.
Your Board of Directors believes that the Reorganization is fair to, and in
the best interests of, Bell and its shareholders. The Board of Directors has
unanimously approved the Reorganization Agreement and unanimously recommends
that you vote to approve the Reorganization Agreement. Certain members of the
Board of Directors of Bell have conflicts of interest in this transaction. See
"The Reorganization--Conflicts of Interest" in the accompanying Joint Proxy
Statement/Prospectus.
Please note that immediately after the Reorganization, GTC proposes to
engage in two additional transactions: (i) a 1-for-4 reverse stock split (the
"Reverse Stock Split") and (ii) the reincorporation of GTC in Delaware through
the merger of GTC into a newly formed Delaware corporation wholly-owned by GTC
(the "Reincorporation"). While you will not have the right to vote on either of
these transactions, your rights as a post-Reorganization shareholder of GTC will
be affected by these transactions. Accordingly, you are urged to review the
information on the Reverse Stock Split and the Reincorporation contained in the
accompanying Joint Proxy Statement/Prospectus.
Sincerely,
Robert E. Gill
President and Chief Executive Officer
<PAGE>
BELL TECHNOLOGIES, INC.
________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY __, 1998
To the Shareholders of Bell Technologies, Inc.:
Notice is hereby given that a Special Meeting of Shareholders of Bell
Technologies, Inc., a Florida corporation ("Bell"), has been called by the Board
of Directors and will be held at 6120 Hanging Moss Road, Orlando, Florida, on
_____, January __, 1998 at the hour of 3:00 p.m. local time, for the following
purposes:
1. To consider and vote upon a proposal to approve the Second Amended and
Restated Agreement and Plan of Reorganization dated as of November 25, 1997 (the
"Reorganization Agreement"), by and among Group Technologies Corporation, Tube
Turns Technologies, Inc., Group Financial Partners, Inc. and Bell.
2. To transact such other business incidental to the conduct of the
Special Meeting or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on December 31, 1997
as the record date for the determination of the holders of the common stock, par
value $.01 per share, of Bell entitled to notice of and to vote at the Special
Meeting or any adjournments or postponements thereof. The Reorganization and
other related matters are more fully described in the accompanying Joint Proxy
Statement/Prospectus, and the Appendices thereto, which form a part of this
Notice.
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. TO
ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, HOWEVER, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. A
POSTAGE-PREPAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. ANY SHAREHOLDER MAY
REVOKE HIS PROXY AT ANY TIME BEFORE THE SPECIAL MEETING BY WRITTEN NOTICE TO
SUCH EFFECT, BY SUBMITTING A SUBSEQUENTLY DATED PROXY OR BY ATTENDING THE
SPECIAL MEETING AND VOTING IN PERSON. WRITTEN REVOCATION OF A PROXY OR
SUBSEQUENT DATED PROXIES MAY BE DELIVERED BY FACSIMILE, TO THE ATTENTION OF THE
UNDERSIGNED, FACSIMILE NUMBER (407) 678-0578, AND WILL BE ACCEPTED ON THE DAY OF
THE SPECIAL MEETING UP UNTIL VOTING IS CLOSED ON ANY SPECIFIC MATTER AS TO WHICH
SUCH PROXY RELATES.
By Order of the Board of Directors,
Thomas C. Jamieson
Secretary
Orlando, Florida
_____ __, 1998
<PAGE>
BELL TECHNOLOGIES, INC.
REVOCABLE PROXY
(SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
BELL TECHNOLOGIES, INC. FOR A SPECIAL MEETING
OF SHAREHOLDERS TO BE HELD ON JANUARY __, 1998)
The undersigned hereby appoints Rick A. Affolter and Thomas C. Jamieson,
and either of them, with full power of substitution, as attorneys and proxies
for the undersigned, to represent and vote shares of common stock of Bell
Technologies, Inc., a Florida corporation ("Bell"), standing in my name on the
books and records of Bell at the close of business on December 31, 1997, which
the undersigned is entitled to cast at the Special Meeting of Shareholders to be
held at 6120 Hanging Moss Road, Orlando, Florida, on _____, January __, 1998 at
the hour of 3:00 p.m. local time, and at any and all adjournments or
postponements, as follows:
1. To approve the Second Amended and Restated Agreement and Plan of
Reorganization dated as of November 25, 1997 (the "Reorganization Agreement"),
by and among Group Technologies Corporation, Tube Turns Technologies, Inc.,
Group Financial Partners, Inc. and Bell.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY WILL BE VOTED FOR THE PROPOSAL STATED ABOVE IF NO CHOICE IS MADE
HEREON.
To vote in their discretion upon other matters incidental to the conduct of
the Special Meeting or any adjournment thereof.
Should the undersigned be present and elect to vote at the Special Meeting
or at any adjournment thereof and, after notification to the Secretary of Bell
at the Special Meeting of the shareholder's decision to terminate this Proxy,
then the power of said attorneys and proxies shall be deemed terminated and of
no further force and effect.
The undersigned acknowledges receipt of a Notice of Special Meeting called
for the ___ day of January, 1998 and the Joint Proxy Statement/Prospectus dated
the __ day of _____, 1998 prior to the execution of this Proxy.
DATE:______________________________
___________________________________
Print Name of Shareholder
___________________________________
Signature of Shareholder
DATE:______________________________
___________________________________
Print Name of Shareholder
___________________________________
Signature of Shareholder
(Please sign exactly as your name appears on the envelope in
which this card was mailed. When signing as attorney,
executor, administrator, trustee or guardian, please give
your full title. If more than one trustee, all should sign.
If shares are held jointly, each holder should sign.)
<PAGE>
PROSPECTUS DATED _____ __, 1998
Joint Proxy Statement
GROUP TECHNOLOGIES CORPORATION, GROUP FINANCIAL PARTNERS, INC.,
TUBE TURNS TECHNOLOGIES, INC. AND BELL TECHNOLOGIES, INC.
__________
Prospectus
GROUP TECHNOLOGIES CORPORATION
This Joint Proxy Statement and Prospectus ("Joint Proxy
Statement/Prospectus") is being furnished to shareholders of Group Technologies
Corporation, a Florida corporation ("GTC"), Group Financial Partners, Inc., a
Kentucky corporation ("GFP"), Tube Turns Technologies, Inc., a Kentucky
corporation ("Tube Turns"), and Bell Technologies, Inc., a Florida corporation
("Bell"), in connection with the solicitation of proxies by the Boards of
Directors of GTC, GFP, Tube Turns and Bell for use at their respective Special
Meetings of Shareholders and any adjournments or postponements thereof
(collectively, the "Special Meetings"), to be held at the time and place and for
the purposes set forth in the accompanying notice. It is anticipated that the
mailing of this Joint Proxy Statement/Prospectus and the enclosed proxy cards
will commence on or about _____ __, 1998.
At the Special Meetings, shareholders of GTC, GFP, Tube Turns and Bell
will, among other things, be asked to approve a Second Amended and Restated
Agreement and Plan of Reorganization (the "Reorganization Agreement"), dated as
of November 25, 1997, and the transactions contemplated thereby. As more fully
described herein, and subject to the terms and conditions of the Reorganization
Agreement, the following will occur in chronological order: (i) the distribution
of all of the outstanding shares of GFP Partners-V, Inc. ("Partners-V"), Unison
Commercial Group, Inc. ("Unison") and BW Riverport, Inc. ("BW") to the
shareholders of GFP (the "Spin Off"); (ii) the merger of GFP with and into GTC
(the "Merger"); (iii) the merger of Tube Turns with and into a newly formed,
wholly-owned subsidiary of GTC ("New Tube Turns") (the "Tube Turns Merger");
(iv) the merger of Bell with and into a newly formed, wholly-owned subsidiary of
GTC ("New Bell") (the "Bell Merger"); and (v) the contribution by GTC of all of
the assets of GTC (other than the shares of New Tube Turns, New Bell, BT
Holdings, Inc. and Metrum-Datatape, Inc., former wholly-owned subsidiaries of
GFP) into a newly formed, wholly-owned subsidiary of GTC (the "GTC
Contribution"), and the assumption by this subsidiary of all of the liabilities
of GTC, all in accordance with the Florida Business Corporation Act, as amended
(the "FBCA"), and the Kentucky Revised Statutes, as amended (the "KRS") (the
"Reorganization"). The Merger, the Tube Turns Merger and the Bell Merger are
referred to collectively as the "Merger Transactions." For federal income tax
purposes, it is intended that the Merger Transactions will qualify as a tax-free
reorganization under Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code"), and that the GTC Contribution will qualify as a tax-free
transfer of property to a controlled corporation under Section 351 of the Code.
It is not expected that the Spin Off will qualify as a tax-free spin off under
Section 355 of the Code. The transactions contemplated by the Reorganization
Agreement are expected to be closed within ten (10) days after shareholder
approval of the Reorganization Agreement.
Immediately after and conditioned upon the approval of the
Reorganization, GTC proposes to engage in two additional transactions: (i) a 1-
for-4 reverse stock split (the "Reverse Stock Split") and (ii) the
reincorporation of GTC in Delaware through the merger of GTC into a newly formed
Delaware corporation wholly-owned by GTC (the "Reincorporation").
Subject to the terms of the Reorganization Agreement: (i) the number
of shares of voting common stock, par value $.01 per share of GTC ("GTC Common
Stock") to be issued to the shareholders of GFP in the Merger is equal to the
number of shares of GTC Common Stock determined by multiplying the GFP
Conversion Ratio (as defined in the Reorganization Agreement) by the number of
shares of GFP held by such shareholders, subject to adjustment for any stock
dividend, stock split or similar matters between the date of the Reorganization
Agreement and the effective time of such merger as provided in the
Reorganization Agreement (the "Merger Shares"); (ii) the number of shares of GTC
Common Stock to be issued to the shareholders of Tube Turns, other than GTC (as
successor by merger to GFP) in the Tube
i
<PAGE>
Turns Merger is equal to the number of shares of GTC Common Stock determined by
multiplying the Tube Turns Conversion Ratio (as defined in the Reorganization
Agreement) by the number of shares of Tube Turns held by such shareholders,
subject to adjustment for any stock dividend, stock split or similar matters
between the date of the Reorganization Agreement and the effective time of such
merger as provided in the Reorganization Agreement (the "Tube Turns Merger
Shares"); and (iii) the number of shares of GTC Common Stock to be issued to the
shareholders of Bell, other than GTC (as successor by merger to GFP), in the
Bell Merger is equal to the number of shares of GTC Common Stock determined by
multiplying the Bell Conversion Ratio (as defined in the Reorganization
Agreement) by the number of shares of Bell held by such shareholders, subject to
adjustment for any stock dividend, stock split or similar matters between the
date of the Reorganization Agreement and the effective time of such merger as
provided in the Reorganization Agreement (the "Bell Merger Shares"). Each
shareholder of GFP will receive a number of shares of GTC Common Stock equal to
the number of shares of GFP owned by such shareholder multiplied by the GFP
Conversion Ratio. Each shareholder of Tube Turns, other than GTC (as successor
by merger to GFP), will receive a number of shares of GTC Common Stock equal to
the number of shares of Tube Turns owned by such shareholder multiplied by the
Tube Turns Conversion Ratio. Each shareholder of Bell, other than GTC (as
successor by merger to GFP), will receive a number of shares of GTC Common Stock
equal to the number of shares of Bell owned by such shareholder multiplied by
the Bell Conversion Ratio. Fractional shares will be paid in cash based upon the
GTC Average Closing Price as hereinafter defined.
Because, under the Reorganization Agreement, the shares of GTC Common
Stock will be valued at no less than $2.50 per share, the shareholders of GFP,
Tube Turns and Bell (other than GTC as successor by merger to GFP) will bear the
risk of market fluctuations below $2.50 per share inasmuch as they will receive
no more than 37,597,842, (assuming the cash balances of GFP at the effective
time of the Reorganization (the "GFP Cash Contribution") to be $4,500,000),
709,000 and 1,760,405 shares, respectively, in the aggregate, regardless of the
actual trading price of shares of GTC Common Stock. Similarly, under the
Reorganization Agreement the shares of GTC Common Stock will be valued at no
more than $4.50 per share, causing GTC to bear the risk of market fluctuations
above $4.50 per share inasmuch as GTC will issue not less than 27,583,055
(assuming the GFP Cash Contribution is $4,500,000), 393,885 and 978,005 shares,
respectively, in the aggregate to the shareholders of GFP, Tube Turns and Bell
(other than GTC as successor by merger to GFP) regardless of the actual trading
price of shares of GTC Common Stock. The total aggregate consideration to be
received by the shareholders of GFP, Tube Turns and Bell (other than GTC as
successor by merger to GFP) is $109,511,132, $1,772,500 and $4,401,012,
respectively. The aggregate consideration to be received by shareholders of GFP
is calculated as the sum of: (i) $51,833,006, which represents the consideration
for the shares of Tube Turns Common Stock and Bell Common Stock owned by GFP
immediately prior to the effective time of the Reorganization; (ii) $53,178,126,
which represents the consideration for the 15,064,625 shares of GTC Common Stock
owned by GFP immediately prior to the effective time of the Reorganization,
assuming a GTC Average Closing Price of $3.53 per share calculated as of
November 14, 1997; and (iii) $4,500,000, which represents the consideration for
the amount of cash of GFP at the effective time of the Reorganization. The
valuations used in determining the total aggregate consideration were determined
by or under the direction of certain affiliates of GTC who have conflicts of
interest in this transaction. The methodology used to calculate the valuations
is discussed in the section "Summary" under the subsection "Comparative Market
Prices of Common Stock."
GTC Common Stock is quoted on the Nasdaq Stock Market under the symbol
"GRTK." On November 14, 1997, the closing price for GTC Common Stock as reported
by Nasdaq was $3.69 per share. Had the Reorganization occurred on such date, the
GTC Average Closing Price would have been $3.53, the GFP Conversion Ratio would
have been 96.1795 and GTC would have issued approximately 31,022,986 shares of
GTC Common Stock to shareholders of GFP (assuming the GFP Cash Contribution is
$4,500,000) in connection with the Merger, the Tube Turns Conversion Ratio would
have been 5.6657, and GTC would have issued approximately 502,123 shares of GTC
Common Stock to shareholders of Tube Turns, other than GTC (as successor by
merger to GFP), in connection with the Tube Turns Merger, and the Bell
Conversion Ratio would have been 12.4646 and GTC would have issued approximately
1,246,747 shares of GTC Common Stock to shareholders of Bell, other than GTC (as
successor by merger to GFP), in connection with the Bell Merger. The methodology
used to calculate the conversion ratios is discussed in the
ii
<PAGE>
sections "Summary--Comparative Market Prices of Common Stock" and "The
Reorganization--The Reorganization Transaction; The Merger; The Tube Turns
Merger; The Bell Merger."
The closing share price for GTC Common Stock, as reported on the
Nasdaq Stock Market, over the ninety (90) day period extending from August 18,
1997 to November 14, 1997, has ranged from a low of $1.14 per share to a high of
$4.56 per share, with an average price during the period of $3.28. The average
daily volume of shares traded during the same period has ranged from a low of
4,900 shares to a high of 389,500 shares, with an average daily volume of 51,400
shares.
FOR CERTAIN FACTORS WHICH SHOULD BE CONSIDERED IN
EVALUATING THE REORGANIZATION, SEE "RISK FACTORS"
All information contained in this Joint Proxy Statement/Prospectus
with respect to GTC and its subsidiaries has been provided by GTC. All
information contained in this Joint Proxy Statement/Prospectus with respect to
GFP, Tube Turns and Bell has been provided by each of GFP, Tube Turns and Bell,
respectively.
THE SECURITIES TO BE ISSUED IN THE REORGANIZATION HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus, which also
constitutes GTC's Prospectus for up to 37,447,849 shares of GTC Common Stock, is
_____ __, 1998.
iii
<PAGE>
No person is authorized to give any information or to make any
representation with respect to the matters described in this Joint Proxy
Statement/Prospectus other than those contained herein or in the documents
incorporated by reference herein and, if given or made, such information or
representation must not be relied upon as having been authorized by GTC, GFP,
Tube Turns or Bell. This Joint Proxy Statement/Prospectus does not constitute an
offer to sell, or a solicitation of an offer to purchase, the securities offered
hereby, nor does it constitute the solicitation of a proxy, in any jurisdiction
in which, or to any person to whom, it is unlawful to make such offer or
solicitation of an offer or proxy solicitation. Neither the delivery of this
Joint Proxy Statement/Prospectus nor any sale made hereby shall, under any
circumstances, create any implication that there has been no change in the
affairs of GTC, GFP, Tube Turns or Bell since the date hereof, or that the
information herein is correct as of any time subsequent to its date.
FORWARD LOOKING STATEMENTS
This Joint Proxy Statement/Prospectus includes forward looking
statements based on current plans and expectations of GTC, GFP, Tube Turns and
Bell, relating to, among other matters, analyses and estimates of amounts that
are not yet determinable. Such forward looking statements are contained in the
sections entitled "Summary," "The Reorganization," "Business of GTC,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operation of GTC," "Business of GFP," "Management's Discussion and Analysis of
Financial Condition and Results of Operation of GFP," and other sections of this
Joint Proxy Statement/Prospectus. Such statements involve risks and
uncertainties which may cause actual future activities and results of operations
to be materially different from those suggested in this Joint Proxy
Statement/Prospectus, including, among others: GTC's dependence on its current
management; the risks and uncertainties present in GTC's, GFP's, Bell's and Tube
Turns' business; business conditions and growth in the advanced manufacturing,
engineering and testing services industry and the general economy; competitive
factors and price pressures; availability of third party component parts at
reasonable prices; inventory risks due to shifts in market demand and/or price
erosion of purchased components; changes in product mix; cost and yield issues
associated with GTC's manufacturing facilities; as well as other factors
described elsewhere in this Joint Proxy Statement/Prospectus.
AVAILABLE INFORMATION
GTC (Commission File No. 0-24020) is subject to the informational
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and, in accordance therewith, files reports, proxy statements
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information filed can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Judiciary Plaza, Washington,
D.C. 20549. In addition, such reports, proxy statements and other information
can be inspected and copied at the Commission's Regional Offices at 7 World
Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 or through the World
Wide Web (http://www.sec.gov). Copies of such materials may be obtained by mail,
at prescribed rates, from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. GTC Common Stock is quoted on the
Nasdaq Stock Market (the "Nasdaq Stock Market") and material filed by GTC can be
inspected at the offices of the Nasdaq Stock Market, 9513 Key West Avenue, 3rd
Floor, Rockville, Maryland 20850.
This Joint Proxy Statement/Prospectus does not contain all the
information set forth in the Registration Statement on Form S-4 and exhibits
relating thereto, including any amendments (the "Registration Statement"), of
which this Joint Proxy Statement/Prospectus is a part, and which GTC has filed
with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"), certain parts of which are omitted in accordance with the
rules and regulations of the Commission. For further information with respect to
GTC and the GTC Common Stock offered hereby, please refer to such Registration
Statement. While the statements contained herein or incorporated herein by
reference concerning the provision of documents include all material elements of
such documents, they are nonetheless summaries of such documents and each such
statement is qualified in its entirety by reference to the copy of the
applicable document if filed with the Commission or attached as an appendix
hereto.
iv
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
FORWARD LOOKING STATEMENTS.............................................................................. iv
AVAILABLE INFORMATION................................................................................... iv
SUMMARY................................................................................................. 1
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF GTC.................................................. 14
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF GFP.................................................. 16
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF TUBE TURNS........................................... 18
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF BELL................................................. 19
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA.................................................... 20
RISK FACTORS............................................................................................ 21
THE REORGANIZATION PARTIES.............................................................................. 31
THE GFP SPECIAL MEETING................................................................................. 31
THE TUBE TURNS SPECIAL MEETING.......................................................................... 34
THE BELL SPECIAL MEETING................................................................................ 37
THE GTC SPECIAL MEETING................................................................................. 40
THE REORGANIZATION...................................................................................... 53
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS....................................................... 76
RECENT DEVELOPMENTS..................................................................................... 87
DESCRIPTION OF GTC'S CAPITAL STOCK...................................................................... 88
EFFECT OF THE REORGANIZATION ON RIGHTS OF SHAREHOLDERS.................................................. 89
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................................................100
GTC EXECUTIVE COMPENSATION..............................................................................102
OWNERSHIP OF GTC COMMON STOCK...........................................................................108
OWNERSHIP OF GTC PREFERRED STOCK........................................................................110
BUSINESS OF GTC.........................................................................................111
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF GTC............119
OWNERSHIP OF GFP COMMON STOCK...........................................................................131
OWNERSHIP OF TUBE TURNS COMMON STOCK....................................................................132
OWNERSHIP OF BELL COMMON STOCK..........................................................................133
BUSINESS OF GFP.........................................................................................134
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF GFP............139
LEGAL MATTERS...........................................................................................145
EXPERTS.................................................................................................145
</TABLE>
APPENDIX A Second Amended and Restated Agreement and Plan of Reorganization
APPENDIX B Text of Subtitle 13 of Section 271B of the Kentucky Revised
Statutes
APPENDIX C Text of Sections 607.1301-607.1320 of the Florida Business
Corporation Act
APPENDIX D Text of Amendment to Articles of Incorporation of GTC
APPENDIX E Opinion of J. C. Bradford & Co., LLC
APPENDIX F Text of Amendment to Articles of Incorporation of GTC to Effect
the Reverse Stock Split
APPENDIX G Reincorporation Agreement
APPENDIX H Certificate of Incorporation of Sypris Solutions, Inc.
APPENDIX I Bylaws of Sypris Solutions, Inc.
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SUMMARY
This summary is necessarily general and abbreviated and has been
prepared to assist shareholders in their review of this Joint Proxy
Statement/Prospectus. This summary is not intended to be a complete explanation
of the matters covered in this Joint Proxy Statement/Prospectus and is qualified
in all respects by reference to the more detailed information contained in this
Joint Proxy Statement/Prospectus, the Appendices hereto and the documents
incorporated herein, which shareholders are urged to read and consider
carefully. Shareholders of GTC, GFP, Tube Turns and Bell should carefully review
the matters set forth under "Risk Factors," as presented in this Joint Proxy
Statement/Prospectus, before voting upon the matters submitted herein for
consideration by shareholders. Whenever any reference is made in this Joint
Proxy Statement/Prospectus to shares of GTC Common Stock to be received by
shareholders of GFP, Tube Turns and Bell in the Reorganization, such reference
also includes shares to be received by persons holding options to acquire shares
of GFP, Tube Turns and Bell.
The Reorganization Transaction
In accordance with and subject to the terms and conditions of the
Reorganization Agreement, a copy of which is attached to this Joint Proxy
Statement/Prospectus as Appendix A, the following will occur in chronological
order: (i) the Spin Off; (ii) the Merger; (iii) the Tube Turns Merger; (iv) the
Bell Merger; and (v) the GTC Contribution (collectively called "The
Reorganization Transactions"). Immediately after and conditioned upon the
approval of the Reorganization, GTC proposes to engage in two additional
transactions: (i) a 1-for-4 reverse stock split (the "Reverse Stock Split") and
(ii) the reincorporation of GTC in Delaware through the merger of GTC into a
newly formed Delaware corporation wholly-owned by GTC (the
"Reincorporation").
The Spin Off. At the effective time specified in the Reorganization
Agreement for the Spin Off (the "Spin Off Effective Time"), by virtue of the
Spin Off, the shares of Partners-V, Unison and BW held by GFP shall be
transferred to the shareholders of GFP. Partners-V, Unison and BW are wholly-
owned subsidiaries of GFP which do not currently have any material assets.
The Merger. At the effective time specified in the Reorganization
Agreement for the Merger (the "Merger Effective Time") and subject to the
conditions set forth in the Reorganization Agreement, GFP will be merged with
and into GTC in accordance with the KRS and the FBCA, whereupon the separate
existence of GFP will cease and GTC will continue as the surviving corporation.
Subject to the terms of the Reorganization Agreement, the number of shares of
GTC Common Stock to be issued to shareholders of GFP in the Merger is equal to
the GFP Conversion Ratio multiplied by the shares held by such shareholders,
subject to adjustment for any stock dividend, stock split or similar matters
between the date of the Reorganization Agreement and the effective time of such
merger as provided in the Reorganization Agreement (the "Merger Shares"). Each
share of GTC Common Stock issued and outstanding immediately prior to the Merger
Effective Time which is held by GFP shall be canceled and retired and all rights
in respect thereof shall cease to exist, without any conversion thereof or
payment of any consideration therefor.
The Tube Turns Merger. Upon the terms and subject to the conditions
set forth in the Reorganization Agreement, at the effective time specified in
the Reorganization Agreement for the Tube Turns Merger (the "Tube Turns Merger
Effective Time"), Tube Turns will be merged with and into New Tube Turns in
accordance with the KRS, whereupon the separate existence of Tube Turns will
cease and New Tube Turns will continue as the surviving corporation. Subject to
the terms of the Reorganization Agreement, the number of shares of GTC Common
Stock to be issued to the shareholders of Tube Turns, other than GTC (as
successor by merger to GFP), in connection with the Tube Turns Merger is equal
to the Tube Turns Conversion Ratio multiplied by the shares held by such
shareholders, subject to adjustment for any stock dividend, stock split or
similar matters between the date of the Reorganization Agreement and the
effective time of such merger as provided in the Reorganization Agreement (the
"Tube Turns Merger Shares"). Each
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share of Tube Turns common stock, no par value per share (the "Tube Turns Common
Stock"), issued and outstanding immediately prior to the Tube Turns Merger
Effective Time and held by GTC shall be canceled and extinguished.
The Bell Merger. Upon the terms and subject to the conditions set
forth in the Reorganization Agreement, at the effective time specified in the
Reorganization Agreement for the Bell Merger (the "Bell Merger Effective Time"),
Bell will be merged with and into New Bell in accordance with the FBCA,
whereupon the separate existence of Bell shall cease and New Bell will continue
as the surviving corporation. Subject to the terms of the Reorganization
Agreement, the number of shares of GTC Common Stock to be issued to the
shareholders of Bell, other than GTC (as successor by merger to GFP), in
connection with the Bell Merger is equal to the Bell Conversion Ratio multiplied
by the shares held by such shareholders, subject to adjustment for any stock
dividend, stock split or similar matters between the date of the Reorganization
Agreement and the effective time of such merger as provided in the
Reorganization Agreement (the "Bell Merger Shares"). Each share of Bell common
stock, par value $.01 per share (the "Bell Common Stock"), issued and
outstanding immediately prior to the Bell Merger Effective Time and held by GTC
shall be canceled and extinguished. See "The Reorganization--The Reorganization
Transaction."
The GTC Contribution. GTC will contribute all of the assets of GTC
(other than the shares of New Tube Turns, New Bell, BT Holdings, Inc., and
Metrum-Datatape, Inc., former wholly-owned subsidiaries of GFP) into a newly
formed, wholly-owned subsidiary of GTC (which will thereafter change its name to
Group Technologies Corporation) and this subsidiary will assume all of the
assets and liabilities related to the business operated by GTC prior to the
Reorganization. GTC will immediately thereafter merge with and into Sypris
Solutions, Inc., a newly formed Delaware corporation, wholly-owned by GTC
("Sypris"), which will leave Sypris as the holding company for GTC, Tube Turns,
Bell, BT Holdings, Inc. and Metrum-Datatape, Inc.
Parties to the Reorganization
GTC
GTC, a Florida corporation, is a subsidiary of GFP and provides
advanced manufacturing, engineering and testing services to original equipment
manufacturers ("OEMs") of electronics products. New Tube Turns and New Bell are
wholly-owned subsidiaries of GTC.
GTC's principal executive offices are located at 10901 Malcolm
McKinley Drive, Tampa, Florida 33612, and its telephone number is (813)
972-6000.
GFP
GFP, a Kentucky corporation, is a privately-held holding company whose
principal assets are the shares of GTC, Tube Turns and Bell owned by it.
GFP's principal executive offices are located at 455 South Fourth
Avenue, Louisville, Kentucky 40202, and its telephone number is (502) 585-5544.
Tube Turns
Tube Turns, a Kentucky corporation, is a subsidiary of GFP and
provides a range of manufacturing services for heavy industry and manufactures a
number of proprietary engineered products.
Tube Turns' principal executive offices are located at 2820 West
Broadway, Louisville, Kentucky 40232, and its telephone number is (502) 774-
6300.
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Bell
Bell, a Florida corporation, is a subsidiary of GFP and provides a
range of outsourcing services for the electronics industry and manufactures a
series of specialty electronic products.
Bell's principal executive offices are located at 6120 Hanging Moss
Road, Orlando, Florida 32807, and its telephone number is (407) 678-6900.
Combined Entity
Immediately after the Reorganization, GTC will amend its Articles of
Incorporation to effect the Reverse Stock Split and will effect the
Reincorporation pursuant to which GTC will merge with an into Sypris, a newly
formed Delaware corporation, wholly-owned by GTC, which will leave Sypris as the
holding company for GTC, Tube Turns, Bell, BT Holdings, Inc. and Metrum-
Datatape, Inc. See "The GTC Special Meeting--Proposal to Amend the GTC Articles
to Effect the Reverse Stock Split" and "Proposal to Approve the
Reincorporation."
Special Meetings
Time, Place and Date
The Special Meeting of GTC shareholders will be held at the Holiday
Inn located at 2701 East Fowler Avenue, Tampa, Florida, on _____, January __,
1998, at 10:00 a.m. local time (including any and all adjournments or
postponements thereof, the "GTC Special Meeting"). See "The GTC Special
Meeting."
The Special Meeting of GFP shareholders will be held at 455 Fourth
Avenue, Suite 350, Louisville, Kentucky, on _____, January __, 1998, at 3:00
p.m. local time (including any and all adjournments or postponements thereof,
the "GFP Special Meeting"). See "The GFP Special Meeting."
The Special Meeting of Tube Turns shareholders will be held at 2820
West Broadway, Louisville, Kentucky, on _____, January __, 1998, at 11:30 a.m.
local time (including any and all adjournments or postponements thereof, the
"Tube Turns Special Meeting"). See "The Tube Turns Special Meeting."
The Special Meeting of Bell shareholders will be held at 6120 Hanging
Moss Road, Orlando, Florida, on _____, January __, 1998, at 3:00 p.m. local time
(including any and all adjournments or postponements thereof, the "Bell Special
Meeting"). See "The Bell Special Meeting."
Purpose of the Meetings
The GTC Special Meeting. At the GTC Special Meeting, holders of GTC
Common Stock will consider and vote upon (i) a proposal to approve the
Reorganization Agreement, including the issuance of shares of GTC Common Stock
contemplated thereby, (ii) a proposal to amend the Articles of Incorporation of
GTC to increase the number of authorized shares of GTC Common Stock from
40,000,000 shares to 60,000,000 shares, (iii) a proposal to amend the Articles
of Incorporation of GTC to effect the Reverse Stock Split, (iv) a proposal to
approve the Reincorporation, and (v) any other business incidental to the
conduct of the GTC Special Meeting. See "The GTC Special Meeting--Purposes of
the GTC Special Meeting."
The GFP Special Meeting. At the GFP Special Meeting, holders of GFP
Common Stock will consider and vote upon (i) a proposal to approve the
Reorganization Agreement, and (ii) any other business incidental to the conduct
of the GFP Special Meeting. See "The GFP Special Meeting--Purposes of the GFP
Special Meeting."
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The Tube Turns Special Meeting. At the Tube Turns Special Meeting,
holders of Tube Turns Common Stock will consider and vote upon (i) a proposal to
approve the Reorganization Agreement, and (ii) any other business incidental to
the conduct of the Tube Turns Special Meeting. See "The Tube Turns Special
Meeting--Purposes of the Tube Turns Special Meeting."
The Bell Special Meeting. At the Bell Special Meeting, holders of Bell
Common Stock will consider and vote upon (i) a proposal to approve the
Reorganization Agreement, and (ii) any other business incidental to the conduct
of the Bell Special Meeting. See "The Bell Special Meeting--Purposes of the Bell
Special Meeting."
Votes Required; Record Date; Revocability of Proxies
GTC. The affirmative vote of the holders of a majority of the shares
of GTC Common Stock and the shares of preferred stock, par value $.01 per share
("GTC Preferred Stock"), each voting as a group, outstanding as of the GTC
Record Date (defined below) and entitled to vote at the GTC Special Meeting is
required to approve the Reorganization under the Reorganization Agreement.
Approval of the amendments to GTC's Articles of Incorporation to increase the
number of authorized shares of GTC Common Stock and to effect the Reverse Stock
Split, requires that more votes be cast for the proposal than votes cast against
the proposal by the holders of GTC Common Stock and GTC Preferred Stock, each
voting as a group. The affirmative vote of a majority of the outstanding shares
of GTC Common Stock and GTC Preferred Stock, each voting as a group, entitled to
vote thereon at the GTC Special Meeting is required to approve the
Reincorporation. Abstentions will be counted as "no" votes on the vote to
approve the Reorganization Agreement and the vote to approve the
Reincorporation. Holders of GTC Common Stock are entitled to one vote per share.
Holders of GTC Preferred Stock are entitled to 8.1 votes per share. Only holders
of GTC Common Stock and GTC Preferred Stock at the close of business on December
31, 1997 (the "GTC Record Date") will be entitled to notice of and to vote at
the GTC Special Meeting. As of the GTC Record Date, directors and executive
officers of GTC and their affiliates and persons and entities related to the
foregoing were beneficial owners of 13,199,233 shares of GTC Common Stock
entitled to vote at the GTC Special Meeting, representing approximately 81.3% of
the total number of shares of GTC Common Stock entitled to vote at the GTC
Special Meeting. In addition, such persons are also the beneficial owners of
250,000 shares of GTC Preferred Stock which they are entitled to vote at the GTC
Special Meeting, based on 8.1 votes per share, giving such person 83.4% of the
total votes of shares of GTC stock which they are entitled to vote at the GTC
Special Meeting. The affirmative votes by the holders of these shares will
affect the outcome of the vote and such holders are expected to vote in favor of
all of the proposals. Accordingly, if such shares are voted in favor, approval
of the Reorganization, the Reverse Stock Split and the Reincorporation is
assured. Any proxy given pursuant to this solicitation may be revoked by (i)
filing written notice to such effect or submitting a later dated proxy to the
Secretary of GTC before the taking of the vote at the GTC Special Meeting, or
(ii) attending the GTC Special Meeting and voting in person. See "The GTC
Special Meeting--Record Date; Voting Rights; Proxies."
GFP. The affirmative vote of the holders of a majority of the shares
of GFP Common Stock outstanding as of the GFP Record Date (defined below) and
entitled to vote at the GFP Special Meeting is required to approve the
Reorganization under the Reorganization Agreement. Holders of GFP Common Stock
are entitled to one vote per share. Only holders of GFP Common Stock at the
close of business on December 31, 1997 (the "GFP Record Date") will be entitled
to notice of and to vote at the GFP Special Meeting. As of the GFP Record Date,
directors and executive officers of GFP and their affiliates and persons and
entities related to the foregoing were beneficial owners of 315,467 shares of
GFP Common Stock representing approximately 99.8% of the outstanding shares of
GFP Common Stock. The affirmative votes by the holders of these shares will
affect the outcome of the vote and such holders are expected to vote in favor of
the proposal. Accordingly, if such shares are voted in favor, approval of the
Reorganization is assured. Any proxy given pursuant to this solicitation may be
revoked by (i) filing written notice to such effect or submitting a later dated
proxy to the Secretary of GFP before the taking of the vote at the GFP
Special
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Meeting, or (ii) attending the GFP Special Meeting and voting in person. See
"The GFP Special Meeting--Record Date; Voting Rights; Proxies."
Tube Turns. The affirmative vote of the holders of a majority of the
shares of Tube Turns Common Stock outstanding as of the Tube Turns Record Date
(defined below) and entitled to vote at the Tube Turns Special Meeting is
required to approve the Reorganization under the Reorganization Agreement.
Holders of Tube Turns Common Stock are entitled to one vote per share. Only
holders of Tube Turns Common Stock at the close of business on December 31, 1997
(the "Tube Turns Record Date") will be entitled to notice of and to vote at the
Tube Turns Special Meeting. As of the Tube Turns Record Date, directors and
executive officers of Tube Turns and their affiliates and persons and entities
related to the foregoing were beneficial owners of 1,292,981 shares of Tube
Turns Common Stock representing approximately 98.9% of the outstanding shares of
Tube Turns Common Stock. The affirmative votes by the holders of these shares
will affect the outcome of the vote and such holders are expected to vote in
favor of the proposal. Accordingly, if such shares are voted in favor, approval
of the Reorganization is assured. Any proxy given pursuant to this solicitation
may be revoked by (i) filing written notice to such effect or submitting a later
dated proxy to the Secretary of Tube Turns before the taking of the vote at the
Tube Turns Special Meeting, or (ii) attending the Tube Turns Special Meeting and
voting in person. See "The Tube Turns Special Meeting--Record Date; Voting
Rights; Proxies."
Bell. The affirmative vote of the holders of a majority of the shares
of Bell Common Stock outstanding as of the Bell Record Date (defined below) and
entitled to vote at the Bell Special Meeting is required to approve the
Reorganization under the Reorganization Agreement. Holders of Bell Common Stock
are entitled to one vote per share. Only holders of Bell Common Stock at the
close of business on December 31, 1997 (the "Bell Record Date") will be entitled
to notice of and to vote at the Bell Special Meeting. As of the Bell Record
Date, directors and executive officers of Bell and their affiliates and persons
and entities related to the foregoing were beneficial owners of 848,096 shares
of Bell Common Stock representing approximately 97.5% of the outstanding shares
of Bell Common Stock. The affirmative votes by the holders of these shares will
affect the outcome of the vote and such holders are expected to vote in favor of
the proposal. Accordingly, if such shares are voted in favor, approval of the
Reorganization is assured. Any proxy given pursuant to this solicitation may be
revoked by (i) filing written notice to such effect or submitting a later dated
proxy to the Secretary of Bell before the taking of the vote at the Bell Special
Meeting, or (ii) attending the Bell Special Meeting and voting in person. See
"The Bell Special Meeting--Record Date; Voting Rights; Proxies."
Reasons for the Reorganization
In the discussions which led to the signing of the Reorganization
Agreement, the respective managements of each of GTC, GFP, Tube Turns and Bell
considered a number of factors, including: (i) the recent poor financial
performance of GTC; (ii) the need to obtain long-term capital for operating
activities within GTC; (iii) the potential for operating efficiencies in certain
administrative areas; (iv) the increased liquidity for and more efficient
pricing of the shares of GFP, Tube Turns and Bell; (v) the potential to increase
the efficiency of and access to debt and equity capital; and (vi) the potential
to expand the range of career opportunities available to employees.
Additionally, the managements of each of GTC, GFP, Tube Turns, and Bell, and the
GTC Special Committee, considered certain negative factors, including the
potential impact of litigation pending against Tube Turns. See "The
Reorganization--Reasons for the Reorganization; Recommendation of the Special
Committee and the GTC Board;" "Reasons for the Reorganization; Recommendation of
the GFP Board;" "Reasons for the Reorganization; Recommendation of the Tube
Turns Board;" "Reasons for the Reorganization; Recommendation of the Bell
Board;" and "Risk Factors."
Recommendation of the Special Committee and the GTC Board
The Board of Directors of GTC (the "GTC Board") has unanimously
approved the Reorganization Agreement and recommends a vote for approval of the
Reorganization Agreement by the shareholders of GTC at the GTC Special Meeting.
A special committee composed of the directors of GTC who are not
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employees of GTC or any affiliate of GTC (the "Independent Directors") (the
"Special Committee") has reviewed the Reorganization and retained J.C. Bradford
& Co., LLC ("Bradford") to advise it, among other things, on the fairness of the
Merger Transactions to the shareholders of GTC, other than GFP (the
"Unaffiliated Shareholders of GTC"), from a financial point of view. Bradford
has delivered its opinion to the Special Committee to the effect that, subject
to the assumptions set forth therein, the Merger Transactions are fair to the
Unaffiliated Shareholders of GTC from a financial point of view. The Special
Committee recommended to the GTC Board that the Reorganization be approved by
the GTC Board and submitted to the GTC shareholders for approval. For a
discussion of the factors considered by the GTC Board and the Special Committee
in reaching their decision, see "The Reorganization--Background of the
Reorganization" and "The Reorganization--Reasons for the Reorganization;
Recommendation of the Special Committee and the GTC Board." Certain members of
the GTC Board have conflicts of interest in this transaction, but these persons
were not members of the Special Committee. See "The Reorganization--Conflicts of
Interest."
The GTC Board has approved the proposed amendments to the GTC Articles
of Incorporation including the Reverse Stock Split, and the Reincorporation and
recommends a vote for approval of these proposals at the GTC Special Meeting.
Recommendation of the GFP Board
The Board of Directors of GFP (the "GFP Board") has approved the
Reorganization Agreement and recommends a vote for approval of the
Reorganization by the shareholders of GFP at the GFP Special Meeting. The GFP
Board believes that the terms of the Reorganization are fair to, and in the best
interest of, GFP and its shareholders. For a discussion of the factors
considered by the GFP Board in reaching its decision, see "The Reorganization--
Background of the Reorganization" and "The Reorganization--Reasons for the
Reorganization; Recommendation of the GFP Board." Certain members of the GFP
Board have conflicts of interest in this transaction. See "The Reorganization--
Conflicts of Interest."
Recommendation of the Tube Turns Board
The Board of Directors of Tube Turns (the "Tube Turns Board") has
approved the Reorganization Agreement and recommends a vote for approval of the
Reorganization by the shareholders of Tube Turns at the Tube Turns Special
Meeting. The Tube Turns Board believes that the terms of the Reorganization are
fair to, and in the best interest of, Tube Turns and its shareholders. For a
discussion of the factors considered by the Tube Turns Board in reaching its
decision, see "The Reorganization--Background of the Reorganization" and "The
Reorganization--Reasons for the Reorganization; Recommendation of the Tube Turns
Board." Certain members of the Tube Turns Board have conflicts of interest in
this transaction. See "The Reorganization--Conflicts of Interest."
Recommendation of the Bell Board
The Board of Directors of Bell (the "Bell Board") has approved the
Reorganization Agreement and recommends a vote for approval of the
Reorganization by the shareholders of Bell at the Bell Special Meeting. The Bell
Board believes that the terms of the Reorganization are fair to, and in the best
interest of, Bell and its shareholders. For a discussion of the factors
considered by the Bell Board in reaching its decision, see "The Reorganization--
Background of the Reorganization" and "The Reorganization--Reasons for the
Reorganization; Recommendation of the Bell Board." Certain members of the Bell
Board have conflicts of interest in this transaction. See "The Reorganization--
Conflicts of Interest."
Opinion of Financial Advisor
The Special Committee has retained Bradford to act as its financial
advisor in connection with the Reorganization and to render an opinion as to the
fairness, from a financial point of view, of the Merger Transactions to the
Unaffiliated Shareholders of GTC. The Special Committee selected Bradford as its
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financial advisor after interviewing several candidates because, among other
things, Bradford is a nationally recognized investment banking firm, which, as a
part of its investment banking business, engages in the valuation of securities
in connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporations for other purposes. The Special Committee also
selected Bradford because of Bradford's familiarity with the electronics
contract manufacturing industry generally. Representatives of Bradford conducted
interviews with the management of GTC, GFP, Tube Turns and Bell and performed
extensive analyses relating to the proposed transactions. On December 16, 1996,
September 12, 1997 and again on November 12, 1997, Bradford rendered its written
opinion to the Special Committee that, subject to the assumptions set forth
therein, the Merger Transactions were fair, from a financial point of view, to
the Unaffiliated Shareholders of GTC. Bradford subsequently confirmed such
opinion by delivery of a written opinion to the Special Committee dated the date
hereof. A copy of that opinion, which sets forth the assumptions made, matters
considered and limitations on the review undertaken, is attached as Appendix E
hereto and should be read in its entirety.
Risk Factors
In connection with the Reorganization, the shareholders of GTC, GFP,
Tube Turns and Bell should carefully consider certain risk factors before voting
on the matters described herein. Such risk factors include (i) the pending
litigation involving GTC and Tube Turns which, if determined adversely, could
have a material adverse effect on GTC and Tube Turns, (ii) the floor and ceiling
provisions in the Reorganization Agreement which could affect the calculation of
the conversion ratios, (iii) the conflicts of interest of and controlling
interests by the Gill Family, (iv) the recent losses of GTC and the related
fluctuation and volatility of its stock price, (v) the dependence of GTC on
sales to government agencies and prime contractors, (vi) the rapid rate of
technological change and extensive competitive pressures faced by GTC, (vii) the
restriction on the future payment of dividends, (viii) the tax risks associated
with the completion of the Merger Transactions, and (ix) the exposure of GTC,
GFP, Tube Turns and Bell to a variety of environmental regulations. See "Risk
Factors."
Conflicts of Interest
In considering the recommendations of the GTC, GFP, Tube Turns and
Bell boards to approve the Reorganization Agreement and the transactions
contemplated thereby, shareholders should be aware that certain officers and
directors of such entities have interests in the Reorganization that are in
addition to the interests of shareholders of such entities generally, and which
may create actual or perceived conflicts of interest. Robert E. Gill and Jeffrey
T. Gill currently serve in a number of overlapping positions at GTC, GFP, Tube
Turns and Bell. Robert E. Gill serves as Chairman of GFP, President, Chief
Executive Officer and director of Bell, and director of GTC and Tube Turns.
Jeffrey T. Gill serves as President, Chief Executive Officer and director of GFP
and Chairman of GTC, Bell and Tube Turns. In addition, as of November 14, 1997,
Robert E. Gill, Virginia G. Gill, Jeffrey T. Gill, R. Scott Gill and Patricia G.
Gill (collectively, the "Gill Family") own approximately 99.4% of the GFP Common
Stock, and GFP in turn owns approximately 80.3% of the GTC Common Stock, 100% of
the GTC Preferred Stock, approximately 98.6% of the Tube Turns Common Stock and
approximately 96.9% of the Bell Common Stock. Should the Reorganization be
completed, the Gill Family ownership of GTC (including the conversion of GTC
Preferred Stock) will increase from approximately 82.5% to approximately 88.9%
assuming that the arithmetic average of the closing price per share of the GTC
Common Stock, as reported on the Nasdaq Stock Market, for each of the ten (10)
consecutive trading days ending with the trading day which occurs immediately
prior to the date of the approval of the Reorganization by the shareholders of
GTC (the "GTC Average Closing Price") is $3.53 and assuming the GFP Cash
Contribution is $4,500,000. Robert E. Gill will become Chairman of GTC and
Jeffrey T. Gill will become the President and Chief Executive Officer of GTC.
Both men will continue to serve as directors of GTC after the Reorganization.
The President of Tube Turns, who currently serves as a director of Tube Turns,
will have rights to a substantial number of shares of stock under option in GTC
should the Reorganization be completed as planned. R. Scott Gill currently
serves as a director of GFP, Bell and Tube
7
<PAGE>
Turns and is expected to serve as a director of GTC after the Reorganization.
Richard L. Davis currently serves as Vice President and Chief Financial Officer
of GFP and as a director of Tube Turns. Anthony C. Allen currently serves as
Vice President of Finance of GFP and as a director of Bell. In each such case,
Mr. Davis and Mr. Allen will have rights to a substantial number of shares of
stock under option in GTC should the merger be completed as planned. William L.
Healey and Robert Sroka currently serve as directors of Bell and are expected to
serve as directors of GTC after the Reorganization. See "The Reorganization--
Conflicts of Interest."
Conditions to the Reorganization
The obligations of GTC, GFP, Tube Turns and Bell to consummate the
Reorganization are subject to the satisfaction or waiver of certain conditions,
including: (i) obtaining the approval of the shareholders of GTC, GFP, Tube
Turns and Bell; (ii) the effectiveness of the Registration Statement with the
Commission; (iii) the absence of any injunction prohibiting consummation of the
Reorganization; and (iv) the receipt of opinions of counsel, at or prior to the
Closing Date, concerning certain federal income tax consequences of the
Reorganization (other than the Spin Off), which condition has been satisfied as
of the date hereof. See "The Reorganization--Conditions to Consummation of the
Reorganization."
Closing Date
The closing of the Reorganization will occur within ten (10) business
days following the date on which the last of the conditions set forth in the
Reorganization Agreement to be fulfilled shall have been fulfilled, including
obtaining requisite shareholder approvals, or on such other date as GTC, GFP,
Tube Turns and Bell may agree (the "Closing Date"). It is estimated that the
Reorganization will be consummated on or before January __, 1998. The Reverse
Stock Split and the Reincorporation are anticipated to occur within five (5)
business days after the Closing Date.
Exchange Procedures
On or prior to the applicable effective time for each of the Merger
Transactions (the "Effective Time"), a letter of transmittal will be mailed or
delivered to each GFP, Tube Turns and Bell shareholder to be used in forwarding
certificates evidencing the share(s) of such holder's respective corporation's
common stock for surrender and exchange for certificates evidencing GTC Common
Stock to which such holder will become entitled and, if applicable, cash in lieu
of fractional shares of GTC Common Stock. After receipt of such letter of
transmittal, each holder of certificates formerly representing shares of GFP,
Tube Turns and Bell common stock should surrender such certificates to GTC
pursuant to and in accordance with the instructions accompanying such letter of
transmittal, and each holder will receive in exchange therefor certificates
evidencing the whole number of shares of GTC Common Stock to which such holder
is entitled, including any cash which may be payable in lieu of fractional
shares of GTC Common Stock. See "The Reorganization--The Reorganization
Transaction." Such letter of transmittal will be accompanied by instructions
specifying other details of the exchange. GFP, TUBE TURNS AND BELL SHAREHOLDERS
SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A LETTER OF
TRANSMITTAL.
Termination of the Reorganization Agreement
The Reorganization Agreement may be terminated and the Reorganization
may be abandoned at any time prior to the Closing Date, in the circumstances
specified in the Reorganization Agreement, including: (i) with the mutual
consent of GTC, GFP, Tube Turns and Bell; (ii) if the Reorganization is not
consummated on or prior to March 15, 1998; and (iii) if certain representations
and warranties contained in the Reorganization Agreement are breached. For a
discussion of such circumstances, see "The Reorganization--Termination of the
Reorganization Agreement."
8
<PAGE>
Certain Differences in Shareholders' Rights
The rights of shareholders of GFP and Tube Turns, both Kentucky
corporations, are governed by the KRS and by GFP's and Tube Turns' respective
Articles of Incorporation (as amended to date, respectively, the "GFP Articles"
and the "Tube Turns Articles"), and GFP's and Tube Turns' respective Bylaws (as
amended to date, respectively, the "GFP Bylaws" and the "Tube Turns Bylaws").
The rights of shareholders of GTC and Bell, both Florida corporations, are
governed by the FBCA and by GTC's and Bell's respective Articles of
Incorporation (as amended to date, respectively, the "GTC Articles" and the
"Bell Articles"), and GTC's and Bell's respective Bylaws (as amended to date,
respectively, the "GTC Bylaws" and the "Bell Bylaws"). Upon completion of the
Reorganization, the shareholders of GFP, Tube Turns and Bell, other than GTC (as
successor by merger to GFP), will become shareholders of GTC, and their rights
as shareholders of GTC will be determined by the FBCA and the GTC Articles and
GTC Bylaws. The rights of shareholders of GTC differ from rights of the
shareholders of GFP, Tube Turns and Bell. These differences result from (i) the
differences between Kentucky and Florida law, and (ii) differences between the
respective governing instruments of the corporations. For a summary of these
differences, see "Effect of the Reorganization on Rights of Shareholders." In
addition, after the Reincorporation, the shareholders of GTC will become
shareholders of Sypris and their rights as shareholders will be determined by
the Delaware General Corporation Law (the "DGCL"). The rights of shareholders of
GTC differ from the rights of shareholders of Sypris, as a result of differences
between (i) Florida and Delaware law, and (ii) differences between the
respective governing instruments of the corporations. See "The GTC Special
Meeting--Proposal to Approve the Reincorporation."
Dissenters' Rights
Under the KRS, shareholders of GFP and Tube Turns will have the right
to dissent from the Reorganization if the Reorganization Agreement is approved
and the Reorganization is consummated. Under the FBCA, shareholders of GTC will
not be entitled to dissenter's rights under Florida law or any other statute if
the Reorganization Agreement is approved and the Reorganization is consummated.
Under the FBCA, shareholders of Bell will have the right to dissent from the
Reorganization if the Reorganization Agreement is approved and the
Reorganization is consummated, and demand the fair value of the shares of Bell
Common Stock held by such holders in cash, if such dissenting shareholders
follow the procedures provided by applicable law, which procedures are described
elsewhere in this Joint Proxy Statement/Prospectus. See "The GTC Special
Meeting--Dissenters' Rights;" "The GFP Special Meeting--Dissenters' Rights;"
"The Tube Turns Special Meeting--Dissenters' Rights;" and "The Bell Special
Meeting--Dissenters' Rights."
Certain Federal Income Tax Consequences
It is intended that, for federal income tax purposes, the Merger
Transactions will be treated as reorganizations within the meaning of Section
368 of the Code and the GTC Contribution will qualify as a tax-free transfer of
property to a controlled corporation under Section 351 of the Code, and,
accordingly, that for federal income tax purposes, no gain or loss will be
recognized by GTC, GFP, Tube Turns or Bell as a result of the Merger
Transactions and the GTC Contribution, and shareholders will recognize gain in
connection with the Merger Transactions only to the extent of any cash received
in the Merger Transactions. Consummation of the Reorganization is dependent
upon, among other conditions, receipt by each of GTC, GFP, Tube Turns and Bell
of an opinion of counsel, dated at or prior to the Closing Date, that the Merger
Transactions will be treated as reorganizations within the meaning of Section
368 of the Code and that the GTC Contribution will qualify as a tax-free
transfer of property to a controlled corporation under Section 351 of the Code.
No opinion of counsel will be obtained concerning the Spin Off and it is
anticipated that the Spin Off will not qualify as a tax-free spin off under the
Code. See "The Reorganization--Certain Federal Income Tax Consequences." No
ruling from the Internal Revenue Service (the "IRS") has been or will be
requested regarding the federal income tax consequences of the Reorganization.
See "Risk Factors--Tax Risks." For a discussion of the tax consequences of the
Reverse Stock Split and the Reincorporation, see "The GTC
9
<PAGE>
Special Meeting--Proposal to Amend the GTC Articles to Effect the Reverse Stock
Split" and "Proposal to Approve the Reincorporation."
Accounting Treatment
GTC intends to account for the Reorganization in accordance with
generally accepted accounting principles governing a downstream merger, under
which the Merger is accounted for as a purchase of the minority interests of
GTC. Other than any adjustments necessary to reflect the purchase of the
minority interests of GTC, the assets and liabilities of GTC, Tube Turns and
Bell, each of which are under the common control of GFP, will be combined based
on the respective carrying values of the accounts in the historical financial
statements of each entity. The issuance of GTC Common Stock to the shareholders
of Tube Turns and Bell, other than GTC (as successor by merger to GFP), in
connection with the Tube Turns Merger and the Bell Merger, respectively, will be
accounted for as a purchase and accordingly, the amount by which the fair market
value of the GTC Common Stock issued exceeds the fair market value of the
proportional share of the net assets of Tube Turns and Bell, if any, will be
allocated to the assets and liabilities of Tube Turns and Bell based upon the
fair values thereof and any excess to goodwill. A final determination of the
fair values of the assets and liabilities of Tube Turns and Bell has not yet
been made. Accordingly, the purchase accounting adjustments made in connection
with the development of the unaudited pro forma financial information appearing
elsewhere in this Joint Proxy Statement/Prospectus are preliminary and have been
made solely for the purposes of developing such pro forma financial information
to comply with disclosure requirements of the Commission. Although the final
purchase allocation is likely to differ, the pro forma financial information
reflects management's best estimate based upon currently available information.
After the Reorganization, the historical financial statements of GTC will be
those of GFP since GFP is the acquirer for accounting purposes. After the
Reincorporation, the historical financial statements of Sypris will in turn be
those of GTC. No material accounting adjustments are expected in accounting for
the Reincorporation. The Reverse Stock Split will be accounted for
retrospectively with effect from the date of the Reverse Stock Split and will be
presented in all statements of operations and in all other financial statements
and notes to financial statements in which earnings per share are reported.
Resale Restrictions
Shares of GTC Common Stock to be issued to certain shareholders of
GFP, Tube Turns and Bell in connection with the Reorganization and shares of
Sypris common stock to be issued in exchange therefor pursuant to the
Reincorporation (the "Sypris Common Stock") will be subject to certain resale
limitations pursuant to Rule 145 under the Securities Act. In general, these
limitations will consist of volume and manner of sale restrictions on the resale
of the shares of GTC Common Stock and Sypris Common Stock. Pursuant to the
Reorganization Agreement, each of GFP, Tube Turns and Bell are required to
deliver to GTC a letter identifying all persons who are, at the time of the
Special Meetings, "affiliates" of each of GFP, Tube Turns and Bell for purposes
of Rule 145 under the Securities Act (each such person an "Affiliate"). It is a
condition to GTC's obligations to consummate the Reorganization that each of
GFP, Tube Turns and Bell must cause each shareholder of GFP, Tube Turns and
Bell, respectively, who is identified as an Affiliate of GFP, Tube Turns or
Bell, as applicable, to deliver to GTC on or prior to the Merger Effective Time,
a written statement to the effect that such person will not offer to sell,
transfer or otherwise dispose of any shares of GTC Common Stock issued to such
person in the Reorganization, except in accordance with the applicable
provisions of the Securities Act and the rules and regulations of the
Commission. GTC may place legends on certificates representing shares of GTC
Common Stock that are issued to such shareholders of GFP, Tube Turns and Bell in
the Reorganization to restrict such transfers. Sypris may place similar legends
on certificates representing shares of Sypris Common Stock issued in exchange
therefor in the Reincorporation.
Comparative Market Prices of Common Stock
On October 9, 1996, the last business day preceding the date that GTC
made its public announcement of the proposed Reorganization, the closing sale
price per share of the GTC Common Stock
10
<PAGE>
as reported on the Nasdaq Stock Market was $2.00 per share. On November 14,
1997, the closing sale price per share of the GTC Common Stock as reported on
the Nasdaq Stock Market was $3.69 per share. The equivalent per share prices of
the Tube Turns Common Stock and the Bell Common Stock held by shareholders other
than GFP were $15.00 and $34.00, respectively, on October 9, 1996 and $20.00 and
$44.00, respectively, on November 14, 1997. The equivalent per share prices of
the GFP Common Stock on October 9, 1996 and November 14, 1997 were $195.63 and
$288.62, respectively.
The aggregate consideration in the Reorganization and the related
equivalent price per share for the Tube Turns Common Stock were determined in
the following manner: (i) a list of comparable public companies was identified
for purposes of gathering comparable valuation measures; (ii) the median was
calculated for each of the following five (5) valuation measures, (a) 1997
estimated net income, (b) 1998 estimated net income, (c) earnings before
interest, taxes, depreciation and amortization for the previous twelve (12)
months, (d) earnings before interest and taxes for the previous twelve (12)
months, and (e) net income for the previous twelve (12) months; (iii) the median
for each of these measures was reduced by a factor of 30 percent (30%) to
reflect the general lack of liquidity of the shares of stock; (iv) two (2)
additional valuation measures (book value and revenue for the past twelve (12)
months) were added to the group without discount; (v) each of these seven (7)
valuation measures were applied to the appropriate financial results of Tube
Turns to determine the range of corporate values; (vi) the high and low values
were discarded and the resulting five (5) values were averaged to determine the
aggregate consideration; and (vii) the aggregate consideration was divided by
the number of shares outstanding and/or reserved for issuance under options,
which, when rounded to the nearest dollar, resulted in a stock price of $12.00
per share. For purposes of computing the aggregate consideration, the shares of
Tube Turns Common Stock held by GFP were valued at $11.45 per share, while the
shares held by employees of Tube Turns were valued at $20.00 per share. GFP
proposed the differential because it believes that: (i) a $20.00 price per share
more closely reflects the increase in share value since the last plan valuation,
pursuant to the plan provisions for annual valuation; (ii) the differential is
fair and equitable to the non-GFP shareholders and will therefore increase the
probability of a smooth transaction; and (iii) the total consideration of
$16,526,970 for the Tube Turns Common Stock approximates $12.00 per fully
diluted share, which is below the stock price of $14.03 per share currently in
effect at Tube Turns under its employee stock purchase plan. The result of this
action was to increase the number of shares to be issued to the non-GFP
shareholders of Tube Turns and to decrease correspondingly the number of shares
to be issued to GFP.
The aggregate consideration in the Reorganization and the related
equivalent price per share for the Bell Common Stock were determined in the
following manner: (i) a list of comparable public companies was identified for
purposes of gathering comparable valuation measures; (ii) the median was
calculated for each of the following five (5) valuation measures, (a) 1997
estimated net income, (b) 1998 estimated net income, (c) earnings before
interest, taxes, depreciation and amortization for the previous twelve (12)
months, (d) earnings before interest and taxes for the previous twelve (12)
months, and (e) net income for the previous twelve (12) months; (iii) the median
for each of these measures was reduced by a factor of 30 percent (30%) to
reflect the general lack of liquidity of the shares of stock; (iv) two (2)
additional valuation measures (book value and revenue for the past twelve (12)
months) were added to the group without discount; (v) each of these seven (7)
valuation measures were applied to the appropriate financial results of Bell to
determine the range of corporate values; (vi) the high and low values were
discarded and the resulting five (5) values were averaged to determine the
aggregate consideration; and (vii) the aggregate consideration was divided by
the number of shares outstanding and/or reserved for issuance under options,
which, when rounded to the nearest dollar, resulted in a stock price of $44.00
per share. No reallocation of consideration was made between the non-GFP
shareholders of Bell and GFP.
The aggregate consideration in the Reorganization and the related
equivalent price per share for the GFP Common Stock were determined by taking
the sum of the consideration attributable to (i) the 1,288,600 shares of Tube
Turns Common Stock held by GFP, (ii) the 842,694 shares of Bell Common Stock
held by GFP, (iii) the 13,039,625 shares of GTC Common Stock held by GFP, (iv)
the 2,025,000
11
<PAGE>
shares of GTC Common Stock to be issued to GFP upon conversion of the shares of
GTC Preferred Stock held by it immediately prior to the Reorganization, and (v)
the GFP Cash Contribution. The resulting value was divided by the number of
shares outstanding and/or reserved for issuance under options, which resulted in
an exchange rate of 96.1795 shares of GTC Common Stock to be issued in exchange
for each share of GFP Common Stock, assuming a GTC Average Closing Price of
$3.53 per share and assuming the GFP Cash Contribution is $4,500,000.
GTC made its initial public offering on May 18, 1994 at a price to the
public of $10.00 per share. The shares of GTC Common Stock are quoted on the
Nasdaq Stock Market under the symbol GRTK. The following table sets forth, for
the periods indicated, the high and low sales prices per share for GTC Common
Stock as reported by the Nasdaq Stock Market:
<TABLE>
<CAPTION>
High Low
Year Ended December 31, 1994
<S> <C> <C>
Second Quarter (May 18, 1994 - June 30, 1994)......... $10.500 $10.000
Third Quarter (July 1, 1994 - September 30, 1994)..... $10.500 $ 7.250
Fourth Quarter (October 1, 1994 - December 31, 1994).. $ 8.625 $ 5.000
Year Ended December 31, 1995
First Quarter (January 1, 1995 - March 31, 1995)...... $ 7.000 $ 4.500
Second Quarter (April 1, 1995 - June 30, 1995)........ $ 6.000 $ 4.500
Third Quarter (July 1, 1995 - September 30, 1995)..... $ 8.000 $ 4.500
Fourth Quarter (October 1, 1995 - December 31, 1995).. $ 6.250 $ 1.875
Year ended December 31, 1996
First Quarter (January 1, 1996 - March 31, 1996)...... $ 3.750 $ 2.125
Second Quarter (April 1, 1996 - June 30, 1996)........ $ 4.250 $ 2.125
Third Quarter (July 1, 1996 - September 30, 1996)..... $ 3.000 $ 1.750
Fourth Quarter (October 1, 1996 - December 31, 1996).. $ 2.625 $ 0.750
Year ended December 31, 1997
First Quarter (January 1, 1997 - March 31, 1997)...... $ 1.875 $ 1.000
Second Quarter (April 1, 1997 - June 30, 1997)........ $ 1.500 $ 0.813
Third Quarter (July 1, 1997 - September 30, 1997)..... $ 4.125 $ 1.125
Fourth Quarter (October 1, 1997 - November 14, 1997).. $ 4.563 $ 3.000
</TABLE>
As of November 14, 1997, there were approximately 647 holders of
record of GTC Common Stock. As of November 14, 1997, there were approximately 9,
141 and 259 holders of record of the GFP Common Stock, the Tube Turns Common
Stock and the Bell Common Stock, respectively.
No cash dividends have been paid on GTC Common Stock, GFP Common
Stock, Tube Turns Common Stock or Bell Common Stock since the organization of
each respective company. GTC presently intends to retain all of its earnings for
the future operation and growth of its business and does not intend to pay cash
dividends in the foreseeable future. The payment of cash dividends in the future
will be dependent upon GTC's results of operations, earnings, capital
requirements, contractual restrictions and other factors considered relevant by
the GTC Board. The existing credit facility of GTC, Tube Turns and Bell
prohibits each company from declaring or paying any dividends or other
distributions, without the lender's prior written consent (see "Risk Factors--
Dividend Restrictions").
There has been no public market for the common stock of GFP, Tube
Turns or Bell. Shares of common stock of GFP, Tube Turns and Bell are closely-
held and are not listed on any exchange or quotation system. Pursuant to the
various stock purchase plans and stock restriction agreements for each of GFP,
Tube Turns and Bell, transactions have occurred within the last twelve months in
which each such company has sold shares to, or repurchased shares from, their
employee shareholders. The per share price of the
12
<PAGE>
transactions was approximately $130.00 per share for the GFP Common Stock,
approximately $14.00 per share for the Tube Turns Common Stock and approximately
$22.00 per share for the Bell Common Stock.
BECAUSE THE MARKET PRICE OF THE GTC COMMON STOCK IS SUBJECT TO
FLUCTUATION, THE MARKET VALUE OF THE GTC COMMON STOCK THAT HOLDERS OF GFP, TUBE
TURNS AND BELL COMMON STOCK WILL RECEIVE IN THE REORGANIZATION MAY INCREASE OR
DECREASE PRIOR TO THE CLOSING DATE. IN ADDITION, THE MARKET VALUE OF THE GTC
COMMON STOCK MAY INCREASE OR DECREASE FOLLOWING THE REORGANIZATION. SHAREHOLDERS
ARE ENCOURAGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE GTC COMMON STOCK.
13
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF GTC
(in thousands, except for per share data)
The following selected historical consolidated financial data for GTC
should be read in conjunction with the consolidated financial statements of GTC,
including the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of GTC." The statement of
operations data set forth below with respect to the years ended December 31,
1994, 1995 and 1996 and the balance sheet data at December 31, 1995 and 1996 are
derived from, and are qualified by reference to, the audited financial
statements of GTC included elsewhere in this Joint Proxy Statement/Prospectus.
The statement of operations data for the years ended December 31, 1992 and 1993
and the balance sheet data at December 31, 1992, 1993 and 1994 are derived from
audited financial statements of GTC not included herein. For 1996 and 1997, the
actual ending dates for the first fiscal nine month periods of GTC were
September 29 and September 28, respectively as indicated in the tables below;
however, for ease of presentation, the date September 30, 1997 will be used in
this Joint Proxy Statement/Prospectus where GTC is consolidated into GFP. The
statement of operations data for the nine months ended September 29, 1996 and
September 28,1997, and the balance sheet data at September 28, 1997, are
unaudited, but in the opinion of management include all normal, recurring
adjustments considered necessary for a fair presentation. The unaudited results
of operations for the nine months ended September 28, 1997, are not necessarily
indicative of results expected for the full year.
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, -----------------------
------------------------------------------------------- Sept. 29, Sept. 28,
1992 1993(1) 1994 1995(2) 1996(3) 1996(3) 1997
---- ------- ---- ------- ------- ------- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue...................................... $116,572 $243,856 $274,147 $273,647 $224,661 $180,380 $84,452
Cost of operations........................... 103,471 200,408 237,867 269,150 217,890 170,549 85,173
-------- -------- -------- -------- -------- -------- -------
Gross profit (loss).......................... 13,101 43,448 36,280 4,497 6,771 9,831 (721)
Selling, general and administrative expense.. 5,947 21,808 20,561 19,683 11,453 8,597 4,986
Research and development..................... 1,190 4,138 5,170 3,041 299 296 99
-------- -------- -------- -------- -------- -------- -------
Operating income (loss)...................... 5,964 17,502 10,549 (18,227) (4,981) 938 (5,806)
Interest expense............................. 1,169 1,647 2,048 2,907 2,858 2,682 1,087
Other expense (income)....................... -- -- 504 521 (59) 166 (3,461)
-------- -------- -------- -------- -------- -------- -------
Income (loss) before income taxes............ 4,795 15,855 7,997 (21,655) (7,780) (1,910) (3,432)
Income taxes................................. 1,588 5,882 3,297 (3,982) (799) 845 152
-------- -------- -------- -------- -------- -------- -------
Net income (loss)............................ $ 3,207 $ 9,973 $ 4,700 $(17,673) $ (8,579) $ (2,755) $(3,584)
======== ======== ======== ======== ======== ======== =======
Net income (loss) per share:
Primary.................................... $0.24 $0.71 $0.30 $(1.13) $(0.53) $(0.17) $(0.22)
Fully diluted.............................. $0.24 $0.69 $0.30 $(1.13) $(0.53) $(0.17) $(0.22)
Shares used in computing per share amounts:
Primary.................................... 13,551 14,066 15,644 15,695 16,157 16,135 16,221
Fully diluted.............................. 13,551 14,554 15,789 15,695 16,157 16,135 16,221
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------- September 28,
1992(4) 1993(5) 1994 1995(6) 1996(7) 1997
------- ------- ---- ------- ------- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital....................................... $24,066 $ 37,305 $ 56,622 $ 23,922 $ 7,839 $ 9,920
Total assets.......................................... 67,030 111,925 122,566 113,106 67,465 44,886
Current portion of long-term debt..................... 3,000 4,271 2,080 8,171 3,513 198
Long-term debt, less current portion.................. 21,469 30,362 30,392 23,050 10,119 --
Redeemable Common Stock and related
additional paid-in capital.......................... 1,971 2,508 -- -- -- --
Total shareholders' equity............................ 6,926 17,340 42,799 25,840 19,403 15,937
</TABLE>
- -----------------
(1) Reflects the results of operations from the date of acquisition of Metrum,
Inc. ("Metrum") and Philips Circuit Assemblies ("PCA") on December 31, 1992
and July 30, 1993, respectively.
(2) Reflects the results of operations through the date of disposition of the
peripheral products and imaging products business units of Metrum on May
31, 1995 and June 6, 1995, respectively.
(3) Reflects the results of operations through the date of disposition of the
instrumentation products business unit of Metrum on February 9, 1996.
(4) Reflects the acquisition of Metrum on December 31, 1992.
(5) Reflects the acquisition of PCA on July 30, 1993.
(6) Reflects the disposition of the peripheral products and imaging products
business units of Metrum on May 31, 1995 and June 6, 1995, respectively.
(7) Reflects the disposition of the instrumentation products business unit of
Metrum on February 9, 1996.
15
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF GFP
(in thousands, except for share and per share data)
The following selected historical consolidated financial data for GFP
should be read in conjunction with the consolidated financial statements of GFP,
including the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of GFP." The statement of
operations data set forth below with respect to the years ended December 31,
1994, 1995 and 1996 and the balance sheet data at December 31, 1995 and 1996 are
derived from the audited financial statements of GFP included elsewhere in this
Joint Proxy Statement/Prospectus. The statement of operations data for the years
ended December 31, 1992 and 1993 and the balance sheet data at December 31,
1992, 1993 and 1994 are derived from audited financial statements of GFP not
included herein. The statement of operations data for the nine months ended
September 30, 1996 and 1997, and the balance sheet data at September 30, 1997,
are unaudited, but in the opinion of management include all normal, recurring
adjustments considered necessary for a fair presentation. The unaudited results
of operations for the nine months ended September 30, 1997, are not necessarily
indicative of results expected for the full year.
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
------------------------------------------------------- -------------------
1992 1993(1) 1994 1995(2)(3) 1996 1996 1997
---- ------- ---- ---------- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue.......................................... $155,663 $296,880 $326,327 $328,977 $308,598 $240,963 $159,236
Cost of operations............................... 135,758 242,909 279,609 312,712 278,678 214,753 137,369
-------- -------- -------- -------- -------- -------- --------
Gross profit..................................... 19,905 53,971 46,718 16,265 29,920 26,210 21,867
Selling, general and administrative expense...... 12,629 33,247 33,148 31,081 29,407 21,133 21,719
-------- -------- -------- -------- -------- -------- --------
Operating income (loss).......................... 7,276 20,724 13,570 (14,816) 513 5,077 148
Interest expense................................. 1,905 2,358 2,558 3,397 3,979 3,549 1,724
Other expense (income), net...................... -- 319 (199) 196 (828) (608) (3,643)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before gain on issuance of stock
by subsidiary, income taxes, minority interests
and discontinued operations..................... 5,371 18,047 11,211 (18,409) (2,638) 2,136 2,067
Gain on issuance of stock by subsidiary.......... -- -- 13,307 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes, minority
interests and discontinued operations........... 5,371 18,047 24,518 (18,409) (2,638) 2,136 2,067
Income taxes..................................... 1,199 3,803 9,845 (3,109) 1,614 2,317 750
-------- -------- -------- -------- -------- -------- --------
Income (loss) before minority interests and
discontinued operations......................... 4,172 14,244 14,673 (15,300) (4,252) (181) 1,317
Minority interests in (earnings) losses of
consolidated subsidiaries....................... -- -- (331) 3,535 1,716 551 717
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing operations......... 4,172 14,244 14,342 (11,765) (2,536) 370 2,034
Loss from discontinued operations, net of tax.... (1,374) (216) (437) (905) (609) (336) (327)
Gain on disposal of discontinued operations, net
of tax.......................................... -- -- -- 4,637 4,066 1,210 4,192
-------- -------- -------- -------- -------- -------- --------
Net income (loss)................................ $ 2,798 $ 14,028 $ 13,905 $ (8,033) $ 921 $ 1,244 $ 5,899
======== ======== ======== ======== ======== ======== ========
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
---------------------------------------------------------- -----------------
1992 1993(1) 1994 1995(2)(3) 1996 1996 1997
---- ------- ---- ---------- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings per share:
Income (loss) from continuing operations... $ 13.11 $ 44.59 $ 44.62 $ (36.64) $ (7.92) $ 1.16 $ 6.33
Net income (loss).......................... $ 8.79 $ 43.92 $ 43.26 $ (25.02) $ 2.88 $ 3.89 $ 18.35
Shares used in computing per share amounts.. 318,219 319,426 321,424 321,084 320,128 320,131 321,449
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------ September 30,
1992(4) 1993(5) 1994 1995(6)(7) 1996 1997
------- ------- ---- ---------- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital............................. $ 35,014 $ 47,711 $ 61,783 $ 26,159 $ 6,337 $30,380
Total assets................................ 131,677 178,533 188,300 173,028 132,960 98,530
Notes payable............................... -- 1,705 6,457 5,920 -- --
Current portion of long-term debt........... 6,992 7,292 4,357 10,946 25,009 2,356
Long-term debt, less current portion........ 78,282 81,122 73,018 52,868 21,588 13,114
Redeemable common stock..................... 1,031 1,791 1,806 1,821 1,079
Total shareholders' equity.................. 1,826 15,840 29,496 21,463 22,384 28,151
</TABLE>
__________
(1) Reflects the results of operations from the date of acquisition of Metrum
and Services Group Corporation ("SGC") on December 31, 1992 and PCA on July
30, 1993.
(2) Reflects the results of operations from the date of acquisition of
Associated Testing Laboratories, Inc. ("ATL") on January 31, 1995.
(3) Reflects the results of operations through the respective dates of
disposition of the peripheral products and imaging products business units
of Metrum on May 31, 1995 and June 6, 1995, respectively.
(4) Reflects the acquisition of Metrum and SGC on December 31, 1992.
(5) Reflects the acquisition of PCA on July 30, 1993.
(6) Reflects the acquisition of ATL on January 31, 1995.
(7) Reflects the disposition of the peripheral products and imaging products
business units of Metrum on May 31, 1995 and June 6, 1995, respectively.
17
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF TUBE TURNS
(in thousands, except for share and per share data)
The following selected historical financial data for Tube Turns should
be read in conjunction with the consolidated financial statements of GFP,
including the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of GFP." The statement of
operations and balance sheet data set forth below, are unaudited, but in the
opinion of management include all normal, recurring adjustments considered
necessary for a fair presentation. The unaudited results of operations for the
nine months ended September 30, 1997, are not necessarily indicative of results
expected for the full year.
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
---------------------------------------------------------- ----------------------
1992 1993 1994 1995 1996(3) 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue...................................... $ 26,213 $ 22,641 $ 23,148 $ 23,858 $ 24,683 $ 18,160 $ 22,497
Cost of operations........................... 23,662 20,133 20,063 20,730 21,656 16,179 18,774
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit................................. 2,551 2,508 3,085 3,128 3,027 1,981 3,723
Selling, general and administrative expense.. 1,611 1,767 1,683 1,848 1,741 1,274 1,778
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income............................. 940 741 1,402 1,280 1,286 707 1,945
Interest expense............................. 397 279 224 70 22 13 8
Other (income) expense....................... -- -- (703) (446) (832) (774) (154)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes................... 543 462 1,881 1,656 2,096 1,468 2,091
Income taxes................................. 143 193 855 601 432 368 694
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income................................... $ 400 $ 269 $ 1,026 $ 1,055 $ 1,664 $ 1,100 $ 1,397
========== ========== ========== ========== ========== ========== ==========
Net income per share......................... $ 0.30 $ 0.20 $ 0.77 $ 0.76 $ 1.23 $ 0.81 $ 1.04
Shares used in computing per share amounts:.. 1,313,905 1,318,868 1,326,492 1,395,633 1,349,245 1,350,356 1,346,652
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------- September 30,
1992 1993 1994 1995 1996 1997
---------- --------- --------- --------- --------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital.............................. $ 5,925 $ 5,348 $ 5,283 $ 4,785 $ 4,997 $ 3,452
Total assets................................. 17,371 15,546 15,714 15,674 18,721 19,495
Current portion of long-term debt............ 600 700 -- -- -- --
Long-term debt, less current portion......... 4,700 2,900 1,704 143 -- --
Redeemable common stock...................... -- 361 416 419 535 261
Total shareholders' equity................... 4,026 4,229 5,303 6,437 8,087 9,317
</TABLE>
18
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF BELL
(in thousands, except for share and per share data)
The following selected historical financial data for Bell should be
read in conjunction with the consolidated financial statements of GFP, including
the notes thereto, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of GFP." The statement of operations data
for the years ended December 31, 1993, 1994, 1995 and 1996 and the balance sheet
data at December 31, 1993, 1994, 1995, 1996 are derived from audited financial
statements of Bell not included herein. The statement of operations data for the
1992 and for the nine months ended September 30, 1996 and 1997, and the balance
sheet data at December 31, 1992 and September 30, 1997, are unaudited, but in
the opinion of management include all normal, recurring adjustments considered
necessary for a fair presentation. The unaudited results of operations for the
nine months ended September 30, 1997, are not necessarily indicative of results
expected for the full year.
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
-------------------------------------------------- ------------------
1992 1993 1994 1995 1996(1) 1996 1997
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Statement of Operations Data:
Revenue...................................... $ 8,041 $ 31,164 $ 30,264 $ 33,499 $ 59,254 $ 42,445 $ 52,287
Cost of operations........................... 4,319 23,013 22,911 24,859 39,132 28,047 33,422
-------- -------- -------- -------- -------- -------- --------
Gross profit................................. 3,722 8,151 7,353 8,640 20,122 14,398 18,865
Selling, general and administrative expense.. 2,384 5,476 5,179 6,119 14,242 10,170 12,033
Research and development..................... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Operating income............................. 1,338 2,675 2,174 2,521 5,880 4,228 6,832
Interest expense............................. 168 485 479 658 1,210 942 822
Other expense................................ -- 319 -- 121 63 -- 939
-------- -------- -------- -------- -------- -------- --------
Income before income taxes................... 1,170 1,871 1,695 1,742 4,607 3,286 5,071
Income taxes................................. 511 707 642 682 1,840 1,282 2,049
-------- -------- -------- -------- -------- -------- --------
Net income................................... $ 659 $ 1,164 $ 1,053 $ 1,060 $ 2,767 $ 2,004 $ 3,022
======== ======== ======== ======== ======== ======== ========
Net income per share......................... $ 0.76 $ 1.32 $ 1.17 $ 1.15 $ 2.98 $ 2.16 $ 3.27
Shares used in computing per share........... 869,507 882,754 903,606 919,800 927,914 928,414 924,325
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------- September 30,
1992 1993 1994 1995 1996(1) 1997
-------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Balance Sheet Data:
Working capital.............................. $ 4,197 $ 3,503 $ 3,658 $ 4,007 $ 10,815 $ 14,293
Total assets................................. 13,315 13,279 13,691 16,224 29,695 30,514
Current portion of long-term debt............ 2,105 2,710 1,116 1,748 2,798 158
Long-term debt, less current portion......... 6,563 4,426 4,649 5,049 11,469 12,396
Redeemable common stock...................... -- 374 595 1,059 1,056 590
Total shareholders' equity................... 1,789 2,953 4,072 4,960 7,008 9,890
</TABLE>
_______________
(1) Reflects the acquisition of Metrum on February 9, 1996.
19
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(in thousands)
The following selected unaudited pro forma combined financial data as
of September 30, 1997 and for the nine months ended September 30, 1997 and for
the year ended December 31, 1996 have been derived from the Unaudited Pro Forma
Combined Financial Statements included elsewhere in this Joint Proxy
Statement/Prospectus and should be read in conjunction therewith, including the
related notes thereto. Such unaudited pro forma combined financial data reflects
the pro forma effects of the sale of GTC's Latin American operations and the
Reorganization on GFP's historical cost balance sheet as of September 30, 1997
and statements of operations for the periods presented. The pro forma effects of
the acquisition of Datatape on November 14, 1997 are shown separately from the
pro forma combined data in the Unaudited Pro Forma Combined Financial
Statements. Since the acquisition of Datatape occurred subsequent to the date of
the historical financial statements, the pro forma effects of the Datatape
acquisition are not included in the selected unaudited pro forma combined
financial data which follows.
The following selected unaudited pro forma combined financial data
should also be read in conjunction with the consolidated financial statements of
GTC and GFP, including the respective notes thereto, "Management's Discussion
and Analysis of Financial Condition and Results of Operations of GTC,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of GFP," "Selected Historical Consolidated Financial Data of GTC,"
and "Selected Historical Consolidated Financial Data of GFP" included elsewhere
in this Joint Proxy Statement/Prospectus.
The unaudited pro forma combined financial data is not necessarily
indicative of the results of operations or financial position that would have
been achieved had the Reorganization and the sale of GTC's Latin American
operations been consummated as of the beginning of the periods presented and
should not be construed as representative of such amounts for any future dates
or periods.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1996 September 30, 1997
----------------- ------------------
<S> <C> <C>
Statement of Operations Data:
Revenue................................... $250,141 $142,305
Operating income.......................... 1,266 2,312
(Loss) income from continuing operations.. (931) 1,181
</TABLE>
<TABLE>
September 30, 1997
------------------
<S> <C>
Balance Sheet Data:
Working capital................................................. $ 30,175
Total assets.................................................... 100,134
Current portion of long-term debt............................... 2,356
Long-term debt, less current portion............................ 13,114
Total shareholders' equity...................................... 37,749
</TABLE>
Comparative Per Share Data
The following table sets forth (i) the historical net income (loss)
per common share (or income (loss) from continuing operations for GFP) and the
historical book value per common share of the GTC Common Stock, the GFP Common
Stock, the Tube Turns Common Stock and the Bell Common Stock, (ii) the unaudited
pro forma combined income from continuing operations per common share and the
unaudited pro forma combined book value per common share after giving effect to
the Reorganization using generally accepted accounting principles governing a
downstream merger and the sale of GTC's Latin American operations, and (iii) the
unaudited equivalent pro forma combined income from continuing operations and
book value per common share for the GFP Common Stock, the Tube Turns Common
20
<PAGE>
Stock and the Bell Common Stock based on the Conversion Ratios of 96.1795,
5.6657 and 12.4646 shares of GTC Common Stock for each share of GFP Common
Stock, Tube Turns Common Stock and Bell Common Stock, respectively, and
reflecting the Reverse Stock Split. The information presented in the table
should be read in conjunction with the respective separate historical audited
and unaudited consolidated financial statements of GTC and GFP and the notes
thereto appearing elsewhere in this Joint Proxy Statement/Prospectus. Also see
"Unaudited Pro Forma Condensed Combined Financial Statements."
<TABLE>
Historical
----------------------------------
Tube
GTC GFP Turns Bell
------ ------ ----- -----
<S> <C> <C> <C> <C>
Net income (loss) from continuing
operations per common share:
Year ended December 31, 1996.......... $(0.53) $(7.92) $1.23 2.98
Nine months ended September 30, 1997.. (0.22) 6.33 1.04 3.27
Book value per common share:
As of December 31, 1996.............. 1.20 69.92 6.37 7.55
As of September 30, 1997............. 0.98 87.58 7.10 10.70
</TABLE>
<TABLE>
<CAPTION>
Equivalent
Pro Forma Combined
--------------------------
Pro Forma Tube
Combined GFP Turns Bell
--------- ------- ------ -----
<S> <C> <C> <C> <C>
Net income (loss) from continuing
operations per common share:
Year ended December 31, 1996.......... $(0.11) $ (2.53) $(0.15) (0.33)
Nine months ended September 30, 1997.. 0.13 3.21 0.19 0.42
Book value per common share
As of December 31, 1996............... 3.78 90.98 5.36 11.79
As of September 30, 1997.............. 4.27 102.60 6.04 13.30
</TABLE>
RISK FACTORS
Shareholders of GTC, GFP, Tube Turns and Bell should carefully consider the
following factors before voting on the matters described herein and in
evaluating GTC and its business, in addition to the other information in this
Joint Proxy Statement/Prospectus.
General Risk Factors
Pending Litigation
Tube Turns is a co-defendant in two lawsuits in Louisiana arising out
of an explosion in a coker plant owned by Exxon Corporation located in Baton
Rouge, Louisiana. According to the complaints, Tube Turns is the alleged
manufacturer of a carbon steel pipe elbow which is alleged to have been
improperly installed in the plant in a place where a chromium alloy elbow should
have been used, thereby causing the elbow to fail, which in turn caused the
explosion which destroyed the coker plant and caused unspecified damages to
surrounding property owners. There is no allegation that the carbon steel pipe
elbow was improperly manufactured. Instead, the case seems to center around the
fact that the carbon steel elbow should have been a chromium steel elbow. Tube
Turns is defending this case based upon its assertion that it had no knowledge
that the carbon steel elbow was being improperly used, nor does it know how the
contractors who installed the wrong part obtained that carbon steel elbow.
Accordingly, Tube Turns has asked the court to dismiss the action against Tube
Turns. The suits are being defended for Tube Turns by its insurance carrier. One
of the actions was brought by Exxon and claims damages for destruction of the
plant which Exxon
21
<PAGE>
estimates exceed $100.0 million. In this action Tube Turns is a co-defendant
with the fabricator who built the pipe line in which the elbow was incorporated
and with the general contractor for the plant. The second action is a class
action filed on behalf of the residents living around the plant and claims
damages in an amount as yet undetermined. Exxon is a co-defendant with Tube
Turns, the contractor and the fabricator in this action. Currently the case is
stayed as a result of the bankruptcy of the fabricator. While Tube Turns
believes that it will be dismissed from this litigation when the stay is lifted,
there is no assurance that Tube Turns will be dismissed or if not dismissed,
that it will not be found liable for some or all of the alleged damages. The
litigation is in the initial stages and should Tube Turns ultimately be found
liable, the damages could exceed Tube Turns' insurance policy limits which could
materially and adversely affect Tube Turns' financial performance and adversely
affect a shareholder's investment in GTC post-Reorganization to the extent of
Tube Turns' contribution to the assets and earnings of GTC post-Reorganization.
Neither Tube Turns nor GTC are indemnified for this potential liability above
the insurance policy limits, which as a result, could place a significant part
of the investment of the shareholders of GTC, GFP, Tube Turns and Bell at risk
after the Reorganization has been consummated, if Tube Turns is found liable.
Calculation of Conversion Ratios
The conversion ratios in the Reorganization will be calculated based
in part upon a share value number for GTC Common Stock equal to the greater of
(i) $2.50 per share, or (ii) the GTC Average Closing Price, but in any event no
greater than $4.50 per share. Accordingly, if shareholders of GFP, Tube Turns
and Bell receive shares of GTC Common Stock in the Reorganization based on a
value of $2.50 per share when this amount exceeds the GTC Average Closing Price,
such shareholders could be viewed as having received, in the Reorganization,
shares of GTC Common Stock worth less than the values of their shares of GFP,
Tube Turns and Bell. Conversely, if shareholders of GFP, Tube Turns and Bell
receive shares of GTC Common Stock in the Reorganization based on a value of
$4.50 per share when this amount is less than the GTC Average Closing Price, GTC
could be viewed as having issued, in the Reorganization, shares of GTC Common
Stock worth more than the shares of GFP, Tube Turns and Bell exchanged therefor.
In addition, in the determination of the values of GFP, Tube Turns and Bell for
purposes of the Reorganization, any proceeds from the exercise of options to be
received by GTC for options converted in the Reorganization into options to
purchase GTC Common Stock, were not included in such valuations. While the
Special Committee of the GTC Board obtained a fairness opinion from Bradford on
the Merger Transactions, GFP, Tube Turns and Bell have not obtained fairness
opinions on the Merger Transactions. See "The Reorganization--Opinion of
Financial Advisor."
Uncertainties Related to the Reorganization
There can be no assurance that GTC will be successful in efficiently
integrating the acquired businesses into its own, or that GTC will retain key
personnel.
Conflicts of Interest
Robert E. Gill and Jeffrey T. Gill currently serve in a number of
overlapping positions at GTC, GFP, Tube Turns and Bell. Robert E. Gill serves as
Chairman of GFP, President, Chief Executive Officer and director of Bell, and
director of GTC and Tube Turns. Jeffrey T. Gill serves as President, Chief
Executive Officer and director of GFP and Chairman of GTC, Bell and Tube Turns.
In addition, as of November 14, 1997, the Gill Family controlled approximately
99.4% of the GFP Common Stock, and GFP in turn controlled approximately 80.3% of
the GTC Common Stock, 100% of the GTC Preferred Stock, approximately 98.6% of
the Tube Turns Common Stock, and approximately 96.9% of the Bell Common Stock.
Should the Reorganization be completed, the Gill Family ownership of GTC
(including the conversion of GTC Preferred Stock) will increase from
approximately 82.5% to approximately 88.9% and ownership of GTC by the
Unaffiliated Shareholders will decrease from approximately 17.5% to
approximately 9.4%, assuming a GTC Average Closing Price of $3.53 and the GFP
Cash Contribution is $4,500,000. Robert E. Gill will become Chairman of GTC and
Jeffrey T. Gill will become the President and Chief Executive Officer of GTC.
Both
22
<PAGE>
men will continue to serve as directors of GTC after the Reorganization. The
President of Tube Turns, who currently serves as a director of Tube Turns, will
have rights to a substantial number of shares of stock under option in GTC
should the merger be completed as planned. R. Scott Gill currently serves as a
director of GFP, Bell and Tube Turns and is expected to serve as a director of
GTC after the Reorganization. Richard L. Davis currently serves as Vice
President and Chief Financial Officer of GFP and as a director of Tube Turns.
Anthony C. Allen currently serves as Vice President of Finance of GFP and as a
director of Bell. In each such case, both individuals will have rights to a
substantial number of shares of stock under option in GTC should the merger be
completed as planned. William L. Healey and Robert Sroka currently serve as
directors of Bell and are expected to serve as directors of GTC after the
Reorganization. See "The Reorganization--Conflicts of Interest."
Control by Principal Shareholders and Increased Voting Power of the
Gill Family
As of November 14, 1997, the Gill Family controlled approximately
99.4% of GFP Common Stock, and GFP in turn controlled approximately 80.3% of the
GTC Common Stock, 100% of the GTC Preferred Stock, approximately 98.6% of the
Tube Turns Common Stock and approximately 96.9% of the Bell Common Stock. Should
the Reorganization be completed, the Gill Family will own approximately 88.9% of
the outstanding shares of GTC Common Stock assuming a GTC Average Closing Price
of $3.53 and the GFP Cash Contribution is $4,500,000, and assuming the
conversion of all shares of GTC Preferred Stock into shares of GTC Common Stock
immediately prior to the Reorganization. As a result of the above specified
ownership by the Gill Family, the Gill Family voting as a group will be able to
elect all of the GTC Board and to approve or disapprove any matter submitted to
a vote of shareholders. Robert E. Gill and Jeffrey T. Gill are members of the
GTC Board and will continue to serve as directors after the Reorganization. R.
Scott Gill is expected to serve on the GTC Board upon completion of the
Reorganization. This may have the effect of discouraging unsolicited offers to
acquire GTC.
Stock Price Fluctuations Until Closing and Volatility of Stock Price
The market price of the GTC Common Stock at the Merger Effective Time
may vary significantly from the prices as of the date of the execution of the
Reorganization Agreement, the date hereof or the date on which the shareholders
vote on the Reorganization, due to a number of factors, including: (i) changes
in the business, operations and prospects of GTC; (ii) market assessments of the
likelihood that the Reorganization will be consummated and the timing thereof;
(iii) general market and economic conditions; and (iv) other factors affecting
the perceived value of the GTC Common Stock from time-to-time. See "The
Reorganization--The Reorganization Transaction." During the three month period
ending November 14, 1997, the price of GTC stock has fluctuated from a low of
$1.141 to a high of $4.563. See "Comparative Market Prices of Common Stock."
Dividend Restrictions
GTC, Tube Turns and Bell are currently parties to a loan agreement
with Bank One, Kentucky, NA which prohibits GTC, Tube Turns and Bell from
declaring or paying dividends upon any class of their capital stock or
distributing any of their property or assets without the bank's prior written
consent.
Tax Risks
The Merger Transactions are intended to be tax-free reorganizations
for federal income tax purposes. No party to the Reorganization intends to
request a ruling from the IRS that the Merger Transactions qualify as
tax-free reorganizations under Section 368 of the Code. It is a condition of the
closing of the Reorganization that at or prior to such closing GTC, GFP, Tube
Turns and Bell receive the opinion of Wyatt, Tarrant & Combs that, based on
certain assumptions, qualifications, conditions and representations, the Merger
Transactions will so qualify, GTC Contribution will qualify as a tax-free
transfer of property to a controlled corporation under Section 351 of the Code
and the Reincorporation will qualify as a tax-free
23
<PAGE>
reorganization under Section 368 of the Code. Such assumptions will be based in
part upon actions to be taken following the closing of the Reorganization.
Persons receiving this Joint Proxy Statement/Prospectus should be aware that
opinions of counsel are not binding on the IRS or any court. In addition, no
opinion of counsel will be obtained concerning the Spin Off or the Reverse Stock
Split. During the first quarter of 1997, GFP Partners-IV, Ltd. (the limited
partnership in which Partners-V is the 99% general partner) sold substantially
all of its assets resulting in a tax liability of approximately $1.0 million
which is a liability of the consolidated group which includes GTC.
Dependence on Key Personnel and Recent Resignations
The continued success of GTC, GFP, Tube Turns and Bell depends to a
large extent upon the efforts and abilities of key managerial and technical
employees. The loss of services of certain of these key managers could have a
material adverse effect on each company. Each company's business will also
depend upon its ability to continue to attract and retain qualified employees.
GFP, Tube Turns and Bell generally do not have employment agreements or
noncompetition agreements with their key employees. Effective January 4, 1996
Jack Calderon resigned his positions as GTC's Vice President and General Manager
of International Operations. Effective January 8, 1996, Gregory A. Tymn resigned
his positions as GTC's Vice President of Finance and Chief Financial Officer.
Effective October 31, 1996, Carl P. McCormick resigned his positions as GTC's
President and Chief Executive Officer. Effective February 6, 1997, J. Hardie
Harris resigned his positions as GTC's Vice President and General Manager of
U.S. EMS Operations. Effective April 4, 1997, Aviram Margalith resigned his
positions as GTC's Vice President and General Manager of International EMS
Operations and Engineering Services. Robert E. Gill replaced Mr. McCormick as
President and Chief Executive Officer of GTC for an interim period and on
February 28, 1997, Thomas W. Lovelock was elected President and Chief Executive
Officer of GTC. GTC instituted a series of employment agreements with key
personnel during the time leading up to the sale of GTC's international
operations. The agreements with key personnel terminate on May 31, 1998. GTC has
also entered into employment agreements with two current officers of GTC, Thomas
W. Lovelock, President and Chief Executive Officer and James G. Cocke, Vice
President. GTC had an employment agreement with one of its key employees working
in a foreign location. This agreement was assumed by SCI Systems, Inc. in
connection with the sale of the international operations of GTC on June 30,
1997. See "GTC Executive Compensation--Employment Contracts."
Environmental Compliance and Existing Contamination
GTC, GFP, Tube Turns and Bell are subject to a variety of
environmental regulations relating to the use, storage, discharge and disposal
of hazardous chemicals and substances used in their operations. Any failure by
GTC, GFP, Tube Turns or Bell to comply with statutes and regulations presently
existing, or enacted in the future, could subject such company to liabilities or
the suspension of production which could materially and adversely impact the
earnings of such company. In addition, compliance with such statutes and
regulations could restrict each company's ability to expand its facilities or
require the acquisition of costly equipment or other significant expenses.
Groundwater contamination has occurred at certain of GTC's and Bell's current
and former properties during the operation of those properties by their
respective predecessors. Environmental contamination has also occurred at
certain of Tube Turns' property during the operation of that property by its
predecessors.
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Differences in Rights of Shareholders
The rights of GFP's, Tube Turns' and Bell's shareholders are governed
by the GFP Articles and GFP Bylaws, the Tube Turns Articles and Tube Turns
Bylaws, and the Bell Articles and Bell Bylaws, respectively, and by the KRS in
the case of GFP and Tube Turns, and the FBCA in the case of Bell. After
consummation of the Reorganization, the rights of shareholders of GFP, Tube
Turns and Bell, as shareholders of GTC, will be governed by the FBCA and the GTC
Articles and GTC Bylaws, and after consummation of the Reincorporation, will be
governed by the DGCL and the Sypris Articles and Sypris Bylaws.
Certain material differences exist between the rights of the
shareholders of GFP, Tube Turns and Bell and the rights of the shareholders of
GTC, including the right of the shareholders of GFP and Tube Turns to cumulate
their shares in voting for directors. See "Effect of the Reorganization on
Rights of Shareholders." Such differences also exist between the rights of
shareholders of GTC and the rights of shareholders of Sypris. See "The GTC
Special Meeting--Proposal to Approve the Reincorporation."
Limitations on Acquisition and Change in Control Could Deter a
Takeover Which Might Otherwise be in the Shareholders' Best Interests
Any acquisition or change in control of GTC would be limited by: (i)
various anti-takeover statutes of the state of Florida (if the Reincorporation
is not approved) or in the state of Delaware (if the Reincorporation is
approved); (ii) certain provisions of GTC's Articles (if the Reincorporation is
not approved) or of Sypris' Articles (if the Reincorporation is approved) which
would have the effect of limiting a change in control; and (iii) the
concentration of voting stock in the Gill Family. See "Effect of the
Reorganization on Rights of Shareholders" and "Description of GTC's Capital
Stock." Similar factors exist concerning Sypris. See "The GTC Special Meeting--
Proposal to Approve the Reincorporation."
Shares Available for Future Sale Could Adversely Affect Price of GTC
Common Stock
Sales of a substantial number of shares of GTC Common Stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices for the GTC Common Stock and could impair the future ability of GTC to
raise capital through an offering of equity securities. The GTC Common Stock to
be issued upon consummation of the Reorganization will be freely tradable,
except that shares of GTC Common Stock to be received by persons who are deemed
to be Affiliates of GFP, Tube Turns and Bell at the time of the Special Meetings
may be resold by them only in certain permitted circumstances. See "The
Reorganization--Resale Restrictions." No prediction can be made about the effect
that future sales of GTC Common Stock will have on the market prices of the GTC
Common Stock. Similar considerations exist for Sypris Common Stock. See "The GTC
Special Meeting--Proposal to Approve the Reincorporation."
Immediate and Substantial Dilution
The Reorganization would result in substantial dilution of the
interests of GTC's current shareholders in GTC and its equity. Based upon a GTC
Average Closing Price of $3.53 per share and assuming the GFP Cash Contribution
is $4,500,000, the number of shares outstanding as of the respective record
dates for the Special Meetings, 30,826,817 shares of GTC Common Stock would be
issued to GFP, Tube Turns and Bell shareholders in the Reorganization (excluding
shares to be issued under option and before the elimination of fractional
shares). The shares of GTC Common Stock owned by GFP prior to the Reorganization
will be canceled. Based upon the number of outstanding shares of GTC Common
Stock, GFP Common Stock, Tube Turns Common Stock and Bell Common Stock as of the
respective record dates, and assuming conversion of the GTC Preferred Stock held
by GFP into GTC Common Stock prior to the effectiveness of the Reorganization,
the number of shares beneficially owned by the Gill Family will represent
approximately 88.9% of the 34,021,053 shares of GTC Common Stock to be
outstanding after the Reorganization as compared to approximately 82.5% of the
18,258,861 shares of GTC Common Stock outstanding prior to the Reorganization,
assuming conversion of the GTC Preferred
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Stock. Accordingly, the aggregate percentage voting power of the Unaffiliated
Shareholders of GTC will also be reduced. See "Risk Factors--Control by
Principal Shareholders and Increased Voting Power of the Gill Family." The
dilution resulting from the Reorganization could reduce the market price of GTC
Common Stock unless and until earnings growth or other business synergies
sufficient to offset the effect of such issuance can be achieved. There can be
no assurance that such synergies or earnings growth will be achieved. See
"Selected Unaudited Pro Forma Combined Financial Data--Comparative Per Share
Data" and "The Reorganization--Dilution."
No Indemnification for Breach of Representations and Warranties
The representations and warranties made by each of the parties to the
Reorganization Agreement will not survive the closing of the Reorganization. In
addition, there is no indemnification running to any party in respect of a
breach of any of the representations or warranties contained in the
Reorganization Agreement, and there can be no assurance that such a breach will
not occur or that if it occurs the resulting damage would not be material to
GTC.
Minimum Criteria for Inclusion in the Nasdaq Stock Market
The National Association of Securities Dealers ("NASD") recently updated
rules which result in new minimum criteria which a company must meet for
inclusion in either the Nasdaq Stock Market or the Small Cap Market. Under the
recently adopted rules, companies will be required to meet higher financial
standards and maintain a stated minimum bid of at least $1.00 per share, or else
face termination of their designation for inclusion in either the Nasdaq Stock
Market or Small Cap Market. Additionally, the updated rules of the Nasdaq Stock
Market state that in order to remain eligible for Nasdaq listing, a security
must have a bid price of at least $1.00 per share and the market value of
publicly held shares (those held by persons other than officers, directors and
10% shareholders) must be at least $5.0 million and the company's net tangible
assets must be at least $4.0 million. On December 31, 1996, GTC received a
letter from the Nasdaq Stock Market concerning GTC's failure to meet the then
applicable listing requirements as of December 30, 1996. The closing bid price
of GTC Common Stock on December 30, 1996 was $0.75 and the market value of the
public float as of that date was $2.1 million. Accordingly, on that date the GTC
Common Stock did not meet the Nasdaq listing requirements. The closing price of
the GTC Common Stock on November 14, 1997 was $3.69, with a corresponding market
float of $11.8 million. While the GTC Common Stock is currently quoted on the
Nasdaq Stock Market, there can be no assurance that its designation for
inclusion thereon will not be terminated if GTC is not able to meet the updated
NASD rules. If the designation for GTC Common Stock is terminated, trading in
the GTC Common Stock would thereafter be conducted in the over-the-counter
market in the so-called "pink sheets" or, if then available, the "OTC Bulletin
Board Service." As a result, an investor would likely find it to be more
difficult to dispose of, or to obtain accurate quotations as to the value of,
the GTC Common Stock. If delisting occurs prior to the Merger Effective Time,
the existing shareholders of GTC Common Stock will have dissenters' rights under
the FBCA.
Possible Application of SEC Rules Governing Sale of Penny Stock to GTC
Common Stock
Pursuant to the criteria established by the Commission, a security that
fails to meet certain requirements, including having a market price of $5.00 or
more and being a reported security, is deemed to be "penny stock" and broker
transactions in such stock are subject to extensive disclosure requirements
regarding, among other things, pricing and trading activity information on such
stock. The penny stock rules require the delivery, prior to any transaction in
such stock, of a disclosure schedule explaining the penny stock market and the
risks associated therewith, and impose various sales practice requirements on
broker-dealers who sell penny stock to persons other than established customers
and accredited investors. For these types of transactions, the broker-dealers
must make a special suitability determination for the purchaser and must have
received the purchaser's written consent to the transaction prior to the sale.
If GTC Common Stock is ever deemed to be penny stock, the application of such
rules could have the effect of discouraging trading in such stock.
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GTC Risk Factors
Potential Fluctuations in Financial Results
GTC's annual and quarterly operating results may be affected by a
number of factors. GTC will generally incur significant start-up costs in the
production of a particular product. Start-up costs are expensed as incurred.
Accordingly, GTC's level of experience in manufacturing a particular product and
its efficiency in minimizing start-up costs can impact GTC's operating results.
The level and timing of orders placed by an OEM customer also may vary due to
the OEM's attempts to manage its inventory, changes in the OEM's manufacturing
strategy and variation in the demand for its products due to, among other
things, product life cycles, competitive conditions and general economic
conditions. The efficiencies of GTC in managing inventories, production
capacity, the degree of automation used in the assembly process, fluctuations in
material costs and the mix of material costs versus labor and manufacturing and
overhead costs are also significant factors affecting the annual and quarterly
operating results of GTC. Other factors include price competition, the ability
to pass on excess costs to customers, the timing of expenditures in anticipation
of increased sales and customer product delivery requirements. Any one of these
factors, or a combination thereof, could adversely affect GTC's annual and
quarterly results of operations. GTC also conducts a portion of its business
under long-term contracts and uses the percentage of completion units of
shipment method of accounting which involves substantial estimation processes,
including estimates of future costs to complete contracts. Revisions of
estimates can and do occur and are reflected in operating results in the period
in which the factors causing the revision become known. Accordingly, quarterly
and annual operating results are subject to the effect of the revisions of such
estimates. In addition, the use of the units of shipment method of applying the
percentage of completion method of accounting can affect reported quarterly and
annual operating results because revenue is recorded as units are shipped.
Therefore, delays in shipments for any reason, whether internal or imposed by
the customer, will affect quarterly and annual operating results. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of GTC."
Recent Losses
GTC reported an operating loss of $18.2 million and a net loss of
$17.7 million during the year ended December 31, 1995. These losses were the
result of several factors, including among others: (i) the recognition of
certain charges during the second and fourth quarters of 1995 in the amount of
$11.1 million in the aggregate, which related to a variety of issues, including
the decision to adjust certain accounting estimates, the decision to terminate a
number of unprofitable contracts, the recognition of certain operating lease
liabilities, the recognition of a book to physical inventory adjustment and the
disposition of certain underutilized assets; (ii) the recognition of $2.2
million in charges related to the divestiture of the name brand products
business; (iii) the recognition of very low margins on an unfavorable revenue
mix for its domestic manufacturing business; and (iv) the underutilization of
its Tampa facility. GTC reported an operating loss of $5.0 million and a net
loss of $8.6 million during the year ended December 31, 1996. These losses were
the result of several factors, including: (i) the reduction of revenue to $224.7
million in 1996 from $273.6 million in 1995; (ii) the recognition of $3.6
million in charges related to contract terminations and inventory adjustments;
(iii) the recognition of $1.8 million of charges related to the adjustment of
certain contract estimates; and (iv) the recognition of $1.6 million in charges
associated with asset disposals and deferred rent payments for capital
equipment. For the nine months ended September 28, 1997, GTC's revenue has
continued to decrease and, accordingly, GTC reported an operating loss of $5.8
million and a net loss of $3.6 million. On June 30, 1997, GTC divested its Latin
American operations and repaid its existing bank debt. At this date, it is
uncertain whether this divestiture will have a positive or negative impact on
the business. See "Recent Developments." There is no assurance that the business
will return to profitability at any time during the foreseeable future. See
"Selected Historical Consolidated Financial Data of GTC" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
GTC."
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Pledge of Assets to Secure Credit Facility
On November 14, 1997, the credit agreement of BT Holdings, Inc. (the
wholly-owned subsidiary of GFP that was established to administer the credit
facility for various subsidiaries of GFP) ("BT Holdings") with Bank One,
Kentucky, NA was amended and expanded to include GTC and Metrum-Datatape, Inc.
("Metrum-Datatape") as co-borrowers along with Tube Turns and Bell. Certain of
the availability under the $45 million facility was used by GFP to acquire
substantially all of the assets of Datatape Incorporated ("Datatape") by GFP's
wholly-owned subsidiary Metrum-Datatape. Under this credit facility, the assets
of GTC are pledged as collateral for the total credit extended under the
facility for use by all parties thereto, including Tube Turns, Bell and Metrum-
Datatape, and the borrowing base under the facility is dependent on the
aggregate borrowing base eligibility and use of GTC, Tube Turns, Bell and
Metrum-Datatape. If the financial results of Tube Turns, Bell or Metrum-Datatape
were to significantly deteriorate, there is no assurance that, under this credit
facility, GTC will have access to sufficient funds for its capital needs or that
the bank will not seek to realize on the assets of GTC pledged as collateral
under the facility. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of GFP."
Sales to Government Agencies and Prime Contractors; Reliance on Key
Customers
GTC sells products and services to a number of governmental agencies
(including the Department of Defense) which, in the aggregate, represented
approximately 19%, 20% and 17% of GTC's revenue in 1994, 1995 and 1996,
respectively, and 25% for the nine months ended September 28, 1997. GTC also
served as a subcontractor to a variety of prime contractors under contract with
the federal government. Sales to these prime contractors, in the aggregate,
represented approximately 11%, 9% and 12% of GTC's revenue in 1994, 1995 and
1996, respectively, and 12% for the nine months ended September 28, 1997. GTC is
not able to predict the volume of future business to be received from these
governmental agencies or their prime contractors, although it is likely that any
reductions in the size of the United States military budget will result in
reductions of purchases of GTC's products and services by these customers. GTC's
largest commercial customer in 1996 was IBM, which represented approximately 16%
of GTC's revenue. In the nine months ended September 28, 1997 IBM accounted for
14% of GTC's revenue. The loss of one or more of these customers could have a
material adverse affect on GTC's operating results.
Dependence on Certain Industries
GTC is dependent upon the continued growth, viability and financial
stability of its OEM customers, which are in turn substantially dependent upon
the growth, viability and financial stability of the industries in which they
operate, including the computer/office equipment, industrial electronics,
instrumentation and communication industries. These industries have been
characterized by rapid technological change and shortened product life cycles,
and recently have experienced pricing and profit margin pressures. In addition,
GTC's customers are affected by general economic conditions. Adverse changes in
the industries in which the OEMs operate could have a material adverse effect on
GTC's operating results. GTC's business may also be adversely affected by
changes in funding levels for certain government programs and the manner in
which products are acquired under these programs. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations of GTC" and
"Business of GTC--Customers and Marketing."
Variability of Customer Demand and Exposure Due to Significant
Customer Receivables
The level and timing of orders placed by customers of GTC vary due to
its customers' attempts to manage their inventory and changes in its customers'
manufacturing strategies and product demands due to, among other things, product
life cycles, competitive conditions or general economic conditions. Due in part
to these factors, most of GTC's customers do not commit to firm production
schedules for more than one quarter in advance. GTC's inability to forecast the
level of customer orders with certainty makes it
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difficult to schedule production and maximize utilization of manufacturing
capacity. In the past, GTC has been required to increase staffing and incur
other expenses in order to meet the anticipated demand of its customers.
Anticipated orders from some of GTC's customers have failed to materialize
and/or delivery schedules have been deferred as a result of changes in the
customer's business needs, thereby adversely affecting GTC's operating results.
On other occasions, customers have required rapid increases in production which
have placed an excessive burden on GTC's resources. Such customers' order
fluctuations and deferrals have had an adverse effect on GTC's operating results
in the past, and there can be no assurance that GTC will not experience such
effects in the future. At September 28, 1997 GTC's backlog of customer orders
was $73.1 million. In addition, GTC recognizes significant accounts receivable
in connection with providing manufacturing services to its customers. If one or
more of GTC's principal customers were to become insolvent, or otherwise were
unable to pay for the services provided by GTC, GTC's operating results and
financial condition could be adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operation of GTC."
Cost, Limited Availability of Components and Reliance on Single
Sources for Certain Components
A substantial part of GTC's revenue is derived from turnkey
manufacturing in which GTC provides materials sourcing, procurement, testing and
assembly. In turnkey manufacturing, GTC could be exposed to the risk of
component price increases, which could adversely affect GTC's gross profit
margins. Some of the products and assemblies manufactured by GTC require one or
more components that are ordered from, or which may be available from, only one
source. Some of these components are allocated in response to supply shortages.
In some cases, supply shortages will substantially curtail production of all
assemblies using a particular component. In addition, at various times there
have been industry-wide shortages of electronic components, in particular memory
and logic devices, and there can be no assurance that such shortages will not
occur in the future. Any such shortages could have a material adverse effect on
GTC's operating results in the future. GTC purchases certain components that are
used in a significant manufacturing contract from a sole source. If there was an
interruption in this source, GTC would be unable to perform its obligations
under this manufacturing contract.
Rapid Technological Change and Process Development
The market for GTC's manufacturing services is characterized by
rapidly changing technology and continuing process development. GTC believes
that its future success will depend in large part upon its ability to develop
and market manufacturing services which meet changing customer needs, maintain
technological leadership and successfully anticipate or respond to technological
changes in manufacturing processes on a cost-effective and timely basis. There
can be no assurance that GTC's process development efforts will be successful.
Pending Litigation
GTC is a named party in pending litigation and is in receipt of claims
arising in the normal course of business. In certain of these cases GTC has not
reserved any amounts in respect of the potential exposure of such litigation.
There can be no assurance that GTC will be successful or that damages will not
exceed the amounts which GTC has reserved in respect of some of these litigation
matters. In connection with GTC's wholly-owned subsidiary, Metrum Inc.
("Metrum"), GTC has been notified that a claim of up to $4.0 million may be
asserted against Metrum related to contracts acquired by Metrum from Alliant
Techsystems, Inc. There is no assurance that Metrum will not be found liable on
such claim, which would have a material adverse effect on GTC. (Metrum is the
former owner of the assets and liabilities which were sold to Bell on February
9, 1996 and is separate and distinct from both the Metrum division of Bell and
Metrum-Datatape).
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Competitive Pressures
GTC operates in a highly competitive environment and competes against
numerous domestic and foreign manufacturers. In addition, in the future GTC may
encounter competition from other large electronic manufacturers or distributors
that are selling, or may begin to sell, contract manufacturing services. Some of
GTC's competitors have more extensive international operations and substantially
greater manufacturing, financial, research and development or marketing
resources than GTC. GTC also faces competition from the manufacturing operations
of its current and potential OEM customers, which GTC believes continue to
evaluate the merits of manufacturing products internally versus the advantages
of using contract manufacturers.
Tube Turns Risk Factors
Litigation and Environmental Contamination
In addition to the litigation discussed in the first Risk Factor, the
383,000 square foot office and manufacturing facility which comprise Tube Turns
headquarters in Louisville, Kentucky are located on a site which was subject to
environmental contamination by the predecessor owner. While Tube Turns has
obtained an indemnity from Sumitomo Metal Industries, Ltd., Sumitomo Corporation
and Sumitomo Corporation of America for these matters, there is no assurance
that the costs associated with environmental cleanup and compliance with
applicable environmental laws and regulations will not exceed the amounts
covered by such indemnity.
GFP Risk Factors
Real Estate Holdings
GFP has historically, through subordinate entities, owned real estate
investments which as of the Merger Effective Time will have been divested. While
GFP knows of no material liability resulting from the ownership of such real
estate under current law, it may, in the future, be subject to claims for
environmental liabilities by reason of its previous indirect ownership of such
properties. It is impossible to estimate the probability that claims, if any,
will be asserted or the expense, if any, which might be incurred by GFP as a
result of such claims. Any such liabilities will be assumed by GTC in the
Reorganization.
Datatape Acquisition
GFP, through its newly formed, wholly-owned subsidiary Metrum-
Datatape, recently closed on the acquisition of substantially all of the assets
of Datatape. As part of this transaction, GFP became aware that Datatape was
experiencing financial difficulty. GFP will dedicate personnel and resources to
restructure and strengthen the business operations of Datatape but, as with any
acquisition, there can be no assurance that GFP will be successful in
integrating the assets, personnel and operations of Datatape with its existing
businesses. In addition, despite express contractual limitations on liabilities
assumed by Metrum-Datatape, as with any acquisition there can be no assurance
that claims will not be asserted against Metrum-Datatape at some future time.
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THE REORGANIZATION PARTIES
Group Technologies Corporation. GTC provides advanced manufacturing,
engineering and testing services to OEMs of electronic products. GFP owns
approximately 80.3% of the issued and outstanding shares of GTC Common Stock and
100% of the issued and outstanding shares of GTC Preferred Stock.
GTC was incorporated under the laws of the State of Florida in 1988.
Its principal executive offices are located at 10901 Malcolm McKinley Drive,
Tampa, Florida 33612, and its telephone number is (813) 972-6000.
Group Financial Partners, Inc. GFP is a privately-held holding company
whose principal assets are the shares of GTC, Tube Turns and Bell owned by it.
GFP was incorporated under the laws of the State of Kentucky in 1982.
Its principal executive offices are located at 455 Fourth Avenue, Louisville,
Kentucky 40202, and its telephone number is (502) 585-5544.
Tube Turns Technologies, Inc. Tube Turns provides a range of
manufacturing services for heavy industry and manufactures a number of
proprietary engineered products. GFP owns approximately 98.6% of the issued and
outstanding shares of the Tube Turns Common Stock.
Tube Turns was incorporated under the laws of the State of Kentucky in
1954. Its principal executive offices are located at 2820 West Broadway,
Louisville, Kentucky 40232, and its telephone number is (502) 774-6300.
Bell Technologies, Inc. Bell provides a range of outsourcing services
and manufactures a series of specialty electronic products. GFP owns
approximately 96.9% of the issued and outstanding shares of the Bell Common
Stock.
Bell was incorporated under the laws of the State of Florida in 1986.
Its principal executive offices are located at 6120 Hanging Moss Road, Orlando,
Florida 32807, and its telephone number is (407) 678-6900.
THE GFP SPECIAL MEETING
Purposes of the GFP Special Meeting
The Reorganization. At the GFP Special Meeting, holders of GFP Common
Stock will consider and vote upon a proposal to approve the Reorganization
Agreement.
THE MEMBERS OF THE GFP BOARD UNANIMOUSLY APPROVED AND ADOPTED THE
REORGANIZATION AGREEMENT AND THE REORGANIZATION AND RECOMMEND THAT GFP'S
SHAREHOLDERS VOTE FOR APPROVAL OF THE REORGANIZATION AGREEMENT. SEE "THE
REORGANIZATION--BACKGROUND OF THE REORGANIZATION," AND "THE REORGANIZATION--
REASONS FOR THE REORGANIZATION; RECOMMENDATION OF THE GFP BOARD." MEMBERS OF THE
BOARD OF DIRECTORS OF GFP HAVE CONFLICTS OF INTEREST IN THIS TRANSACTION. SEE
"THE REORGANIZATION--CONFLICTS OF INTEREST."
Other Matters. GFP's shareholders will also consider and vote upon such
other matters that may be incidental to the conduct of the GFP Special Meeting.
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Record Date; Voting Rights; Proxies
The GFP Board has fixed the close of business on December 31, 1997 as
the GFP Record Date for determining holders entitled to notice of and to vote at
the GFP Special Meeting.
As of the GFP Record Date, there were 315,953 shares of GFP Common
Stock issued and outstanding, each of which entitles the holder thereof to one
vote. All shares of GFP Common Stock represented by properly executed proxies
will, unless such proxies have been previously revoked, be voted in accordance
with the instructions indicated in such proxies. IF A PROPERLY EXECUTED PROXY
HAS BEEN RETURNED AND NO INSTRUCTIONS ARE INDICATED, SUCH SHARES OF GFP COMMON
STOCK WILL BE VOTED IN FAVOR OF THE REORGANIZATION AGREEMENT IN ACCORDANCE WITH
THE RECOMMENDATION OF THE GFP BOARD. GFP does not know of any matters other than
as described in the accompanying Notice of Special Meeting that are to come
before the GFP Special Meeting. With respect to matters incidental to the
conduct of the GFP Special Meeting, the persons named in the enclosed form of
proxy and acting thereunder will have the discretion to vote on such matters in
accordance with their best judgment. A shareholder who has given a proxy may
revoke it at any time prior to its exercise by giving written notice thereof to
the Secretary of GFP, by signing and returning a later dated proxy, or by voting
in person at the GFP Special Meeting; however, mere attendance at the GFP
Special Meeting will not in and of itself have the effect of revoking the proxy.
Solicitation of Proxies
GFP will bear its own cost of solicitation of proxies. Brokerage
firms, fiduciaries, nominees and others will be reimbursed for their out-of-
pocket expenses in forwarding proxy materials to beneficial owners of GFP Common
Stock held in their names. In addition to the use of the mails, proxies may be
solicited by directors, officers and regular employees of GFP, who will not be
specifically compensated for such services, by means of personal calls upon, or
telephonic or telegraphic communications with shareholders or their
representatives.
Dissenters' Rights
Pursuant to KRS 271B.13-010 to 271B.13-310, any shareholder of GFP who
desires to dissent from the Reorganization must deliver a written objection to
the Reorganization to GFP before the vote on the Reorganization at the GFP
Special Meeting and must not vote his shares in favor of the Reorganization. The
failure to vote against the Reorganization will not constitute a waiver of the
shareholders' dissenters' rights if all statutory requisites are satisfied. A
vote against the proposed Reorganization will not itself satisfy the notice
requirement of the dissenters' right statute. If the Reorganization is approved
by the required vote, the surviving corporation must deliver, within ten (10)
days after the date of the GFP Special Meeting, a written notice to each
shareholder who has properly delivered a written objection to the Reorganization
and did not vote in favor of the Reorganization. Such notice (the "Dissenters'
Notice") must: (i) state where the dissenter must send a payment demand and when
and where the dissenter must deliver certificates for his shares; (ii) supply a
form for the shareholders' demand for payment; (iii) set a date, not fewer than
thirty (30) days nor more than sixty (60) days after the Dissenters' Notice is
delivered, by which date the surviving corporation must receive the
shareholders' payment demand; and (iv) include a copy of KRS 271B.13-010 to
271B.13-310. A shareholder who is sent the Dissenters' Notice must demand
payment, certify whether he acquired beneficial ownership of his shares before
the date of the first announcement of the Reorganization (as set forth in the
Dissenters' Notice) and deposit his certificates in accordance with the terms of
the Dissenters' Notice. Any shareholder failing to demand payment by the dates
specified in the Dissenters' Notice or failing to deposit his share certificates
at the place and by the times specified in the Dissenters' Notice will be bound
by the terms of the proposed Reorganization.
At the Merger Effective Time, or upon its receipt of a payment demand
from the shareholder, the surviving corporation must pay the amount the
surviving corporation estimates to be the fair value of the
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shares, plus accrued interest, to each dissenter who properly submits payment
demand and deposits his shares at the place specified in the Dissenters' Notice.
The payment must be accompanied by certain of the surviving corporation's
financial statements, a statement of the surviving corporation's estimate of the
fair value of the shares, an explanation of how interest was calculated and a
statement of the dissenters' right to demand payment if dissatisfied with the
payment. The surviving corporation may elect to withhold payment from any
dissenter who became the beneficial owner of shares after the date of the first
announcement of the Reorganization, in which case the surviving corporation must
send an offer to pay its estimate of the fair value of the shares, together with
a statement of its estimate of the fair value of the shares, an explanation of
how the interest was calculated and a statement of the dissenters' right to
demand payment if dissatisfied with the offer.
A dissenting shareholder may notify the surviving corporation in
writing of his own estimate of the fair value of the shares and the amount of
interest due, and demand payment of his estimate (less any payment already
received), or in the case of a dissenter who acquired his shares after the first
announcement of the Reorganization, reject the surviving corporation's offer and
demand payment of his estimate of the fair value of the shares and interest due,
if: (i) the dissenter believes that the amount paid or offered is less than the
fair value of the shares or that the interest due is incorrectly calculated;
(ii) the surviving corporation fails to make payment within sixty (60) days
after the date set for demanding payment in the Dissenters' Notice; or (iii) if
the Reorganization does not occur, and the surviving corporation fails to return
deposited certificates within sixty (60) days after the date set for demanding
payment. A dissenter waives his rights to demand payment if dissatisfied with
the surviving corporation's payment for his shares or offer to pay if the
dissenter fails to notify the surviving corporation in writing within thirty
(30) days after the surviving corporation made or offered payment for his
shares.
If a dissenter's demand for payment remains unsettled, the surviving
corporation must commence a proceeding within sixty (60) days after receiving
payment demand in the Jefferson Circuit Court of Jefferson County, Kentucky, and
petition the Court to determine the fair value of the shares and accrued
interest. If the surviving corporation does not commence the proceeding within
the sixty (60) day period, it must pay each dissenter whose demand remains
unsettled the amount the dissenter demanded. The surviving corporation also must
make all dissenters whose demands remain unsettled parties to the proceeding.
Each dissenter will be entitled to judgment for the amount, if any, for which
the Court finds the fair value of his shares, plus interest, exceeds the amount
paid by the surviving corporation, or the fair value plus accrued interest of
any shares for which the surviving corporation offered to pay its estimate of
the fair value of such shares.
All costs of the proceedings will be assessed against the surviving
corporation, except the Court may assess the costs against all or some of the
dissenters, in amounts the Court finds equitable, to the extent the Court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment. The Court may also assess the fees and expenses of counsel and experts
for the respective parties in the amount the Court finds equitable, (i) against
the surviving corporation and in favor of any or all dissenters, if the Court
finds the surviving corporation did not substantially comply with the
requirements of KRS 271B.13-200 to 271B.13-280, or (ii) against either the
surviving corporation or a dissenter, in favor of any other party, if a Court
finds the party against whom the fees and expenses are assessed acted
arbitrarily, vexatiously, or not in good faith. If the Court finds that the
services of counsel for any dissenter was of substantial benefit to other
dissenters similarly situated and that the fees for those services should not be
assessed against the surviving corporation, the Court may award to these
counselors reasonable fees to be paid out of the amounts awarded the dissenters
who were benefited.
The foregoing summary of the rights of dissenting shareholders, which
summary includes all material elements of such rights, is qualified in its
entirety by reference to the provisions of KRS 271B.13-010 to 271B.13-310, which
are set forth in full in Appendix B to this Joint Proxy Statement/Prospectus.
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Quorum
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of GFP Common Stock entitled to
vote at the GFP Special Meeting is necessary to constitute a quorum at the GFP
Special Meeting. Abstentions will be counted for purposes of determining whether
a quorum is present at the GFP Special Meeting.
Required Vote
Assuming a quorum is present, the approval of the Reorganization
Agreement requires the affirmative vote of a majority of the votes entitled to
be cast by holders of GFP Common Stock. As of the GFP Record Date, directors and
executive officers and their affiliates, and persons and entities related to the
foregoing, were beneficial holders of 315,467 shares of GFP Common Stock,
representing approximately 100% of the issued and outstanding shares of GFP
Common Stock entitled to vote at the GFP Special Meeting. The affirmative votes
of the holders of such shares will determine the outcome of the vote and such
holders are expected to vote in favor of the proposal.
Votes cast by proxy or in person at the GFP Special Meeting will be
tabulated by the election inspectors appointed for the meeting and will
determine whether or not a quorum is present. The election inspectors will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum but as shares not voted for purposes of
determining the approval of any matter submitted to the shareholders for a vote.
THE MATTERS TO BE CONSIDERED AT THE GFP SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE SHAREHOLDERS OF GFP. ACCORDINGLY, SHAREHOLDERS ARE URGED TO
READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS AND THE APPENDICES THERETO, AND TO COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
THE TUBE TURNS SPECIAL MEETING
Purposes of the Tube Turns Special Meeting
The Reorganization. At the Tube Turns Special Meeting, holders of Tube
Turns Common Stock will consider and vote upon a proposal to approve the
Reorganization Agreement.
THE DISINTERESTED MEMBERS OF THE TUBE TURNS BOARD UNANIMOUSLY APPROVED
AND ADOPTED THE REORGANIZATION AGREEMENT AND THE REORGANIZATION AND RECOMMEND
THAT TUBE TURNS' SHAREHOLDERS VOTE FOR APPROVAL OF THE REORGANIZATION AGREEMENT.
SEE "THE REORGANIZATION--BACKGROUND OF THE REORGANIZATION," AND "THE
REORGANIZATION--REASONS FOR THE REORGANIZATION; RECOMMENDATION OF THE TUBE TURNS
BOARD." CERTAIN MEMBERS OF THE BOARD OF DIRECTORS OF TUBE TURNS HAVE CONFLICTS
OF INTEREST IN THIS TRANSACTION. SEE "THE REORGANIZATION--CONFLICTS OF
INTEREST."
Other Matters. Tube Turns' shareholders will also consider and vote
upon such other matters that may be incidental to the conduct of the Tube Turns
Special Meeting.
Record Date; Voting Rights; Proxies
The Tube Turns Board has fixed the close of business on December 31,
1997 as the Tube Turns Record Date for determining holders entitled to notice of
and to vote at the Tube Turns Special Meeting.
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As of the Tube Turns Record Date, there were 1,307,225 shares of Tube
Turns Common Stock issued and outstanding, each of which entitles the holder
thereof to one vote. All shares of Tube Turns Common Stock represented by
properly executed proxies will, unless such proxies have been previously
revoked, be voted in accordance with the instructions indicated in such proxies.
IF A PROPERLY EXECUTED PROXY HAS BEEN RETURNED AND NO INSTRUCTIONS ARE
INDICATED, SUCH SHARES OF TUBE TURNS COMMON STOCK WILL BE VOTED IN FAVOR OF THE
REORGANIZATION AGREEMENT IN ACCORDANCE WITH THE RECOMMENDATION OF THE TUBE TURNS
BOARD. Tube Turns does not know of any matters other than as described in the
accompanying Notice of Special Meeting that are to come before the Tube Turns
Special Meeting. With respect to matters incidental to the conduct of the Tube
Turns Special Meeting, the persons named in the enclosed form of proxy and
acting thereunder will have the discretion to vote on such matters in accordance
with their best judgment. A shareholder who has given a proxy may revoke it at
any time prior to its exercise by giving written notice thereof to the Secretary
of Tube Turns, by signing and returning a later dated proxy, or by voting in
person at the Special Meeting; however, mere attendance at the Tube Turns
Special Meeting will not in and of itself have the effect of revoking the proxy.
Solicitation of Proxies
Tube Turns will bear its own cost of solicitation of proxies.
Brokerage firms, fiduciaries, nominees and others will be reimbursed for their
out-of-pocket expenses in forwarding proxy materials to beneficial owners of
Tube Turns Common Stock held in their names. In addition to the use of the
mails, proxies may be solicited by directors, officers and regular employees of
Tube Turns, who will not be specifically compensated for such services, by means
of personal calls upon, or telephonic or telegraphic communications with
shareholders or their representatives.
Dissenters' Rights
Pursuant to KRS 271B.13-010 to 271B.13-310, any shareholder of Tube
Turns who desires to dissent from the Reorganization must deliver a written
objection to the Reorganization to Tube Turns before the vote on the
Reorganization at the Tube Turns Special Meeting and must not vote his shares in
favor of the Reorganization. The failure to vote against the Reorganization will
not constitute a waiver of the shareholders' dissenters' rights if all statutory
requisites are satisfied. A vote against the proposed Reorganization will not
itself satisfy the notice requirement of the dissenters' right statute. If the
Reorganization is approved by the required vote, the surviving corporation must
deliver, within ten (10) days after the date of the Tube Turns Special Meeting,
a written notice to each shareholder who has properly delivered a written
objection to the Reorganization and did not vote in favor of the Reorganization.
Such notice (the "Dissenters' Notice") must: (i) state where the dissenter must
send a payment demand and when and where the dissenter must deliver certificates
for his shares; (ii) supply a form for the shareholders' demand for payment;
(iii) set a date, not fewer than thirty (30) days nor more than sixty (60) days
after the Dissenters' Notice is delivered, by which date the surviving
corporation must receive the shareholders' payment demand; and (iv) include a
copy of KRS 271B.13-010 to 271B.13-310. A shareholder who is sent the
Dissenters' Notice must demand payment, certify whether he acquired beneficial
ownership of his shares before the date of the first announcement of the
Reorganization (as set forth in the Dissenters' Notice) and deposit his
certificates in accordance with the terms of the Dissenters' Notice. Any
shareholder failing to demand payment by the dates specified in the Dissenters'
Notice or failing to deposit his share certificates at the place and by the
times specified in the Dissenters' Notice will be bound by the terms of the
proposed Reorganization.
At the Tube Turns Merger Effective Time, or upon its receipt of a
payment demand from the shareholder, the surviving corporation must pay the
amount the surviving corporation estimates to be the fair value of the shares,
plus accrued interest, to each dissenter who properly submits payment demand and
deposits his shares at the place specified in the Dissenters' Notice. The
payment must be accompanied by certain of the surviving corporation's financial
statements, a statement of the surviving corporation's estimate
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of the fair value of the shares, an explanation of how interest was calculated
and a statement of the dissenters' right to demand payment if dissatisfied with
the payment. The surviving corporation may elect to withhold payment from any
dissenter who became the beneficial owner of shares after the date of the first
announcement of the Reorganization, in which case the surviving corporation must
send an offer to pay its estimate of the fair value of the shares, together with
a statement of its estimate of the fair value of the shares, an explanation of
how the interest was calculated and a statement of the dissenters' right to
demand payment if dissatisfied with the offer.
A dissenting shareholder may notify the surviving corporation in
writing of his own estimate of the fair value of the shares and the amount of
interest due, and demand payment of his estimate (less any payment already
received), or in the case of a dissenter who acquired his shares after the first
announcement of the Reorganization, reject the surviving corporation's offer and
demand payment of his estimate of the fair value of the shares and interest due,
if: (i) the dissenter believes that the amount paid or offered is less than the
fair value of the shares or that the interest due is incorrectly calculated;
(ii) the surviving corporation fails to make payment within sixty (60) days
after the date set for demanding payment in the Dissenters' Notice; or (iii) if
the Reorganization does not occur, and the surviving corporation fails to return
deposited certificates within sixty (60) days after the date set for demanding
payment. A dissenter waives his rights to demand payment if dissatisfied with
the surviving corporation's payment for his shares or offer to pay if the
dissenter fails to notify the surviving corporation in writing within thirty
(30) days after the surviving corporation made or offered payment for his
shares.
If a dissenter's demand for payment remains unsettled, the surviving
corporation must commence a proceeding within sixty (60) days after receiving
payment demand in the Jefferson Circuit Court of Jefferson County, Kentucky, and
petition the Court to determine the fair value of the shares and accrued
interest. If the surviving corporation does not commence the proceeding within
the sixty (60) day period, it must pay each dissenter whose demand remains
unsettled the amount the dissenter demanded. The surviving corporation also must
make all dissenters whose demands remain unsettled parties to the proceeding.
Each dissenter will be entitled to judgment for the amount, if any, for which
the Court finds the fair value of his shares, plus interest, exceeds the amount
paid by the surviving corporation, or the fair value plus accrued interest of
any shares for which the surviving corporation offered to pay its estimate of
the fair value of such shares.
All costs of the proceedings will be assessed against the surviving
corporation, except the Court may assess the costs against all or some of the
dissenters, in amounts the Court finds equitable, to the extent the Court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment. The Court may also assess the fees and expenses of counsel and experts
for the respective parties in the amount the Court finds equitable, (i) against
the surviving corporation and in favor of any or all dissenters, if the Court
finds the surviving corporation did not substantially comply with the
requirements of KRS 271B.13-200 to 271B.13-280, or (ii) against either the
surviving corporation or a dissenter, in favor of any other party, if a Court
finds the party against whom the fees and expenses are assessed acted
arbitrarily, vexatiously, or not in good faith. If the Court finds that the
services of counsel for any dissenter was of substantial benefit to other
dissenters similarly situated and that the fees for those services should not be
assessed against the surviving corporation, the Court may award to these
counselors reasonable fees to be paid out of the amounts awarded the dissenters
who were benefited.
The foregoing summary of the rights of dissenting shareholders, which
summary includes all material elements of such rights, is qualified in its
entirety by reference to the provisions of KRS 271B.13-010 to 271B.13-310, which
are set forth in full in Appendix B to this Joint Proxy Statement/Prospectus.
Quorum
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of Tube Turns Common Stock
entitled to vote at the Tube Turns Special Meeting is
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necessary to constitute a quorum at the Tube Turns Special Meeting. Abstentions
will be counted for purposes of determining whether a quorum is present at the
Tube Turns Special Meeting.
Required Vote
Assuming a quorum is present, the approval of the Reorganization
Agreement requires the affirmative vote of a majority of the votes entitled to
be cast by holders of Tube Turns Common Stock. As of the Tube Turns Record Date,
directors and executive officers and their affiliates, and persons and entities
related to the foregoing, were beneficial holders of 1,292,981 shares of Tube
Turns Common Stock, representing approximately 98.9% of the issued and
outstanding shares of Tube Turns Common Stock entitled to vote at the Tube Turns
Special Meeting. The affirmative votes of the holders of such shares will
determine the outcome of the vote and such holders are expected to vote in favor
of the proposal.
Votes cast by proxy or in person at the Tube Turns Special Meeting
will be tabulated by the election inspectors appointed for the meeting and will
determine whether or not a quorum is present. The election inspectors will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum but as shares not voted for purposes of
determining the approval of any matter submitted to the shareholders for a vote.
THE MATTERS TO BE CONSIDERED AT THE TUBE TURNS SPECIAL MEETING ARE OF
GREAT IMPORTANCE TO THE SHAREHOLDERS OF TUBE TURNS. ACCORDINGLY, SHAREHOLDERS
ARE URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS JOINT
PROXY STATEMENT/PROSPECTUS AND THE APPENDICES THERETO, AND TO COMPLETE, DATE,
SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
THE BELL SPECIAL MEETING
Purposes of the Bell Special Meeting
The Reorganization. At the Bell Special Meeting, holders of Bell
Common Stock will consider and vote upon a proposal to approve the
Reorganization Agreement.
THE DISINTERESTED MEMBERS OF THE BELL BOARD UNANIMOUSLY APPROVED AND
ADOPTED THE REORGANIZATION AGREEMENT AND THE REORGANIZATION AND RECOMMEND THAT
BELL'S SHAREHOLDERS VOTE FOR APPROVAL OF THE REORGANIZATION AGREEMENT. SEE "THE
REORGANIZATION--BACKGROUND OF THE REORGANIZATION," AND "THE REORGANIZATION--
REASONS FOR THE REORGANIZATION; RECOMMENDATION OF THE BELL BOARD." CERTAIN
MEMBERS OF THE BOARD OF DIRECTORS OF BELL HAVE CONFLICTS OF INTEREST IN THIS
TRANSACTION. SEE "THE REORGANIZATION--CONFLICTS OF INTEREST."
Other Matters. Bell's shareholders will also consider and vote upon
such other matters that may be incidental to the conduct of the Bell Special
Meeting.
Record Date; Voting Rights; Proxies
The Bell Board has fixed the close of business on December 31, 1997 as
the Bell Record Date for determining holders entitled to notice of and to vote
at the Bell Special Meeting.
As of the Bell Record Date, there were 869,417 shares of Bell Common
Stock issued and outstanding, each of which entitles the holder thereof to one
vote. All shares of Bell Common Stock represented by properly executed proxies
will, unless such proxies have been previously revoked, be voted in accordance
with the instructions indicated in such proxies. IF A PROPERLY EXECUTED PROXY
HAS
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BEEN RETURNED AND NO INSTRUCTIONS ARE INDICATED, SUCH SHARES OF BELL COMMON
STOCK WILL BE VOTED IN FAVOR OF THE REORGANIZATION AGREEMENT IN ACCORDANCE WITH
THE RECOMMENDATION OF THE BELL BOARD. Bell does not know of any matters other
than as described in the accompanying Notice of Special Meeting that are to come
before the Bell Special Meeting. With respect to matters incidental to the
conduct of the Bell Special Meeting, the persons named in the enclosed form of
proxy and acting thereunder will have the discretion to vote on such matters in
accordance with their best judgment. A shareholder who has given a proxy may
revoke it at any time prior to its exercise by giving written notice thereof to
the Secretary of Bell by signing and returning a later dated proxy, or by voting
in person at the Bell Special Meeting; however, mere attendance at the Bell
Special Meeting will not in and of itself have the effect of revoking the proxy.
Solicitation of Proxies
Bell will bear its own cost of solicitation of proxies. Brokerage
firms, fiduciaries, nominees and others will be reimbursed for their out-of-
pocket expenses in forwarding proxy materials to beneficial owners of Bell
Common Stock held in their names. In addition to the use of the mails, proxies
may be solicited by directors, officers and regular employees of Bell, who will
not be specifically compensated for such services, by means of personal calls
upon, or telephonic or telegraphic communications with shareholders or their
representatives.
Dissenters' Rights
A shareholder of Bell may dissent from the Reorganization and receive
in cash the fair value, as of the day prior to the Bell Special Meeting, of the
shares of Bell Common Stock held by such shareholder pursuant to Sections
607.1301, 607.1302 and 607.1320 of the FBCA (the "Florida Dissent Provisions").
Such fair value is exclusive of any appreciation or depreciation in anticipation
of the Reorganization, unless such exclusion would be inequitable. The appraisal
value of the Bell Common Stock may differ from the consideration that a
shareholder of Bell is entitled to receive in the Reorganization. The following
is a summary of the Florida Dissent Provisions, the full text of which is set
forth as Appendix C to this Joint Proxy Statement/Prospectus.
Under the Florida Dissent Provisions, a shareholder of Bell may
dissent from the Reorganization by following the following procedures: (i) the
dissenting shareholder must deliver to Bell, prior to the Bell Special Meeting,
written notice of his intent to demand payment for his shares; (ii) the
dissenting shareholder must refrain from voting in favor of the Reorganization;
(iii) within ten (10) days after the date of the Bell Special Meeting, Bell
shall give written notice of authorization of the Reorganization by the
shareholders to such dissenting shareholder; and (iv) within twenty (20) days
after the giving of notice to the dissenting shareholder, the dissenting
shareholder shall file with Bell a notice of election and a demand for payment
of the fair value of his shares. Any dissenting shareholder filing an election
to dissent shall deposit his certificates for certificated shares with Bell
simultaneously with the filing of the election to dissent. A shareholder may
dissent as to less than all of the shares of Bell Common Stock held by him, and
in such event, he is treated as two separate shareholders. Once Bell offers to
pay the dissenting shareholder for his shares, the notice of election cannot be
withdrawn except with the consent of Bell. However, the right of a dissenting
shareholder to be paid the fair value of his shares shall cease if (i) the
demand is withdrawn, (ii) the proposed Reorganization is abandoned, (iii) no
demand or petition for determination of fair value by a court has been made or
is filed within the time provided by law or (iv) a court of competent
jurisdiction determines that such shareholder is not entitled to the relief
provided by the Florida Dissent Provisions.
Within ten (10) days after the later of the expiration of the period
in which the dissenting shareholder may file his notice of election to dissent
or the Bell Merger Effective Time, the surviving corporation is required to make
a written offer to each dissenting shareholder to purchase the shares of Bell
Common Stock at a price deemed by the surviving corporation to be the fair value
of such shares. If, within thirty (30) days after the making of such offer, any
shareholder accepts the same, payment therefor shall be made
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within ninety (90) days after the later of the date such offer was made or the
consummation of the Reorganization. However, if, within such thirty (30) day
period, the surviving corporation and the dissenting shareholder are unable to
agree with respect to a price, then the surviving corporation, within thirty
(30) days after receipt of written demand from such dissenting shareholder given
within sixty (60) days after the Bell Merger Effective Time, shall, or at its
election within such period may, file an action in a court of competent
jurisdiction in the county in which Bell maintained its registered office
requesting that the fair value of the shares of Bell Common Stock be determined.
If Bell or the surviving corporation shall fail to institute such proceedings,
any dissenting shareholder may do so in the name of Bell. All dissenting
shareholders, except for those that have agreed upon a value with the
corporation, are deemed to be parties to the proceeding as an action against
their shares. In such proceeding, the court may, if it so elects, appoint one or
more persons as appraisers to receive evidence and recommend a decision on the
question of fair value. The surviving corporation shall pay each dissenting
shareholder the amount found to be due within ten (10) days after final
determination of the proceedings. Upon payment of such judgment, the dissenting
shareholder will cease to have any interest in the shares of Bell Common Stock.
Any judgment rendered in any dissent proceeding may, at the discretion
of the court, include an allowance for interest at such rate as the court may
deem fair and equitable. The cost and expenses of any such dissent proceeding
shall be determined by the court and shall be assessed against the surviving
corporation, but all or any part of such costs and expenses may be apportioned
and assessed against the dissenting shareholders, in such amount as the court
deems equitable, if the court determines that the surviving corporation made an
offer to the dissenting shareholders and the shareholders' failure to accept
such offer was arbitrary, vexatious or not in good faith. The expenses awarded
by the court shall include compensation for, and reasonable expenses of any
appraiser but shall not include the fees and expenses of counsel or experts
employed by any party. If the fair value of the shares of Bell Common Stock, as
determined by the proceeding, materially exceeds the amount which the
corporation initially offered to pay, or if no offer was made, the court, in its
discretion, may award to any shareholder who is a party to the proceeding such
sum as the court may determine to be reasonable compensation for any expert
attorney or expert employed by the shareholder in the proceeding.
The foregoing summary of the rights of dissenting shareholders, which
summary includes material elements of such rights, is qualified in its entirety
by reference to the Florida Dissent Provisions which are set forth as Appendix C
to this Joint Proxy Statement/Prospectus.
Quorum
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of Bell Common Stock entitled to
vote at the Bell Special Meeting is necessary to constitute a quorum at the Bell
Special Meeting. Abstentions will be counted for purposes of determining whether
a quorum is present at the Bell Special Meeting.
Required Vote
Assuming a quorum is present, the approval of the Reorganization
Agreement requires the affirmative vote of a majority of the votes entitled to
be cast by holders of Bell Common Stock. As of the Bell Record Date, directors
and executive officers and their affiliates, and persons and entities related to
the foregoing, were beneficial holders of 848,096 shares of Bell Common Stock,
representing approximately 97.5% of the issued and outstanding shares of Bell
Common Stock entitled to vote at the Bell Special Meeting. The affirmative votes
of the holders of such shares will determine the outcome of the vote and such
holders are expected to vote in favor of the proposal.
Votes cast by proxy or in person at the Bell Special Meeting will be
tabulated by the election inspectors appointed for the meeting and will
determine whether or not a quorum is present. The election inspectors will treat
abstentions as shares that are present and entitled to vote for purposes of
determining
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the presence of a quorum but as shares not voted for purposes of determining the
approval of any matter submitted to the shareholders for a vote. If a broker
indicates on the proxy that it does not have discretionary authority as to
certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter.
THE MATTERS TO BE CONSIDERED AT THE BELL SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE SHAREHOLDERS OF BELL. ACCORDINGLY, SHAREHOLDERS ARE URGED TO
READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS AND THE APPENDICES THERETO, AND TO COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
THE GTC SPECIAL MEETING
Purposes of the GTC Special Meeting
At the GTC Special Meeting, holders of GTC Common Stock will consider
and vote upon:
(i) the Reorganization Agreement, including the issuance of shares
of GTC Common Stock in accordance with the Reorganization
Agreement; See "The Reorganization."
(ii) a proposed amendment to the GTC Articles to increase the number
of authorized shares of GTC Common Stock from 40,000,000 shares
to 60,000,000 shares;
(iii) a proposed Amendment to the GTC Articles to effect the Reverse
Stock Split;
(iv) a proposal to approve the Reincorporation; and
(v) any other business incidental to the conduct of the GTC Special
Meeting.
Proposal to Amend the GTC Articles to Increase the Authorized Common Stock from
40,000,000 shares to 60,000,000 Shares
The GTC Board has adopted and recommended to the shareholders a
proposal to amend the GTC Articles to increase the number of authorized shares
of GTC Common Stock from 40,000,000 shares to 60,000,000 shares. This amendment
is recommended because the presently authorized capital stock of GTC (40,000,000
shares of GTC Common Stock and 1,000,000 shares of the GTC Preferred Stock) is
not adequate to cover the sum of (i) number of shares necessary for issuance if
the Reorganization is approved, and (ii) the number of shares reserved for
issuance under the stock option plans of GTC. Assuming the GTC Preferred Stock
is converted into GTC Common Stock prior to the Reorganization, assuming a GTC
Average Closing Price of $3.53 and the GFP Cash Contribution is $4,500,000,
30,826,817 shares of GTC Common Stock will be issued to the shareholders of GFP,
Tube Turns and Bell in connection with the Merger Transactions (excluding shares
to be issued under option) which, when combined with the 3,194,236 shares of GTC
Common Stock currently held by the existing Unaffiliated Shareholders of GTC,
would begin to approach the 40,000,000 shares of authorized GTC Common Stock
prior to adoption of this proposed amendment. Upon approval of this proposed
amendment, consummation of the Merger Transactions and issuance of the new
shares of GTC Common Stock to the shareholders of GFP, Tube Turns and Bell in
accordance with the Reorganization Agreement, assuming the GTC Average Closing
Price is $3.53 and the GFP Cash Contribution is $4,500,000, there would be
34,021,053 shares of GTC Common Stock outstanding and 25,978,947 shares of GTC
Common Stock would remain authorized but unissued, of which 1,945,039 shares
under option will be assumed by GTC as a result of the Reorganization, 6,449,400
shares would be reserved for issuance under the stock option plans of GTC and
325,000 shares would be reserved for outstanding warrants of GTC. The complete
text of the Amendment is set forth on Appendix D hereto; however, such text is
subject to change as may be required by the Florida Secretary of State.
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THE GTC BOARD RECOMMENDS A VOTE FOR THE PROPOSAL TO AMEND GTC'S
ARTICLES TO INCREASE THE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK TO
60,000,000 SHARES. PROPERLY EXECUTED PROXIES SOLICITED BY THE GTC BOARD WILL BE
VOTED IN FAVOR OF THE PROPOSAL UNLESS SHAREHOLDERS SPECIFY OTHERWISE.
Proposal to Amend the GTC Articles to Effect the Reverse Stock Split
General
On September 12, 1997, the GTC Board adopted a resolution proposing
that the GTC Articles be amended to effect the Reverse Stock Split. If the
Reverse Stock Split is approved by the requisite vote of GTC's shareholders,
upon the filing of an amendment to the GTC Articles with the Florida Secretary
of State (the "Amendment"), the Reverse Stock Split will be deemed effective,
and each certificate representing shares of GTC Common Stock outstanding
immediately prior to the Reverse Stock Split (the "Old Shares") will be deemed
automatically, without any action on the part of the shareholders, to represent
1/4 of the number of shares of GTC Common Stock after the Reverse Stock Split
(the "New Shares"); provided, however, that no fractional New Shares will be
issued as a result of the Reverse Stock Split. In lieu thereof, each shareholder
of Old Shares who would otherwise be entitled to receive a fractional share of
New Shares will receive one additional new share for the fractional new share
that such shareholder would otherwise be entitled to receive as a result of the
Reverse Stock Split. After the Reverse Stock Split becomes effective,
shareholders will be asked to surrender certificates representing Old Shares in
accordance with the procedures set forth in a letter of transmittal to be sent
by GTC. Upon such surrender, certificates representing the New Shares will be
issued and forwarded to the shareholders. However, each certificate representing
Old Shares will continue to be valid and represent New Shares equal to 1/4 the
number of Old Shares. The Complete text of the Amendment is set forth on
Appendix F hereto; however, such text is subject to change as may be required by
the Florida Secretary of State.
The number of shares of GTC Common Stock authorized by the GTC
Articles will be reduced from 60,000,000 (the number which will be authorized
upon filing Articles of Amendment as contemplated by the Proposal discussed
immediately above) to 15,000,000 as a result of the proposed Reverse Stock
Split. The GTC Common Stock issued pursuant to the Reverse Stock Split will be
fully paid and nonassessable. The voting and other rights that presently
characterize the GTC Common Stock will not be altered by the Reverse Stock
Split.
Purposes of the Proposed Reverse Stock Split
The GTC Board believes the Reverse Stock Split is desirable for
several reasons. The Reverse Stock Split should enhance the acceptability and
marketability of the GTC Common Stock by the financial community and investing
public. The reduction in the number of issued and outstanding shares of GTC
Common Stock caused by the Reverse Stock Split is expected to result in a
broader market for the GTC Common Stock than that which currently exists. A
variety of brokerage house policies and practices tend to discourage individual
brokers within those firms from dealing with lower priced stocks. Some of those
policies and practices pertain to the payment of broker's commissions and to
time consuming procedures that function to make the handling of lower priced
stocks economically unattractive to brokers. In addition, the structure of
trading commissions also tends to have an adverse impact upon holders of lower
priced stock because the brokerage commission on a sale of lower priced stock
generally represents a higher percentage of the sales price than the commission
on a relatively higher priced issue. The GTC Board believes that the proposed
Reverse Stock Split should result in a price level for the GTC Common Stock that
will reduce, to some extent, the effect of the above-referenced policies and
practices of brokerage firms and diminish the adverse impact of trading
commissions on the market for the GTC Common Stock. (Any reduction in brokerage
commissions resulting from a Reverse Stock Split may be offset, however, in
whole or in part, by increased brokerage commissions required to be paid by
shareholders selling "odd lots" created by the Reverse Stock Split.) The
expected increased price level may also encourage interest and trading in the
GTC
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Common Stock and possibly promote greater liquidity for GTC's shareholders,
although such liquidity could be adversely affected by the reduced number of
shares of GTC Common Stock outstanding after the Reverse Stock Split. Finally,
the GTC Board expects the Reverse Stock Split to help GTC meet the minimum
maintenance standards established by the Nasdaq Stock Market and applicable to
all Nasdaq Stock Market companies.
However, no assurance can be given that the Reverse Stock Split will
have any or all of these effects; including, without limitation, that the market
price per New Share of GTC Common Stock after the Reverse Stock Split will be 4
times the market price per Old Share of GTC Common Stock before the Reverse
Stock Split, or that such price will either exceed or remain in excess of the
current market price. Further, no assurance can be given that the market for the
GTC Common Stock will be improved. Shareholders should note that the GTC Board
cannot predict what effect the Reverse Stock Split will have on the market price
of the GTC Common Stock.
Changes Affecting Capital Stock
The par value of the GTC Common Stock will remain at $.01 per share
following the Reverse Stock Split, and the number of shares of GTC Common Stock
authorized and outstanding will be reduced from 60,000,000 to 15,000,000 and
from 34,021,053 to 8,505,263 respectively assuming, in the Reorganization, a GTC
Average Closing Price of $3.53 and the GFP Cash Contribution is $4,500,000.
The GTC Common Stock is currently registered under Section 12(g) of
the Exchange Act, and, as a result, GTC is subject to the periodic reporting and
other requirements of the Exchange Act. The Reverse Stock Split will not affect
the registration of the GTC Common Stock under the Exchange Act.
Implementation of Reverse Stock Split
The Reverse Stock Split will be effected by filing the Amendment to
the GTC Articles with the Florida Secretary of State. Assuming approval of the
Reverse Stock Split by the requisite vote of the shareholders of GTC, the
Amendment to the GTC Articles will thereafter be filed with the Florida
Secretary of State as promptly as practicable and the Reverse Stock Split will
become effective on the date of such filing (the "Reverse Stock Split Effective
Date"). Without any further action on the part of GTC or the shareholders, after
the Reverse Stock Split Effective Date, the certificates representing Old Shares
will be deemed to represent 1/4 of the number of New Shares.
As soon as practicable after the Reverse Stock Split Effective Date,
GTC will send a letter of transmittal to each holder of record of Old Shares of
GTC Common Stock outstanding on the Reverse Stock Split Effective Date. The
letter of transmittal will contain instructions for the surrender of
certificate(s) representing such Old Shares to First Union National Bank of
North Carolina, GTC's exchange agent (the "Exchange Agent"). Upon proper
completion and execution of the letter of transmittal and return thereof to the
Exchange Agent, together with the certificate(s) representing Old Shares, a
shareholder will be entitled to receive a certificate representing the number of
New Shares of GTC Common Stock into which his Old Shares have been reclassified
and changed as a result of the Reverse Stock Split plus any payment for
fractional shares.
Shareholders should not submit any certificates until requested to do
so. No new certificate will be issued to a shareholder and no payment will be
made for fractional shares until he has surrendered his outstanding
certificate(s) together with the properly completed and executed letter of
transmittal to the Exchange Agent.
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Certain Federal Income Tax Consequences
GTC has not sought and will not seek an opinion of counsel or a ruling
from the IRS regarding the federal income tax consequences of the Reverse Stock
Split. GTC, however, believes that because the Reverse Stock Split is not part
of a plan to periodically increase shareholder's proportionate interest in the
assets or earnings and profits of GTC, the Reverse Stock Split will have the
following federal income tax effects:
(i) the Reverse Stock Split will constitute a reorganization within
the meaning of the Code, and GTC will not recognize any gain or loss as a result
of the Reverse Stock Split;
(ii) a shareholder will not recognize gain or loss on the exchange,
except that a gain or loss will be recognized on the receipt of any cash in lieu
of a fractional share. In the aggregate, the shareholder's basis in the New
Shares will equal his basis in the Old Shares (reduced by any amount allocable
to a fractional share interest for which cash is received); and
(iii) a shareholder's holding period for the New Shares will be the
same as the holding period for the Old Shares exchanged therefor provided that
the Old Shares are held as a capital asset on the effective date of the Reverse
Stock Split.
Miscellaneous
The GTC Board may abandon the proposed Reverse Stock Split at any time
prior to the Reverse Stock Split Effective Date if for any reason the GTC Board
deems it advisable to abandon the proposal. The GTC Board may consider
abandoning the proposed Reverse Stock Split if it determines, in its sole
discretion, that the Reverse Stock Split would adversely affect the ability of
GTC to raise capital or the liquidity of the GTC Common Stock, among other
things. The GTC Board may make any and all changes to the Amendment to the GTC
Articles that it deems necessary to file the Amendment to the GTC Articles with
the Florida Secretary of State and give effect to the Reverse Stock Split.
THE GTC BOARD BELIEVES THAT THE REVERSE STOCK SPLIT IS ADVISABLE AND
IN THE BEST INTERESTS OF GTC AND RECOMMENDS A VOTE FOR THE APPROVAL OF THE
REVERSE STOCK SPLIT.
Proposal to Approve the Reincorporation
General
The GTC Board has unanimously approved, and recommends for shareholder
approval, the change of GTC's state of incorporation from Florida to Delaware.
The reincorporation transaction will not result in any change in the business,
management, assets, liabilities or net worth of GTC. Upon consummation of the
Reorganization, GTC will function as a holding company with no business
operations in the state of Florida. Reincorporation in Delaware will allow GTC
to take advantage of certain provisions of the corporate laws of Delaware. The
purposes and effects of the proposed transaction are summarized below.
In order to effect GTC's reincorporation in Delaware, GTC will be
merged into a newly formed, wholly-owned subsidiary incorporated in Delaware.
The Delaware subsidiary, named Sypris Solutions, Inc., has not engaged in any
activities except in connection with the proposed transaction. The mailing
address of its principal executive offices and its telephone number are 455
South Fourth Street, Louisville, Kentucky 40202, telephone (502) 585-5544. It is
anticipated that after the merger is approved, the offices of the surviving
company will be located at this address. As part of its approval and
recommendations of GTC's reincorporation in Delaware, the GTC Board has
approved, and recommends to the shareholders for their adoption and approval, an
Agreement and Plan of Merger (the "Reincorporation Agreement") pursuant to
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which GTC will be merged with and into Sypris Solutions, Inc. The full texts
of the Reincorporation Agreement and the Certificate of Incorporation and Bylaws
of the successor Delaware corporation under which GTC's business would be
conducted after the merger are set forth as Appendix G, Appendix H and Appendix
I, respectively, hereto. While the summary of the documents contained herein
includes all material elements of such documents or matters, the discussion
contained in this Joint Proxy Statement/Prospectus, under the heading "The GTC
Special Meeting--Proposal to Approve the Reorganization," is qualified in its
entirety by reference to such Appendices.
The reincorporation of GTC in Delaware through the Reincorporation
requires approval of GTC's shareholders by the affirmative vote of a majority of
the votes entitled to vote the GTC Common Stock at the GTC Special Meeting.
In the following discussion of the proposed Reincorporation, the term
"GTC" refers to GTC as currently organized as a Florida corporation, the term
"Sypris" refers to the new wholly-owned Delaware subsidiary of GTC that will be
the surviving corporation after the completion of the transaction.
Upon shareholder approval of the Reincorporation, and upon approval of
appropriate articles and certificates of merger by the Secretaries of State of
the States of Florida and Delaware, GTC will be merged with and into Sypris
pursuant to the Reincorporation Agreement, resulting in a change in GTC's state
of incorporation. GTC will then be subject to the DGCL and the Certificate of
Incorporation and Bylaws set forth in Appendix H and Appendix I, respectively.
Upon the effective time of the Reincorporation, each outstanding share of GTC
Common Stock automatically will be converted into one share of Sypris Common
Stock. Outstanding options to purchase shares of common stock of GTC will be
converted into options to purchase the same number of shares of Sypris Common
Stock. Each employee stock plan and any other employee benefit plan to which GTC
is a party, whether or not such plan relates to the GTC Common Stock, will be
assumed by Sypris and, to the extent any such plan provides for the issuance or
purchase of GTC Common Stock, will be deemed to provide for the issuance or
purchase of shares of Sypris Common Stock.
IT WILL NOT BE NECESSARY FOR SHAREHOLDERS OF GTC TO EXCHANGE THEIR
EXISTING STOCK CERTIFICATES FOR CERTIFICATES OF SYPRIS; OUTSTANDING STOCK
CERTIFICATES OF GTC SHOULD NOT BE DESTROYED OR SENT TO GTC. The GTC Common Stock
will continue to be traded on the Nasdaq Stock Market, and Nasdaq will consider
the existing stock certificates as constituting "good delivery" in transactions
subsequent to the Reincorporation.
Principal Reasons for Changing GTC's State of Incorporation
Upon consummation of the Reorganization, GTC will no longer have
business operations in the State of Florida. The GTC Board therefore considered
whether it would be advantageous to incorporate in another jurisdiction. The GTC
Board believes that the Reincorporation will provide flexibility for both the
management and business of GTC.
Delaware is a favorable legal and regulatory environment in which to
operate. For many years, Delaware has followed a policy of encouraging
incorporation in that state and, in furtherance of that policy, has adopted
comprehensive, modern and flexible corporate laws which are periodically updated
and revised to meet changing business needs. As a result, many major
corporations have initially chosen Delaware for their domicile or have
subsequently reincorporated in Delaware. The Delaware courts have developed
considerable expertise in dealing with corporate issues, and a substantial body
of case law has developed construing Delaware law and establishing public
policies with respect to Delaware corporations, which provide greater
predictability with respect to corporate legal affairs.
The GTC Board believes that the DGCL affords desirable flexibility and
predictability in the exercise of corporate powers to an extent not available to
corporations organized under the FBCA. In addition, the GTC Board believes that
the fact that a large number of major corporations has maintained domicile in
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Delaware over many years and the resultant creation of a judiciary particularly
familiar with corporate matters and the substantial body of Delaware judicial
decisions construing and clarifying its corporate law and establishing public
policy concerning corporations is also advantageous.
For the foregoing reasons, the GTC Board believes that the activities
of GTC can be carried on better if GTC is able to operate as a corporation
organized under and governed by the DGCL. In some instances, however,
shareholders have fewer rights and therefore less protection under the DGCL Than
under the FBCA.
The Delaware Business Combinations Statute
Section 203 of the DGCL (the "Delaware Business Combinations Statute")
prohibits certain transactions between a Delaware corporation and an "interested
stockholder," which is defined as a person that is directly or indirectly a
beneficial owner of 15% or more of the voting power of the outstanding voting
stock of a Delaware corporation and such person's affiliates and associates.
This provision prohibits certain business combinations (defined broadly to
include mergers, consolidations, sales or other dispositions of assets having an
aggregate value in excess of 10% of the consolidated assets of a company, and
certain transactions that would increase the interested stockholder's
proportionate share ownership in a company) between an interested stockholder
and a company for a period of three years after the date the interested
stockholder acquired its stock, unless (i) the business combination is approved
by such company's Board of Directors prior to the time the interested
stockholder acquired its shares, (ii) the interested stockholder acquired at
least 85% of the voting stock of such company in the transaction in which it
became an interested stockholder, or (iii) the business combination is approved
by a majority of the Board of Directors and the affirmative vote of two-thirds
of the votes entitled to be cast by disinterested stockholders at an annual or
special meeting.
If the Reincorporation is consummated, the Delaware Business
Combinations Statute will apply to Sypris. The effect of the application of the
Delaware Business Combinations Statute would be to reduce the likelihood of
situations in which Sypris may be forced to accept a proposal for the takeover
of Sypris without ample time to evaluate the proposal and appropriate
alternatives and to encourage anyone contemplating a transaction with Sypris to
negotiate directly with Sypris on a fair and equitable basis. The application of
the Delaware Business Combinations Statute could adversely affect the ability of
shareholders to benefit from certain transactions which are opposed by the
Sypris Board or by shareholders owning 15% of Sypris Common Stock, even if the
price offered in such transactions represents a premium over the then-current
market price of Sypris Common Stock. To the extent that the Sypris Board
disapproves of a proposed transaction and therefore discourages establishment of
a controlling stock interest, the position of the Sypris Board and current
management may be strengthened, thereby assisting those persons in retaining
their positions.
However, the GTC Board believes on balance that GTC's becoming subject
to the provisions of the Delaware Business Combinations Statute will be in the
best interests of GTC and its shareholders. The protections afforded by the
Delaware Business Combinations Statute will increase the likelihood that anyone
contemplating a transaction with GTC would negotiate directly with GTC in
advance. Although the FBCA contains a somewhat similar statute that regulates
such transactions (see "Effect of the Reorganization on Rights of Shareholders--
Business Combinations Statute (Affiliated Transactions)"), and while the
Reincorporation is not being recommended in response to any specific effort of
which GTC is aware to accumulate GTC's shares or to obtain control of GTC, the
GTC Board believes that the provisions of the Delaware Business Combinations
Statute will enhance the GTC Board's ability to assure more equitable treatment
of GTC's shareholders in the event of a possible takeover attempt.
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Comparison of Certain Provisions of the Certificate of Incorporation
and Bylaws of Sypris, Delaware Corporate Law, the Articles of
Incorporation and Bylaws of GTC, and Florida Corporate Law
Upon consummation of the Reincorporation, the Certificate of
Incorporation and Bylaws of Sypris will become GTC's Certificate of
Incorporation and Bylaws. The following is a summary of certain significant
differences between the provisions of the Certificate of Incorporation and
Bylaws of Sypris and those of the Articles of Incorporation and Bylaws of GTC.
This summary includes all material elements of such documents or matters, but
does not purport to be complete, and reference is made to the Certificate of
Incorporation and Bylaws of Sypris, which are attached hereto as Appendix H and
Appendix I, respectively. Copies of the Articles of Incorporation and Bylaws of
GTC are available for inspection at the principal executive offices of GTC and
will be sent to shareholders of GTC upon written request. Also summarized below
are certain differences between the FBCA and the DGCL which may affect the
interests of shareholders. The summary does not purport to be a complete
statement of the differences between the FBCA and the DGCL and related laws
affecting shareholders' rights, and while the summary includes all material
elements of such matters, the summary is qualified in its entirety by reference
to the provisions of those laws.
Capitalization
The Certificate of Incorporation of Sypris authorizes the issuance of
20,000,000 shares of common stock, par value $.01 per share, 10,000,000 shares
of nonvoting common stock, par value $.01 per share, and 1,000,000 shares of
preferred stock, par value $.01 per share ("Sypris Preferred Stock"). Sypris
Preferred Stock may be issued in series, each series being composed of such
number of shares and having such dividend, liquidation, voting, conversion,
redemption and other rights, if any, as the Sypris Board may determine.
Currently GTC is authorized to issue 40,000,000 shares of GTC Common Stock
(which is proposed to be increased to 60,000,000 shares as discussed above),
16,233,861 shares of which were outstanding as of November 14, 1997; and
1,000,000 shares of GTC Preferred Stock, of which 250,000 shares are issued and
outstanding, but will be converted into GTC Common Stock immediately prior to
the Reorganization. Under the Reverse Stock Split, the number of authorized
shares of GTC Common Stock will be reduced to 15,000,000 shares (assuming the
prior increase in authorized shares to 60,000,000) and the outstanding shares
will be reduced to 8,505,263 in the Reincorporation, assuming the Reverse Stock
Split has been effected, one share of Sypris Common Stock will be issued for
each outstanding share of GTC Common Stock.
The GTC Board believes that it is desirable to have preferred stock
available for future financings, acquisitions, stock splits or dividends,
employee benefit plans or other corporate purposes. GTC has no definitive plans,
arrangements, commitments, or understandings with respect to the issuance of any
shares of preferred stock which would be authorized by the Certificate of
Incorporation of Sypris. The Sypris Board (subject to applicable law, rules of
regulatory agencies and requirements of Nasdaq) has the power to issue shares of
preferred stock without further shareholder approval. One of the effects of the
ability of Sypris to issue preferred stock may be to enable the Sypris Board to
render more difficult or discourage an attempt to obtain control of Sypris. The
Sypris Board would have the ability to issue shares of preferred stock with
terms which would make a takeover substantially more expensive. In Addition, any
issuance of preferred stock could have the effect of diluting the earnings per
share and book value per share of existing shares of common stock.
Upon consummation of the Merger Transactions and the
Reincorporation and issuance of the new shares of Sypris Common Stock to the
shareholders of Bell, Tube Turns and GFP in accordance with the Reorganization
Agreement and the Reincorporation, assuming the GTC Average Closing Price is
$3.53, the GFP Cash Contribution is $4,500,000 and the implementation of the
Reverse Stock Split, there would be 8,505,263 shares of Sypris Common Stock
outstanding and 11,494,737 shares of Sypris Common Stock would remain authorized
but unissued. The GTC Board believes that the availability of the additional
authorized but unissued shares for other corporate purposes, without delay or
the necessity for an additional
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special shareholders' meeting, would be beneficial to GTC. GTC has pursued a
strategy of making select acquisitions of companies in related industries and
continues to explore opportunities to implement its acquisition strategy. In
connection with any such acquisition, it may be desirable for Sypris to issue
equity securities in exchange for equity securities of the company to be
acquired. Alternatively, it may be desirable to issue equity securities in a
public offering or offerings subsequent to an acquisition in order to reduce or
eliminate any debt incurred in connection with such acquisition and Sypris may
issue shares of equity securities as a means of raising capital for the purpose
of facilitating a prospective acquisition or acquisitions. However, other than
the Reorganization and the outstanding options and warrants of GTC, GTC does not
have any immediate plans, arrangements, commitments, or understandings with
respect to the issuance of any of the additional shares of Sypris Common Stock
which will be authorized by the Delaware Certificate of Incorporation (the
"Delaware Certificate").
The holders of any of the additional shares of Sypris Common Stock
issued in the future would have the same rights and privileges as the holders of
the shares of GTC Common Stock currently authorized and outstanding.
The Delaware Certificate authorizes a class of 10,000,000 shares of
nonvoting common stock, par value $.01 per share, to be designated "Nonvoting
Common Stock" which will have dividends and distribution rights, rights on
dissolution or merger and rights respecting recapitalization of Sypris identical
to the rights of Sypris Common Stock. The Nonvoting Common Stock will not have
voting rights except for those voting rights required by the DGCL.
The Nonvoting Common Stock will enable Sypris to issue up to
10,000,000 shares of nonvoting equity securities in acquisitions, mergers or
other transactions, or for general corporate purposes, without diluting the
voting power of holders of Sypris Common Stock. The GTC Board believes that the
maintenance of beneficial, long-term supplier, customer and employee
relationships will be enhanced by preservation of the current voting control of
GTC in the Gill Family. Currently, Robert E. Gill, his wife and their sons,
including Jeffrey T. Gill, Chairman of the GTC Board, indirectly control an
aggregate of approximately 82.5% of the total votes of GTC Common Stock which
will increase to approximately 88.9% upon completion of the Reorganization,
assuming the conversion of GTC Preferred Stock, a GTC Average Closing Price of
$3.53 per share, and the GFP Cash Contribution to be $4,500,000. Accordingly,
Sypris believes that in certain circumstances it may be desirable to issue
nonvoting equity securities, such as shares of the proposed Nonvoting Common
Stock, to enable Sypris to effect acquisitions or raise capital without
materially altering the current voting control of the holders of Sypris Common
Stock. Issuance of additional equity securities could significantly dilute the
voting power of holders of Sypris Common Stock.
GTC Common Stock is currently authorized for quotation on the Nasdaq
Stock Market. Accordingly, GTC must comply with the qualification requirements
established by Nasdaq to continue to have its common stock quoted on the Nasdaq
Stock Market. Currently, pursuant to the requirements of Rule 19c-4 promulgated
by the Commission (the "Rule"), Nasdaq will withhold or deny authorization for a
quotation of any common stock if the issuer issues any class of security, or
takes other corporate action, with the effect of nullifying, restricting or
disparately reducing the per share voting rights of holders of an outstanding
class of common stock of such issuer. Accordingly, any issuance of shares of
Nonvoting Common Stock in an exchange offer for shares of Sypris Common Stock
may be prohibited and the issuance of shares of Sypris Common Stock subsequent
to the issuance of shares of Nonvoting Common Stock may be restricted, depending
on the facts and circumstances under which such shares are issued. While the
issuance of securities with lesser voting rights than an existing class of
securities is generally not prohibited by the Rule, the issuance of such
securities as dividends or in mergers or acquisitions may, depending on the
facts and circumstances, involve application of the Rule. Accordingly, Sypris
may seek advice from the NASD to clarify application of the Rule to any proposed
transaction. Sypris has no present plan or intention to issue any shares of
Nonvoting Common Stock.
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No further action or authorization by Sypris' shareholders would be
necessary prior to the issuance of shares of Nonvoting Common Stock unless
required by applicable law or regulatory agencies or by the rules of Nasdaq or
any stock exchange on which GTC securities may then be listed.
Shareholders of Sypris do not have any preemptive rights to subscribe
for any shares of Sypris Common Stock, Sypris Preferred Stock or Nonvoting
Common Stock that may be issued.
Use of Authorized Stock for Anti-Takeover Defenses
As stated above, GTC has no immediate plans, arrangements,
commitments, or understandings with respect to the issuance of any additional
shares of Sypris Common Stock, Sypris Preferred Stock or Nonvoting Common Stock.
However, the increased authorized shares contained in the Delaware Certificate
could be used to make a takeover attempt more difficult such as by using the
shares to make a counteroffer for the shares of the bidder or by selling shares
of authorized but unissued Sypris Common Stock to dilute the voting power of the
bidder. As of this date, the GTC Board is unaware of any specific effort to
accumulate shares of GTC Common Stock or to obtain control of GTC by means of a
merger, tender offer, solicitation in opposition to management or otherwise. As
long as the Gill Family maintains control, it is unlikely that such an effort
would occur.
The Delaware Certificate also authorizes 1,000,000 shares of Sypris
Preferred Stock. The Sypris Board (subject to applicable law or rules of
regulatory agencies and requirements of stock exchanges or the Nasdaq Stock
Market) has the power to issue the Sypris Preferred Stock without further
shareholder approval, with such rights as the Sypris Board deems advisable,
including conversion rights, redemption rights, and liquidation rights. The
Sypris Preferred Stock could be issued to deter a takeover by establishing the
terms of the Sypris Preferred Stock so as to make the takeover substantially
more expensive.
Description of Voting Common Stock and Nonvoting Common Stock
The Sypris Common Stock and Nonvoting Common Stock are identical in
all respects, except as follows:
Each share of Sypris Common Stock entitles the holder thereof to one
vote on each matter submitted to a shareholders' vote, while shares of Nonvoting
Common Stock have no voting rights, except for those voting rights required by
the DGCL.
Subject to the limitations described in the Delaware Certificate,
holders of the Sypris Common Stock and Nonvoting Common Stock participate
equally in any dividends (payable in cash, stock or property) and stock splits,
when and as declared by the Sypris Board, out of legally available assets of the
corporation; provided, however, that, in the event of a stock split, or a pro
rata stock dividend of like shares declared on outstanding shares, the holders
of Sypris Common Stock will receive shares of Sypris Common Stock and the
holders of Nonvoting Common Stock will receive shares of Nonvoting Common Stock.
In the event Sypris is liquidated, dissolved or wound up, whether
voluntarily or involuntarily, the holders of the Sypris Common Stock and
Nonvoting Common Stock participate equally in any distribution.
If at any time while there are shares of Sypris Common Stock and
Nonvoting Common Stock issued and outstanding, the Sypris Board determines, in
its sole discretion, that legislation or regulations are enacted or any judicial
or administrative determination is made which would prohibit the quotation,
listing, or trading of Sypris Common Stock or Nonvoting Common Stock on the New
York Stock Exchange, the American Stock Exchange or the Nasdaq Stock Market, or
which would otherwise have a material adverse effect on Sypris, due to Sypris
having more than one class of common shares outstanding, then the Sypris Board
may by reversion convert all outstanding shares of Nonvoting Common Stock into
Sypris Common Stock on a share-for-share basis. To the extent practicable,
notice of such conversion of Nonvoting Common Stock
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specifying the date fixed for said conversion shall be mailed, postage prepaid,
at least ten (10) days but not more than thirty (30) days prior to said
conversion date to the holders of record of shares of Sypris Common Stock and
Nonvoting Common Stock at their respective addresses as the same shall appear on
the books of the corporation; provided, however, that no failure or inability to
provide such notice will limit the authority or ability of the Sypris Board to
convert all outstanding shares of Nonvoting Common Stock into Sypris Common
Stock.
Removal Of Directors
Under Delaware law, any director or the entire board of directors
generally may be removed, with or without cause, by the holders of a majority of
the shares entitled to vote at an election of directors. Under the FBCA, a
director generally may be removed only if the number of votes cast to remove him
exceed the number of votes cast not to remove him.
Limitation On Directors' Liability
The Delaware Certificate provides that, to the fullest extent allowed
by the laws of Delaware, a director will not be personally liable for monetary
damages to Sypris or its shareholders for any breach of fiduciary duty as a
director. See "Purposes and Effects of Certain Provisions of the Certificate of
Incorporation and Bylaws of Sypris--Limitation of Directors' Liability." For a
discussion of limitation of liability under the GTC Articles of Incorporation
and the FBCA, see "Effect of the Reorganization on Rights of Shareholders--
Liability of Directors."
AMENDMENT OF THE CERTIFICATE OF INCORPORATION
Under Delaware law, unless the certificate of incorporation otherwise
provides, amendments of the certificate of incorporation generally require the
approval of the holders of a majority of the outstanding stock entitled to vote
thereon, and if the amendment would increase or decrease the number of
authorized shares of any class or series or the par value of such shares or
would adversely affect the rights, powers or preferences of such class or
series, a majority of the outstanding stock of such class or series also would
have to approve the amendment. For a discussion of Florida law, see "Effect of
the Reorganization on Rights of Shareholders--Amendment of Articles of
Incorporation."
Vote Required For Mergers
Delaware law permits a merger without approval of the shareholders of
the surviving corporation if, among other things, no charter amendment is
involved, each outstanding share of common stock is to be an identical share of
the surviving corporation after the merger, and the merger results in no more
than a 20% increase in outstanding shares of common stock of such corporation.
Dividends And Other Distributions
Under Delaware law, a corporation may generally pay dividends out of
surplus. In addition, Delaware law permits a corporation, under certain
circumstances, to pay dividends if there is no surplus out of its net profits
for the fiscal year in which the dividend is declared and/or the preceding
fiscal year. Under Delaware law a corporation may purchase or redeem shares of
any class except when its capital is impaired or such purchase would cause
impairment of capital, except that a corporation may purchase or redeem out of
capital any of its preferred shares if such shares will be retired upon the
acquisition and the capital of the corporation will be thereby reduced. For a
discussion of Florida law, see "Effect of the Reorganization on Rights of
Shareholders--Dividends and Other Distributions."
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Dissenters' Rights
Delaware law provides appraisal rights in the case of a shareholder
objecting to certain mergers or consolidations. Such appraisal rights do not
apply (i) to shareholders of the surviving corporation in a merger if
shareholder approval of the merger is not required or (ii) to any class of stock
which is either listed on a national securities exchange or held of record by
more than 2,000 holders unless shareholders are required to accept for their
shares in the merger or consolidation anything other than stock of the surviving
or resulting corporation or stock of another corporation that is so listed or
held (and cash in lieu of fractional shares). For a description of Florida Law,
see "Effect of the Reorganization on Rights of Shareholders--Dissenters'
Rights."
Purposes and Effects of Certain Provisions of the Certificate of
Incorporation and Bylaws of Sypris
The Delaware Certificate contains several provisions that may have an
anti-takeover impact and may make tender offers, proxy contests and certain
mergers more difficult. These include provisions (i) providing that only a
majority of the Sypris Board or the holders of not less than 50% of all shares
entitled to cast votes at the meeting may call a special meeting of shareholders
and (ii) restricting the procedures by which shareholders may nominate persons
for election to the Board of Directors and the procedures by which shareholders
may properly bring business before annual meetings of shareholders. In addition,
the ability of Sypris to issue preferred stock and Nonvoting Common Stock, with
such rights, preferences, privileges and limitations as the Sypris Board may
determine, could have the effect of impeding the acquisition of control of
Sypris.
Limitation of Directors' Liability
The Delaware Certificate contains a provision that eliminates a
director's liability for monetary damage for breaches of fiduciary duty of care,
subject to certain exceptions described below (the "Liability Provision").
The Delaware legislature enacted an amendment to the DGCL in 1985
allowing provisions such as the Liability Provision as a response to changes in
the market for directors' liability insurance. The proliferation of shareholder
derivative and class action suits for breaches of directors' fiduciary duties
has in large part made it difficult to obtain liability insurance. Thus, the
Delaware legislature amended the DGCL in order to maintain qualified and able
directors to govern corporations.
The Liability Provision does not relieve a director of monetary
liability for breaches of the duty of loyalty, acts or omissions not in good
faith or involving intentional misconduct or knowing violations of law, the
unlawful repurchase or redemption of stock or payment of unlawful dividends or
any transaction from which a director derives an improper personal benefit.
Thus, liability for monetary damages will still exist under the Liability
Provision if liability is based upon one of these grounds. The Liability
Provision will have no effect on the availability of equitable remedies, such as
an injunction or rescission for the breach of a director's fiduciary duty, and
will in no way limit or otherwise affect liability for violation of the federal
securities laws.
The Liability Provision's coverage extends only so far as is legally
permitted. If the courts or the Delaware legislature narrow or expand the
coverage of the amendment to the DGCL, the Liability Provision will likewise be
narrowed or expanded without further shareholder action. Under present law,
however, any subsequent change to the actual wording of the Liability Provision
will require a shareholder vote, notwithstanding new legislation or
interpretations.
In the event that a shareholder desires to commence a derivative or
class action suit against a director for violation of his or her fiduciary duty
of care, the Liability Provision of the Delaware Certificate provides that
monetary damages will not be payable by the director, subject to the exceptions
set forth
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above, even if such violation is proved. This means that directors will not be
liable for monetary damages for grossly negligent business decisions, including
decisions taken in connection with merger proposals, negotiations and other
substantive matters affecting Sypris and its shareholders, unless one of the
exceptions set forth in the statute applies.
Certain Federal Income Tax Consequences
The parties to the Reincorporation have not and do not intend to seek
a ruling from the IRS as to the federal income tax consequences of the
Reincorporation. Instead, such parties have obtained the opinion of Wyatt,
Tarrant & Combs (the "Opinion") as to certain of the expected federal income tax
consequences of the Reincorporation, a copy of which is attached as an exhibit
to the Registration Statement. For a summary of the Opinion see "The
Reorganization--Certain Federal Income Tax Consequences."
Right To Dissent and Appraisal
Under the FBCA, shareholders of GTC will not be entitled to
dissenter's rights if the Reincorporation Agreement is approved and the
Reincorporation is consummated.
Amendment
The Reincorporation Agreement may be amended, modified or supplemented
prior to the effective time of the Reincorporation upon the approval of the GTC
Board and the Sypris Board. However, no amendment, modification or supplement
may be made after the adoption of the Reincorporation Agreement by the
shareholders of GTC which changes the Reincorporation Agreement in a way which,
in the judgment of the GTC Board would have a material adverse effect on the
shareholders of GTC, unless such amendment, modification or supplement is
approved by such shareholders.
Termination
The Reincorporation Agreement provides that the GTC Board may
terminate the Reincorporation Agreement and abandon the merger contemplated
thereby at any time prior to its effective time, whether before or after
approval by the shareholders of GTC, if (i) the Reincorporation shall not have
received the requisite approval of the shareholders of GTC or (ii) the GTC Board
determines for any reason in its sole judgment that the consummation of the
transaction would be inadvisable or not in the best interests of GTC and its
shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL
Record Date; Voting Rights; Proxies
The GTC Board has fixed the close of business on December 31, 1997 as
the GTC Record Date for determining holders entitled to notice of and to vote at
the GTC Special Meeting.
As of the GTC Record Date, there were 16,233,861 shares of GTC Common
Stock issued and outstanding, each of which entitles the holder thereof to one
vote, and 250,000 shares of GTC Preferred Stock issued and outstanding, each of
which entitles the holder thereof to 8.1 votes. All shares of GTC Common Stock
represented by properly executed proxies will, unless such proxies have been
previously revoked, be voted in accordance with the instructions indicated in
such proxies. IF A PROPERLY EXECUTED PROXY HAS BEEN RETURNED AND NO INSTRUCTIONS
ARE INDICATED, SUCH GTC COMMON STOCK WILL BE VOTED IN FAVOR OF THE
REORGANIZATION AGREEMENT, IN FAVOR OF THE AMENDMENTS TO THE GTC ARTICLES AND IN
FAVOR OF THE REINCORPORATION. GTC does not know of any matters other than as
described in the accompanying Notice of Special Meeting that are to come before
the GTC Special Meeting. With respect to matters incidental to the conduct of
the GTC
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Special Meeting, the persons named in the enclosed form of proxy and acting
thereunder will have the discretion to vote on such matters in accordance with
their best judgment. A shareholder who has given a proxy may revoke it at any
time prior to its exercise by giving written notice thereof to the Secretary of
GTC, by signing and returning a later dated proxy, or by voting in person at the
GTC Special Meeting; however, mere attendance at the GTC Special Meeting will
not in and of itself have the effect of revoking the proxy.
Votes cast by proxy or in person at the GTC Special meeting will be
tabulated by the election inspectors appointed for the meeting and will
determine whether or not a quorum is present. The election inspectors will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum but as shares not voted for purposes of
determining the approval of any matter submitted to the shareholders for a vote.
If a broker indicates on the proxy that it does not have discretionary authority
as to certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter.
Solicitation Of Proxies
GTC will bear its own cost of solicitation of proxies. Brokerage
firms, fiduciaries, nominees and others will be reimbursed for their out-of-
pocket expenses in forwarding proxy materials to beneficial owners of GTC Common
Stock held in their names. Proxies may be solicited by directors, officers and
regular employees of GTC, who will not be specifically compensated for such
services, by means of personal calls upon, or telephonic communications with,
shareholders or their representatives.
Dissenters' Rights
Under the FBCA, shareholders of GTC will not be entitled to
dissenter's rights if the Reorganization Agreement is approved and the
Reorganization is consummated. See "Effect of the Reorganization on Rights of
Shareholders--Dissenters' Rights." In addition, such shareholders will not be
entitled to dissenter's rights under Florida law or any other statute if the
Reverse Stock Split and the Reincorporation are effected. See "The GTC Special
Meeting--Proposal to Amend the GTC Articles to Effect the Reverse Stock Split"
and "Proposal to Approve the Reincorporation."
Quorum
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of GTC Common Stock entitled to
vote at the GTC Special Meeting is necessary to constitute a quorum at the GTC
Special Meeting.
Required Vote
Under the Reorganization Agreement, approval of the Reorganization
Agreement requires the affirmative vote of the holders of a majority of the
outstanding shares of GTC Common Stock and GTC Preferred Stock entitled to vote
thereon at the GTC Special Meeting. Approval of the Reorganization Agreement
will constitute approval of all of the transactions contemplated as a part of
the Reorganization, including the issuance of shares of GTC Common Stock as
required by the Reorganization Agreement.
The approval of the proposed amendments to the GTC Articles requires
that the number of votes cast in favor of the proposal at the GTC Special
Meeting exceed the number of votes cast against the proposal by the holders of
GTC Common Stock and GTC Preferred Stock, each voting as a group.
The approval of the proposed Reincorporation requires the affirmative
vote of the holders of a majority of the outstanding shares of GTC Common Stock
and GTC Preferred Stock entitled to vote thereon at the GTC Special Meeting.
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Only holders of GTC Common Stock and GTC Preferred Stock on the GTC
Record Date will be entitled to notice of and to vote on the Reorganization
Agreement or any other matters to be considered at the GTC Special Meeting. As
of the GTC Record Date, directors and executive officers and their affiliates
were beneficial owners of 13,199,233 shares of GTC Common Stock and 250,000
shares of GTC Preferred Stock entitled to vote at the GTC Special Meeting,
representing approximately 81.3% of the total number of shares of GTC Common
Stock and 100% of the total number of shares of GTC Preferred Stock entitled to
vote at the GTC Special Meeting. The affirmative votes by the holders of such
shares will determine the outcome of the vote and such holders are expected to
vote in favor of the proposals.
THE MATTERS TO BE CONSIDERED AT THE GTC SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE SHAREHOLDERS OF GTC. ACCORDINGLY, SHAREHOLDERS ARE URGED TO
READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS AND THE APPENDICES THERETO, AND TO COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
THE DISINTERESTED MEMBERS OF THE GTC BOARD UNANIMOUSLY APPROVED AND
ADOPTED THE REORGANIZATION AGREEMENT AND THE REORGANIZATION AND RECOMMEND THAT
GTC'S SHAREHOLDERS VOTE FOR APPROVAL OF THE REORGANIZATION AGREEMENT. THE GTC
BOARD HAS APPROVED THE PROPOSED AMENDMENTS TO THE GTC ARTICLES AND RECOMMENDS
THAT GTC'S SHAREHOLDERS VOTE FOR APPROVAL OF THE AMENDMENTS. THE GTC BOARD HAS
ALSO APPROVED THE REINCORPORATION AND RECOMMENDS THAT GTC'S SHAREHOLDERS VOTE
FOR APPROVAL OF THE REINCORPORATION. SEE "THE REORGANIZATION--BACKGROUND OF THE
REORGANIZATION," "THE REORGANIZATION--REASONS FOR THE REORGANIZATION;
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE GTC BOARD," AND "THE GTC SPECIAL
MEETING--PROPOSAL TO AMEND THE GTC ARTICLES TO INCREASE THE AUTHORIZED COMMON
STOCK FROM 40,000,000 SHARES TO 60,000,000 SHARES; PROPOSAL TO AMEND THE GTC
ARTICLES TO EFFECT THE REVERSE STOCK SPLIT; PROPOSAL TO APPROVE THE
REINCORPORATION." CERTAIN MEMBERS OF THE BOARD OF DIRECTORS OF GTC HAVE
CONFLICTS OF INTEREST IN THESE TRANSACTIONS. SEE "THE REORGANIZATION--CONFLICTS
OF INTEREST."
THE REORGANIZATION
This section of the Joint Proxy Statement/Prospectus describes certain
aspects of the Reorganization and the Reorganization Agreement. While this
description describes all material aspects of the Reorganization and the
Reorganization Agreement, the following description does not purport to be
complete and is qualified in its entirety by reference to the Reorganization
Agreement which is attached as Appendix A to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. Capitalized terms
used in this section but not defined in this Joint Proxy Statement/Prospectus
have the meanings ascribed to them in the Reorganization Agreement. All
shareholders are urged to read the Reorganization Agreement in its entirety.
The Reorganization Transaction
In accordance with and subject to the terms and conditions of the
Reorganization Agreement, the following will occur in chronological order: (i)
the Spin Off; (ii) the Merger; (iii) the Tube Turns Merger; (iv) the Bell
Merger; and (v) the GTC Contribution. Immediately after and conditioned upon the
approval of the Reorganization, GTC proposes to engage in two additional
transactions: (i) the Reverse Stock Split and (ii) the Reincorporation.
The Spin Off. At the Spin Off Effective Time, by virtue of the Spin
Off, the shares of Partners-V, Unison and BW held by GFP shall be transferred to
the shareholders of GFP.
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The Merger. At the Merger Effective Time, and subject to the conditions set
forth in the Reorganization Agreement, GFP will be merged with and into GTC in
accordance with the KRS and the FBCA, whereupon the separate existence of GFP
will cease and GTC will continue as the surviving corporation. Subject to the
terms of the Reorganization Agreement, the number of shares of GTC Common Stock
to be issued to shareholders of GFP in the Merger is equal to the GFP Conversion
Ratio multiplied by the shares held by such shareholders, subject to adjustment
for any stock dividend, stock split or similar matters between the date of the
Reorganization Agreement and the effective time of such merger as provided in
the Reorganization Agreement (the "Merger Shares"). The "GFP Conversion Ratio"
is equal to such fraction as is obtained by dividing the GTC/GFP Merger Shares
(as hereinafter defined) by the Total GFP Shares (as hereinafter defined). The
"GTC/GFP Merger Shares" is equal to such number of whole shares of GTC Common
Stock as is obtained by dividing the Aggregate GFP Consideration (hereinafter
defined) by the GTC Average Closing Price. The "Total GFP Shares" is equal to
322,553. The "Aggregate GFP Consideration" is equal to $109,511,132, assuming a
GTC Average Closing Price of $3.53 per share and the GFP Cash Contribution is
$4,500,000. For purposes of computing the Aggregate GFP Consideration, the
shares of Tube Turns Common Stock held by GFP were valued at $11.45 per share,
while the shares held by employees of Tube Turns were valued at $20.00 per
share. GFP proposed the differential because it believes that: (i) a $20.00
price per share more closely reflects the increase in share value since the last
plan valuation, pursuant to the plan provisions for annual valuation; (ii) the
differential is fair and equitable to the non-GFP shareholders and will
therefore increase the probability of a smooth transaction; and (iii) the total
consideration of $16,526,970 for the Tube Turns Common Stock approximates $12.00
per fully diluted share, which is below the stock price of $14.03 per share
currently in effect at Tube Turns under its employee stock purchase plan. The
result of this action was to increase the number of shares to be issued to the
non-GFP shareholders of Tube Turns and to decrease correspondingly the number of
shares to be issued to GFP.
Each share of GTC Common Stock issued and outstanding immediately prior to
the Merger Effective Time which is held by GFP shall be canceled and retired and
all rights in respect thereof shall cease to exist, without any conversion
thereof or payment of any consideration therefor. No fractional shares of GTC
Common Stock will be issued in the Merger. All fractional shares of GTC Common
Stock to which a holder of GFP Common Stock immediately prior to the Merger
Effective Time would otherwise be entitled at the Merger Effective Time will be
aggregated. If a fractional share results from such aggregation, such
shareholder will be entitled, after the later of (i) the Merger Effective Time,
or (ii) the surrender of such shareholder's certificate(s) that represent such
shares of the GFP Common Stock, to receive from GTC an amount in cash in lieu of
such fractional share, based on the GTC Average Closing Price.
The GTC Articles and the GTC Bylaws as in effect immediately prior to the
Merger Effective Time shall be the Articles of Incorporation and bylaws,
respectively, of the surviving corporation of the Merger, and the directors and
officers of GTC immediately prior to the Merger Effective Time shall be the
directors and officers of the surviving corporation of the Merger.
The Tube Turns Merger. Upon the terms and subject to the conditions set
forth in the Reorganization Agreement, at the Tube Turns Merger Effective Time,
Tube Turns will be merged with and into New Tube Turns in accordance with the
KRS, whereupon the separate existence of Tube Turns will cease and New Tube
Turns will continue as the surviving corporation. Subject to the terms of the
Reorganization Agreement, the number of shares of GTC Common Stock to be issued
to the shareholders of Tube Turns, other than GTC (as successor by merger to
GFP), in connection with the Tube Turns Merger is equal to the Tube Turns
Conversion Ratio multiplied by the shares held by such shareholders, subject to
adjustment for any stock dividend, stock split or similar matters between the
date of the Reorganization Agreement and the effective time of such merger as
provided in the Reorganization Agreement (the "Tube Turns Merger Shares"). The
"Tube Turns Conversion Ratio" is equal to such fraction as is obtained by
dividing the GTC/Tube Turns Merger Shares (as hereinafter defined) by the Total
Tube Turns Shares (as hereinafter defined). The "GTC/Tube Turns Merger Shares"
is equal to such number of whole shares of GTC Common Stock as is obtained by
dividing the Aggregate Tube Turns Consideration (as hereinafter defined)
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by the GTC Average Closing Price. The "Total Tube Turns Shares" is equal to
88,625. The "Aggregate Tube Turns Consideration" is equal to $1,772,500. For
purposes of computing the Aggregate Tube Turns Consideration, the shares of Tube
Turns Common Stock held by shareholders of Tube Turns other than GFP were valued
at $20.00 per share.
Each share of Tube Turns Common Stock issued and outstanding immediately
prior to the Tube Turns Merger Effective Time and held by GTC shall be canceled
and extinguished. No fractional shares of GTC Common Stock will be issued in the
Tube Turns Merger. All fractional shares of GTC Common Stock to which a holder
of Tube Turns Common Stock immediately prior to the Tube Turns Merger Effective
Time would otherwise be entitled at the Tube Turns Merger Effective Time shall
be aggregated. If a fractional share results from such aggregation, such
shareholder shall be entitled, after the later of (i) the Tube Turns Merger
Effective Time, or (ii) the surrender of such shareholder's certificate(s) that
represent such shares of the Tube Turns Common Stock, to receive from GTC an
amount in cash in lieu of such fractional share, based on the GTC Average
Closing Price.
The New Tube Turns Articles and the New Tube Turns Bylaws as in effect
immediately prior to the Tube Turns Merger Effective Time shall be the Articles
of Incorporation and bylaws, respectively, of the surviving corporation of the
Tube Turns Merger, and the directors and officers of New Tube Turns immediately
prior to the Tube Turns Merger Effective Time shall be the directors and
officers of the surviving corporation of the Tube Turns Merger.
The Bell Merger. Upon the terms and subject to the conditions set forth in
the Reorganization Agreement, at the Bell Merger Effective Time, Bell will be
merged with and into New Bell in accordance with the FBCA, whereupon the
separate existence of Bell will cease and New Bell will continue as the
surviving corporation. Subject to the terms of the Reorganization Agreement, the
number of shares of GTC Common Stock to be issued to the shareholders of Bell,
other than GTC (as successor by merger to GFP), in connection with the Bell
Merger is equal to the Bell Conversion Ratio multiplied by the shares held by
such shareholders, subject to adjustment for any stock dividend, stock split or
similar matters between the date of the Reorganization Agreement and the
effective time of such merger as provided in the Reorganization Agreement (the
"Bell Merger Shares"). The "Bell Conversion Ratio" is equal to such fraction as
is obtained by dividing the GTC/Bell Merger Shares (as hereinafter defined) by
the Total Bell Shares (as hereinafter defined). The "GTC/Bell Merger Shares" is
equal to such number of whole shares of GTC Common Stock as is obtained by
dividing the Aggregate Bell Consideration (hereinafter defined) by the GTC
Average Closing Price. The "Total Bell Shares" is equal to 100,023. The
"Aggregate Bell Consideration" is equal to $4,401,012.
Each share of Bell Common Stock issued and outstanding immediately prior to
the Bell Merger Effective Time and held by GTC shall be canceled and
extinguished. No fractional shares of GTC Common Stock will be issued in the
Bell Merger. All fractional shares of GTC Common Stock to which a holder of Bell
Common Stock immediately prior to the Bell Merger Effective Time would otherwise
be entitled at the Bell Merger Effective Time shall be aggregated. If a
fractional share results from such aggregation, such shareholder shall be
entitled, after the later of (i) the Bell Merger Effective Time, or (ii) the
surrender of such shareholder's certificate(s) that represent such shares of the
Bell Common Stock, to receive from GTC an amount in cash in lieu of such
fractional share, based on the GTC Average Closing Price.
The New Bell Articles and the New Bell Bylaws as in effect immediately
prior to the Bell Merger Effective Time shall be the Articles of Incorporation
and Bylaws, respectively, of the surviving corporation of the Bell Merger, and
the directors and officers of New Bell immediately prior to the Bell Merger
Effective Time shall be the directors and officers of the surviving corporation
of the Bell Merger.
The GTC Contribution. Immediately after the Spin Off, the Merger, the Tube
Turns Merger and the Bell Merger, GTC will contribute all of the assets of GTC
(other than the shares of New Tube Turns, New Bell and the shares of BT Holdings
and Metrum-Datatape, former wholly-owned subsidiaries of GFP) into a newly
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formed, wholly-owned subsidiary of GTC (which will thereafter change its name to
Group Technologies Corporation) and this subsidiary will assume all of the
liabilities related to the business operated by GTC prior to the Reorganization.
GTC will immediately thereafter merge with and into Sypris, a newly formed
Delaware corporation, wholly-owned by GTC, which will leave Sypris as the
holding company for GTC, Tube Turns, Bell, BT Holdings and Metrum-Datatape.
Background of the Reorganization
On September 16, 1996, the GTC Board met in Chicago to review a variety of
strategic alternatives that had been prepared by management for purposes of
strengthening the company's financial condition. After the meeting, Robert E.
Gill and Jeffrey T. Gill informed the Independent Directors that they were
considering a merger of GTC with GFP, and the further mergers involving Bell and
Tube Turns, as contemplated by the Reorganization, as a means for achieving this
objective. The motivation for the transaction centered on (i) the need to
improve the margins and profitability of GTC, (ii) the need to improve the
ability of GTC to support its future growth initiatives, and (iii) the benefits
to be derived through increased diversification and the addition of new service
offerings.
On September 26 and 27, 1996, the plan was discussed with senior management
at Bell and Tube Turns, and discussed further with the GFP Board. Soon
thereafter, the independent directors of Bell were informed of the planning
process that was underway. From early October through the first part of
December, 1996, extensive work was performed to complete the definitive terms
and conditions of the transaction, including, among other things, investigation
of the tax implications of the proposed transaction in light of alternative
structures, determination of the transaction values for each of GFP, Bell and
Tube Turns, determination of the composition of the Board of Directors of the
surviving entity, and the role of key officers of GFP, Bell and Tube Turns after
completion of the transaction. On October 10, 1996, GTC issued a press release
announcing the proposed transaction. During this period of time the Special
Committee was established to review the fairness of the proposed transaction.
GFP retained the law firm of Wyatt, Tarrant & Combs, and GTC, with the
concurrence of the Special Committee, engaged the law firm of Fowler, White,
Gillen, Boggs, Villareal and Banker, P.A. The Special Committee, which consisted
of Henry F. Frigon, Roger W. Johnson and Sidney R. Petersen, the Independent
Directors of GTC, retained Bradford to deliver an opinion as to whether the
Merger Transactions were fair to the Unaffiliated Shareholders of GTC from a
financial point of view.
As part of its review of the Reorganization, the Special Committee
conducted interviews with senior management of each of Tube Turns and Bell on
December 4, 1996 and December 6, 1996, respectively, and asked the Special
Committee lawyers to perform certain due diligence review procedures. The
Special Committee then met on December 16, 1996, for purposes of considering and
voting on the approval of the Reorganization. Extensive discussions took place
which included outside counsel and Bradford. On December 16, 1996, Bradford
delivered its opinion to the Special Committee that the terms of the Merger
Transactions were fair to the Unaffiliated Shareholders of GTC from a financial
point of view. The Special Committee approved the Reorganization and submitted
it to the GTC Board for review and final approval. The GTC Board met on December
17, 1996, and approved the Reorganization. The Board of Directors of each of
Tube Turns, Bell and GFP met on December 18, 1996, December 20, 1996 and
December 23, 1996, respectively, and approved the Reorganization. See "The
Reorganization--Opinion of Financial Advisor." At the December 17, 1996 meeting
of the GTC Board, Robert E. Gill and Jeffrey T. Gill disclosed their possible
conflict of interest created by their overlapping positions with GFP, Tube Turns
and Bell but, in accordance with Florida statutes, voted with the Independent
Directors to unanimously accept the recommendation of the Special Committee and
approve the Reorganization, as did the Boards of GFP, Tube Turns and Bell, and
each Board recommended that the transaction be submitted to their respective
shareholders for approval. In addition, the GTC Board unanimously approved the
other proposals to be considered at the Special Meeting, recommended that such
proposals be submitted to the shareholders of GTC for their approval, and
authorized the issuance of shares of GTC Common Stock in connection with the
Reorganization.
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Thereafter, the GTC Board concluded that it would be necessary to further
restructure GTC in order to insure its longer term viability and delayed the
consummation of the Reorganization. On June 30, 1997, GTC completed the
restructuring program with the sale of its Latin American operations to SCI
Systems, Inc.
Beginning in February, 1997 and continuing each month thereafter, the
members of the Special Committee received monthly operating and financial
reports from the management of each of Tube Turns and Bell. In addition, the
management of each of Tube Turns and Bell conducted detailed financial and
business reviews of their operations at the GTC Board meetings in February,
April, June and August of 1997. On September 3, 1997, Bradford conducted a
series of comprehensive business discussions with the management of each of GTC,
Tube Turns and Bell to review current and prospective financial performance. The
Special Committee then met on September 12, 1997, for purposes of considering
and voting on the approval of the Reorganization. Extensive discussions took
place which included outside counsel and Bradford. On September 12, 1997,
Bradford delivered its opinion to the Special Committee that the terms of the
Merger Transactions were fair to the Unaffiliated Shareholders of GTC from a
financial point of view. The Special Committee approved the Reorganization and
submitted it to the GTC Board for review and final approval. The GTC Board held
a meeting on September 12, 1997, and approved the Reorganization. The Board of
Directors of each of Tube Turns, Bell and GFP held meetings on September 12,
1997, and approved the Reorganization. See "The Reorganization--Opinion of
Financial Advisor." During the September 12, 1997 meeting of the GTC Board,
Robert E. Gill and Jeffrey T. Gill again disclosed their possible conflict of
interest created by their overlapping positions with GFP, Tube Turns and Bell
but, in accordance with Florida statutes, voted with the Independent Directors
to unanimously accept the recommendation of the Special Committee and approve
the Reorganization, as did the Boards of GFP, Tube Turns and Bell, and each
Board recommended that the transaction be submitted to their respective
shareholders for approval. In addition, the GTC Board unanimously approved the
other proposals to be considered at the Special Meeting, as described in this
Joint Proxy Statement/Prospectus, recommended that such proposals be submitted
to the shareholders of GTC for their approval, and authorized the issuance of
shares of GTC Common Stock in connection with the Reorganization. On November 4,
1997, Bradford conducted business discussions with the management of Datatape
and GFP to review the terms of the Datatape Acquisition as well as the current
and prospective financial performance of Datatape. On November 12, 1997,
Bradford delivered its opinion to the Special Committee that the terms of the
Merger Transaction, as revised, were fair to the unaffiliated shareholders of
GTC from a financial point of view. The Special Committee and the GTC Board
approved the Reorganization, as revised, on November 25, 1997. The Boards of
Directors of each of Tube Turns, Bell and GFP approved the Reorganization, as
revised, on November 25, 1997.
The Board of Directors of each of GFP, Tube Turns and Bell concluded that
it was not necessary to retain a financial advisor for purposes of advising them
on, among other things, the fairness of the Merger Transactions to the
shareholders of each of GFP, Tube Turns and Bell, from a financial point of
view, for a number of reasons, including: (i) the Gill Family owns approximately
99.4% of the GFP Common Stock and management of GFP owns substantially all of
the remaining shares; (ii) GFP owns approximately 98.6% of the Tube Turns Common
Stock and 96.9% of the Bell Common Stock, the balance of which is substantially
owned or controlled by management of each of Tube Turns and Bell; (iii) the Gill
Family and the management of GFP, Tube Turns and Bell believe they have the
requisite knowledge and experience in business and financial matters to
adequately assess the value of GTC, GFP, Tube Turns and Bell; and (iv) the
shareholders of each of GFP, Tube Turns and Bell will have the right under
applicable state law to dissent from the Reorganization if the Reorganization
Agreement is approved and the Reorganization is consummated.
Reasons for the Reorganization; Recommendation of the Special Committee and the
GTC Board
The Special Committee and the GTC Board believe that the terms of the
Reorganization are fair to, and in the best interests of, GTC and its
shareholders, and recommend that the shareholders of GTC vote in person or by
proxy at the GTC Special Meeting FOR the proposal to approve the Reorganization
Agreement.
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Certain members of the GTC Board have conflicts of interest in this transaction.
See "The Reorganization--Conflicts of Interest."
In reaching their conclusions, the Special Committee and the GTC Board
considered a number of negative factors, including: (i) the conflicts of
interest of and controlling interests by the Gill Family; (ii) the tax risks
associated with the completion of the Merger Transactions; (iii) the existence
of certain environmental contamination at properties occupied by Tube Turns and
Bell; and (iv) the pending litigation at Tube Turns. The Special Committee
reviewed with its counsel the known facts concerning the Tube Turns Exxon
litigation previously discussed under the heading "Risk Factors." After
reviewing these facts, the Special Committee determined that while there was a
risk attendant to this litigation, the business risks were outweighed by the
other benefits derived from the merger as set forth above. Because management of
Tube Turns and the Special Committee did not believe that the litigation risk to
be material, no loss contingency reserve was established in any materials which
Bradford reviewed in connection with rendering its fairness opinion.
In addition, the Special Committee and the GTC Board considered a number of
positive factors, including: (i) the expected increase in financial stability to
be realized as a result of the Reorganization; (ii) the expected benefits to be
derived by GTC from the increase in the number of customers and markets served
as a result of the Reorganization; (iii) the potential for operating
efficiencies in certain administrative areas; (iv) Bradford's fairness opinion;
(v) the expected positive effect on the earnings of GTC expected to result from
the Reorganization, assuming Tube Turns and Bell continue to perform as expected
based on past history; (vi) the expected relative contributions of Tube Turns
and Bell post-Reorganization which are believed to be consistent with post-
Reorganization share ownership of GTC; and (vii) expected increased cash flow to
GTC post-Reorganization which is expected to positively affect GTC's
relationships with its customers and creditors. The Special Committee and the
Board of Directors also received an opinion from Bradford that the proposed
consideration for the Merger Transactions was fair, from a financial point of
view, to the unaffiliated shareholders of GTC. See "The Reorganization--Opinion
of Financial Advisor."
The potential for operating efficiencies in certain administrative areas
include: (i) the potential to consolidate pension plan assets and management;
(ii) the potential to consolidate the management of healthcare and other
employee benefit plans; (iii) the potential to consolidate treasury and other
cash management activities; (iv) the potential to standardize on a single
information systems platform and database; and (v) the potential to consolidate
legal and contracts functions. GTC does not anticipate that there will be any
material reductions in work force as a result of the Reorganization.
The recommendation of the Special Committee was determined without the
participation of either Robert E. Gill or Jeffrey T. Gill, who through the
controlling interest of the Gill Family in GFP, also control 80% or more of the
stock of GTC, Tube Turns and Bell. The absence of the Gill's participation
helped to ensure that the Special Committee could review the proposed
Reorganization based upon its merits to the Unaffiliated Shareholders of GTC.
In considering the foregoing factors, the Special Committee took all
factors into consideration as a whole without assigning any relative weight to
any single factor. The GTC Board, in adopting the recommendation of the Special
Committee, relied on the findings and report of the Special Committee.
Reasons for the Reorganization; Recommendation of the GFP Board
The GFP Board believes that the terms of the Reorganization are fair to,
and in the best interests of, GFP and its shareholders and recommends that the
shareholders of GFP vote in person or by proxy at the GFP Special Meeting FOR
the proposal to approve the Reorganization Agreement. The primary reason that
the GFP Board approved the Reorganization Agreement and is recommending its
approval to the GFP shareholders is that it believes that the Reorganization
will provide its shareholders with increased liquidity
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for, and more efficient pricing of, their shareholdings. The members of the GFP
Board have conflicts of interest in this transaction. See "The Reorganization--
Conflicts of Interest."
In making its determination with respect to the Reorganization, the GFP
Board considered the following factors: (i) information relating to the
financial performance, condition, business operations and prospects of GTC, GFP,
Tube Turns and Bell and current industry, economic and market conditions; (ii)
the terms of the Reorganization Agreement; and (iii) the opportunity for GFP
shareholders to become shareholders of a publicly-traded company.
The GFP Board also considered certain potentially negative factors in its
deliberations concerning the Reorganization, including: (i) the pending
litigation or claim involving GTC and Tube Turns; (ii) the poor operating
performance of GTC in 1995, 1996 and 1997 year-to-date; (iii) the lack of
historical market liquidity for the shareholders of GTC; (iv) the potential
competitive disadvantage of public disclosure of business information; (v) the
recent fluctuation and volatility of the GTC stock price; (vi) the dependence of
GTC on sales to government agencies and prime contractors; (vii) the rapid rate
of technological change and extensive competitive pressures faced by GTC in its
markets; and (viii) the tax risks associated with the completion of the Merger
Transactions.
Reasons for the Reorganization; Recommendation of the Tube Turns Board
The Tube Turns Board believes that the terms of the Reorganization are fair
to, and in the best interests of, Tube Turns and its shareholders and recommends
that the shareholders of Tube Turns vote in person or by proxy at the Tube Turns
Special Meeting FOR the proposal to approve the Reorganization Agreement. The
primary reasons that the Tube Turns Board approved the Reorganization Agreement
and is recommending its approval to the Tube Turns shareholders are that it
believes that the Reorganization will (i) provide its shareholders with
increased liquidity for, and more efficient pricing of, their shareholdings,
(ii) provide Tube Turns with greater access to capital and thereby enhance the
company's growth opportunities, (iii) provide for an expanded range of career
growth opportunities for its employees, and (iv) provide for an opportunity to
realize operating efficiencies in certain administrative areas. Tube Turns does
not anticipate that there will be any material reductions in work force as a
result of the Reorganization. Certain members of the Tube Turns Board have
conflicts of interest in this transaction. See "The Reorganization--Conflicts of
Interest."
In making its determination with respect to the Reorganization, the Tube
Turns Board considered the following factors: (i) information relating to the
financial performance, condition, business operations and prospects of GTC, GFP,
Tube Turns and Bell and current industry, economic and market conditions; (ii)
the terms of the Reorganization Agreement; and (iii) the opportunity for Tube
Turns' shareholders to become shareholders of a larger, publicly-traded company.
The Tube Turns Board also considered certain potentially negative factors
in its deliberations concerning the Reorganization, including: (i) the pending
litigation or claim involving GTC; (ii) the poor operating performance of GTC in
1995, 1996 and 1997 year-to-date; (iii) the lack of historical market liquidity
for the shareholders of GTC; (iv) the potential competitive disadvantage of
public disclosure of business information; (v) the recent fluctuation and
volatility of the GTC stock price; (vi) the dependence of GTC on sales to
government agencies and prime contractors; (vii) the rapid rate of technological
change and extensive competitive pressures faced by GTC in its markets; and
(viii) the tax risks associated with the completion of the Merger
Transactions.
Reasons for the Reorganization; Recommendation of the Bell Board
The Bell Board believes that the terms of the Reorganization are fair to,
and in the best interests of, Bell and its shareholders and recommends that the
shareholders of Bell vote in person or by proxy at the Bell Special Meeting FOR
the proposal to approve the Reorganization Agreement. The primary reasons that
the
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Bell Board approved the Reorganization Agreement and is recommending its
approval to the Bell shareholders are that it believes that the Reorganization
will (i) provide its shareholders with increased liquidity for, and more
efficient pricing of, their shareholdings, (ii) provide Bell with greater access
to capital and thereby enhance the company's growth opportunities, (iii) provide
for an expanded range of career growth opportunities for its employees, and (iv)
provide for an opportunity to realize operating efficiencies in certain
administrative areas. Bell does not anticipate that there will be any material
reductions in work force as a result of the Reorganization. Certain members of
the Board of Directors of Bell have conflicts of interest in this transaction.
See "The Reorganization--Conflicts of Interest."
In making its determination with respect to the Reorganization, the Bell
Board considered the following factors: (i) information relating to the
financial performance, condition, business operations and prospects of GTC, GFP,
Tube Turns and Bell and current industry, economic and market conditions; (ii)
the terms of the Reorganization Agreement; and (iii) the opportunity for Bell
shareholders to become shareholders of a larger publicly-traded company.
The Bell Board also considered certain potentially negative factors in its
deliberations concerning the Reorganization, including: (i) the pending
litigation or claim involving GTC and Tube Turns, (ii) the poor operating
performance of GTC in 1995, 1996 and 1997 year-to-date; (iii) the lack of
historic market liquidity for the shareholders of GTC; (iv) the potential
competitive disadvantage of public disclosure of business information; (v) the
recent fluctuation and volatility of the GTC stock price; (vi) the dependence of
GTC on sales to government agencies and prime contractors; (vii) the rapid rate
of technological change and extensive competitive pressures faced by GTC in its
markets; and (viii) the tax risks associated with the completion of the Merger
Transactions.
Opinion of Financial Advisor
The Special Committee has retained Bradford to act as its financial advisor
in connection with the Reorganization. The Special Committee selected Bradford
as its financial advisor because Bradford is a nationally recognized investment
banking firm, which, as a part of its investment banking business, engages in
the valuation of securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporations or other
purposes. The Special Committee also selected Bradford because of Bradford's
familiarity with the electronics contract manufacturing industry generally.
Representatives of Bradford attended the meeting of the Special Committee on
December 16, 1996 and rendered Bradford's oral opinion (which was subsequently
confirmed in writing on December 17, 1996) that, as of the date of such opinion,
the proposed consideration for the Merger Transactions was fair, from a
financial point of view, to the Unaffiliated Shareholders of GTC. On December
16, 1996, the Special Committee recommended to the GTC Board that the
Reorganization be approved by the GTC Board and submitted to the GTC
shareholders for approval. Following the delay surrounding the further
restructuring of GTC, Bradford resumed its role as financial advisor to the
Special Committee. On September 12, 1997, Bradford attended the meeting of the
Special Committee and delivered to the Special Committee an updated opinion that
the Merger Transactions were fair to the Unaffiliated Shareholders of GTC from a
financial point of view. Bradford subsequently confirmed such opinion by
delivery of a written opinion dated the date hereof, which subsequent opinion
supersedes the opinion dated December 17, 1996. On November 12, 1997, Bradford
delivered its opinion to the Special Committee that the terms of the Merger
Transactions, as revised, were fair to the unaffiliated shareholders of GTC from
a financial point of view. A copy of that opinion, which sets forth the
assumptions made, matters considered and limitations on the review undertaken,
is attached as Appendix E hereto and should be read in its entirety.
In conducting its analysis and delivering its opinions, Bradford considered
such financial and other factors as it deemed appropriate and feasible under the
circumstances, including the following items that Bradford considers to be
material to its opinion: (i) draft copies of the Reorganization Agreement; (ii)
the historical and current financial position and results of operations of GTC,
GFP, Tube Turns, Bell and
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Datatape; (iii) certain internal operating data and financial analyses and
forecasts of GTC, GFP, Tube Turns, Bell and Datatape for the years beginning
January 1, 1996 and ending December 31, 2001, as prepared by their respective
senior managements; (iv) certain financial and securities trading data of
certain other companies, the securities of which are publicly-traded and that
Bradford believed to be comparable to GTC, Tube Turns, Bell and Datatape or
relevant to the transactions; (v) the financial terms of other transactions that
Bradford believed to be relevant; (vi) reported price and trading activity for
the GTC Common Stock. Bradford also held discussions with members of the senior
management of GTC, GFP, Tube Turns, Bell and Datatape regarding the past and
current business operations, financial condition, and future prospects of each
company. In addition, Bradford took into account its assessment of general
economic, market, and financial conditions and its experience in other
transactions as well as its experience in securities valuation and its knowledge
of the industries in which GTC, GFP, Tube Turns, Bell and Datatape operate
generally.
Material differences between Bradford's analysis in December 1996 and
Bradford's analysis in November 1997 include differences resulting from (i) the
revised terms of the merger including (a) the inclusion of the assets of
Datatape in the GFP exchange, (b) the cash of GFP to be included as
consideration and exchanged for shares of GTC Common Stock, and (c) the revised
collar for determining the average stock price, (ii) revisions to Tube Turn's
forecasted financial results, (iii) revisions to GTC's forecasted financial
results, (iv) the 1997 restructuring of GTC including the sale of its Latin
American operations, (v) changes in valuation multiples of publicly-traded
comparable companies due to changing market conditions, and (vi) changing
economic, market and other conditions, generally.
Bradford's opinions are necessarily based upon general economic, market,
financial, and other conditions as they existed on their respective dates and
the information made available to Bradford through such dates. Bradford relied
upon the accuracy and completeness of all of the financial and other information
reviewed by it for purposes of its opinions and did not assume any
responsibility for independent verification of such information. With respect to
the internal financial analyses and forecasts supplied to Bradford, Bradford has
assumed, and the managements of the respective companies have represented, that
such analyses and forecasts were reasonably prepared on bases reflecting the
best currently available estimates and judgments of such company's senior
management as to the recent and likely future performance of such company. In
addition, Bradford was not asked to consider, and its opinion does not address
the relative merits of the Merger Transactions as compared to any other
transactions in which GTC might engage. Furthermore, Bradford has not made an
independent evaluation or appraisal of the assets and liabilities of GTC, GFP,
Tube Turns, Bell, or Datatape and has not been furnished with any such
evaluation or appraisal. In rendering its opinion that the Merger Transactions
were fair to the unaffiliated shareholders of GTC, Bradford was not asked to
consider and has not addressed the potential liability associated with any
pending litigation involving GTC, GFP, Tube Turns, Bell or Datatape.
The projections furnished to Bradford were prepared by the respective
managements of each company. As a matter of policy, GTC does not publicly
disclose internal management projections of the type provided to Bradford in
connection with its analysis of the Reorganization, and such projections were
not prepared with a view toward public disclosure. These projections were based
on numerous variables and assumptions which are inherently uncertain and which
may not be within the control of management, including, without limitation,
factors related to general economic conditions, competition and sourcing
decisions of customers. Accordingly, actual results could vary significantly
from those set forth in such projections.
In preparing its report to the Special Committee, Bradford performed a
variety of financial and comparative analyses, including: (i) pro forma merger
analysis; (ii) relative contribution analysis; (iii) discounted cash flow
analysis; (iv) leveraged buyout valuation analysis; and (v) comparable company
analysis. The summary of Bradford's material analyses and material assumptions
are set forth below. This does not purport, however, to be a complete
description of all of the analyses and assumptions underlying Bradford's
opinion. The preparation of a fairness opinion is a complex process involving
subjective
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judgments and is not necessarily susceptible to partial analysis or summary
description. In arriving at its opinion, Bradford did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, Bradford believes that its analyses must be considered as a
whole and that selecting portions of its analyses and the factors considered by
it, without considering all analyses and factors, could create a misleading or
incomplete view of the processes underlying such analyses and its opinions. With
respect to the comparable company analysis, no public company, acquisition, or
transaction utilized as a comparison is identical to GTC, GFP, Bell, Tube Turns,
or Datatape or the Merger Transactions and such analyses necessarily involve
complex considerations and judgments concerning the differences in financial and
operating characteristics of the companies and other factors that could affect
the acquisition or public trading values of the companies concerned. In
performing its analyses, Bradford made numerous assumptions with respect to
industry performance, general business, economic, market, and financial
conditions, and other matters. The analyses performed by Bradford are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
The following are all material financial and comparative analyses which
were performed by Bradford in arriving at its opinion as to the fairness of the
consideration paid by GTC.
(a) Pro Forma Merger Analysis. Bradford reviewed certain forecasted pro
forma financial information for GTC after the Reorganization, as
provided by the management of each of GTC, GFP, Tube Turns and Bell.
Bradford analyzed the impact of the Reorganization on the forecasted
earnings per share ("EPS"), revenues, earnings before interest and
taxes ("EBIT"), earnings before interest, taxes, depreciation and
amortization ("EBITDA") and the net income of the combined company for
the fiscal years ending December 31, 1998 and 1999. The results of the
pro forma merger analysis suggest that the Reorganization will be
accretive (non-dilutive) to the EPS of GTC in each of the years
analyzed. The actual results achieved by the combined company may vary
from management's projected results and the variations may be
material.
(b) Relative Contribution Analysis. For the year ended December 31, 1997,
Bradford analyzed the estimated revenues, gross profit, EBITDA, EBIT,
and pretax income of each of GTC, Tube Turns, Bell and Datatape before
the Reorganization in order to compare the contribution of each of
GTC, Tube Turns, Bell and Datatape as a percentage of GTC after the
Reorganization versus the projected fully-diluted ownership of GTC by
the existing shareholders of each of GTC, Tube Turns and Bell after
the Reorganization. Bradford observed that Tube Turns shareholders and
Bell shareholders, including GFP, are expected to own approximately
13.2% and 33.1%, respectively, of GTC after the Reorganization,
assuming an average stock price at the time the Bradford opinion was
rendered of $3.64. Such analysis indicated that for the year ended
December 31, 1997, Bell would contribute 28.7% of revenue, 67.2% of
EBITDA (before corporate overhead), and 79.8% of pretax income (before
corporate overhead) of GTC after the Reorganization. Such analysis
also indicated that for the year ended December 31, 1997, Tube Turns
would contribute 12.4% of revenue, 19.4% of EBITDA (before corporate
overhead), and 30.0% of pretax income (before corporate overhead) of
GTC after the Reorganization. Such analysis also indicated that for
the year ended December 31, 1997, Datatape would contribute 13.3% of
revenue, 24.0% of EBITDA (before corporate overhead), and 22.6% of
pretax income (before corporate overhead) of GTC after the
Reorganization. The sum of the contributions of Tube Turns, Bell and
Datatape for EBITDA and pretax income exceed 100% due to the losses
incurred at GTC.
(c) Discounted Cash Flow Analysis. Using discounted cash flow analysis,
based on information obtained from management of GFP, Bell and Tube
Turns, Bradford
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discounted to present value the projected future cash flows that Bell,
Tube Turns and Datatape are projected to produce through 2001, under
various circumstances, assuming each of Bell, Tube Turns and Datatape
performed in accordance with the earnings forecast of management.
Bradford calculated terminal values for Bell, Tube Turns and Datatape
(i.e., the values at the 2001 year end) by applying multiples to
EBITDA and net income in the year 2001. The cash flow streams and
terminal values were then discounted to present values using different
discount rates chosen to reflect different assumptions regarding each
of Bell's and Tube Turns' cost of capital. Based on the above
described analysis, the implied value per share of Bell ranged from
$49.20 to $72.66 as compared to the value per share for Bell of $44.00
in the Merger Transactions. Based on the above-described analysis, the
implied value per share for Tube Turns ranged from $17.18 to $24.94 as
compared to the weighted average value per share for Tube Turns of
$12.00. Based on the above-described analysis, the implied value for
Datatape ranged from $15.2 million to $26.1 million as compared to the
purchase price paid by GFP of $14.4 million.
(d) Leveraged Buyout Valuation Analysis. Bradford utilized management's
projections for each of Bell and Tube Turns to analyze the value of
each as a stand-alone entity in a leveraged transaction. The analysis
focused on determining the values for Bell and Tube Turns which would
enable an equity investor to achieve a five-year internal rate of
return of at least 35% while maintaining reasonable leverage ratios
and debt amortization. Based upon its experience and understanding of
leveraged transactions, Bradford assumed that these return levels
would be required in a transaction such as the one contemplated by
this analysis, and that such transactions would be funded with a
capital structure consisting of 25% equity, 30% subordinated debt and
45% senior bank financing. The costs for these financing instruments
were examined at various market rates. The subordinated debt financing
was assumed to require an interest rate of 12% and associated warrants
for 15% to 20% of the company's fully-diluted equity. The senior bank
financing was assumed to require an interest rate of 9%. The derived
values for Bell and Tube Turns resulting from this analysis and based
on the foregoing assumptions were $51.95 per share and $22.51 per
share, respectively, as compared to the values for Bell and Tube Turns
in the Merger Transactions of $44.00 per share and $12.00 per share,
respectively.
(e) Comparable Company Analysis. Using publicly available information,
Bradford reviewed selected financial data, including revenues,
historical and projected earnings and EBITDA for several publicly
traded companies engaged in businesses similar to Bell's including the
digital and analog recording equipment manufacturing, electronic
measurement device manufacturing and technical contracting services
industries. These companies include Aeroflex, Inc., Ampex Corporation,
CDI Corp., DSP Technology, Inc., Failure Group, Inc., Fluke Corp.,
Lecroy Corp., Thermospectra Corp., Transmation Inc., and X-Rite, Inc.
(the "Bell Comparable Group"). Bradford calculated current market
price as a multiple of estimated 1997 earnings (which ranged from 7.5x
to 24.7x with a median multiple of 17.9x); current market price as
multiple of estimated 1998 earnings (which ranged from 5.3x to 19.4x
with a median multiple of 14.2x); total firm value (defined as equity
market value plus net debt) as a multiple of last twelve months
("LTM") revenues (which ranged from 0.5x to 4.5x with a median
multiple of 1.2x); and total firm value as a multiple of LTM EBITDA
(which ranged from 3.8x to 14.8x with a median multiple of 13.1x).
Bradford then compared the Bell Comparable Group multiples to the
corresponding multiples in the Bell Merger including 8.6x estimated
1997 Bell Earnings, 8.1x estimated 1998 Bell earnings, 0.8x LTM Bell
revenues and 5.3x LTM Bell EBITDA. Bradford also reviewed selected
financial data, including revenues, historical and
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projected earnings and EBITDA for several publicly traded companies
engaged in businesses similar to Tube Turns including the steel
processing, automotive component manufacturing and piping/valve
manufacturing industries. These companies include Amcast Industrial
Corp., Atchison Casting Corp., Citation Corp., Cummins Engine, Dana
Corp., Daniel Industries, Eaton Corp., Gibraltar Steel Corp., Kentucky
Electric Steel, Inc., Maverick Tube Corp., Northwest Pipe Co., Park-
Ohio Industries, Precision Castparts Corp., Steel Technologies,
Synalloy Corp., and Worthington Industries (the "Tube Turns Comparable
Group"). Bradford calculated current market price as a multiple of
estimated 1997 earnings (which ranged from 11.1x to 31.7x with a
median multiple of 15.3x); current market price as a multiple of
estimated 1998 earnings (which ranged from 9.5x to 21.3x with a median
multiple of 11.6x); total firm value (defined as equity market value
plus net debt) as a multiple of LTM revenues (which ranged from 0.6x
to 2.1x with a median multiple of 0.9x); and total firm value as a
multiple of LTM EBITDA (which ranged from 5.8x to 37.9x with a median
multiple of 8.8x). Bradford then compared the Tube Turns Comparable
Group multiples to the corresponding multiples in the Tube Turns
Merger including 8.5x estimated 1997 Tube Turns earnings, 5.7x
estimated 1998 Tube Turns earnings, 0.7x LTM Tube Turns revenues and
5.9x LTM Tube Turns EBITDA. Bradford also reviewed selected financial
data, including revenues, historical and projected earnings and EBITDA
for several publicly traded companies engaged in businesses similar to
GTC including the electronics contract manufacturing industry. These
companies include ACT Manufacturing, Inc., Altron Inc., Benchmark
Electronics, Inc. CMC Industries Inc., DII Group, Inc., EFTC Corp.,
Flextronics International, IEC Electronics Corp., Jabil Circuit, Inc.,
Nam Tai Electronics, Plexus Corp., Sanmina Corp., SCI Systems, Inc.,
Solectron Corp., and Xetel Corp. (the "GTC Comparable Group").
Bradford calculated current market price as a multiple of estimated
1997 earnings (which ranged from 9.1x to 50.4x with a median multiple
of 22.5x); current market price as a multiple of estimated 1998
earnings (which ranged from 7.4x to 26.4x with a median multiple of
16.9x); total firm value (defined as equity market value plus net
debt) as a multiple of LTM revenues (which ranged from 0.4x to 8.2x
with a median multiple of 1.0x); and total firm value as a multiple of
LTM EBITDA (which ranged from 2.6x to 22.0x with a median multiple of
8.3x). Bradford then compared the GTC Comparable Group multiples to
the corresponding multiples for GTC including 35.3x estimated 1998 GTC
earnings and 0.5x LTM GTC revenues, assuming an average stock price at
the time the Bradford opinion was rendered of $3.64. Bradford also
noted that the total firm value (defined as equity market value plus
net debt) to LTM EBITDA and market price to estimated 1997 earnings
multiple for GTC could not be calculated as GTC incurred a negative
EBITDA for the last twelve months and is projected to incur a net
operating loss for the year ended December 31, 1997.
Bradford has advised the Special Committee and GTC that Bradford, on the
basis of general contract and other legal principals, does not believe that any
person (including a shareholder of GTC) other than the Special Committee has the
legal right to rely on its fairness opinion for any claim arising under state
law. Furthermore, if any such state law claim is brought against Bradford, in
light of the absence of binding precedent, Bradford will raise this assertion as
a defense. The availability of such a defense will be resolved by a court of
competent jurisdiction. Resolution of this matter under state law, however,
should have no effect on the rights and responsibilities of any person under the
federal securities laws or on the rights and responsibilities of the Special
Committee or the Board under applicable state law." Nothing in the fairness
opinions should be deemed to constitute a recommendation by Bradford to any GTC
shareholder to vote in favor of the Reorganization. Bradford has consented to
the attachment of the Opinion to this Proxy Statement/Prospectus and to the
descriptions thereof in this Proxy Statement/Prospectus.
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Pursuant to an engagement letter dated November 13, 1996, Bradford has
earned fees totaling $110,000 for its services as financial advisor to the
Special Committee in connection with the Reorganization including delivery of
the fairness opinions. In addition, Bradford will earn an additional $20,000
upon the closing of the Reorganization. GTC has also agreed to indemnify
Bradford against certain liabilities arising out of or in connection with the
services rendered by Bradford in connection with the engagement.
Bradford has issued GTC with a consent to use its opinion in this Joint
Proxy Statement/Prospectus, a copy of which is included herewith as Appendix E.
Conflicts of Interest
Robert E. Gill and Jeffrey T. Gill currently serve in a number of
overlapping positions at GTC, GFP, Tube Turns and Bell. Robert E. Gill serves as
Chairman of GFP, President, Chief Executive Officer and director of Bell, and
director of GTC and Tube Turns. Jeffrey T. Gill serves as President, Chief
Executive Officer and director of GFP and Chairman of GTC, Bell and Tube Turns.
In addition, as of November 14, 1997, the Gill Family controlled approximately
99.4% of the GFP Common Stock, and GFP in turn controlled approximately 80.3% of
the GTC Common Stock, 100% of the GTC Preferred Stock, approximately 98.6% of
the Tube Turns Common Stock, and approximately 96.9% of the Bell Common Stock.
Should the Reorganization be completed, the Gill Family ownership of GTC
(including the conversion of GTC Preferred Stock) will increase from
approximately 82.5% to approximately 88.9% and ownership of GTC by the
Unaffiliated Shareholders will decrease from approximately 17.5% to
approximately 9.4%, assuming a GTC Average Closing Price of $3.53 and the GFP
Cash Contribution is $4,500,000. Robert E. Gill will become Chairman of GTC and
Jeffrey T. Gill will become the President and Chief Executive Officer of GTC.
Both men will continue to serve as directors of GTC after the Reorganization.
The President of Tube Turns, who currently serves as a director of Tube Turns,
will have rights to a substantial number of shares of stock under option in GTC
should the merger be completed as planned. R. Scott Gill currently serves as a
director of GFP, Bell and Tube Turns and is expected to serve as a director of
GTC after the Reorganization. Richard L. Davis currently serves as Vice
President and Chief Financial Officer of GFP and as a director of Tube Turns.
Anthony C. Allen currently serves as Vice President of Finance of GFP and as a
director of Bell. In each such case, both individuals will have rights to a
substantial number of shares of stock under option in GTC should the merger be
completed as planned. William L. Healey and Robert Sroka currently serve as
directors of Bell and are expected to serve as directors of GTC after the
Reorganization.
Stock Options
At the applicable Effective Times, pursuant to the Option Assumption
Agreements described below, GTC will assume all of GFP's, Tube Turns' and Bell's
respective rights and obligations with respect to certain outstanding stock
options held by certain employees of GFP, Tube Turns and Bell, respectively,
which are outstanding and unexercised at the Effective Time (respectively, the
"GFP Options," the "Tube Turns Options," and the "Bell Options"), whether or not
the GFP Options, the Tube Turns Options and the Bell Options are then
exercisable. GTC will have received from each of the holders of GFP Options,
Tube Turns Options and Bell Options a duly executed Option Assumption Agreement
on or prior to the Closing Date. Immediately following such assumption, GTC will
substitute for each of the GFP Options, the Tube Turns Options and the Bell
Options, nonqualified options to be granted, as applicable, under the GTC 1994
Stock Option Plan for Key Employees and the GTC Independent Directors' Stock
Option Plan (the "Nonqualified Options") with vesting terms and conditions
matching those contained in the GFP Options, the Tube Turns Options and the Bell
Options, respectively, at the Effective Time to the extent such vesting terms
and conditions are consistent with the terms and conditions of such Plans and
such other revisions to such terms and conditions as GTC, GFP, Tube Turns and
Bell shall mutually agree upon. The Nonqualified Options shall thereafter
evidence the right to purchase the number of shares of GTC Common Stock equal to
the product (rounded up or down as appropriate to a whole share) of (i) the
number of shares of GFP Common Stock, Tube Turns Common Stock or Bell Common
Stock, as appropriate, covered by such GFP Option, Tube Turns Option or Bell
Option, as appropriate, immediately prior to the Effective Time, multiplied by
(ii) the GFP
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Conversion Ratio, the Tube Turns Conversion Ratio, or the Bell Conversion Ratio,
as appropriate. The exercise price of such Nonqualified Options for each share
of GTC Common Stock subject thereto shall be equal to the quotient rounded up or
down as appropriate (to the nearest whole cent) obtained by dividing (i) the per
share exercise price for shares of GFP Common Stock, Tube Turns Common Stock or
Bell Common Stock, as appropriate, subject to such GFP Option, Tube Turns Option
or Bell Option, as appropriate, immediately prior to the applicable Effective
Time, by (ii) the GFP Conversion Ratio, the Tube Turns Conversion Ratio, or the
Bell Conversion Ratio, as appropriate. Under the Reincorporation, the option
plans of GTC will be assumed by Sypris.
As a result of the Reorganization, GTC will assume options pursuant to
which others may acquire up to 1,945,039 shares of GTC Common Stock at an
average exercise price of $1.00 with vesting dates ranging until 2006. Included
in this amount are 1,510,761 shares which are currently exercisable at an
average exercise price of $0.87. The effect of the exercise of such options is
reflected in the calculation of dilution experienced by the current shareholders
of GTC. See "The Reorganization--Dilution."
At least ten (10) days prior to the applicable Effective Times, GTC will
deliver to each holder of a GFP Option, a Tube Turns Option and a Bell Option,
an appropriate written notice and option assumption agreement (the "Option
Assumption Agreement") setting forth GTC's assumption of the GFP Option, Tube
Turns Option and Bell Option, as appropriate, and substitution of the
Nonqualified Option in accordance with the terms of the Reorganization
Agreement. The form of such Option Assumption Agreement shall be delivered to
GFP, Tube Turns and Bell prior to its distribution to holders of the GFP
Options, Tube Turns Options and Bell Options and shall be subject to their
reasonable approval.
Pursuant to the Reorganization Agreement, GTC agrees to cause the shares of
GTC Common Stock issuable upon exercise of the Nonqualified Options to be
registered with the Commission on a Form S-8 Registration Statement as promptly
following the Effective Time as is reasonably practicable. GTC further agrees to
cause the shares of GTC Common Stock issuable upon exercise of the Nonqualified
Options to be registered or exempt from the registration requirements of all
applicable state securities laws, rules and regulations. Under the
Reincorporation, these obligations of GTC will be assumed by Sypris.
Approval of the Reorganization Agreement by the shareholders of each of
GFP, Tube Turns and Bell shall constitute authorization and approval of any and
all of the actions described above regarding such options.
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Dilution
The net tangible book value of GTC at September 28, 1997 was
$18,437,000 or $1.01 per share, assuming conversion of the GTC Preferred Stock
into shares of GTC Common Stock. Net tangible book value per share is equal to
GTC's total assets (excluding intangible assets) less its total liabilities
divided by the sum of the total number of outstanding shares of GTC Common Stock
plus the number of shares of GTC Common Stock issuable upon conversion of the
GTC Preferred Stock. After giving effect to (i) the pro forma adjustments to net
tangible book value for the Reorganization and the sale of GTC's Latin American
operations; (ii) the issuance of 30,826,817 shares of GTC Common Stock to the
shareholders of GFP, Tube Turns and Bell (excluding shares to be issued under
option and assuming a GTC Average Closing Price of $3.53); and (iii) the
cancellation of 13,039,625 shares of GTC Common Stock currently held by GFP, the
pro forma combined net tangible book value of GTC would have been $33,663,000 or
$0.99 per share. This represents an immediate decrease in such net tangible book
value of $0.02 per share to the existing shareholders and an immediate dilution
of $2.54 per share to new shareholders receiving shares in the Reorganization.
The following table illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed conversion price per share............................................. $ 3.53
Net tangible book value per share as of September 30, 1997..................... $ 1.01
Decrease per share attributable to new shareholders............................ (0.02)
------
Pro forma combined net tangible book value per share after the Reorganization.. 0.99
------
Dilution per share to new shareholders......................................... $ 2.54
======
</TABLE>
In addition, as of November 14, 1997, certain Executive Officers and
Directors of GFP, Tube Turns and Bell hold options to purchase shares of GFP
Common Stock, Tube Turns Common Stock and Bell Common Stock, respectively, at
various exercise prices per share. At the applicable Effective Times, GTC will
convert such options into options to purchase shares of GTC Common Stock, the
number of which will be determined by multiplying the applicable Conversion
Ratio by the number of options, and the exercise price of which will be
determined by dividing the exercise price of such option by the applicable
Conversion Ratio. Based upon a GTC Average Closing Price of $3.53 per share, the
number of shares of GTC Common Stock issuable under such options would be
1,945,039 and the average exercise price per share would be $1.00. If these
options were assumed to be exercised in full as of September 30, 1997, pro forma
combined net tangible book value per share would be $0.99 per share,
representing dilution to new shareholders of $2.54 per share. Dilution is
determined by subtracting the per share pro forma net tangible book value of the
GTC Common Stock after the Reorganization from the assumed conversion price per
share.
Shares Subject to Vesting
At the applicable Effective Times, certain shares of GFP Common Stock,
Tube Turns Common Stock and Bell Common Stock will be subject to vesting
requirements under existing stock purchase and restriction plans of such
corporations (the "Stock Plans"). While the Reorganization Agreement provides
that such Stock Plans will terminate at the applicable Effective Times, the
shares of GTC Common Stock issued for such shares in the Reorganization will
continue to be subject to such vesting requirements as will the shares of Sypris
Common Stock exchanged for such shares, pursuant to the Reincorporation.
Accounting Treatment
GTC intends to account for the Reorganization in accordance with
generally accepted accounting principles governing a downstream merger, under
which the Merger is accounted for as a purchase of the minority interests of
GTC. Other than any adjustments necessary to reflect the purchase of the
minority interests of GTC, the assets and liabilities of GTC, Tube Turns and
Bell, each of which are under the common control of GFP, will be combined based
on the respective carrying values of the accounts in the
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historical financial statements of each entity. The issuance of GTC Common Stock
to the shareholders of Tube Turns and Bell, other than GTC (as successor by
merger to GFP), in connection with the Tube Turns Merger and the Bell Merger,
respectively, will be accounted for as a purchase and accordingly, the amount by
which the fair market value of the GTC Common Stock issued exceeds the fair
market value of the proportional share of the net assets of Tube Turns and Bell,
if any, will be allocated to the assets and liabilities of Tube Turns and Bell
based upon the fair values thereof and any excess to goodwill. A final
determination of the fair values of the assets and liabilities of Tube Turns and
Bell has not yet been made. Accordingly, the purchase accounting adjustments
made in connection with the development of the unaudited pro forma financial
information appearing elsewhere in this Joint Proxy Statement/Prospectus are
preliminary and have been made solely for the purposes of developing such pro
forma financial information to comply with disclosure requirements of the
Commission. Although the final purchase allocation is likely to differ, the pro
forma financial information reflects management's best estimate based upon
currently available information. After the Reorganization, the historical
financial statements of GTC will be those of GFP since GFP is the acquirer for
accounting purposes. After the Reincorporation, the historical financial
statements of Sypris will in turn be those of GTC. No material accounting
adjustments are expected in accounting for the Reincorporation. The Reverse
Stock Split will be accounted for retrospectively with effect from the date of
the Reverse Stock Split and will be presented in all statements of operations
and in all other financial statements and notes to financial statements in which
earnings per share are reported.
Certain Federal Income Tax Consequences
The parties to the Reorganization have not and do not intend to seek a
ruling from the IRS as to the federal income tax consequences of the
Reorganization or the Reincorporation. Instead, GTC, GFP, Tube Turns and Bell
have obtained the Opinion of Wyatt, Tarrant & Combs as to certain of the
expected federal income tax consequences of the Reorganization and the
Reincorporation, a copy of which is attached as an exhibit to the Registration
Statement.
The Opinion does not address, among other matters: (i) state, local,
foreign or other federal tax consequences of the Reorganization or the
Reincorporation not specifically addressed therein; (ii) federal income tax
consequences to shareholders of GFP, GTC, Bell and Tube Turns subject to special
rules under the Code, such as foreign persons, tax-exempt organizations,
insurance companies, financial institutions, dealers in stocks and securities,
and persons who do not own such stock as a capital asset; (iii) federal income
tax consequences affecting shares of GTC, GFP, Tube Turns and Bell stock
acquired upon exercise of stock options, stock purchase plan rights or otherwise
as compensation; (iv) the tax consequences to holders of warrants, options or
other rights to acquire shares of such stock; and (v) the tax consequences of
the conversion of the shares of GTC Preferred Stock (the "Conversion"), the Spin
Off and the Reverse Stock Split to any party thereto.
The Spin Off will, unless the requirements of Sections 368(a)(1)(D)
and 355 of the Code are satisfied, result in recognition of gain (but not loss)
by GFP equal to the difference between the value of the shares of Partners-V,
Unison and BW distributed to the shareholders of GFP and GFP's adjusted basis in
such shares. Each GFP shareholder will recognize ordinary income in an amount up
to the lesser of the value of the shares of Partners-V, Unison and BW it
receives or its pro-rata share of GFP's current and accumulated earnings and
profits. If the value of the shares of Partners-V, Unison and BW received by a
GFP shareholder exceed its pro-rata share of GFP's current and accumulated
earnings and profits, the excess will reduce its adjusted basis in its shares.
To the extent the value of the shares of Partners-V, Unison and BW also exceeds
a GFP shareholder's adjusted basis in its GFP shares, it will recognize a
capital gain or ordinary income equal to such excess depending upon whether its
GFP shares are a capital asset in its hands. As the successor corporation in the
merger, GTC would become liable for the federal income taxes incurred in respect
of any gain recognized by GFP in the Spin Off. Counsel will not render an
opinion as to whether the Spin Off satisfies the requirements of Section
368(a)(1)(D) and 355 of the Code, and it is anticipated that the Spin Off will
not satisfy those requirements.
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Subject to the conditions, qualifications, representations and
assumptions contained herein and in the Opinion, counsel has opined that:
The Merger
(i) The Merger of GFP with and into GTC will constitute a
reorganization within the meaning of Section 368(a)(1)(A) of the Code.
(ii) GFP and GTC will each be "a party to a reorganization" within the
meaning of Section 368(b) of the Code.
(iii) No gain or loss will be recognized by GFP as a result of the
Merger.
(iv) No gain or loss will be recognized by GTC as a result of the
Merger.
(v) The tax basis of the assets received by GTC will be the same as
the tax basis of such assets of GFP immediately prior to the Merger.
(vi) The holding period of the assets of GFP received by GTC will in
each instance include the period for which such assets were held by GFP.
(vii) No gain or loss will be recognized by the shareholders of GFP as
a result of the exchange of GFP Common Stock for GTC Common Stock pursuant to
the Merger, except that a gain or loss will be recognized on the receipt of any
cash in lieu of a fractional share. Assuming that the GFP Common Stock is held
as a capital asset by the respective GFP shareholders, any gain or loss
recognized as a result of the receipt of cash in lieu of a fractional share will
be a capital gain or loss equal to the difference between the cash received and
that portion of the holder's tax basis in the GFP shares allocable to the
fractional share.
(viii) The tax basis of GTC Common Stock to be received by the
shareholders of GFP will be the same as the tax basis of the GFP Common Stock
surrendered in exchange therefor (reduced by any amount allocable to a
fractional share interest for which cash is received).
(ix) The holding period of the GTC Common Stock to be received by the
shareholders of GFP will include the holding period of the GFP Common Stock
surrendered in exchange therefor, provided the GFP Common Stock was held as a
capital asset by the shareholders of GFP on the date of the exchange.
(x) A shareholder of GFP who perfects his dissenter's rights and who
receives payment of the fair market value of his shares of GFP Common Stock will
be treated as having received such payment in redemption of such stock. Such
redemption will be subject to the conditions and limitations of Section 302 of
the Code.
The Tube Turns Merger
(i) The acquisition by New Tube Turns of substantially all of the
assets of Tube Turns in exchange for shares of GTC Common Stock and the
assumption of liabilities of Tube Turns pursuant to the Tube Turns Merger will
constitute a reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(D) of the Code.
(ii) Tube Turns, GTC, and New Tube Turns will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
(iii) No gain or loss will be recognized by Tube Turns as a result of
the Tube Turns Merger.
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(iv) No gain or loss will be recognized by New Tube Turns or GTC as a
result of the Tube Turns Merger.
(v) The tax basis of the assets received by New Tube Turns will be the
same as the tax basis of such assets of Tube Turns immediately prior to the Tube
Turns Merger.
(vi) The holding period of the assets of Tube Turns received by New
Tube Turns will in each instance include the period for which such assets were
held by Tube Turns.
(vii) No gain or loss will be recognized by the shareholders of Tube
Turns as a result of the exchange of Tube Turns Common Stock for GTC Common
Stock pursuant to the Tube Turns Merger, except that a gain or loss will be
recognized on the receipt of any cash in lieu of a fractional share. Assuming
that the Tube Turns Common Stock is held as a capital asset by the respective
Tube Turns shareholders, any gain or loss recognized as a result of the receipt
of cash in lieu of a fractional share will be a capital gain or loss equal to
the difference between the cash received and that portion of the holder's tax
basis in the Tube Turns Common Stock allocable to the fractional share.
(viii) The tax basis of GTC Common Stock to be received by the
shareholders of Tube Turns will be the same as the tax basis of the Tube Turns
Common Stock surrendered in exchange therefor (reduced by any amount allocable
to a fractional share interest for which cash is received).
(ix) The holding period of the GTC Common Stock to be received by
shareholders of Tube Turns will include the holding period of the Tube Turns
Common Stock surrendered in exchange therefor, provided the Tube Turns Common
Stock was held as a capital asset by the shareholders of Tube Turns on the date
of the exchange.
(x) A shareholder of Tube Turns who perfects his dissenter's rights
and who receives payment of the fair market value of his shares of Tube Turns
Common Stock will be treated as having received such payment in redemption of
such stock. Such redemption will be subject to the conditions and limitations of
Section 302 of the Code.
The Bell Merger
(i) The acquisition by New Bell of substantially all of the assets of
Bell in exchange for shares of GTC Common Stock and the assumption of
liabilities of Bell pursuant to the Bell Merger will constitute a reorganization
within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code.
(ii) Bell, GTC, and New Bell will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
(iii) No gain or loss will be recognized by Bell as a result of the
Bell Merger.
(iv) No gain or loss will be recognized by New Bell or GTC as a result
of the Bell Merger.
(v) The tax basis of the assets received by New Bell will be the same
as the tax basis of such assets of Bell immediately prior to the Bell Merger.
(vi) The holding period of the assets of Bell received by New Bell
will in each instance include the period for which such assets were held by
Bell.
(vii) No gain or loss will be recognized by the shareholders of Bell
as a result of the exchange of Bell shares for GTC Common Stock pursuant to the
Bell Merger, except that a gain or loss will be recognized on the receipt of any
cash in lieu of a fractional share. Assuming that the Bell Common Stock is held
as a
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capital asset by the respective Bell shareholders, any gain or loss recognized
as a result of the receipt of cash in lieu of a fractional share will be a
capital gain or loss equal to the difference between the cash received and that
portion of the holder's tax basis in the Bell Common Stock allocable to the
fractional share.
(viii) The tax basis of GTC Common Stock to be received by the
shareholders of Bell will be the same as the tax basis of the Bell Common Stock
surrendered in exchange therefor (reduced by any amount allocable to a
fractional share interest for which cash is received).
(ix) The holding period of the GTC Common Stock to be received by the
shareholders of Bell will include the holding period of the Bell Common Stock
surrendered in exchange therefor, provided the Bell Common Stock was held as a
capital asset by the shareholders of Bell on the date of the exchange.
(x) A shareholder of Bell who perfects his dissenter's rights and who
receives payment of the fair market value of his shares of Bell Common Stock
will be treated as having received such payment in redemption of such stock.
Such redemption will be subject to the conditions and limitations of Section 302
of the Code.
The GTC Contribution
(i) No gain or loss will be recognized by GTC on its transfer of
assets to New GTC in exchange for New GTC stock and the assumption by New GTC of
certain liabilities of GTC.
(ii) No gain or loss will be recognized by New GTC upon the issuance
of New GTC stock in consideration for the assets transferred to it by GTC.
(iii) The basis of each asset received by New GTC will be the same as
the basis of that asset of GTC immediately before its transfer.
(iv) The holding period of each asset received by New GTC will include
the period during which that asset was held by GTC.
(v) The basis of the New GTC stock received by GTC will be the same as
the basis of the assets transferred by GTC to New GTC, decreased by the sum of
the liabilities of GTC assumed by New GTC plus the amount of liabilities to
which the transferred assets are subject.
(vi) The holding period of the New GTC stock received by GTC will
include the period during which GTC held the transferred assets, provided the
transferred assets are capital assets of GTC on the date of transfer.
(vii) New GTC will not succeed to any tax attributes, including the
earnings and profits, of GTC.
The Reincorporation
(i) The merger of GTC with and into Sypris will constitute a
reorganization within the meaning of Section 368(a) of the Code.
(ii) GTC and Sypris will each be "a party to a reorganization" within
the meaning of Section 368(b) of the Code.
(iii) No gain or loss will be recognized by GTC or Sypris as a result
of the Reincorporation.
(iv) No gain or loss will be recognized by shareholders who exchange
their GTC shares solely for Sypris shares.
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(v) Shareholders of GTC will have the same tax basis in the shares of
Sypris received in the Reincorporation as the basis in the shares of GTC
exchanged therefor.
(vi) The holding period of the shares of Sypris will include the
period during which the shares of GTC were held, provided such shares of GTC
were held as capital assets on the effective date of the Reincorporation.
The Opinion is based on the Code, the Treasury Regulations promulgated
thereunder, judicial decisions and administrative pronouncements of the IRS, all
existing and in effect on the date of the Opinion and all of which are subject
to change at any time, possibly retroactively. Any such change could have a
material impact on the conclusions reached in the Opinion. The Opinion
represents only such counsel's best judgment as to the expected federal income
tax consequences of the Reorganization and the Reincorporation and is not
binding on the IRS or the courts. The IRS may challenge the conclusions stated
therein and shareholders of GTC, GFP, Tube Turns and Bell may incur the cost and
expense of defending positions taken by them with respect to the Reorganization
and the Reincorporation. A successful challenge by the IRS could have material
adverse consequences to the parties to the Reorganization and Reincorporation,
including shareholders of GTC, GFP, Tube Turns and Bell.
In rendering the Opinion, counsel has relied, as to factual matters,
solely on the continuing accuracy of (i) the description of the facts relating
to the Reorganization and the Reincorporation contained in the Reorganization
Agreement, the Reincorporation Agreement and Registration Statement, (ii) the
factual representations and warranties contained in the Reorganization
Agreement, the Reincorporation Agreement and Registration Statement and related
documents and agreements, and (iii) certain factual matters addressed by
representations made by certain executive officers of GTC, New GTC, Sypris, GFP,
Tube Turns, New Tube Turns, Bell and New Bell, as further described in the
Opinion. Events occurring after the date of the Opinion could alter the facts
upon which the Opinion is based, in which event the conclusions reached therein
and in this summary could be materially impacted.
ACCORDINGLY, FOR ALL OF THE ABOVE REASONS, SHAREHOLDERS OF GTC, GFP,
TUBE TURNS AND BELL ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE REORGANIZATION, INCLUDING THE
APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS.
Regulatory Approvals
Under the Reorganization Agreement, the obligations of GTC, GFP, Tube
Turns and Bell to consummate the Reorganization are conditioned upon the
expiration of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act") which is expected to occur in
late January, 1998. GTC, GFP, Tube Turns and Bell believe that no other such
regulatory or other approvals are required.
Resale Restrictions
Shares of GTC Common Stock to be issued to certain shareholders of
GFP, Tube Turns and Bell in connection with the Reorganization will be subject
to certain resale limitations pursuant to Rule 145 under the Securities Act. In
general, these limitations will consist of volume and manner of sale
restrictions on the resale of the shares of GTC Common Stock. Pursuant to the
Reorganization Agreement, each of GFP, Tube Turns and Bell shall deliver to GTC
a letter identifying all persons who are, at the time of the Special Meetings,
Affiliates of each of GFP, Tube Turns and Bell for purposes of Rule 145 under
the Securities Act. It is a condition to GTC's obligations to consummate the
Reorganization that each of GFP, Tube Turns and Bell shall cause each
shareholder of GFP, Tube Turns and Bell, respectively, who is identified as an
Affiliate of GFP, Tube Turns or Bell, as applicable, to deliver to GTC on or
prior to the applicable Effective Time a written
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statement to the effect that such person will not offer to sell, transfer or
otherwise dispose of any shares of GTC Common Stock issued to such person in the
Reorganization, except in accordance with the applicable provisions of the
Securities Act and the rules and regulations of the Commission. GTC may place
legends on certificates representing shares of GTC Common Stock that are issued
to shareholders of GFP, Tube Turns and Bell in the Reorganization to restrict
such transfers. Under the Reincorporation, shares of Sypris Common Stock
received by such persons in exchange for such shares of GTC Common Stock will be
subject to the same restrictions.
Nasdaq Stock Market Listing
The GTC Common Stock is quoted on the Nasdaq Stock Market. Pursuant to
the Reorganization Agreement, GTC agreed to file an additional shares
notification with Nasdaq to approve for listing, subject to official notice of
its issuance, the shares of GTC Common Stock to be issued in connection with the
Merger, the Tube Turns Merger and the Bell Merger. To remain eligible for
continued inclusion in the Nasdaq Stock Market, the GTC Common Stock must meet
Nasdaq's minimum bid requirement, the market value of public float and net
tangible asset requirement. See "Risk Factors--Minimum Criteria for Inclusion in
the Nasdaq Stock Market."
Representations and Warranties
The Reorganization Agreement contains various customary
representations and warranties relating to, among other things: (i) the due
organization, power, authority and standing of GTC, GFP, Tube Turns and Bell and
similar corporate matters; (ii) the authorization, execution, delivery and
enforceability of the Reorganization Agreement; (iii) the capital structure of
GTC, GFP, Tube Turns and Bell; (iv) violations of any instruments or law; (v)
required consents or approvals; (vi) certain documents filed by GTC with the
Commission; and (vii) financial statements of GTC, GFP, Tube Turns and Bell, and
the accuracy of information contained therein. With respect to GFP, Tube Turns
and Bell, the Reorganization Agreement contains representations and warranties
as to litigation, conduct of business in the ordinary course and the absence of
certain changes or events that would have a Material Adverse Effect (as defined
in the Reorganization Agreement) on the business, results of operations or
financial condition of GFP, Tube Turns or Bell, as the case may be, insurance,
taxes, properties, environmental matters, employee benefit plans, labor matters,
undisclosed liabilities, contracts and commitments.
For purposes of the Reorganization Agreement, "Material Adverse
Effect" is defined to mean any change or effect that, individually or when taken
together with all other such changes or effects, is or is reasonably likely to
be materially adverse to the business, assets, prospects, liabilities, results
of operations or condition (financial or otherwise) of the entity to which the
term relates and such entities' subsidiaries, taken as a whole.
Certain Covenants
Each of GTC, GFP, Tube Turns and Bell have agreed, among other things,
prior to consummation of the Reorganization, except as otherwise permitted by
the Reorganization Agreement: (i) to cooperate fully in making application for
all necessary regulatory approvals and obtaining all other consents necessary
for consummation of the Reorganization; (ii) to carry on its business in the
ordinary course and not engage in any new line of business or enter into any
agreement, transaction or activity or make any commitment except those in the
ordinary course of business; (iii) not to change or amend its Articles of
Incorporation or bylaws, which change or amendment would have a Material Adverse
Effect; (iv) not to issue, sell or grant options, warrants or rights to purchase
or subscribe to, or enter into any arrangement or contract with respect to the
issuance or sale of any of its capital stock or rights or obligations
convertible into or exchangeable for any shares of its capital stock and, except
as contemplated in the Reorganization Agreement, not alter the terms of any
presently outstanding options or make any changes (by split-up, combination,
reorganization or otherwise) in its capital structure; (v) not to acquire or
enter into an agreement to acquire, by merger,
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consolidation or purchase of stock or assets, any business or entity; (vi) to
use its reasonable efforts to preserve intact its corporate existence, goodwill
and business organization, to keep its officers and employees available and to
preserve its relationships with customers, suppliers and others with which it
has business relations; (vii) not to create, incur or assume any long-term debt
(including obligations in respect of capital leases which individually involve
annual payments in excess of $250,000 or, except in the ordinary course of
business under existing lines of credit, create, incur or assume any short-term
debt for borrowed money; (viii) not to assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
the obligations of any other person, except in the ordinary course of business
and consistent with industry practice; (ix) not to make any loans or advances to
any other person, except in the ordinary course of business and consistent with
industry practice; (x) not to make any capital contributions to, or investments
in, any person, except in the ordinary course of business and consistent with
industry practices with respect to investments; (xi) not to make any single
capital expenditure involving in excess of $1.0 million in the case of Tube
Turns, $0.5 million in the case of Bell, and $2.0 million in the case of GTC,
and to limit the sum of all capital expenditures to $2.0 million in the case of
Tube Turns, $2.5 million in the case of Bell and $5.0 million in the case of
GTC; (xii) not to enter into, modify or extend in any manner the terms of any
employment, severance or similar agreements with officers and directors nor
grant any increase in the compensation of officers, directors or employees other
than increases in the ordinary course of business or consistent with industry
practices; (xiii) to perform in all material respects all of its obligations
under all of each of their respective material contracts and not enter into,
assume or amend any contract or commitment that would be a material contract
other than contracts to provide products or services entered into in the
ordinary course of business; (xiv) to use its reasonable efforts to maintain in
full force and effect and in the same amounts policies of insurance; and (xv) to
use its reasonable efforts to continue to collect its accounts receivable in the
ordinary course of business and consistent with past practices.
Each of GTC, GFP, Tube Turns and Bell also agreed to provide each
other party and its accountants, counsel and other authorized representatives
full access, during reasonable business hours and under reasonable
circumstances, to any and all of its premises, properties, contracts,
commitments, books, records and other information pertaining to its business as
each other party shall from time to time reasonably request. Each of such
parties also agreed not to intentionally take or cause to be taken any action,
whether before or after the applicable Effective Time, that would disqualify the
Merger, the Tube Turns Merger and the Bell Merger as a "reorganization" within
the meaning of Section 368 of the Code.
Conditions to Consummation of the Reorganization
The respective obligations of GTC, GFP, Tube Turns and Bell to effect
the Reorganization are subject to the fulfillment or waiver of each of the
following conditions, among others: (i) the Reorganization Agreement shall have
received the requisite approval of the holders of the outstanding shares of GTC
Common Stock, GFP Common Stock, Tube Turns Common Stock and Bell Common Stock
entitled to vote thereon; (ii) the Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order, and GTC shall have received all state securities laws or "Blue Sky"
permits and other authorizations necessary to issue the GTC Common Stock in
connection with the Reorganization and otherwise consummate the transactions
contemplated by the Reorganization Agreement; (iii) no temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction, or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by the Reorganization Agreement,
shall be in effect; (iv) GTC, GFP, Tube Turns and Bell shall have each received
a written opinion of counsel as to certain federal income tax consequences of
the Reorganization (other than the Spin Off) (which condition has been
satisfied); and (v) the applicable waiting periods under the HSR Act shall have
expired.
The obligation of GTC to consummate on the Closing Date the
transactions contemplated by the Reorganization Agreement is subject to the
satisfaction of each of the following conditions on or prior to the Closing
Date, unless expressly waived in writing by GTC: (i) GTC shall have received the
written opinion of counsel for GFP, Tube Turns and Bell; (ii) the
representations and warranties of each of GFP, Tube Turns
74
<PAGE>
and Bell set forth in the Reorganization Agreement shall be true and correct,
except to the extent that the aggregate effect of the inaccuracies in such
representations and warranties as of the applicable times (each considered
without any exclusions for lack of Material Adverse Effect set forth in the
individual representation or warranty) does not constitute a Material Adverse
Effect on each of GFP, Tube Turns and/or Bell, and GTC shall have received a
certificate of the chief executive officer of each of GFP, Tube Turns and Bell
to such effect; (iii) each of the agreements and covenants to be performed and
complied with by each of GFP, Tube Turns and Bell pursuant to the Reorganization
Agreement prior to the Effective Time shall have been duly performed and
complied with except to the extent that the aggregate effect of any
nonperformance or noncompliance by GFP, Tube Turns and/or Bell (each considered
without any exclusions for lack of Material Adverse Effect set forth in the
individual covenant or agreement) does not constitute a Material Adverse Effect
on GFP, Tube Turns and/or Bell, and GTC shall have received a certificate of the
chief executive officer of each of GFP, Tube Turns and Bell to such effect; and
(iv) each of GFP, Tube Turns and Bell shall have delivered to GTC a tax
certificate in the form attached to the Reorganization Agreement.
The obligation of each of GFP, Tube Turns and Bell to consummate, on
the Closing Date, the transactions contemplated by the Reorganization Agreement
will be subject to the satisfaction of each of the following conditions on or
prior to the Closing Date, unless expressly waived, in writing, by each of GFP,
Tube Turns and Bell: (i) each of GFP, Tube Turns and Bell shall have received
the written opinion of counsel for GTC; (ii) the representations and warranties
of GTC set forth in the Reorganization Agreement shall be true and correct
except to the extent that the aggregate effect of the inaccuracies in such
representations and warranties as of the applicable times (each considered
without any exclusions for lack of Material Adverse Effect set forth in the
individual representation or warranty) does not constitute a Material Adverse
Effect on GTC, and GFP, Tube Turns and Bell shall have received a certificate of
the chief executive officer of GTC to such effect; and (iii) each of the
agreements and covenants of GTC to be performed and complied with by GTC
pursuant to the Reorganization Agreement prior to the Effective Time shall have
been duly performed and complied with except to the extent that the aggregate
effect of any nonperformance or noncompliance by GTC (each considered without
any exclusions for lack of Material Adverse Effect set forth in the individual
covenant or agreement) does not constitute a Material Adverse Effect on GTC, and
GFP, Tube Turns and Bell shall have received a certificate of the chief
executive officer of GTC to such effect.
Termination of the Reorganization Agreement
The Reorganization Agreement may be terminated and the Reorganization
may be abandoned at any time prior to the Closing Date, before or after the
approval of the shareholders of GTC, GFP, Tube Turns and Bell, in the following
circumstances:
(i) by the mutual written consent of GTC, GFP, Tube Turns and Bell;
(ii) by GTC, if GFP, Tube Turns or Bell breaches any of its respective
representations, warranties or covenants which breach has a Material Adverse
Effect on the breaching party;
(iii) by GFP, Tube Turns or Bell if GTC breaches any representation,
warranty or covenant of GTC which breach has a Material Adverse Effect on GTC;
and
(iv) by GFP, Tube Turns, Bell or GTC if the transactions contemplated
by the Reorganization Agreement shall not have been consummated on or before
March 15, 1998, unless the failure to so consummate by such time is due to the
breach of the Reorganization Agreement by the party seeking to terminate.
Expenses
Each party to the Reorganization Agreement shall be responsible for
the payment or other satisfaction of its own expenses incurred in connection
therewith. If the Reorganization is not consummated, the parties will have
incurred substantial expenses in connection with the aborted transaction.
75
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined financial statements were
derived from, should be read in conjunction with, and are qualified in their
entirety by reference to, the separate consolidated financial statements of GTC
and GFP and the notes thereto. GTC, Tube Turns and Bell are subsidiaries of GFP
and are included in the consolidated financial statements of GFP. After the
Reorganization, GFP will be the reporting entity from an accounting point of
view and therefore, the following unaudited pro forma condensed combined
financial statements are prepared to show the potential impact of the sale of
GTC's Latin American operations, the Reorganization and the acquisition of
Datatape on the historical consolidated financial statements of GFP as if the
transactions had been consummated as of the beginning of the indicated period
for the results of operations or as of September 30, 1997 for the balance sheet.
The pro forma consolidated financial data are based upon certain
assumptions and estimates and are not necessarily indicative of the results
which would actually have been attained if the transactions had been consummated
at the beginning of the indicated periods or as of the date specific, or which
may be attained in the future.
The sale of GTC's Latin American operations to SCI Systems, Inc.
occurred on June 30, 1997. GTC utilized a portion of the sale proceeds to fully
extinguish its debt payable to its primary lender and has terminated its credit
agreement with that lender effective June 30, 1997. GFP completed the
divestiture of all operations related to its real estate segment in the first
quarter of 1997. The results of operations for the real estate segment are
presented as discontinued operations in the historical consolidated financial
statements of GFP and, therefore, are not included in the pro forma statements
of operations.
The acquisition of Datatape occurred on November 14, 1997. Datatape
was acquired by a wholly owned subsidiary of GFP and will be accounted for under
the purchase method of accounting and, therefore, these pro forma financial
statements are prepared on such a basis. The purchase price for Datatape has
been allocated to the assets and liabilities based upon preliminary estimates of
their respective fair values and the pro forma adjustments do not give effect to
any synergies.
In the opinion of management, all adjustments necessary to present
fairly such pro forma condensed combined financial statements, as set forth in
the accompanying explanatory notes, have been made. The unaudited pro forma
condensed combined statements of operations, which include results of operations
as if the Reorganization had been consummated on January 1, 1996 and January 1
1997, do not reflect transaction costs anticipated to be incurred or the effects
of potential cost savings and operating synergies anticipated to result from the
Reorganization. See "Selected Unaudited Pro Forma Combined Financial Data."
76
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma Adjustments
------------------------------- Pro Forma
For the Adjustments Pro Forma
sale of GTC's for the Combined
GFP Latin American For the Pro Forma Datatape and
Historical operations (1) Reorganization Combined Acquisition (7) Acquisition
---------- -------------- -------------- --------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue................................... $308,598 $(58,457) $ -- $250,141 $46,663 $296,804
Cost of operations........................ 278,678 (57,079) -- 221,599 28,936 250,535
-------- -------- ------- -------- ------- --------
Gross profit.............................. 29,920 (1,378) -- 28,542 17,727 46,269
Selling, general and administrative
expense.................................. 29,407 (2,204) 73 (5) 27,276 11,750 39,026
-------- -------- ------- -------- ------- --------
Operating income.......................... 513 826 (73) 1,266 5,977 7,243
Interest expense, net..................... 3,979 (1,920) (2) -- 2,059 1,125 3,184
Other income, net......................... (828) (140) -- (968) 82 (886)
-------- -------- ------- -------- ------- --------
(Loss) income before income taxes,
minority interests and discontinued
operations............................... (2,638) 2,886 (73) 175 4,770 4,945
Income taxes.............................. 1,614 (481) (3) (27) (6) 1,106 1,765 2,871
-------- -------- ------- -------- ------- --------
(Loss) income before minority interests
and discontinued operations.............. (4,252) 3,367 (46) (931) 3,005 2,074
Minority interests........................ 1,716 (673) (4) (1,043) (4) -- -- --
-------- -------- ------- -------- ------- --------
(Loss) income from continuing operations.. $ (2,536) $ 2,694 $(1,089) $ (931) $ 3,005 $ 2,074
======== ======== ======= ======== ======= ========
(Loss) income per share from continuing
operations............................... $ (7.92) $ (0.11) $ 0.23
Weighted average shares outstanding....... 320 8,831 (25) 8,831
</TABLE>
77
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma Adjustments
------------------------------- Pro Forma
For the Adjustments Pro Forma
sale of GTC's for the Combined
GFP Latin American For the Pro Forma Datatape and
Historical operations (8) Reorganization Combined Acquisition (15) Acquisition
---------- -------------- -------------- --------- ------------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue.................................. $159,236 $ (16,931) $ -- $ 142,305 $27,885 $170,190
Cost of operations....................... 137,369 (17,776) -- 119,593 15,445 135,038
-------- ---------- ---------- ---------- ------- --------
Gross profit............................. 21,867 845 -- 22,712 12,440 35,152
Selling, general and administrative
expense................................. 21,719 (880) (439) (13) 20,400 8,460 28,860
-------- ---------- ---------- ---------- ------- --------
Operating income......................... 148 1,725 439 2,312 3,980 6,292
Interest expense, net.................... 1,724 (915) (9) -- 809 844 1,653
Other income, net........................ (3,643) 3,205 (10) -- (438) 126 (312)
-------- ---------- ---------- ---------- ------- --------
Income before income taxes, minority
interests and discontinued operations... 2,067 (565) 439 1,941 3,010 4,951
Income taxes............................. 750 (152)(11) 162 (14) 760 1,114 1,874
-------- ---------- ---------- ---------- ------- --------
Income before minority interests and
discontinued operations................. 1,317 (413) 277 1,181 1,896 3,077
Minority interests....................... 717 83 (12) (800)(12) -- -- --
-------- ---------- ---------- ---------- ------- --------
Income from continuing operations........ $ 2,034 $ (330) $ (523) $ 1,181 $ 1,896 $ 3,077
======== ========== ========== ========== ======= ========
Income per share from continuing
operations.............................. $ 6.33 $ 0.13 $ 0.35
Weighted average shares outstanding...... 321 8,847 (25) 8,847
</TABLE>
78
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
Pro Forma Adjustments Pro Forma
Adjustments for the Combined
GFP for the Pro Forma Datatape and
Historical Reorganization Combined Acquisition(22) Acquisition
---------- -------------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............ $ 10,197 $ -- $ 10,197 $ -- $ 10,197
Accounts receivable.................. 25,140 -- 25,140 3,445 28,585
Inventories.......................... 35,267 -- 35,267 6,551 41,818
Other current assets................. 2,961 -- 2,961 41 3,002
---------- -------------- --------- ----------- -----------
Total current assets................. 73,565 -- 73,565 10,037 83,602
Property, plant and equipment, net... 21,860 -- 21,860 4,866 26,726
Other assets......................... 3,105 1,604 (16) 4,709 6,635 (23) 11,344
---------- -------------- --------- ----------- -----------
$ 98,530 $ 1,604 $ 100,134 $ 21,538 $ 121,672
========== ============== ========= =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable..................... $ 13,865 $ -- $ 13,865 $ 3,080 $ 16,945
Accrued liabilities.................. 26,964 205 (17) 27,169 3,323 30,492
Current portion of long-term debt.... 2,356 -- 2,356 118 2,474
---------- -------------- --------- ----------- -----------
Total current liabilities............ 43,185 205 43,390 6,521 49,911
Long-term debt....................... 13,114 -- 13,114 14,583 (24) 27,697
Other noncurrent liabilities......... 10,339 (4,458)(18) 5,881 434 6,315
---------- -------------- --------- ----------- -----------
Total noncurrent liabilities......... 23,453 (4,458) 18,995 15,017 34,012
Minority interests in subsidiaries... 3,187 (3,187)(19) -- -- --
Redeemable common stock.............. 1,079 (1,079)(17) -- -- --
Common stock......................... 7,892 (7,804)(20) 88 -- 88
Additional paid-in capital........... -- 7,804 (20) 17,782 -- 17,782
729 (17)
6,062 (21)
3,187 (19)
Retained earnings.................... 19,734 145 (17) 19,879 -- 19,879
---------- -------------- --------- ----------- -----------
Total shareholders' equity........... 27,626 10,123 37,749 -- 37,749
---------- -------------- --------- ----------- -----------
$ 98,530 $ 1,604 $ 100,134 $ 21,538 $ 121,672
========== ============== ========= =========== ===========
</TABLE>
79
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) Reflects the results of operations for GTC's Latin American operations for
the year ended December 31, 1996 assuming the disposition of the operations
occurred on January 1, 1996.
(2) Reflects the reduction in interest expense of $372,000 incurred by GTC's
Latin American operations and a reduction of $1,548,000 resulting from the
repayment of indebtedness with the proceeds of the disposition.
(3) Reflects a reduction in income tax expense for foreign income tax recorded
by GTC's Latin American operations.
(4) Reflects a reduction in minority shareholders' 20% proportionate share of
the loss from continuing operations of GTC's Latin American operations, and
the elimination of the remaining balance of minority shareholders' 20%
proportionate share of the loss of GTC.
(5) Reflects an increase in selling, general and administrative expense of
$107,000 for amortization expense of estimated intangible assets recorded
for the step-up in basis on the acquisition of minority interests by GFP in
the Reorganization (see Note 16), net of a $34,000 reduction in selling,
general and administrative expense for accretion recognized for the change
in redemption value on redeemable common stock. The intangible asset is
being amortized using the straight-line method over an estimated useful
life of 15 years.
(6) Reflects income taxes on pro forma adjustments to selling, general and
administrative expense for the Reorganization at an assumed effective
income tax rate of 37%.
80
<PAGE>
(7) Reflects the results of operations of Datatape for the year ended December
31, 1996 assuming the acquisition occurred on January 1, 1996. Below is a
table which sets out the adjustments between the audited financial
statements of Datatape and the pro forma financial statements:
<TABLE>
<CAPTION>
Datatape Pro Forma
Historical Adjustments Pro Forma
---------- ------------- ---------
(in thousands)
<S> <C> <C> <C>
Revenue........................................................ $ 50,485 $ (3,822) (a) $ 46,663
Cost of operations............................................. 33,111 (3,559) (b) 28,936
(1,344) (c)
728 (d)
---------- ------------- ---------
Gross profit................................................... 17,374 353 17,727
Selling, general and administrative expense.................... 15,894 (664) (c) 11,750
400 (d)
361 (e)
(863) (f)
(258) (g)
(1,400) (h)
(1,720) (i)
---------- ------------- ---------
Operating income............................................... 1,480 (4,497) 5,977
Interest expense, net.......................................... 1,437 (1,437) (j) 1,125
1,125 (k)
Other expense, net............................................. 339 (257) (l) 82
---------- ------------- ---------
(Loss) income before income taxes and discontinued operations.. (296) 5,066 4,770
Income taxes................................................... 1 1,764 (m) 1,765
---------- ------------- ---------
(Loss) income from continuing operations....................... $ (297) $ 3,302 $ 3,005
========== ============= =========
</TABLE>
- --------------------
(a) Elimination of revenue from a component of Datatape not acquired by
GFP. The acquisition of Datatape excludes certain operating assets and
liabilities associated with a strategically unrelated product line.
(b) Elimination of cost of operations associated with the product line not
acquired.
(c) Elimination of historical depreciation of the fixed assets of Datatape.
(d) To reflect pro forma depreciation of fixed assets based upon
adjustments to record the assets at the estimated fair value,
depreciated over an estimated weighted average remaining useful life of
4.3 years.
(e) To reflect amortization of the estimated goodwill that results from the
acquisition using the straight-line method over an estimated useful
life of 15 years.
(f) Elimination of direct selling, general and administrative expense
associated with the product line not acquired.
(g) Elimination of direct research and development expense associated with
the product line not acquired.
(h) Elimination of research and development expense incurred by the seller
since the seller retained the assets related thereto and the Company
will not incur these expenses after the acquisition.
(i) Elimination of expenses allocated by the seller which will not be
incurred subsequent to the acquisition.
81
<PAGE>
(j) Elimination of interest expense on debt of the seller not assumed.
(k) To reflect interest resulting from borrowings for the acquisition based
upon an average outstanding debt of $14.4 million assuming an annual
interest rate of 7.5%.
(l) Elimination of other expenses associated with the product line not
acquired.
(m) Reflects an assumed effective tax rate of 37%.
(8) Reflects the results of operations for GTC's Latin American Operations for
the nine months ended September 30, 1997 assuming the disposition of the
operations occurred on January 1, 1997.
(9) Reflects the reduction in interest expense of $239,000 incurred by GTC's
Latin American operations and a reduction of $676,000 resulting from the
repayment of indebtedness with the proceeds of the disposition.
(10) Reflects the elimination of the $3,200,000 gain recognized by GTC on the
June 30, 1997 sale of its Latin American operations, after giving
consideration to an expected repayment to the buyer of $2,900,000, which is
subject to final determination to be made in accordance with the purchase
and sale agreement. GTC's deferred income tax assets are fully reserved,
including those relative to tax operating loss carryforwards. Since such
tax operating loss carryforwards exceed the potential taxable gain on the
sale of the Latin American Operations, no net tax expense was recognized
for the disposition.
(11) Reflects a reduction in income tax expense for foreign income tax recorded
by GTC's Latin American operations.
(12) Reflects a reduction in minority shareholders' 20% proportionate share of
the loss from continuing operations of GTC's Latin American operations, and
the elimination of the remaining balance of minority shareholders' 20%
proportionate share of the loss of GTC.
(13) Reflects an increase of $80,000 in selling, general and administrative
expense for amortization expense of estimated intangible assets recorded
for the step-up in basis on the acquisition of minority interests by GFP in
the Reorganization (see Note 16) net of a $519,000 reduction in selling,
general and administrative expense for accretion recognized for the change
in redemption value on redeemable common stock. The intangible asset is
being amortized using the straight-line method over an estimated useful
life of 15 years.
(14) Reflects income taxes on pro forma adjustments to selling, general and
administrative expense for the Reorganization at an assumed effective
income tax rate of 37%.
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<PAGE>
(15) Reflects the results of operations of Datatape for the nine months ended
September 30, 1997 assuming the acquisition occurred on January 1, 1997.
Below is a table which sets out the adjustments between the audited
financial statements of Datatape and the pro-forma financial statements:
<TABLE>
<CAPTION>
Datatape Pro Forma
Historical Adjustments Pro Forma
---------- ------------ ---------
(in thousands)
<S> <C> <C> <C>
Revenue........................................................ $ 29,880 $ (1,995) (a) $ 27,885
Cost of operations............................................. 18,125 (2,299) (b) 15,445
(927) (c)
546 (d)
---------- ------------ ---------
Gross profit................................................... 11,755 12,440
Selling, general and administrative expense.................... 13,045 (510) (c) 8,460
300 (d)
271 (e)
(503) (f)
(459) (g)
(2,927) (h)
(757) (i)
---------- ------------ ---------
Operating (loss) income........................................ (1,290) 5,270 3,980
Interest expense, net.......................................... 1,090 (1,090) (j) 844
844 (k)
Other expense, net............................................. 127 (1) 126
---------- ------------ ---------
(Loss) income before income taxes and discontinued operations.. (2,507) 5,517 3,010
Income taxes................................................... -- 1,114 (l) 1,114
---------- ------------ ---------
(Loss) income from continuing operations....................... $ (2,507) $ 4,403 $ 1,896
========== ============ =========
</TABLE>
- --------------------
(a) Elimination of revenue from a component of Datatape not acquired by
GFP. The acquisition of Datatape excludes certain operating assets and
liabilities associated with a strategically unrelated product line.
(b) Elimination of cost of operations associated with the product line not
acquired.
(c) Elimination of historical depreciation of the fixed assets of Datatape.
(d) To reflect pro forma depreciation of fixed assets based upon
adjustments to record the assets at the estimated fair value,
depreciated over an estimated weighted average remaining useful life of
4.3 years.
(e) To reflect amortization of the estimated goodwill that results from the
acquisition using the straight-line method over an estimated useful
life of 15 years.
(f) Elimination of direct selling, general and administrative expense
associated with the product line not acquired.
(g) Elimination of direct research and development expense associated with
the product line not acquired.
(h) Elimination of research and development expense incurred by the seller
since the seller retained the assets related thereto and the Company
will not incur these expenses after the acquisition.
83
<PAGE>
(i) Elimination of expenses allocated by the seller which will not be
incurred subsequent to the acquisition.
(j) Elimination of interest expense on debt of the seller not assumed.
(k) To reflect interest resulting from borrowings for the acquisition based
upon an average outstanding debt of $14.4 million assuming an annual
interest rate of 7.5%.
(l) Reflects an assumed effective tax rate of 37%.
(16) Reflects the estimated intangible asset recorded as a result of the step-up
in basis to occur for the acquisition of minority interests by GFP in the
Reorganization. The step-up in basis is anticipated to be allocated to the
assets and liabilities of Bell, Tube Turns and GTC in accordance with the
rules of purchase accounting. In the event the final accounting for the
acquisition of minority interests results in an excess of net assets over
fair value, as reflected in the following pro forma calculation for GTC,
such amount will result in a step-down in basis of property and equipment.
The final allocation of the step-up in basis is dependent on certain
valuations that have not progressed sufficiently to enable Sypris to make a
final allocation in the accompanying pro forma financial statements.
Accordingly, the cost allocation adjustments have not been made and the
entire amount is preliminarily classified as other assets in the combined
pro forma balance sheet. The computation of the estimated intangible asset
and the related deferred tax liability is as follows:
<TABLE>
<CAPTION>
GTC Tube Turns Bell Total
------- ---------- ------ --------
<S> <C> <C> <C> <C>
(in thousands)
Fair value of common stock issued in exchange for common stock held by minority
interests (a)....................................................................... $ 6,388 $ 211 $ 666 $ 7,265
Fair value of stock options issued in exchange for stock options held by minority
interests (b)....................................................................... 1,026 336 1,080 2,442
Minority interests' proportionate share of the net assets of the acquired entity..... (3,187) (136) (322) (3,645)
------- ----- ------ -------
Excess of fair value of common stock and stock options issued over proportionate
share of net assets acquired........................................................ 4,227 411 1,424 6,062
Reduction in allocable cost for reversal of deferred tax liability attributable to
GFP's tax basis in GTC common stock (c)............................................. (5,051) -- -- (5,051)
------- ----- ------ -------
Pre-tax step-up in basis attributable to acquisition of minority interests........... (824) 411 1,424 1,011
Deferred tax liability attributable to increase in basis of proportionate share of
net assets acquired (using 37% effective income tax rate)........................... (484) 241 836 593
------- ----- ------ -------
Step-up in basis allocable to identifiable assets and to goodwill, if any,
attributable to acquisition of minority interests................................... $(1,308) $ 652 $2,260 $ 1,604
======= ===== ====== =======
</TABLE>
84
<PAGE>
- ----------------
(a) The computation of the fair value of common stock issued in exchange
for common stock held by minority interests is as follows:
<TABLE>
<CAPTION>
GTC Tube Turns Bell
---------- ---------- --------
<S> <C> <C> <C>
Outstanding shares held by minority shareholders......................................... 3,194,236 18,625 26,723
Conversion ratios applicable to the outstanding shares based on GTC Average Closing
Price of $3.53 per share................................................................ -- 5.6636 12.4600
Shares of GTC common stock issuable...................................................... -- 105,485 332,969
Fair value of GTC common stock issuable to minority interests based on $2.00 per share... $6,388,000 $211,000 $666,000
</TABLE>
The $2.00 per share fair value assigned to the GTC common stock
issuable to minority interests was determined as the arithmetic average
of the closing price per share of the GTC common stock, as reported on
the Nasdaq Stock Market, for each of the ten consecutive trading days
ending with October 9, 1996, the day immediately preceding the
announcement of the Reorganization.
The conversion ratios of Tube Turns and Bell are described in "The
Reorganization -- The Tube Turns Merger" and "The Reorganization -- The
Bell Merger," respectively. See also "The Reorganization -- The
Merger."
(b) The fair value assigned to the vested and unvested options issuable by
GTC to the option holders of GFP, Tube Turns and Bell were determined
using the Black-Scholes option pricing model.
(c) The reversal of the deferred tax liability attributable to GFP's basis
in GTC common stock and the corresponding reduction in allocable basis
results from the determination that the taxable temporary difference
which gave rise to the recognition of the deferred tax liability is not
expected to occur as a result of the Reorganization. The deferred tax
liability was originally recorded in connection with recognition of a
gain by GFP on the issuance of shares by GTC in its initial public
offering in 1994. Effective with the Reorganization, deferred taxes on
GFP's investment in GTC will be determined by reference to the tax
basis of GTC's net assets rather than the tax basis of GTC common stock
owned by GFP.
(17) Reflects the reclassification of redeemable common stock to shareholders'
equity, since the redemption obligation associated therewith will terminate
upon completion of the Reorganization, and the elimination of deferred
taxes on the cumulative accretion recognized for the change in redemption
value on redeemable common stock. The adjustments related to redeemable
common stock are as follows:
<TABLE>
<S> <C>
Redeemable common stock........................................ $1,079,000
Additional paid-in capital for redeemable common stock......... (729,000)
----------
Cumulative accretion on redeemable shares outstanding.......... 350,000
Deferred income taxes attributable to redeemable common stock.. (205,000)
----------
Increase to retained earnings.................................. $ 145,000
==========
</TABLE>
(18) Reflects the net effect of a $593,000 deferred tax liability recorded on
the step-up in basis for acquisition of minority interests by GFP in the
Reorganization and the reversal of a $5,051,000 deferred tax liability in
the consolidated financial statements of GFP associated with the gain on
sale of unissued shares in the initial public offering of GTC Common Stock
(see Note 16). Since the shares of GTC Common Stock held by GFP prior to
the Reorganization will be converted to
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shares of GTC Common Stock which will be issued to the individual
shareholders of GFP in the Reorganization, the difference between GFP's tax
basis and its financial reporting basis which gave rise to the $5,051,000
deferred tax liability is not expected to result in a taxable temporary
difference to GFP.
(19) Reflects the reclassification of minority interests to shareholders' equity
for the GTC minority shareholders' proportionate share of GTC's
shareholders' equity.
(20) Reflects the reclassification of paid-in capital for the conversion of GFP
Common Stock, no par value, to GTC Common Stock, $.01 par value, based upon
the total shares assumed to be outstanding after the Reorganization and the
Reverse Stock Split.
(21) Reflects the estimated excess of fair value of common stock and stock
options issued over proportionate share of net assets acquired in
connection with the acquisition of the minority interests of GTC, Bell and
Tube Turns (see Note 16).
(22) Reflects the estimated fair values of assets and liabilities acquired in
the November 14, 1997 acquisition of Datatape, assuming the acquisition
occurred on September 28, 1997.
(23) Includes estimated goodwill of $5,417,000 and deferred tax assets of
$1,218,000 related to the acquisition of Datatape. Goodwill will be
amortized over an estimated useful life of 15 years.
(24) Includes the purchase price of $14,400,000 for the acquisition of Datatape
which was funded through borrowings under GFP's credit facility.
(25) Pro forma weighted average shares outstanding were computed as follows:
<TABLE>
<CAPTION>
Nine months
Year ended ended
December 31, September 30,
1996 1997
------------ -------------
<S> <C> <C>
(in thousands)
Weighted average shares of GTC Common Stock outstanding....................................... 16,157 16,221
Weighted average of the estimated shares of GTC Common Stock to be issued in conjunction with
the Reorganization........................................................................... 17,787 17,787
Net effect of dilutive stock options to be issued by GTC to the option holders of GFP, Tube
Turns and Bell in conjunction with the Reorganization........................................ 1,380 1,380
------ ------
Total......................................................................................... 35,324 35,388
====== ======
To reflect the 1 for 4 Reverse Stock Split.................................................... 8,831 8,847
====== ======
</TABLE>
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RECENT DEVELOPMENTS
On November 14, 1997, GFP, through its newly formed, wholly-owned
subsidiary Metrum-Datatape acquired substantially all of the assets of Datatape
Incorporated for approximately $14.4 million in cash, plus the assumption of
certain liabilities. These assets included inventory, equipment, accounts
receivable, contract rights and intellectual property. The purchase price was
based on comparable earnings and book value multiples after giving due
consideration to the cost and risk associated with restoring the business.
Datatape provides a range of special purpose digital and analog data acquisition
and storage systems for use in a variety of high performance applications. In
addition, Datatape provides its customers with a variety of integrated logistics
support services to back up these systems. The General Manager of Datatape is
Daniel Wilkerson. The Controller of Datatape is Cynthia Belak. Metrum-Datatape
intends to continue to utilize the assets acquired in this business. It is
anticipated that, after the Reorganization, Metrum-Datatape will acquire the
assets of the Metrum division of Bell, located in Littleton, Colorado. It is
further anticipated that the Datatape business will continue to be located in
California and the Metrum business will continue to be located in Colorado.
Metrum-Datatape and the Metrum division of Bell are currently exploring ways to
take advantage of synergies related to their complementary product capabilities.
(The Metrum division of Bell and Metrum-Datatape are separate and distinct from
Metrum, Inc., a wholly-owned subsidiary of GTC, which is the former owner of the
assets and liabilities of Metrum prior to the sale from GTC to Bell).
Datatape was established as a division of the Consolidated Engineering
Corporation ("CEC") in 1957 to design and manufacture a variety of magnetic tape
recorders for commercial and military use. Datatape was subsequently sold to
Bell and Howell in 1960, Eastman Kodak Company in 1983 and Delta Tango, Inc. in
1994. Since its beginnings, Datatape has been a pioneer in the development of
signal and data storage systems for critical instrumentation recording and data
collection applications in test aircraft, spacecraft, satellites, ships and
submarines, in addition to scientific laboratories and commercial data centers.
Datatape has been a consistent supplier of recorders for use by NASA in each of
the various stages of the space program, ranging from Gemini and Apollo to
Skylab and the Space Shuttle. Datatape sells its products and services through
its direct sales force, as well as through a series of domestic and
international sales representatives and distributors. Datatape utilizes a
central marketing organization to insure that a consistent marketing message is
delivered to all customers across all divisions. Datatape's sales efforts are
supported by advertising in numerous trade media, sales literature,
participation in trade shows and direct mail promotions. Datatape has
approximately 161 employees, many of whom have specialized skills that are of
great value to Datatape. The future success of Datatape will depend in large
part upon its ability to attract and retain highly skilled technical,
managerial, sales, financial and marketing personnel. Datatape has never
experienced a work stoppage or strike and none of its employees are represented
by a union or covered by a collective bargaining agreement. Datatape's principal
executive offices and corporate headquarters are situated in a 70,000 square
foot leased facility located in California. Management believes that its
existing facilities are in good condition and are suitable and adequate to meet
its requirements for the foreseeable future and that suitable additional or
substitute space will be readily available as needed. Most of the manufacturing
and testing equipment, fixtures and furnishings are owned by Datatape and are
considered by it to be modern, efficient and adequate for Datatape's immediate
requirements. Datatape believes that its operations are in compliance in all
material respects with requirements relating to the environmental quality and
energy conservation.
On November 14, 1997, the BT Holdings credit agreement was amended and
expanded to include GTC and Metrum-Datatape as co-borrowers. The credit
agreement with Bank One, Kentucky, NA, as amended, totals $45 million, including
a $30 million revolving credit loan and a $15 million term loan. The amended
loan proceeds were used to finance the acquisition of the assets of Datatape.
Revolving credit availability may be used for the general corporate purposes of
GTC, Bell, Tube Turns and Metrum-Datatape and for ordinary operating expenses of
GFP.
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On June 30, 1997, GTC sold its wholly-owned foreign operations to SCI
Systems, Inc. These foreign operations consisted of Group Technologies S.A. de
C.V. ("GTC Mexico") located in Mexico City, Mexico, Group Technologies
Suprimentos de Informatica Industria e Comercio Ltda. and Group Technologies
Integracoes em Eletcronica Ltda. (collectively, "GTC Brazil"), both of which are
located in Campinas, Brazil. In the third quarter, GTC recorded a gain on the
sale, net of costs and estimated purchase price repayments, amounting to
approximately $3.2 million.
A portion of the $18,000,000 proceeds received from the June 30, 1997,
divestiture of GTC Mexico and GTC Brazil was used to repay all of GTC's bank
borrowings. GTC also expects to utilize approximately $2.9 million of the
proceeds, subject to final adjustment, to repay SCI Systems, Inc., for changes
in the net book value of GTC Mexico and GTC Brazil in accordance with the
purchase and sale agreement.
DESCRIPTION OF GTC'S CAPITAL STOCK
GTC Common Stock
GTC is a Florida corporation subject to the provisions of the FBCA.
The following description of GTC Common Stock and certain provisions of the GTC
Articles and GTC Bylaws is a summary and, while it describes all relevant
material aspects, is qualified in its entirety by reference to the provisions of
the GTC Articles and GTC Bylaws.
GTC is authorized to issue 40,000,000 shares of GTC Common Stock. As
of November 14, 1997, there were 16,233,861 shares of GTC Common Stock
outstanding which were held by 647 shareholders of record. At the GTC Special
Meeting, the shareholders of GTC will be requested to approve amendments to the
GTC Articles to increase the authorized shares of GTC Common Stock from
40,000,000 shares to 60,000,000 shares. See "The GTC Special Meeting--Proposal
to Amend the GTC Articles of Incorporation to Increase the Authorized Common
Stock from 40,000,000 Shares to 60,000,000 Shares." At the GTC Special Meeting,
the shareholders of GTC will also be requested to approve the Reverse Stock
Split, which will thereafter reduce the authorized shares of GTC Common Stock to
15,000,000 shares. See "The GTC Special Meeting--Proposal to Amend the GTC
Articles to Effect the Reverse Stock Split."
The holders of GTC Common Stock are entitled to one vote per share on
all matters to be voted upon by the shareholders. Subject to preferences that
may be applicable to any outstanding GTC Preferred Stock, the holders of GTC
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the GTC Board out of funds legally available
therefor. In the event of liquidation, dissolution or winding up of GTC, the
holders of GTC Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior distribution rights of
the GTC Preferred Stock, if any, then outstanding. The GTC Common Stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the GTC Common Stock. All
outstanding shares of GTC Common Stock are fully paid and nonassessable, and the
shares of GTC Common Stock to be issued upon completion of the transaction will
be fully paid and nonassessable.
GTC Preferred Stock
GTC is authorized to issue 1,000,000 shares of GTC Preferred Stock.
The GTC Board has the authority to issue the GTC Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences, sinking fund
provisions, and the number of shares constituting any series or the designation
of such series, without further vote or action by the shareholders. The issuance
of GTC Preferred Stock may have the effect of delaying, deferring or preventing
a change in control of GTC without further action by the shareholders and may
adversely affect the voting and other rights of the holders of GTC Common Stock.
The issuance of GTC Preferred Stock with voting and conversion rights may
adversely affect the voting power of the holders of GTC Common Stock, including
the
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loss of voting control to others. In connection with the March 28, 1997
amendment to the Credit Agreement, GFP invested $2,500,000 in GTC in exchange
for 250,000 shares of GTC Preferred Stock. The GTC Preferred Stock is redeemable
and pays a quarterly dividend of 8.5% per annum. The GTC Preferred Stock is
redeemable at the option of the holder upon repayment by GTC of all of its
outstanding Credit Agreement indebtedness. The GTC Preferred Stock is also
convertible and each share may be exchanged for 8.1 shares of GTC Common Stock.
GFP will convert the shares of GTC Preferred Stock held by it to GTC Common
Stock immediately prior to the Reorganization. The conversion rate of 8.1 was
derived from the average closing price for GTC Common Stock on the three days
immediately preceding the investment by GFP.
Certain Provisions of the GTC Articles and GTC Bylaws
Certain provisions of the GTC Articles and GTC Bylaws may make it more
difficult for a third party to acquire GTC or to change control of the GTC
Board, thereby reducing GTC's vulnerability to an unsolicited takeover bid. The
GTC Articles authorize the issuance of 1,000,000 shares of GTC Preferred Stock
(the rights and preferences of which may be determined by the GTC Board), thus
providing GTC with the flexibility to issue stock for various purposes,
including deterrence of takeover bids, without further shareholder approval. The
GTC Board, without shareholders' approval, can issue GTC Preferred Stock with
voting and conversion rights which could adversely affect the voting power of
the GTC Common Stock.
The GTC Articles also limit the circumstances under which directors of
GTC may be held monetarily liable for their acts and provide that any further
elimination or limitation of such liability of directors hereafter adopted under
Florida law will be applicable to GTC's directors. The GTC Articles further
provide that any repeal or modification of this provision by GTC's shareholders
will not adversely affect any right or protection of a director existing at the
time of such repeal or modification. Under this provision, directors of GTC may
be held monetarily liable only for: (i) acts or omissions not in good faith or
which involve intentional misconduct or are known to the director to be a
violation of law; (ii) distributions made in violation of the FBCA; or (iii) any
transaction from which the director derives an improper personal benefit.
Certain of these provisions, particularly in light of the relatively
high degree of share ownership of GTC by GFP (80.3% of the issued and
outstanding shares of GTC Common Stock and 100% of the GTC Preferred Stock as of
November 14, 1997) and by GTC's officers and directors (including the share
ownership of GFP, 81.3% of the issued and outstanding shares of Common Stock and
100% of the GTC Preferred Stock as of November 14, 1997), could have the effect
of deterring certain corporate transactions, including tender or exchange offers
for GTC Common Stock. The provisions could also have the effect of maintaining
incumbent management or of discouraging or defeating proposals that might be
viewed as favorable by some holders of the GTC Common Stock other than GTC's
officers and directors.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the GTC Common Stock is First
Union National Bank of North Carolina.
EFFECT OF THE REORGANIZATION ON RIGHTS OF SHAREHOLDERS
Each of GTC and Bell is a Florida corporation subject to the
provisions of the FBCA. Each of GFP and Tube Turns is a Kentucky corporation
subject to the provisions of the KRS. Shareholders of GFP, Tube Turns and Bell,
whose rights are governed by the GFP Articles and GFP Bylaws, the Tube Turns
Articles and Tube Turns Bylaws, and the Bell Articles and Bell Bylaws,
respectively, will, upon consummation of the Reorganization, become shareholders
of GTC whose rights will then be governed by the GTC Articles and GTC Bylaws and
by the FBCA. The following is a summary of the material differences in the
rights of shareholders of GTC, GFP, Tube Turns and Bell and is qualified in its
entirety by reference to the governing
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law and the Articles of Incorporation or Bylaws of each of GTC, GFP, Tube Turns
and Bell. Certain topics discussed below are also subject to federal law and the
regulations promulgated thereunder.
Removal of Directors
The FBCA provides that shareholders may remove one or more directors
with or without cause unless the Articles of Incorporation provide that
directors may be removed only for cause. The GTC Articles and Bell Articles do
not include such a provision. Under the FBCA a director generally may be removed
only if the number of votes cast to remove him exceed the number of votes cast
not to remove him.
The KRS provides that shareholders may remove one or more directors
with or without cause unless the Articles of Incorporation provide that
directors may be removed only for cause. The GFP Articles and Tube Turns
Articles do not include such a provision. Under the KRS, a director may not be
removed if the number of votes sufficient to elect him under cumulative voting
are voted against his removal.
Number of Directors
The GTC Articles provide that the affairs of the corporation are to be
conducted by a board of directors of not fewer than three (3) nor more than
twelve (12) members, the number to be set by the directors as provided in the
GTC Bylaws. The GTC Board has the power to increase or decrease the number of
directors on the GTC Board last approved by the shareholders pursuant to and in
accordance with the limitations provided by Florida law; provided, however, that
at no time shall the number of directors be fewer than three (3) nor more than
twelve (12) without amendment of the GTC Articles. Any additional director or
directors elected to fill a vacancy must be elected by the vote of a majority of
the directors then in office, although less than a quorum, and any director so
chosen will hold office for a term that expires at the time of the next annual
meeting of shareholders at which directors are elected. In no case will a
decrease in the number of directors shorten the term of any incumbent director.
The GFP Articles provide that the business and affairs of GFP shall be
managed by a board of directors of not less than four (4) members, the exact
number to be set in the manner provided in the GFP Bylaws. The Tube Turns
Articles provide that the affairs of Tube Turns shall be conducted by a board of
directors consisting of not less than three (3) persons, the exact number of
directors to be set in the Tube Turns Bylaws. Under the KRS, vacancies in the
board of directors may be filled by the shareholders, by the board of directors
or, if the directors remaining in office constitute less than a quorum, by the
affirmative vote of a majority of all of the directors remaining in office.
The Bell Articles provide that the initial board of directors of Bell
shall consist of five (5) members. Under the Bell Bylaws, the number of
directors is currently nine (9).
Conflict-of-Interest Transactions
Under the FBCA, a contract or other transaction between a corporation
and one or more of its directors or between a corporation and an entity in which
one or more of its directors are financially interested is not void or voidable
merely because of the director's interest in the transaction if (i) the
transaction is approved or ratified, after disclosure of the interest, by the
disinterested directors or the shareholders or (ii) the transaction or contract
is fair and reasonable to the corporation at the time it is authorized. For a
transaction to be approved by the disinterested directors after a disclosure of
the interested directors' relationship or interest, the affirmative vote of a
majority of the directors on the board who have no relationship or interest in
the transaction is required. The transaction may not, however, be authorized,
approved or ratified by one director acting alone. If a majority of the
disinterested directors approves the transaction, a quorum is deemed to be
present under the FBCA. If an interested director is present or if a director
votes on a matter in which the director has an interest, the director's presence
or vote will not affect the validity of the action taken under the FBCA,
provided the transaction was otherwise approved by a
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sufficient vote of disinterested directors. The presence or vote of interested
directors may be counted for purposes of determining whether the transaction was
approved under other sections of the FBCA. As long as a majority of fully
informed disinterested directors apply business judgment in good faith to
authorize the transaction, or the transaction is approved by the shareholders
who are informed of the conflict, judicial inquiry into substantive fairness is
not appropriate and the business judgment rule will remove the transaction from
the scope of judicial inquiry. The FBCA does not contain a similar provision
relating to officers. Thus, officers are subject to common law guidelines.
The FBCA also provides that a corporation may lend money to, guarantee
an obligation of, or otherwise assist an officer, director or employee of the
corporation or of a subsidiary, whenever, in the judgment of the board of
directors, the loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured or secured in a manner approved by the
board of directors, including a pledge of shares of stock of the corporation.
Such transactions are expressly subject to the conflict of interest statute
discussed above.
Under the KRS, a transaction with a corporation in which a director of
the corporation has a direct or indirect interest is not voidable by the
corporation solely because of the director's interest in the transaction if (i)
the transaction is authorized, approved or ratified, after disclosure of the
material facts of the transaction and the director's interest therein, by the
disinterested directors or the disinterested shareholders or (ii) the
transaction is fair to the corporation. For a transaction to be approved by the
disinterested directors after disclosure of the material facts of the
transaction and the director's interest therein, the affirmative vote of a
majority of directors on the board of directors (or on a committee thereof) who
have no direct or indirect interest in the transaction is required. The
transaction may not be authorized, approved or ratified by a single director. If
a majority of the directors who have no direct or indirect interest in the
transaction vote to authorize, approve or ratify the transaction, a quorum is
deemed to be present under the KRS. If an interested director is present or
votes on a matter in which the director has an interest, the director's presence
or vote will not affect the validity of the action taken under the KRS, provided
the transaction was otherwise approved by a sufficient vote of disinterested
directors. As long as a majority of fully informed disinterested directors apply
business judgment and good faith to authorize the transaction, or the
transaction is approved by the shareholders as set forth above, judicial inquiry
into the substantive fairness of the transaction is not appropriate and the
business judgment rule will remove the transaction from the scope of judicial
inquiry. The KRS does not contain a similar provision relating to officers, and
officers, therefore, are subject to common law guidelines.
The KRS also provides that a corporation may not lend money to or
guarantee the obligation of a director of the corporation unless the particular
loan or guarantee is approved by a majority of the votes represented by the
outstanding voting shares of all classes, voting as a single voting group,
except the votes and shares owned by or voted under the control of the benefited
director, or the corporation's board of directors determines that the loan or
guarantee benefits the corporation and either approves the specific loan or
guarantee or a general plan authorizing loans and guarantees.
Special Meetings
Special meetings of a Florida corporation's shareholders may be
called by its board of directors, by the persons authorized to do so in its
Articles of Incorporation or bylaws or by the holders of not less than 10% of
all votes entitled to be cast on any issue proposed to be considered at the
special meeting, unless a greater percentage not to exceed 50% is required by
the Articles of Incorporation. The GTC Articles and GTC Bylaws provide that
special meetings of shareholders may be called only by the GTC Board pursuant to
a resolution adopted by a majority of the directors in writing or by the holders
of not less than 50% of all shares entitled to cast votes at the meeting. Notice
of a special meeting must include a description of the purpose or purposes for
which the meeting is called. The Bell Bylaws provide that special meetings of
shareholders may be called by the Bell Board.
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Special meetings of a Kentucky corporation's shareholders may be
called by its board of directors, by the persons authorized to do so in its
Articles of Incorporation or bylaws or by the holders of not less than 33 1/3%
(or such higher or lower percent as is contained in the Articles of
Incorporation) of all the votes entitled to be cast on any issue proposed to be
considered at the special meeting. The GFP Bylaws authorize its president to
call a special meeting of shareholders. The Tube Turns Bylaws provide that
special meetings of shareholders may be called upon the written request of any
director. Notice of a special meeting of a Kentucky corporation must include a
description of the purpose or purposes for which the meeting is called.
Required Vote for Authorization of Certain Actions
Under the FBCA, directors are generally elected by a plurality of the
votes cast by the shareholders entitled to vote at a shareholders' meeting at
which a quorum is present. With respect to matters other than the election of
directors, unless a greater number of affirmative votes is required by the FBCA
or a Florida corporation's Articles of Incorporation (but not its bylaws), if a
quorum exists, action on any matter generally is approved by the shareholders if
the votes cast by the holders of the shares represented at the meeting and
entitled to vote on the matter favoring the action exceed the votes cast
opposing the action. Accordingly, under the FBCA, abstentions have no impact on
the outcome of a vote. The GTC Articles and Bell Articles do not include a
provision requiring a greater vote on any matter than that required by the FBCA.
Under the KRS, at each election for directors, each shareholder
entitled to vote shall have as many votes in the aggregate as he shall be
entitled to vote under the corporation's Articles of Incorporation, multiplied
by the number of directors to be elected at such election, and each shareholder
may cast the whole number of votes for one (1) candidate or distribute such
votes among two (2) or more candidates. With respect to matters other than the
election of directors, unless a greater number of affirmative votes is required
by the KRS or a Kentucky corporation's Articles of Incorporation (but not its
bylaws), if a quorum exists, action on any matter generally is approved if the
votes cast by the holders of the shares represented at the meeting and entitled
to vote on the matter favoring the action exceed the votes cast opposing the
action. Accordingly, under the KRS abstentions have no impact on the outcome of
a vote. The GFP Articles and Tube Turns Articles do not include a provision
requiring a greater vote on any matter than that required by the KRS.
Action by Written Consent
Action By Written Consent of Shareholders of Florida Corporations.
Under the FBCA and in accordance with the GTC Bylaws and Bell Bylaws, any action
required or permitted to be taken at any annual or special meeting of the
shareholders may be taken without a meeting, without prior notice and without a
vote, if one or more consents in writing, setting forth the action so taken, are
dated and signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Such written consent(s) must be delivered to the corporation by delivery
to its principal office in Florida, its principal place of business, the
corporate secretary, or another officer or agent of the corporation having
custody of the book in which proceedings of meetings of shareholders are
recorded. Within ten (10) days after obtaining such authorization by written
consent, notice must be given to those shareholders who have not consented in
writing or who are not entitled to vote on the action.
Action by Written Consent of Shareholders of Kentucky Corporations.
Under the KRS, except as provided in the Articles of Incorporation of a Kentucky
corporation, any action required or permitted to be taken at a shareholder's
meeting may be taken without a meeting and without prior notice, if one or more
written consents describing the action taken, and signed by the shareholders
taking the action, are delivered to the corporation for inclusion in the minutes
or filing with the corporate records. If the Articles of Incorporation of a
Kentucky corporation so provide, any action except the election of directors may
be so taken if the action is taken by shareholders entitled to vote on the
action representing not less than 80% (or such higher percentage required by the
KRS or the Articles of Incorporation) of the votes entitled to be cast.
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The GFP Articles do not provide for such action by less than all of such
shareholders. The Tube Turns Articles, however, do provide that such action by
not less than 80% of the votes entitled to be cast may be taken. Prompt notice
of the taking of any action by shareholders without a meeting by less than
unanimous written consent must be given to those shareholders entitled to vote
on the action who have not consented in writing.
Action by Written Consent of Directors of Florida Corporations. Under
the FBCA and in accordance with the GTC and Bell Bylaws, any action required or
permitted to be taken at a meeting of the board of directors or at a meeting of
a committee, may be taken without a meeting if a consent, in writing, setting
forth the action so taken is signed by all of the directors, or all of the
members of the committee, as the case may be, and included in minutes or filed
with the corporate records.
Action by Written Consent of Directors of Kentucky Corporations. Under
the KRS and in accordance with the GFP Bylaws and Tube Turns Bylaws, any action
required or permitted to be taken at a meeting of the Board of Directors or at a
meeting of a committee, may be taken without a meeting if a consent, in writing,
setting forth the actions so taken shall be signed by all of the directors, or
all of the members of the committee, as the case may be, and included in minutes
or filed with the corporate records.
Inspection Rights
Under the FBCA, a shareholder is entitled to inspect and copy the
Articles of Incorporation, bylaws, certain board of directors and shareholder
resolutions, certain written communication to shareholders, a list of the names
and business addressees of the corporation's directors and officers, and the
corporation's most recent annual report, during regular business hours if the
shareholder gives at least five (5) business days' prior written notice to the
corporation. In addition, a shareholder of a Florida corporation is entitled to
inspect and copy other books and records of the corporation during regular
business hours if the shareholder gives at least five (5) business days' prior
written notice to the corporation and (i) the shareholder's demand is made in
good faith and for a proper purpose, (ii) the demand describes with
particularity its purpose and the records to be inspected or copied, and (iii)
the requested records are directly connected with such purpose. The FBCA also
provides that a corporation may deny any demand for inspection if the demand was
made for an improper purpose or if the demanding shareholder has, within two (2)
years preceding such demand, sold or offered for sale any list of shareholders
of the corporation or any other corporation, has aided or abetted any person in
procuring a list of shareholders for such purpose or has improperly used any
information secured through any prior examination of the records of the
corporation or any other corporation.
Under the KRS, a shareholder is entitled to inspect and copy the
Articles of Incorporation, bylaws, certain board and shareholder resolutions,
certain written communications to shareholders, a list of the names and business
addresses of the corporation's directors and officers, and the corporation's
most recent annual report during regular business hours if the shareholder gives
at least five (5) days' prior written notice to the corporation. In addition, a
shareholder of a Kentucky corporation is entitled to inspect and copy certain
other books and records of the corporation during regular business hours if the
shareholder gives at least five (5) business days' prior written notice to the
corporation and (i) the shareholder's demand is made in good faith and for a
proper purpose, (ii) the demand describes with reasonable particularity its
purpose and the record desired to be inspected, and (iii) the records are
directly connected with such purpose.
Amendment of Bylaws
Under the FBCA, the board of directors of a corporation may amend or
repeal the corporation's bylaws, unless a corporation's Articles of
Incorporation or the FBCA, reserve the power to amend for the shareholders. The
GTC Bylaws provide that the board of directors may alter, amend or rescind the
bylaws, subject to the rights of shareholders to replace or modify such actions.
The Bell Bylaws provide that the Bell Board may alter, amend or repeal the
bylaws.
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Under the KRS, the board of directors of a corporation may amend or
repeal the corporation's bylaws, unless the Articles of Incorporation or the KRS
reserve this power exclusively to the shareholders in whole or in part or the
shareholders, in amending or repealing a particular bylaw, provided expressly
that the board of directors may not amend or repeal that bylaw. The GFP Bylaws
provide that the board of directors may alter, amend or rescind the bylaws. The
Tube Turns Bylaws provide that the board of directors may alter or repeal the
bylaws.
Amendment of Articles of Incorporation
An amendment to a Florida corporation's Articles of Incorporation must
be approved by the corporation's shareholders, except that certain immaterial
amendments specified in the FBCA may be made by the board of directors. Unless a
specific section of the FBCA or a Florida corporation's Articles of
Incorporation require a greater vote, an amendment to a Florida corporation's
Articles of Incorporation generally must be approved by a majority of the votes
entitled to be cast on the amendment. The GTC Articles and Bell Articles do not
include any provision requiring greater than a majority of votes to amend their
respective Articles of Incorporation.
An amendment to a Kentucky corporation's Articles of Incorporation
must be approved by the corporation's shareholders except that certain
immaterial amendments specified in the KRS may be made by the board of
directors. Unless the KRS, the Kentucky corporation's Articles of Incorporation
or the board of directors requires a greater vote or a vote by voting groups,
the amendment to a Kentucky corporation's Articles of Incorporation generally is
approved if the votes cast favoring the action exceed the votes cast opposing
the action. The GFP Articles and Tube Turns Articles do not include any
provisions requiring greater voting requirements to amend their Articles of
Incorporation.
Voluntary Dissolution
Under the FBCA, a corporation may be voluntarily dissolved if (i) the
board of directors adopts, and a majority of shares approve, a proposal for
dissolution, or (ii) shareholders approve dissolution by written consent without
a meeting. The KRS contains a similar provision.
Liability of Directors
The FBCA provides that a director is not personally liable for
monetary damages to the corporation or any other person for any act or omission
as a director unless the director breached or failed to perform his statutory
duties as a director and such breach or failure (i) constitutes a violation of
criminal law, unless the director had reasonable cause to believe his conduct
was lawful or had no reasonable cause to believe his conduct was unlawful, (ii)
constitutes a transaction from which the director derived an improper personal
benefit, (iii) results in an unlawful distribution, (iv) in a derivative action
or an action by a shareholder, constitutes conscious disregard for the best
interest of the corporation or willful misconduct, or (v) in a proceeding other
than a derivative action or an action by a shareholder, constitutes recklessness
or an act or omission which was committed in bad faith or with malicious purpose
or in a manner exhibiting wanton and willful disregard of human rights, safety
or property.
Under the KRS, in addition to any other limitation on a director's
liability for monetary damages contained in any provision of the Kentucky
corporation's Articles of Incorporation, any action taken as a director or any
failure to take any action as a director, will not be the basis for monetary
damages or injunctive relief unless (i) the director has breached or failed to
perform the duties of the director's office in compliance with the KRS, and (ii)
in the case of an action for monetary damages, the breach or failure to perform
constitutes willful misconduct or wanton or reckless disregard for the best
interest of the corporation and its shareholders.
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The Tube Turns Articles currently contain a provision that a director
shall not be liable to the corporation or its shareholders for monetary damages
for any act or omission constituting a breach of his duties as a director unless
such act or omission (i) is one in which the director has a personal financial
interest which is in conflict with the financial interest of the corporation or
its shareholders, (ii) is not in good faith or involves intentional misconduct
or is known to the director to be a violation of law, (iii) is a vote for or
assent to a distribution made in violation of the Articles of Incorporation or
which renders the corporation unable to pay its debts as they become due in the
usual course of business or which results in the corporation's total liabilities
exceeding its assets, or (iv) is a transaction from which the director derived
an improper personal benefit. If the KRS is amended after adoption of this
provision of the Tube Turns Articles to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of Tube Turns shall be eliminated or limited to the fullest extent
permitted by the KRS, as so amended. Any repeal or modification of this
provision of the Tube Turns Articles by the shareholders of the corporation
shall not adversely affect any right or protection of a director existing at the
time of such repeal or modification. The GFP Articles do not contain such a
provision.
The GTC Articles currently include a provision eliminating the
personal liability of its directors except for liability (i) for acts or
omissions not in good faith or which involve intentional misconduct or are known
to the director to be a violation of law, (ii) for distributions made in
violation of the FBCA, or (iii) for any transaction from which the director
derives an improper personal benefit.
If the FBCA is amended after approval by the shareholders of the
Articles of Incorporation to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the corporation shall be eliminated or limited to the fullest extent
permitted by the FBCA, as so amended. Any repeal or modification of the Articles
of Incorporation by the shareholders of the corporation shall not adversely
affect any right or protection of a director of the corporation existing at the
time of such repeal or modification. The Bell Articles do not contain such a
provision.
Indemnification
Under the FBCA, a corporation may generally indemnify its officers,
directors, employees and agents against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement of any proceedings (other than
derivative actions), if they acted in good faith and in manner they reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe their conduct was unlawful. A similar standard is applicable in
derivative actions, except that indemnification may be made only for (i)
expenses (including attorney's fees) and certain amounts paid in settlement, and
(ii) in the event the person seeking indemnification has been adjudicated
liable, amounts deemed proper, fair and reasonable by the appropriate court upon
application thereto. The FBCA provides that to the extent that such persons have
been successful in defense of any proceeding, they must be indemnified by the
corporation against expenses actually and reasonably incurred in connection
therewith. The FBCA also provides that, unless a corporation's Articles of
Incorporation provide otherwise, if a corporation does not indemnify such
persons, they may seek, and a court may order, indemnification under certain
circumstances even if the board of directors or shareholders of the corporation
have determined that the persons are not entitled to indemnification. The GTC
Bylaws provide that directors, officers, employees or agents will be indemnified
to the full amount against any liability, and the reasonable cost or expense
(including attorneys' fees, monetary or other judgments, fines, excise taxes or
penalties and amounts paid or to be paid in settlement) incurred by such person
in such person's capacity as a director, officer, employee or agent or arising
out of such person's status as a director, officer, employee or agent; provided,
however, no such person shall be indemnified against any such liability, cost or
expense incurred in connection with any action, suit or proceeding in which such
person shall have been adjudged liable on the basis that personal benefit was
improperly received by such person or if such indemnification would be
prohibited by law.
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The Bell Bylaws provide that Bell shall indemnify and may advance
expenses to directors, officers, employees and agents to the fullest extent that
is expressly permitted or required by Florida or other law.
Under the KRS, a corporation may generally indemnify officers,
directors, employees and agents against expenses (including attorney's fees) in
a proceeding if they conducted themselves in good faith and they reasonably
believed that their conduct was in or not opposed to the best interests of the
corporation, and in the case of criminal proceedings, they had no reasonable
cause to believe their conduct was unlawful. A corporation may not indemnify
officers, directors, employees or agents in a derivative proceeding in which
such persons were adjudged liable to the corporation, or in connection with any
other proceeding charging improper personal benefit to such person, in which
such person was adjudged liable on the basis that personal benefit was
improperly received. In the case of a derivative action, indemnification is
limited to reasonable expenses incurred in the proceeding. The KRS provides that
unless limited by its Articles of Incorporation, a corporation must indemnify
such persons who were wholly successful, on the merits or otherwise, in the
defense of any proceeding, against reasonable expenses incurred. The KRS also
provides that a court may order indemnification in certain circumstances.
The GFP Bylaws provide that GFP shall indemnify and may advance
expenses to directors, officers, employees and agents to the fullest extent that
is expressly permitted or required by Kentucky or other law.
The Tube Turns Articles provide that directors will be indemnified to
the full amount against any liability, and the reasonable cost or expenses
(including attorneys' fees, monetary or other judgments, fines, excise taxes or
penalties and amounts paid or to be paid in settlement) incurred by such person
in such person's capacity as a director; provided, however, that no such person
shall be indemnified in connection with any proceeding in which such person
shall have been adjudged liable on the basis that personal benefit was
improperly received by such person or if such indemnification would be
prohibited by law. The Tube Turns Bylaws provide that it shall indemnify its
officers, directors and employees to the extent permitted by Kentucky law.
Business Combination Statute (Affiliated Transactions)
The FBCA contains an affiliated transactions statute which provides
that certain transactions involving a corporation and a shareholder owning 10%
or more of the corporation's outstanding voting shares (an "Affiliated
Shareholder") must generally be approved by the affirmative vote of the holders
of 66 2/3% of the voting shares other than those owned by the Affiliated
Shareholder. The transactions covered by the statute include, with certain
exceptions, (i) mergers and consolidations to which the corporation and the
Affiliated Shareholder are parties, (ii) sales or other dispositions of
substantial amounts of the corporation' s assets to the Affiliated Shareholder,
(iii) issuances by the corporation of substantial amounts of its securities to
the Affiliated Shareholder, (iv) the adoption of any plan for the liquidation or
dissolution of the corporation proposed by or pursuant to an arrangement with
the Affiliated Shareholder, (v) any reclassification of the corporation's
securities which has the effect of substantially increasing the percentage of
the outstanding voting shares of the corporation beneficially owned by the
Affiliated Shareholder, and (vi) the receipt by the Affiliated Shareholder of
certain loans or other financial assistance from the corporation. These special
voting requirements do not apply in any of the following circumstances: (i) if
the transaction was approved by a majority of the corporation's disinterested
directors; (ii) if the corporation did not have more than 300 shareholders of
record at any time during the preceding three years; (iii) if the Affiliated
Shareholder has been the beneficial owner of at least 80% of the corporation's
outstanding voting shares for five years; (iv) if the Affiliated Shareholder is
the beneficial owner of at least 90% of the corporation's outstanding voting
shares, exclusive of those acquired in a transaction not approved by a majority
of disinterested directors; or (v) if the consideration received by each
shareholder in connection with the transaction satisfies the "fair price"
provisions of the statute. This statute applies to any Florida corporation
unless the original Articles of Incorporation or an amendment to the Articles of
Incorporation or bylaws contain a provision expressly electing not to be
governed by this statute. Such an amendment to the Article of Incorporation or
bylaws must be approved by the affirmative vote of a majority of disinterested
shareholders and is not effective until 18
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months after approval. The GTC Articles and GTC Bylaws and the Bell Articles and
Bell Bylaws do not contain a provision electing not to be governed by the
statute. This statute is not applicable to the Reorganization.
The KRS contains a business combination statute which provides that
certain transactions involving a corporation and a shareholder owning 10% or
more of the corporation's outstanding voting shares (an "Interested
Shareholder") must be approved by either a majority of the independent members
of the board of directors who are also continuing directors, or approved by the
affirmative vote of at least (i) 80% of the votes entitled to be cast by
outstanding shares of voting stock of the corporation, voting together as a
single voting group; and (ii) two-thirds of the votes entitled to be cast by
holders of voting stock other than voting stock beneficially owned by the
Interested Shareholder who is, or whose affiliate is, a party to the
transaction, or by an affiliate of such Interested Shareholder, voting together
as a single voting group, unless a fair price is paid in the transaction. The
transactions covered by the Kentucky statute are substantially similar to the
transactions covered by the Florida statute. The requirements of shareholder
vote and board of directors approval do not apply to a business combination of a
corporation which does not have on the date any Interested Shareholder became an
Interested Shareholder: (i) 500 or more beneficial shareholders; (ii) its
principal office located in Kentucky; and (iii) more than 200 beneficial
shareholders residing in Kentucky, more than 10% of its beneficial shareholders
residing in Kentucky, more than 10% of its outstanding stock owned by Kentucky
residents, more than 100 employees working in the state, or assets of at least
$1,000,000. The statute also provides that a corporation shall not engage in a
business combination with a 10% shareholder for five years after the date on
which the person became a 10% shareholder unless the business combination is
approved by a majority of independent directors before such date. This statute
is not applicable to the Reorganization.
Business Combination Provisions of Articles of Incorporation
The GTC Articles do not contain any provision specifically addressing
business combinations. The Bell Articles, GFP Articles and Tube Turns Articles
also do not contain any provision specifically addressing business combinations.
Control Share Acquisition Act
The FBCA also contains a control share acquisition statute which
provides that, except with respect to certain acquisitions, a person who
acquires shares in an issuing public corporation in excess of certain specified
thresholds will generally not have any voting rights with respect to such shares
unless the voting rights are approved by a majority of the shares entitled to
vote, excluding interested shares. The acquisition of shares of an issuing
public corporation does not constitute a control-share acquisition if, among
other exceptions, the acquisition is pursuant to a merger or share exchange if
the issuing public corporation is a party to the agreement or plan of merger, or
if the acquisition was approved by the board of directors of such issuing public
corporation. This statute does not apply to acquisitions of shares of a
corporation if, prior to the pertinent acquisition of shares, the corporation's
Articles of Incorporation or bylaws provide that the corporation shall not be
governed by the statute. This statute also permits a corporation to adopt a
provision in its Articles of Incorporation or bylaws providing for the
redemption by the corporation of such acquired shares in certain circumstances.
Unless otherwise provided in the corporation's Articles of Incorporation or
bylaws prior to the pertinent acquisition of shares, in the event that such
shares are accorded full voting rights by the shareholders of the corporation
and the acquiring shareholder acquires a majority of the voting power of the
corporation, all shareholders who did not vote in favor of according voting
rights to such acquired shares are entitled to dissenters' rights. The GTC
Articles and GTC Bylaws and the Bell Articles and Bell Bylaws do not contain any
provisions with respect to this statute.
The KRS does not contain a control share acquisition statute. This
statute would not be applicable to the Reorganization.
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Dividends and Other Distributions
A Florida corporation may make distributions to shareholders as long
as, after giving effect to such distribution (i) the corporation would be able
to pay its debts as they become due in the usual course of business, and (ii)
the corporation's total assets would not be less than the sum of its total
liabilities plus (unless the Articles of Incorporation permit otherwise, which
the GTC Articles and Bell Articles do not) the amount that would be needed if
the corporation were to be dissolved at the time of the distribution to satisfy
the preferential rights upon dissolution of shareholders whose preferential
rights are superior to those receiving the distribution. Under the FBCA, a
corporation's redemption of its own capital stock is deemed to be a
distribution.
A Kentucky corporation may make distributions to shareholders, subject
to any restriction in the Articles of Incorporation of the corporation, as long
as, after giving effect to such distribution, (i) the corporation would be able
to pay its debts as they become due in the usual course of business, and (ii)
the corporation's total assets would not be less than the sum of its total
liabilities plus (unless the Articles of Incorporation permit otherwise, which
the GFP Articles and Tube Turns Articles do not) the amount that would be needed
if the corporation were to be dissolved at the time of the distribution to
satisfy the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those in receiving the distribution. Under
the KRS, a corporation's redemption of its own stock is deemed to be a
distribution.
Dissenters' Rights
A shareholder of a Florida corporation, with certain exceptions, has
the right to dissent from, and obtain payment of the fair value of his shares in
the event of: (i) a merger or consolidation to which the corporation is a party;
(ii) a sale or exchange of all or substantially all of the corporation's
property other than in the usual and regular course of business; (iii) the
approval of a control share acquisition; (iv) a statutory share exchange to
which the corporation is a party as the corporation whose shares will be
acquired; (v) an amendment to the Articles of Incorporation if the shareholder
is entitled to vote on the amendment and the amendment would adversely affect
the shareholder; and (vi) any corporate action taken to the extent that the
Articles of Incorporation provide for dissenters' rights with respect to such
action. The FBCA provides that unless a corporation's Articles of Incorporation
provide otherwise, which the GTC Articles and Bell Articles do not, a
shareholder does not have dissenters' rights with respect to a plan of merger,
share exchange or proposed sale or exchange of property if the shares held by
the shareholder are either registered on a national securities exchange or
designated as a national market system security on or an interdealer quotation
system by the NASD or held of record by 2,000 or more shareholders.
A shareholder of a Kentucky corporation, with certain exceptions, has
the right to dissent from, and obtain payment of the fair value of his shares in
the event of: (i) a merger to which the corporation is a party if shareholder
approval is required or if the corporation is a subsidiary that is merged with
its parent pursuant to the KRS; (ii) a share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan; (iii) a sale or exchange of substantially all
of the corporation's property other than in the usual and regular course of
business if the shareholder is entitled to vote on the sale or exchange; (iv) an
amendment of the Articles of Incorporation that materially and adversely affects
rights in respect of a dissenter's shares; (v) any transaction subject to the
requirements of the Kentucky business combination statutes or exempted from the
voting requirements of such provisions; or (vi) any corporate action taken
pursuant to a shareholder vote to the extent the Articles of Incorporation,
bylaws or a resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent.
Preemptive Rights
Under the FBCA, the shareholders of a corporation do not have a
preemptive right to acquire the corporation's unissued shares except to the
extent the Articles of Incorporation provide. The provisions of the KRS are
similar. The GTC Articles provide no holder of shares of the corporation of any
class, as such, shall
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have any preemptive right to subscribe for stock, obligations, warrants,
subscription rights, or other securities of the corporation of any class,
regardless of when authorized. The GFP Articles, Tube Turns Articles and Bell
Articles contain similar provisions.
Derivative Actions
Under the FBCA, a person may not bring a derivative action unless the
person was a shareholder of the corporation at the time of the challenged
transaction or unless the person acquired the shares by operation of law from a
person who was a shareholder at such time. The FBCA also provides that a
complaint in a derivative proceeding must be verified and must allege with
particularity that a demand was made to obtain action by the board of directors
and that the demand was refused or ignored. Under the FBCA, a derivative
proceeding may be settled or discontinued only with court approval, and the
court may dismiss a derivative proceeding if the court finds that certain
independent directors (or a committee of independent persons appointed by such
directors) have determined in good faith after conducting a reasonable
investigation that the maintenance of the action is not in the best interests of
the corporation. The FBCA also provides that if an action was brought without
reasonable cause the court may require the plaintiff to pay the corporation's
reasonable expenses, and if the plaintiff is successful the court may require
the corporation to pay the reasonable expenses of the plaintiff.
Under the KRS, a person may not commence a derivative action unless he
was a shareholder of the corporation at the time of the challenged transaction
or unless he became a shareholder through transfer by operation of law from one
who was a shareholder at that time. The KRS also requires that the complaint be
verified, and must allege with particularity the demand made, if any, to obtain
action by the board of directors and either that the demand was refused and
ignored or why demand was not made. A derivative proceeding may not be
discontinued or settled without court approval. If the court determines that a
proposed discontinuance or settlement will substantially affect the interest of
the corporation's shareholders or a class of shareholders, the court will direct
that notice be given to affected shareholders. Under the KRS, the court may
require the plaintiff to pay any defendant's reasonable expenses, including
attorney's fees incurred in a proceeding, if it finds that the proceeding was
commenced without reasonable cause.
Quorum for Shareholder Meetings
Under the FBCA, unless otherwise provided in a corporation's Articles
of Incorporation (but not its bylaws), a majority of shares entitled to vote on
a matter constitutes a quorum at a meeting of shareholders, but in no event may
a quorum consist of less than 33 1/3% of the shares entitled to vote on such
matter. The GTC Articles and Bell Articles do not include a provision altering
the shareholder quorum requirement. The provisions of the KRS are similar except
a quorum may not be reduced by the Articles of Incorporation to less than such
majority. The GFP Articles and Tube Turns Articles do not include a provision
altering this quorum requirement.
Treasury Stock
A Florida corporation may reacquire its own issued and outstanding
capital stock. Under the FBCA, however, all capital stock reacquired by a
Florida corporation is automatically returned to the status of authorized but
not issued or outstanding, and is not deemed treasury stock. The KRS contains a
similar provision.
Board Vacancies
The FBCA provides that a vacancy on the board of directors generally
may be filled by the affirmative vote of a majority of the remaining directors
or by the shareholders, unless the Articles of Incorporation provide otherwise.
The GTC Articles and Bell Articles do not alter this provision. The provisions
of the KRS are similar. The GFP Articles and Tube Turns Articles do not alter
this provision.
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Other Constituencies
The FBCA contains a so-called "stakeholder" statute, providing that
directors of a Florida corporation, in discharging their duties to the
corporation and in determining what they believe to be in the best interests of
the corporation, may, in addition to considering the effects of any corporate
action on the shareholders and the corporation, consider the effects of the
corporate action on employees, suppliers and customers of the corporation or its
subsidiaries and the communities in which the corporation and its subsidiaries
operate. The KRS does not include such a provision.
Shareholder Rights Plans
The FBCA has a provision which explicitly authorizes corporations to
adopt "poison pill" or "shareholder rights" plans. These plans may be adopted in
a number of forms, but generally involve the distribution by the corporation to
its shareholders of rights or options which are triggered by a hostile takeover
attempt or by a party acquiring a specified percentage of a class of the
corporation's securities. These plans can make hostile takeovers excessively or
prohibitively expensive unless the board of directors cancels the plan. The KRS
does not include such a provision.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
GTC paid GFP management fees in the amount of $488,000 and $548,000
for the years ended December 31, 1993 and 1994, respectively. The management fee
paid to GFP for the year ended December 31, 1995 consisted of a cash payment of
$274,000 and the issuance of 69,813 shares of GTC Common Stock valued at
$300,000. The number of shares issued was determined monthly and was computed
based upon a monthly management fee of $50,000 and the per share price equal to
the average closing price of the GTC Common Stock on the last three trading days
of each calendar month from July 1995 to January 1996. The management fee was
paid to GFP in exchange for financial advisory and management consulting
services. The management fee to GFP was suspended as of January 31, 1996, and
accordingly, the only payment in 1996 consisted of the issuance of 17,391 shares
of GTC Common Stock.
GTC issued 59,090 shares of GTC Common Stock to GFP in a private
placement transaction in October 1995 to provide funding for GTC's expansion
into Brazil. The shares were sold to GFP in exchange for $325,000. The per share
price of the transaction was equal to the closing price of the GTC Common Stock
on the trading day immediately preceding the date of sale.
In connection with the restructuring of GTC's credit agreement on
March 29, 1996, GFP invested $1,000,000 in GTC in exchange for 374,531 shares of
GTC Common Stock. The per share price of the transaction was equal to the
average closing price of the GTC Common Stock on the three trading days
preceding the date of sale.
GTC and its domestic subsidiaries are parties to a tax sharing
agreement with GFP and were included in the consolidated federal income tax
return of GFP from GTC's inception through March 22, 1995. Effective March 23,
1995, as a result of a decrease in GFP's ownership percentage of GTC, GTC did
not meet the 80-percent-voting power and value requirements defined by the Code
for affiliated group membership and ceased to be an includable member of GFP's
affiliated group. Effective March 29, 1996, as a result of the aforementioned
investment by GFP of $1,000,000 in GTC, GFP's ownership percentage in GTC
exceeded 80% and, therefore, became an includable member of GFP's affiliated
group. GTC and its domestic subsidiaries separately filed its initial
consolidated federal income tax return for the period March 23, 1995 through
December 31, 1995, and will separately file a final consolidated federal income
tax return for the period January 1, 1996 to March 29, 1996.
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In connection with the restructuring of GTC's Credit Agreement on
March 28, 1997, GFP invested $2,500,000 in GTC in exchange for 250,000 shares of
GTC Preferred Stock with a cumulative annual dividend rate of 8.5% convertible
into GTC Common Stock. The conversion ratio of 8.1 shares of GTC Common Stock
for each share of GTC Preferred Stock was determined based on the average
closing price of GTC Common Stock over the three day period immediately
preceding the investment by GFP.
GTC previously engaged in certain business transactions with Bell
involving the provision of certain turnkey circuit card manufacturing services
to Bell. GTC believes the terms and conditions of these transactions were the
same as those which would be determined on an arms-length basis and were not
material to the financial performance of GTC. In 1995, the amount received by
GTC from transactions with Bell was not material.
On February 9, 1996, the assets of the instrumentation products
business unit of Metrum were sold to Bell for $10,104,000 cash and an earn-out
provision which provides for additional payments to GTC of up to $3,000,000 in
the event annual earnings before interest and taxes exceeds defined amounts
through December 31, 2000. The proceeds from the sale transactions were used to
reduce GTC's debt balance and to fund working capital needs. Due to the common
ownership interest of GFP in GTC and Bell, GTC requested and obtained an
independent opinion, which indicated that the consideration received by GTC for
the sale of the instrumentation products business was fair, from a financial
point of view, to the Unaffiliated Shareholders of GTC. In addition, due to the
common ownership, the amount by which the sales price exceeded the net book
value of assets and liabilities transferred has been recorded by GTC as a
contribution to its capital of $613,000. GTC reported this transaction on a Form
8-K filed with the Commission on February 23, 1996, and amended on March 28,
1996.
On November 14, 1997, the BT Holdings credit agreement with Bank One,
Kentucky, NA was amended and expanded to include GTC and Metrum-Datatape as co-
borrowers along with Tube Turns and Bell. Certain of the availability under the
$45 million facility was used by GFP to acquire substantially all of the assets
of Datatape by its wholly-owned subsidiary, Metrum-Datatape. Under this credit
facility, the assets of GTC are pledged as collateral for the total credit
extended under the facility for use by all parties thereto, including Tube
Turns, Bell and Metrum-Datatape. The assets of Tube Turns and Bell are similarly
pledged for this purpose. The borrowing base under the facility is dependent on
the aggregate borrowing base eligibility and use of GTC, Tube Turns, Bell and
Metrum-Datatape. GFP is a guarantor under the credit facility and has pledged
the shares of GTC, Tube Turns, Bell and Metrum-Datatape to secure the credit.
101
<PAGE>
GTC EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth the annual and long-term compensation
paid or accrued by GTC during the years indicated to persons serving as GTC's
Chief Executive Officer at any time during 1996 and GTC's other three highest
paid executive officers (collectively, the "Named Officers").
<TABLE>
<CAPTION>
Long-Term
Annual Compensation(1) Compensation Awards
----------------------- --------------------------
Restricted Options/ All Other
Name and Principal Position Year Salary Bonus Stock Awards SARs (#) Compensation
- --------------------------- ---- ---------- --------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Carl P. McCormick (2) ................... 1996 $199,529(3) $ -- $ -- $124,066(3) $365,916(4)
President & Chief Executive Officer 1995 280,299 -- -- -- 13,868
1994 269,135 -- -- -- 11,216
Robert E. Gill (5) ...................... 1996 -- -- -- -- --
President & Chief Executive Officer
Aviram Margalith (6) .................... 1996 152,885 10,000(7) -- 10,000(7) 8,389(8)
Vice President & General Manager of 1995 149,151 -- -- -- 7,187
International EMS Operations 1994 129,206 -- -- -- 6,689
J. Hardie Harris (9) .................... 1996 136,154 -- -- 80,000 6,286(10)
Vice President & General Manager of 1995 99,380 20,000 -- 30,000 4,987
U.S. EMS Operations
David D. Johnson ........................ 1996 119,849 50,000(11) -- 120,000 2,319(12)
Vice President & Chief Financial Officer
</TABLE>
- ---------------
(1) Includes amounts deferred, at the election of the Named Officers, pursuant
to GTC's 401(k) Plan. The Named Officers received certain perquisites and
benefits; however, GTC has concluded that the aggregate amount of such
personal benefits and other compensation is the lesser of $50,000 or 10%
of the total annual salary and bonus paid to each of the Named Officers.
(2) Carl P. McCormick resigned from his positions as President and Chief
Executive Officer of GTC on October 31, 1996. However, he assumed other
duties and, therefore, remained on active status on GTC's payroll through
December 31, 1996.
(3) From March 11, 1996 through December 31, 1996, Mr. McCormick received a
portion of his salary in the form of nonstatutory stock options in lieu of
cash. The dollar amount shown in the Salary column is the cash portion of
his salary. The total number of shares represented by stock options
received by Mr. McCormick in lieu of his salary is shown in the
Options/SARs column. Each of the options for the purchase of these shares
has an exercise price that is equal to the fair market value (calculated
as the average of the closing bid and ask quotations on the business day
immediately preceding the date of grant) of GTC Common Stock on the date
the option was granted and, accordingly, Mr. McCormick did not realize any
additional compensation at the time the options were granted. The
expiration date of each option is seven years after the date of grant.
(4) The amount shown includes $355,000 payable to Mr. McCormick pursuant to
the terms of a separation agreement signed in December 1996, plus $9,716
for Matching and Profit Sharing
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<PAGE>
Contributions made by GTC pursuant to its 401(k) Plan and $1,200 of
premiums paid by GTC for term life insurance for the benefit of Mr.
McCormick during 1996.
(5) Robert E. Gill replaced Mr. McCormick as President and Chief Executive
Officer of GTC on October 31, 1996. Mr. Gill served GTC in these
positions, without compensation of any kind from GTC or any third party,
until he resigned and was replaced by Thomas W. Lovelock on February 28,
1997.
(6) Dr. Margalith resigned from his position as Vice President and General
Manager of International EMS Operations and Engineering Services on April
4, 1997.
(7) The amount shown is the cash portion of a bonus paid to Dr. Margalith in
February 1996. The balance of the bonus was paid to him in the form of a
nonstatutory stock option to purchase 10,000 shares of GTC Common Stock.
The total number of shares for the stock option portion of the bonus is
shown in the Options/SARs column. The option for the purchase of these
shares has an exercise price that is equal to the fair market value of GTC
Common Stock on the date the option was granted and, accordingly, Dr.
Margalith did not realize any additional compensation at the time the
option was granted. The option was to become exercisable in annual
increments of 5,000 shares each, beginning one year from the date of
grant. Dr. Margalith resigned from his position as Vice President and
General Manager of International EMS Operations and Engineering Services
on April 4, 1997 and all of his options were canceled as of that date.
(8) The amount shown is for Matching and Profit Sharing Contributions made by
GTC pursuant to its 401(k) Plan.
(9) J. Hardie Harris was hired as Vice President and General Manager of U.S.
EMS Operations on April 3, 1995. He resigned from this position on
February 6, 1997.
(10) The amount shown is for Matching and Profit Sharing Contributions made by
GTC pursuant to its 401(k) Plan.
(11) David D. Johnson received a hiring bonus from GTC in the amount of $50,000
on March 22, 1996.
(12) The amount shown is for Matching and Profit Sharing Contributions made by
GTC pursuant to its 401(k) Plan.
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<PAGE>
Option Grants in Last Fiscal Year
Set forth below is information on stock options granted during the
fiscal year ended December 31, 1996 to the Named Officers of GTC.
<TABLE>
<CAPTION>
Individual Grants (1) Potential Realizable
---------------------------------------------------- Value at Assumed
No. of % of Total Rates of Stock Price
Securities Options Exercise Appreciation for
Underlying Granted to or Base Option Term (2)
Options Employees in Price Expiration ----------------------
Name Granted Fiscal Year ($/Share) Date 5% 10%
- ----- ---------- ----------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Carl P. McCormick (3)..... 8,417 1.5% $3.00 04/10/03 $10,280 $23,956
9,182 1.7% 2.75 05/10/03 10,280 23,956
6,733 1.2% 3.75 06/10/03 10,280 23,956
9,619 1.7% 2.625 07/10/03 10,280 23,956
11,222 2.0% 2.25 08/10/03 10,280 23,956
14,429 2.6% 1.75 09/10/03 10,280 23,956
10,632 1.9% 2.375 10/10/03 10,280 23,956
16,160 2.9% 1.5625 11/10/03 10,280 23,956
18,364 3.3% 1.375 12/10/03 10,280 23,956
19,308 3.5% 0.84375 12/30/03 6,632 15,457
Robert E. Gill (4)........ -- -- -- -- -- --
Aviram Margalith (5)...... 5,000 0.9% 3.00 02/19/01 3,799 8,395
5,000 0.9% 3.00 02/19/01 3,799 8,395
J. Hardie Harris (6)...... 10,000 1.8% 2.75 02/01/06 17,295 43,828
10,000 1.8% 2.75 02/01/06 17,295 43,828
10,000 1.8% 2.75 02/01/06 17,295 43,828
10,000 1.8% 2.75 02/01/06 17,295 43,828
10,000 1.8% 2.75 02/01/06 17,295 43,828
10,000 1.8% 2.75 02/01/06 17,295 43,828
10,000 1.8% 2.75 02/01/06 17,295 43,828
10,000 1.8% 2.75 02/01/06 17,295 43,828
David D. Johnson (7)...... 15,000 2.7% 2.25 03/21/06 21,225 53,789
15,000 2.7% 2.25 03/21/06 21,225 53,789
15,000 2.7% 2.25 03/21/06 21,225 53,789
15,000 2.7% 2.25 03/21/06 21,225 53,789
15,000 2.7% 2.25 03/21/06 21,225 53,789
15,000 2.7% 2.25 03/21/06 21,225 53,789
15,000 2.7% 2.25 03/21/06 21,225 53,789
15,000 2.7% 2.25 03/21/06 21,225 53,789
</TABLE>
(1) Each grant was made pursuant to GTC's 1994 Stock Option Plan for Key
Employees.
(2) The 5% and 10% assumed rates of appreciation are required by rules of the
Commission and do not represent GTC's estimate or projection of the future
GTC Common Stock price.
(3) GTC granted stock options to Mr. McCormick on a monthly basis from April
11, 1996 through December 11, 1996. Mr. McCormick also received a stock
option from GTC on December 31, 1996. These options each have an exercise
price that is equal to the fair market value (calculated as the average of
the closing bid and ask quotations on the business day immediately
preceding the date of grant) of the GTC Common Stock on the date the option
was granted. Each of the options becomes exercisable two years from the
date of grant.
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<PAGE>
(4) Mr. Gill served as President and Chief Executive Officer from October 31,
1996 until February 28, 1997 and did not receive any options or other
compensation for his services.
(5) GTC granted Dr. Margalith a stock option for the purchase of 10,000 shares
of GTC Common Stock as part of a bonus paid to him on February 20, 1996.
The option has an exercise price that is equal to the fair market value of
GTC Common Stock on the date the option was granted. The option was to
become exercisable in annual increments of 5,000 shares each, beginning one
year from the date of grant. Dr. Margalith resigned from his position as
Vice President and General Manager of International EMS Operations and
Engineering Services on April 4, 1997. All options held by Dr. Margalith
were canceled as of that date.
(6) GTC granted Mr. Harris a stock option for the purchase of 80,000 shares of
GTC Common Stock on February 2, 1996. The option was to become exercisable
in annual increments of 10,000 shares each, beginning one year from the
date of grant. Mr. Harris resigned from his position as Vice President and
General Manager of U.S. EMS Operations on February 6, 1997. All options
held by Mr. Harris were canceled as of that date.
(7) GTC granted Mr. Johnson a stock option for the purchase of 120,000 shares
of GTC Common Stock on March 22, 1996. The option becomes exercisable in
annual increments of 15,000 shares each, beginning one year from the date
of grant.
Fiscal Year End Option Values
Set forth below is information on each exercise of stock options during the
fiscal year ended December 31, 1996, and the value as of December 31, 1996, of
unexercised stock options held by the Named Officers of GTC.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Number of Underlying Unexercised In-the-Money Options at
Shares Options at Fiscal Year-End Fiscal Year-End (2)
Acquired on Value -------------------------- ---------------------------------------
Name Exercise (1) Realized (1) Exercisable Unexercisable Exercisable Unexercisable
- ----------------------- ----------- ----------- ----------- ------------- ----------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Carl P. McCormick (3).. -- $ -- 300,000 124,066 $ -- $ 3,017
Robert E. Gill (4)..... -- -- -- -- -- --
Aviram Margalith (5)... -- -- 180,000 10,000 -- --
J. Hardie Harris (6)... -- -- -- 110,000 -- --
David D. Johnson....... -- -- -- 120,000 -- --
</TABLE>
- ----------------
(1) No options were exercised.
(2) Based on a market value equal to the reported closing price of GTC Common
Stock on The Nasdaq Stock Market at December 31, 1996 of $1.00, the
indicated options were not in-the-money as of that date, except for an
option held by Carl P. McCormick to purchase 19,308 shares.
(3) Carl P. McCormick resigned from his positions as President and Chief
Executive Officer of GTC on October 31, 1996. All options held by Mr.
McCormick which are or will become exercisable on or before December 31,
1998 will remain valid and effective per the terms and conditions of each
such option, as amended. All other options held by Mr. McCormick were
canceled as of December 31, 1996.
(4) Robert E. Gill replaced Mr. McCormick as President and Chief Executive
Officer of GTC on October 31, 1996. Mr. Gill served GTC in these positions,
without compensation of any kind from GTC or any third party, until he
resigned and was replaced by Thomas W. Lovelock on February 28, 1997.
105
<PAGE>
(5) Aviram Margalith resigned from his position as Vice President and General
Manager of International EMS Operations and Engineering Services on April
4, 1997. All options held by Dr. Margalith were canceled as of that date.
(6) J. Hardie Harris resigned from his position as Vice President and General
Manager of U.S. EMS Operations on February 6, 1997. All options held by Mr.
Harris were canceled as of that date.
Compensation of Directors
Directors who are employees of GTC or any affiliate of GTC are not eligible
to receive any compensation for services rendered as a director, but they are
reimbursed for travel and related expenses they incur in order to attend GTC
Board meetings. The Independent Directors are compensated pursuant to the terms
and conditions of GTC's Independent Directors' Compensation Program (the
"Program") which was adopted by the GTC Board on September 1, 1995. As amended
by the GTC Board on June 25, 1997, the Program provides that each Independent
Director shall be granted a stock option for the purchase of 10,000 shares of
GTC Common Stock each time he or she is elected and reelected to serve for a
full term on the GTC Board. If an Independent Director is elected to the GTC
Board after the beginning of a term, the Program states that the number of
underlying shares for the option shall be prorated accordingly.
In addition to the aforementioned stock options, each of the Independent
Directors is paid an annual retainer of $15,000 and an attendance fee of $1,000
for each GTC Board meeting the director attends in person, or alternatively, a
fee of $300 for each meeting the director participates in by telephone.
Independent Directors are entitled to compensation for attending or
participating in meetings of committees of the GTC Board only if such meetings
are held on dates other than the dates of meetings of the full GTC Board. In the
event that committee meetings are held on dates other than the dates of meetings
of the full GTC Board, each Independent Director who attends a committee meeting
in person and serves as the chairperson of the meeting shall receive the sum of
$1,250 per meeting, and each of the other Independent Directors who attend such
a committee meeting in person shall receive the sum of $1,000 per meeting.
Alternatively, each Independent Director who, as the chairperson or as a
committee member, participates by telephone in committee meetings of the GTC
Board which are held on dates other than the dates of meetings of the full GTC
Board, shall receive the sum of $300 per meeting. Each of the Independent
Directors is also reimbursed for travel and related expenses he or she incurs in
order to attend GTC Board and/or committee meetings.
An Independent Director may elect to receive his or her annual retainer and
attendance fees either in cash or in the form of stock options granted to him or
her by GTC pursuant to the GTC Independent Directors' Stock Option Plan. Those
Independent Directors who elect to receive cash compensation may elect to defer
any of their compensation by participating in GTC's Management Deferred
Compensation Plan. During 1996, Roger W. Johnson elected to receive his annual
retainer and attendance fees in cash, without any deferral. Mr. Johnson received
an option to purchase 7,000 shares of GTC Common Stock, at an exercise price of
$3.13, upon his election to the GTC Board in 1996 and he received a total of
$10,500 from GTC as compensation for services rendered during 1996. Mr. Frigon
and Mr. Petersen were also each granted options to purchase 7,000 shares of GTC
Common Stock at an exercise price of $3.13 upon being reelected to the GTC Board
in 1996 and each of them elected to receive their annual retainers and meeting
fees in the form of stock options during 1996. GTC granted additional options
for the purchase of 28,012 shares, at a weighted average exercise price of
$2.60, and 29,359 shares, at a weighted average exercise price of $2.58, to Mr.
Frigon and Mr. Petersen, respectively, for services rendered in 1996. None of
the Independent Directors exercised GTC stock options in 1996.
Employment Contracts
GTC entered into a separation agreement in December, 1996, with Carl P.
McCormick, the former President and Chief Executive Officer of GTC. Under the
separation agreement, Mr. McCormick resigned as
106
<PAGE>
President, Chief Executive Officer and as a director of GTC effective October
31, 1996, but continued as an employee of GTC through December 31, 1996.
Effective January 1, 1997, Mr. McCormick was placed on lay-off status through
December 31, 1998. During the remainder of 1996, Mr. McCormick assisted in the
transition of his duties and provided certain other services to GTC. Through
December 31, 1996, Mr. McCormick continued to receive salary and benefits at his
then current level and received a car allowance and previously approved club
memberships and similar benefits. GTC also agreed to reimburse Mr. McCormick for
professional executive outplacement services up to a maximum of $5,000. GTC will
continue to pay Mr. McCormick a salary of $175,000 per year from January 1, 1997
through December 31, 1998, and during this period Mr. McCormick will continue to
receive customary medical and dental benefits at his cost. GTC also agreed to
amend its Key Employees Plan so that all stock options granted to and held by
Mr. McCormick that will have vested by December 31, 1998, will remain valid and
effective for the stated term of the options. Mr. McCormick agreed to certain
nonsolicitation, noncompetition and confidentiality agreements with GTC and
executed a general release of GTC for any employment based claims.
GTC entered into an employment agreement in June, 1997, with Thomas W.
Lovelock, GTC's President and Chief Executive Officer. Subject to certain
conditions, the term of the employment agreement extends from July 1, 1997
through June 30, 1999. During the term of the agreement, Mr. Lovelock is to
receive a base salary of $200,000, which amount may be adjusted by GTC at its
sole discretion. Additionally, upon meeting certain conditions, Mr. Lovelock is
also eligible to receive a one-time, lump sum cash bonus in the amount of
$75,000. The agreement also provides that, if GTC terminates Mr. Lovelock
without cause or for other than certain specified reasons, Mr. Lovelock shall
receive pay continuance for a period of two years from the date of termination,
along with customary medical and dental benefits and life insurance coverage for
a period of one year from the date of termination, and GTC shall take the
necessary actions to permit all stock options held by Mr. Lovelock to remain
valid beyond the date of such termination. Mr. Lovelock agreed to certain
nonsolicitation, noncompetition and confidentiality provisions which shall
remain in force beyond the term of the agreement and shall, accordingly, survive
any termination thereof.
GTC also entered into an employment agreement in June, 1997, with James G.
Cocke, GTC's Vice President and Manager of the Federal Systems Division. Subject
to certain conditions, the term of the employment agreement extends from July 1,
1997 through June 30, 1998. During the term of the agreement, Mr. Cocke is to
receive a base salary of $140,000, which amount may be adjusted by GTC at its
sole discretion. Additionally, upon meeting certain conditions, Mr. Cocke is
also eligible to receive a one-time, lump sum cash bonus in the amount of
$50,000. The agreement also provides that, if GTC terminates Mr. Cocke without
cause or for other than certain specified reasons, Mr. Cocke shall receive pay
continuance, along with customary medical and dental benefits and life insurance
coverage, for a period of one year from the date of termination. Mr. Cocke
agreed to certain confidentiality provisions, which shall remain in force beyond
the term of the agreement and shall, accordingly, survive any termination
thereof.
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<PAGE>
OWNERSHIP OF GTC COMMON STOCK
The following table sets forth certain information with respect to
beneficial ownership of GTC Common Stock, including beneficial ownership (i) of
each person (or group of affiliated persons) who is known by GTC to own
beneficially more than 5% of the shares of GTC Common Stock, (ii) by each of
GTC's directors who owns shares, (iii) by each of the Named Officers reflected
in the Summary Compensation Table and (iv) by all directors and executive
officers as a group. Except as otherwise indicated, the persons named in the
table have sole voting and investment power with respect to all shares of GTC
Common Stock shown as beneficially owned by them.
<TABLE>
<CAPTION>
Shares Beneficially Owned
---------------------------------------------
After the
November 14, 1997 Reorganization
---------------------- ---------------------
Name Number Percent(1) Number(2) Percent
---- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C>
(a) Certain Beneficial Owners
Group Financial Partners, Inc. (3)............... 15,064,625 82.5% 30,388,202 89.3%
455 South Fourth Avenue
Louisville, Kentucky 40202
(b) Management
Carl P. McCormick................................ 432,486(4) 2.6% 432,486 1.3%
Thomas W. Lovelock............................... 13,422 * 13,422 *
David D. Johnson................................. 16,525(5) * 16,525 *
Avarim Margalith (6)............................. * *
J. Hardie Harris (7)............................. * *
Henry F. Frigon.................................. 113,449(8) * 113,449 *
Sidney R. Petersen............................... 111,769(9) * 111,769 *
Roger W. Johnson................................. 33,183(10) * 33,183 *
Robert E. Gill................................... 5,879,204(11) 32.2% 11,866,582 34.9%
Jeffrey T. Gill.................................. 4,881,614(12) 26.7% 9,839,159 28.9%
All directors and executive officers as a group.. 11,481,651 61.0% 22,426,575 64.8%
- --------------
</TABLE>
* less than 1%
(1) The percentages shown were calculated based upon 16,233,861 shares of GTC
Common Stock which were outstanding as of November 14, 1997, plus the
respective number of additional shares for each person which are deemed
outstanding pursuant to Rule 13d-3(d)(1) under the Exchange Act.
(2) This assumes a GTC Average Closing Price of $3.53 and the GFP Cash
Contribution to be $4,500,000.
(3) Includes 250,000 shares of GTC Preferred Stock convertible into GTC Common
Stock at a rate of 8.1 shares of GTC Common Stock for each share of GTC
Preferred Stock. Robert E. Gill, Jeffrey T. Gill, R. Scott Gill, Virginia
G. Gill and Patricia G. Gill own 19.3%, 32.3%, 28.0%, 19.7% and 0.1%,
respectively (99.4% in the aggregate), of the outstanding stock of GFP and,
therefore, are deemed to have an indirect beneficial interest in the shares
of GTC Common Stock and GTC Preferred Stock owned by GFP. Robert E. Gill is
also a director of GTC and Jeffrey T. Gill is a director and an executive
officer of GTC. The shares indicated as owned by GFP after the
Reorganization will be owned directly by the former shareholders of GFP.
All of the shares of GTC Common Stock and GTC Preferred Stock held by GFP
have been pledged by GFP to secure the credit facility between GTC and Bank
One, Kentucky, NA.
(4) Includes 300,000 shares issuable under currently exercisable options.
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<PAGE>
(5) Includes 15,000 shares issuable under currently exercisable options.
(6) Dr. Margalith resigned from his position as Vice President and General
Manager of International EMS Operations and Engineering Services on April
4, 1997. All options held by Dr. Margalith were canceled as of that date.
(7) Mr. Harris resigned from his position as Vice President and General Manager
of U.S. EMS Operations on February 6, 1997. All options held by Mr. Harris
were canceled as of that date.
(8) Includes 108,449 shares issuable under currently exercisable options.
(9) Includes 109,269 shares issuable under currently exercisable options.
(10) Includes 33,183 shares issuable under currently exercisable options.
(12) Includes (i) 2,000 shares directly owned by Robert E. Gill, (ii) 2,000
shares owned by his spouse, (iii) 5,085,454 shares that are attributed to
him and his spouse because of their combined 39.0% ownership interest in
GFP, and (iv) 97,500 shares of GTC Preferred Stock owned by GFP, which
shares are convertible into GTC Common Stock at a rate of 8.1 shares of GTC
Common Stock for each share of GTC Preferred Stock and which shares are
attributed to him and his spouse because of their combined 39.0% ownership
interest in GFP.
(13) Includes (i) 675 shares directly owned by Jeffrey T. Gill, (ii) 4,224,838
shares that are attributed to him and his spouse because of their combined
32.4% ownership interest in GFP, and (iv) 81,000 shares of GTC Preferred
Stock owned by GFP, which shares are convertible into GTC Common Stock at a
rate of 8.1 shares of GTC Common Stock for each share of GTC Preferred
Stock and which shares are attributed to him and his spouse because of
their combined 32.4% ownership interest in GFP.
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<PAGE>
OWNERSHIP OF GTC PREFERRED STOCK
The following table sets forth certain information with respect to
beneficial ownership of GTC Preferred Stock, including beneficial ownership (i)
of each person (or group of affiliated persons) who is known by GTC to own
beneficially more than 5% of the shares of GTC Preferred Stock, (ii) by each of
GTC's directors who owns shares, (iii) by each of the Named Officers reflected
in the Summary Compensation Table and (iv) by all directors and executive
officers as a group. Except as otherwise indicated, the persons named in the
table have sole voting and investment power with respect to all shares of GTC
Preferred Stock shown as beneficially owned by them.
<TABLE>
<CAPTION>
Shares Beneficially Owned
-----------------------------------
After the
November 14, 1997 Reorganization
------------------ ---------------
Name Number Percent Number Percent
---- ------- ------- ------ -------
<S> <C> <C> <C> <C>
(a) Certain Beneficial Owners
Group Financial Partners, Inc.... 250,000 (1) 100.0% -- --
455 South Fourth Avenue
Louisville, Kentucky 40202
(b) Management
Carl P. McCormick................ -- -- -- --
Thomas W. Lovelock............... -- -- -- --
David D. Johnson................. -- -- -- --
Avarim Margalith................. -- -- -- --
J. Hardie Harris................. -- -- -- --
Henry F. Frigon.................. -- -- -- --
Sidney R. Petersen............... -- -- -- --
Roger W. Johnson................. -- -- -- --
Robert E. Gill................... 97,500 (2) -- -- --
Jeffrey T. Gill.................. 81,000 (3) -- -- --
All directors and executive
officers as a group............. 250,000 100.0% -- --
</TABLE>
- ------------------
(1) GFP will convert the shares of GTC Preferred Stock held by it into GTC
Common Stock immediately prior to the Reorganization based upon the
conversion rate of 8.1 shares of GTC Common Stock for each share of GTC
Preferred Stock. Robert E. Gill, Jeffrey T. Gill, R. Scott Gill, Virginia
G. Gill and Patricia G. Gill own 19.3%, 32.3%, 28.0%, 19.7% and 0.1%,
respectively (99.4% in the aggregate), of the outstanding stock of GFP and,
therefore, are deemed to have an indirect beneficial interest in the shares
of GTC Common Stock and GTC Preferred Stock owned by GFP. Robert E. Gill is
also a director of GTC and Jeffrey T. Gill is a director and an executive
officer of GTC. All of the shares of GTC Preferred Stock held by GFP have
been pledged by GFP to secure the credit facility between GTC and Bank One,
Kentucky, NA.
(2) Consists solely of those shares which are attributed to Robert E. Gill and
his spouse because of their combined 39.0% ownership interest in GFP.
(3) Consists solely of those shares which are attributed to Jeffrey T. Gill and
his spouse because of their combined 32.4% ownership interest in GFP.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires GTC's officers and directors, and
persons who beneficially own more than 10% of a registered class of GTC's equity
securities, to file reports of ownership
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<PAGE>
on Form 3 and changes in ownership on Forms 4 and 5 with the Commission and the
NASD. Federal securities regulations require that officers, directors and
greater than 10% shareholders furnish GTC with copies of all Section 16(a) forms
they file.
Based solely on GTC's review of the copies of such forms and written
representations furnished to GTC by these reporting persons, GTC believes that
during 1996 and the preceding year, its officers, directors, and greater than
10% beneficial owners were in compliance with all applicable filing
requirements.
BUSINESS OF GTC
General
GTC provides advanced manufacturing, engineering and testing services
to OEMs of electronic products. GTC was incorporated on December 27, 1988 as a
subsidiary of GFP. On May 21, 1989, GTC acquired certain assets and assumed
certain liabilities of the Defense Communications and Production division of
Honeywell, Inc. ("Honeywell").
GTC custom manufactures complex circuit card assemblies, subsystems
and end-user products for use in a wide variety of markets, including
automotive, commercial avionics, computer, government systems, industrial
electronics, networking, space, and telecommunications. GTC offers its customers
traditional turnkey manufacturing solutions, including basic design services
(such as board layout, production and testing), materials management (including
selection, sourcing and procurement), automated assembly and quality assurance.
GTC also provides high-level engineering services, such as design services,
software development and product redesign. GTC believes that its ability to
offer its customers a broad range of sophisticated engineering services, which
complement its basic manufacturing services, gives it a competitive advantage.
On June 30, 1997, GTC sold its wholly-owned foreign operations to SCI
Systems, Inc. These foreign operations consisted of GTC Mexico and GTC Brazil.
Substantially all of the assets of Metrum, Inc. ("Metrum"), a wholly-owned
subsidiary of GTC, were divested to Bell during the first quarter of 1996, and
GTC immediately ceased all operations at its Littleton, Colorado facility. Also
during the first quarter of 1996, GTC sold substantially all of the assets
related to its Badger line of name brand products.
For a discussion of GTC recent developments see "Recent Developments."
Strategic Initiatives
GTC initiated several highly focused programs during 1995, 1996 and
1997 to incrementally improve its manufacturing processes, communications
systems, materials management, contract management, accounting and marketing
efforts. GTC remains optimistic that additional improvements to its operating
performance will continue to be realized by the business as a result of these
programs.
GTC successfully reduced the break-even point for its commercial
manufacturing operations in Tampa, Florida by taking steps to reduce its
headcount and overhead costs during 1995, 1996 and 1997. While GTC recorded
certain expenses in 1995, 1996 and 1997 as a result of taking these steps,
management believes the steps will facilitate GTC's efforts to return to
profitability.
During 1995 and 1996, GTC successfully divested all of its name brand
products businesses in order to enable GTC to focus its resources on GTC's core
contract manufacturing capabilities. GTC generated a total of approximately
$16,400,000 in cash from the sale of these assets. The instrumentation products
business unit was sold to Bell in February 1996 for $10,104,000.
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Industry Background
OEMs originally utilized contract manufacturing sources primarily to
reduce labor costs in the production of electronic assemblies and to provide for
additional manufacturing capacity in times of peak demand. These early contract
manufacturers typically were employed on a consignment basis in which the OEM
provided the circuit and production designs, procured all components and
performed the final product testing. During this period of time, the industry
was characterized by small regional job shops with few, if any, competitors of
significant size.
During the early 1980s, the commercialization of the personal computer
began to fuel substantial growth in the electronics industry and with it, the
growth of contract manufacturers. At about the same time, significant
advancements were made in manufacturing know-how as surface mount technology
("SMT") began to replace pin-through-hole technology as the preferred method for
the assembly of circuit boards. SMT provided the OEMs with significant cost
savings while at the same time increasing the performance of their products.
Many of the benefits, especially those relating to cost reduction, were passed
along to consumers, which GTC believes helped to sustain the double-digit growth
of the electronics industry into the 1990s.
Despite the rapid growth in the industry, the market soon became
characterized by intense price competition and demands for more frequent product
introductions. In an effort to survive and meet the requirements of the
marketplace, OEMs were forced to restructure and focus their resources on core
strategic competencies, such as product development, software design and
marketing, and to outsource capital intensive manufacturing operations to
specialists. As contract manufacturers began to perform more turnkey services,
the relationship between OEMs and contract manufacturers became more strategic
in nature, with the two now linked in a close relationship to deliver cost
effective, high-quality products quickly to the marketplace.
GTC believes that the strategic use of contract manufacturers has
provided significant benefits to both the contract manufacturers and to the
OEMs. Contract manufacturers have benefited from the economies of scale
resulting from larger and more frequent orders from OEMs, as well as from the
strategic and operational benefits arising from the stability of longer-term
relationships. OEMs in turn have benefited from significantly reduced
manufacturing costs, reduced levels of investment in property, plant, equipment
and working capital, reduced cycle time for new product introductions, increased
flexibility, and access to the most advanced manufacturing technologies
available.
GTC believes that the contract manufacturing industry has grown
through a series of phases during which first price and then quality became the
principal methods of differentiation among contract manufacturers. During the
1980s, the low-overhead, low-cost, high-volume contract manufacturer was in
favor and served primarily to provide OEMs with low cost products. By the early
1990s, price alone no longer served to differentiate contract manufacturers and
quality became an important additional selling point. Contract manufacturers
which were able to deliver products to exacting international standards of
quality began to grow more rapidly. As a result, the contract manufacturing
industry began to standardize around global quality certifications, such as ISO
9000.
GTC believes that the contract manufacturing industry is entering a new
phase now that both low price and high quality are considered to be entry level
standards for companies in the industry. In the future, successful contract
manufacturers will become increasingly important in helping OEMs to introduce
new products, faster, more frequently and with a greater number of features than
in previous generations. The production volumes are expected to be smaller with
the products targeted at specialized niche markets. GTC believes that its
ability to provide OEMs with product design enhancements, quick-turn prototyping
and complete system solutions will be critical to the future success of its
relationships with OEMs.
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The contract manufacturing industry is characterized by a high degree
of customer and market concentration and is anticipated to grow significantly.
GTC believes that the integration of digital and wireless technologies into new
products will help generate growth from several markets outside of the computer
industry, such as telecommunications, industrial electronics and medical
instrumentation. In addition to growth in the electronics industry, GTC believes
that further growth in the contract manufacturing industry will come from an
increasing need for OEMs to reduce product time to market and to manage more
complex product designs, inventories and component procurements.
Business Strategy
GTC's objectives are to provide a broad range of value-added
manufacturing and engineering services that will help its customers compete more
effectively in the marketplace and to improve GTC's financial performance
through implementation of the following strategies.
Focused Manufacturing and Service Capability
GTC intends to increase its focus on the federal systems electronic
assembly market, which represents an area of significant experience for GTC. GTC
intends to service the niche market of commercial electronic assembly customers
with characteristics similar to the federal systems business. These
characteristics include customers with low-to-medium volume requirements, high
complexity, frequent changes and numerous board styles.
Value-Added Services
GTC intends to continue to utilize its advanced engineering services
capabilities to provide its customers with complete system solutions which
exceed the scope of traditional turnkey services provided by most contract
manufacturers. GTC believes that the ability to provide its customers with these
services, which include software development, ASIC design, prototype
development, product re-engineering, feature enhancement, product ruggedization,
cost reduction, product miniaturization, and EMI interference and Tempest
shielding is instrumental in moving new products to market quickly and
regularly.
Diversified Customer Base
GTC intends to pursue customers across a number of industries in order
to avoid the customer and market concentration that is more typical of other
companies in the industry. GTC's quality and technical certifications enable it
to provide a series of advanced design engineering and manufacturing services
for customers requiring special certifications, such as NASA, FAA and MIL-STD,
in markets that are not considered to be traditional sources of business for
contract manufacturers. GTC believes that its customer base is well-balanced and
that it will strengthen its prospects for future growth by serving a variety of
customers and industries.
Manufacturing Services
GTC provides its customers with a broad variety of solutions, from
low-volume prototype assembly to high-volume turnkey systems manufacturing. GTC
employs a multi-disciplined engineering team which provides comprehensive
manufacturing and design support to customers. The turnkey systems solutions
offered by GTC include design conversion and enhancement, materials procurement,
system assembly, testing and final system configuration.
GTC's manufacturing capabilities are enhanced by up-to-date
manufacturing techniques. Among these techniques are just-in-time procurement
and continuous flow manufacturing (where practical), statistical process
control, total quality management, stringent and real-time engineering change
control routines, and total cycle time reduction techniques. GTC has also
invested in integrated manufacturing
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support systems to maximize performance. These systems provide a continuous flow
of information from the initial estimating phase of a project through final
shipment.
GTC provides varied levels of testing services, ranging from in-
circuit test, burn-in test and environmental stress screening to functional
test. Increasingly, GTC is asked to provide final systems assembly ("box build")
services. As a result, testing procedures and equipment are required to ensure
that finished products are tested to standards that reflect their required use.
Engineering Services
GTC utilizes its advanced engineering services capabilities to provide
its customers with complete system solutions that exceed the scope of
traditional turnkey services provided by most contract manufacturers. GTC
believes that the ability to provide its customers with these services,
including software development, design services, prototype development, product
re-engineering, feature enhancement, product ruggedization, cost reduction,
product miniaturization, and EMI interference and shielding is instrumental in
moving new products to market quickly and regularly. GTC's engineers perform
design work on a contract basis for a number of customers, including those
requiring high levels of security clearance.
Customers and Marketing
GTC has pursued the diversification of its market segments and
customer base and has sought relationships with leading OEMs in the markets it
serves. GTC's principal sources of new business originate from the expansion of
existing relationships, referrals and direct sales through senior management,
direct sales personnel, and market specialists. Supported by the executive
staff, market specialists identify and attempt to develop relationships with
potential OEM customers who meet a certain profile, which includes financial
stability, industry leadership, need for technology driven turnkey
manufacturing, anticipated unit volume growth and long-term relationship
potential.
GTC's sales efforts are further supported by advertising in numerous
trade media and sales literature and by promotions. GTC promotes the concept of
manufacturing relationships with each of its customers. The focus of this
relationship is centered on the belief that GTC and its employees must become an
essential part of every customer's operations. To facilitate this relationship,
GTC employs program managers who are dedicated to one or more customers to
ensure that customer contract requirements are met and that information critical
to the success of each program is communicated and acted upon in an expedient
fashion. This requires that program managers maintain close contact with GTC
employees and with the customers that they support, communicating project status
in addition to resolving specific issues which arise. GTC believes that this
dedicated relationship is critical to meeting the dynamic needs of its
customers.
During the last three years, GTC's largest individual commercial
customer was IBM, which accounted for approximately 14%, 16%, and 16%, of GTC's
revenue in 1994, 1995 and 1996, respectively, and 14% for the nine months ended
September 28, 1997. Sales to International Game Technology represented
approximately 10% of GTC's revenue in 1996. GTC's sales of products and services
to United States government agencies represented approximately 19%, 20% and 17%
of GTC's revenue in 1994, 1995 and 1996, respectively, and 25% for the nine
months ended September 28, 1997. GTC's sales of products and services to a
variety of prime contractors under contract with the federal government, in the
aggregate, represented approximately 11%, 9% and 12% of GTC's revenue in 1994,
1995 and 1996, respectively, and 12% for the nine months ended September 28,
1997.
Competition
GTC operates in a highly competitive environment and competes against
numerous domestic and foreign manufacturers. GTC's competitors include AVEX
Electronics, Benchmark Electronics, DII Group, IEC Electronics, Jabil Circuit,
Plexus, SCI Systems, Sanmina, and Solectron. In addition, GTC may encounter
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competition in the future from other large electronic manufacturers which are
selling, or may begin to sell, contract manufacturing services. GTC may also
face competition from the manufacturing operations of its current and potential
OEM customers, which GTC believes continue to evaluate the merits of
manufacturing products internally versus the value of contract manufacturing.
GTC believes that the primary basis of competition in its targeted markets
are time to market, capability, price, manufacturing quality, advanced
manufacturing technology and reliable delivery. GTC believes that it generally
competes favorably with respect to each of these factors. To remain competitive,
GTC must continue to provide technologically advanced manufacturing services,
maintain world-class quality levels, offer flexible delivery schedules, deliver
finished products on a reliable basis and compete favorably on the basis of
price.
Backlog
GTC's order backlog at December 31, 1996 was approximately $65 million as
compared to order backlog at December 31, 1995 of approximately $124 million.
Order backlog at September 28, 1997 was $73.1 million. Backlog consists of firm
purchase orders and commitments, substantially all of which is expected to be
filled within twelve months. However, since orders and commitments may be
rescheduled or canceled, backlog is not a definitive indicator of future
financial performance.
Suppliers
GTC procures components from a broad group of suppliers, determined on an
assembly-by-assembly basis. Some of the products and assemblies manufactured by
GTC require one or more components that may be available from only a single
source. Also, certain components are allocated in response to supply shortages.
GTC attempts to ensure the continuity of supply of these components. In cases
where unanticipated customer demand or supply shortages occur, GTC attempts to
arrange for alternative sources of supply, where available, or defers planned
production to meet the anticipated availability of the critical component. In
some cases, supply shortages will substantially curtail production of all
assemblies using a particular component. In addition, at various times there
have been industry-wide shortages of electronic components, especially memory
and logic devices. While GTC has not experienced significant material shortages
in the recent past, such shortages could produce significant short-term
interruptions of GTC's future operations.
GTC believes it fosters fair and strong relationships with its suppliers.
These relationships are built upon a history of GTC providing suppliers with
accurate and timely information when ordering materials and responding to the
suppliers' requirements. In return, suppliers are expected to provide
competitive material prices with flexible delivery schedules, to honor their
commitments for delivery of materials on time, and to meet or exceed all quality
requirements.
Research and Development
GTC invested $5.2 million, $3.0 million and $0.3 million, in research and
development in 1994, 1995 and 1996, respectively, and $0.1 million for the nine
months ended September 28, 1997. The investments made prior to 1996 were made
primarily in support of GTC's name brand products line of business,
substantially all of which was divested by GTC by the end of the first quarter
of 1996. GTC also utilizes its research and development capability to develop
processes and technologies for the benefit of its customers. GTC plans to
perform a limited amount of research and development in the future. GTC cannot
forecast the impact of such expenditures upon the overall success of its
sales.
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Proprietary Rights, Patents and Trademarks
GTC regards its manufacturing processes and circuit designs as proprietary
trade secrets and confidential information. GTC relies largely upon a
combination of trade secret laws, agreements with its OEM customers, internal
security systems, confidentiality procedures and employee agreements to maintain
the trade secrecy of its circuit designs and manufacturing processes. Although
GTC takes steps to protect its trade secrets, there can be no assurance that
misappropriation will not occur.
GTC licenses some technology from third parties which it uses in providing
manufacturing services to its OEM customers. GTC believes that such licenses are
generally available on commercial terms from a number of licensers. Generally,
the agreements governing such technology grant GTC nonexclusive, worldwide
licenses with respect to the subject technology and terminate upon a material
breach by GTC.
Although GTC does not believe that its circuit designs or manufacturing
processes infringe on the proprietary rights of third parties, there can be no
assurance that third parties will not assert infringement claims against GTC in
the future with respect to current or future designs or processes. Any such
assertion may require GTC to enter into a royalty arrangement or result in
costly litigation.
Certifications
GTC's Tampa facility is certified to ISO 9001, the international standard
for quality assurance in design, development, production, installation and
service. GTC also meets the National Aeronautics and Space Administration's
NHB5300.4 specification for space programs and numerous military specifications
including MIL-Q-9858A (quality program), MIL-STD-2000A (high-reliability
soldering), MIL-STD 45662 (calibration and metrology) and MIL-STD-801D
(environmental testing). GTC also meets certain manufacturing and quality
practices required by the Federal Aviation Administration. GTC will continue to
utilize these certifications to provide service to these and other niche
markets.
Government Regulation
GTC's operations are subject to certain federal, state and local regulatory
requirements relating to environmental, waste management, health and safety
matters. Management believes that GTC's business is operated in material
compliance with applicable regulations promulgated by the Occupational Safety
and Health Administration and the Environmental Protection Agency and
corresponding state agencies which, respectively, pertain to health and safety
in the workplace and the use, discharge and storage of chemicals employed in the
manufacturing process. Current costs of compliance are not material to GTC.
However, new or modified requirements, not presently anticipated, could be
adopted creating additional expense for GTC.
GTC's former leased facility located on Waters Avenue in Tampa, Florida is
currently subject to remediation activities related to ground water
contamination by methylene chloride and other volatile organic compounds which
occurred prior to GTC's lease of the facility. Through a series of evaluations,
it was determined that ground water contamination is also present off site. In
December 1986, Honeywell, Inc. ("Honeywell"), a prior operator of the facility,
entered into a consent order (the "Consent Order") with the State of Florida
Department of Environmental Regulation under which Honeywell agreed to take
certain corrective action to remediate the contamination. These remediation
activities include the installation of recovery wells and the treatment of the
contaminated ground water. Under the Consent Order, Honeywell assumed the
responsibility for initiating and conducting these remediation activities,
including the annual cost associated with these remediation activities,
currently estimated to be up to $500,000 per year. At the time GTC purchased the
assets of the business located on this leased site, it obtained an agreement
from the seller, Philips Electronics North America Corporation, to indemnify and
hold GTC harmless with respect to such matters. GTC vacated the property in
December 1994, at which time its lease obligation expired.
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In the course of Metrum's acquisition of certain assets of a business
from Alliant Techsystems, Inc. ("Alliant"), Metrum and GTC became aware of
ground water contamination that will require remedial action at the facility
where the business was located in Littleton, Colorado. Evaluations indicate that
certain chlorinated solvents were disposed of on the site by a previous owner of
the business and these solvents have contaminated the ground water. In December
1995, a remediation system approved by the state of Colorado was put in place
and it is estimated that the clean-up cost could reach as high as $20 million in
the aggregate. As part of the agreement for the purchase and sale of the assets
of the business, Alliant agreed to indemnify and hold Metrum harmless with
respect to such matters. Metrum leased the facility from Alliant and continued
operations on the site until substantially all of the assets of the business
were sold on February 9, 1996. Metrum and GTC agreed to indemnify and hold Bell
harmless with respect to such matters.
Employees
As of September 28, 1997, GTC employed approximately 700 employees,
all of which were employed in the United States. GTC employed approximately 80
people in finance, sales or administration, 520 people in manufacturing
operations and 100 people in various engineering functions. Approximately 350 of
GTC's employees are represented by the International Brotherhood of Teamsters
collective bargaining unit. In 1993, GTC and the International Brotherhood of
Teamsters signed a five-year contract. GTC believes its relationships with its
employees are good.
Geographic Segments
All of GTC's operations for 1994, 1995 and 1996 and for the nine
months ended September 28, 1997 were located in the United States, Mexico and
Brazil. Following the sale of the international operations on June 30, 1997,
GTC's operations are located only in the United States.
Executive Officers
The following table contains certain information concerning the
directors and executive officers of GTC.
<TABLE>
<CAPTION>
Name Age Position with GTC and Principal Occupation
- -------------------- --- ------------------------------------------
<S> <C> <C>
Jeffrey T. Gill..... 41 Director; President and Chief Executive Officer of GFP
Robert E. Gill...... 72 Director; Chairman of the Board of GFP and President and Chief Executive Officer of Bell
Sidney R. Petersen.. 67 Director; Retired; formerly Chairman and Chief Executive Officer of Getty Oil, Inc.
Henry F. Frigon..... 63 Director; Retired; formerly President and Chief Executive Officer of BATUS, Inc.
Roger W. Johnson.... 63 Director; Former Administrator of U.S. General Services Administration
Thomas W. Lovelock.. 54 Director, President and Chief Executive Officer
David D. Johnson.... 41 Vice President of Finance and Chief Financial Officer
James G. Cocke...... 50 Vice President and Manager of Federal Systems Division
</TABLE>
All directors hold office until the next annual meeting of
shareholders or until their successors are elected and qualified. Officers are
appointed by the GTC Board and serve at the discretion of the GTC Board.
Jeffrey T. Gill has served as Chairman of the Board of GTC since 1992
and as a director of GTC since 1989. Mr. Gill co-founded GFP and has served as
its President and Chief Executive Officer since 1992 and as a director since its
inception in 1983. Mr. Gill also serves as a director and officer of several
other
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privately-held companies which are either direct or indirect subsidiaries of
GFP. Jeffrey T. Gill is the son of Robert E. Gill.
Robert E. Gill has served as a director of GTC since 1989 and as
Chairman of the Board of GTC from 1989 to 1992. Mr. Gill served as President and
Chief Executive Officer of GTC from October 1996 to February 1997, at which time
he was elected to serve as the President and Chief Executive Officer of Bell.
Mr. Gill co-founded GFP and has served as its Chairman of the Board since its
inception in 1983 and as President and Chief Executive Officer from 1983 through
1992. Mr. Gill also serves as a director and officer of several other privately-
held companies which are either direct or indirect subsidiaries of GFP. Robert
E. Gill is the father of Jeffrey T. Gill.
Sidney R. Petersen has served as a director of GTC since 1994. Mr.
Petersen retired as Chairman of the Board and Chief Executive Officer of Getty
Oil, Inc. in 1984. Mr. Petersen served Getty Oil in a variety of increasingly
responsible management positions since 1955. Mr. Petersen currently serves as
director of Avery Dennison Corporation, Union Bank of California, Seagull Energy
Corporation, and NICOR, Inc. and its subsidiary, Northern Illinois Gas Company.
Henry F. Frigon has served as a director of GTC since 1994. Mr. Frigon
is currently a private investor and business consultant. Mr. Frigon most
recently served as Executive Vice President-Corporate Development and Strategy
and Chief Financial Officer of Hallmark Cards, Inc. from 1990 through 1994. Mr.
Frigon retired as President and Chief Executive Officer of BATUS, Inc. in March
1990, after serving with that company for over 10 years. Mr. Frigon currently
serves as director of H & R Block, Inc., CompuServe, Inc., Buckeye Cellulose
Corporation and Dimon, Inc.
Roger W. Johnson has served as a director of GTC since 1996. Mr.
Johnson most recently served as Administrator of the United States General
Services Administration from 1993 through 1996. Mr. Johnson served as Chairman
and Chief Executive Officer of Western Digital Corporation, a disk drive and
electronics manufacturing company, from 1982 through 1993. Mr. Johnson currently
serves as a director of Array Microsystems, AST Computer, Elexys International,
Inc., Insulectro, JTS Corporation and Needham Funds, Inc.
Thomas W. Lovelock has served as a director of GTC since March 1997
and as President and Chief Executive Officer of GTC since February 1997. He was
also Vice President of Operations of GTC from 1989 until 1993. From 1995 to
1997, Mr. Lovelock served as President and Chief Executive Officer of Bell. From
1993 until 1995, Mr. Lovelock served as Executive Vice President and Chief
Operating Officer of Bell.
David D. Johnson has served as Vice President and Chief Financial
Officer of GTC since March 1996. From 1993 to 1996, Mr. Johnson served as
Financial Director, Far East South for Molex Incorporated, which manufactures
electronic components and tooling used by OEMs. He served Molex in various other
management positions since 1984. Prior to 1984, Mr. Johnson was a senior manager
for KPMG Peat Marwick in San Francisco, California.
James G. Cocke has served as Vice President and Manager of Federal
Systems Division of GTC since March 1997. From 1995 to 1997, Mr. Cocke was
Division Manager of the Services Division of Bell. Prior to 1995, he was
employed as Vice President of Finance for Science Applications International
Corporation, which designs and produces ruggedized computer equipment, CAE Link
Corporation, which designs and produces military flight simulators, and for
Smiths Industries, which designs and manufactures a wide range of electronic
equipment.
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Should the Reorganization be completed, the GTC Board is expected to
consist of Henry F. Frigon, Jeffrey T. Gill, Robert E. Gill, R. Scott Gill,
William L. Healey, Roger W. Johnson, Sidney R. Petersen and Robert Sroka. The
executive officers of GTC are expected to be as follows:
Robert E. Gill......... Chairman
Jeffrey T. Gill........ President and Chief Executive Officer
Richard L. Davis....... Senior Vice President
R. Scott Gill.......... Senior Vice President and Secretary
David D. Johnson....... Vice President, Chief Financial Officer and Treasurer
Anthony C. Allen....... Vice President and Controller
Thomas W. Lovelock currently serves as President and Chief Executive
Officer of GTC, James G. Cocke currently serves a Vice President and Manager of
Federal Systems Division of GTC, and Michael L. Schuman currently serves as
Secretary of GTC. Mr. Lovelock and Mr. Schuman will serve in similar capacities
after the Reorganization is completed in the new wholly-owned subsidiary that
will contain the operations of GTC, while Mr. Cocke will serve as Vice President
and Chief Financial Officer of this new subsidiary. No other key personnel
changes are currently anticipated.
Properties
GTC's headquarters are in a 308,000 square foot office and
manufacturing facility on Malcolm McKinley Drive in Tampa, Florida which GTC
occupies under a ten-year lease expiring in April 2002 (with two additional
five-year options).
Legal Proceedings
GTC is, from time to time, a party to litigation which arises in the
normal course of its business. There is no litigation pending or, to GTC's
knowledge, threatened which, if determined adversely, would have a material
adverse effect upon the business or financial condition of GTC. However, in
connection with GTC's Metrum subsidiary, GTC has been notified that a claim of
up to $4.0 million may be asserted against Metrum related to contracts allegedly
acquired by Metrum from Alliant Techsystems, Inc. While GTC believes that Metrum
has valid defenses to such a claim, an adverse determination on the claim would
have a material adverse effect on GTC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF GTC
Overview
GTC provides advanced manufacturing, engineering and testing services
to OEMs of electronic products and also to certain end users such as United
States government agencies. These services include the manufacture of circuit
card assemblies, subsystems and end-user products for use in a wide variety of
markets. In providing these services, GTC is affected by a number of internal
and external factors including, but not limited to, materials management and
availability, working capital needs, variability of customer requirements,
production start-up costs, industry trends and competition.
GTC's operating results are also dependent upon the efforts and
abilities of key managerial and technical employees and upon its ability to
attract and retain qualified employees. During 1996 and during the first quarter
of 1997, GTC experienced turnover of certain key employees, including its
President and Chief Executive Officer and other executive officers of GTC. See
"Business of GTC--Executive Officers" for additional information regarding the
executive officers of GTC.
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Three and Nine months ended September 28, 1996 and September 29, 1997
Results of Operations
The following tables set forth certain data, expressed as a percentage of
revenue, from GTC's Consolidated Statements of Operations for the three and
nine-month periods ended September 29, 1996 and September 28, 1997.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------- ----------------------
Sept. 29, Sept. 28, Sept. 29, Sept. 28,
1996 1997 1996 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue...................................... 100.0% 100.0% 100.0% 100.0%
Cost of operations........................... 98.3 102.5 94.5 100.9
----- ----- ----- -----
Gross profit (loss).......................... 1.7 (2.5) 5.5 (0.9)
Selling, general and administrative expense.. 5.0 8.1 4.8 5.9
Research and development..................... -- -- 0.2 0.1
----- ----- ----- -----
Operating (loss) income...................... (3.3) (10.6) 0.5 (6.9)
Interest expense (income), net............... 1.5 (0.5) 1.5 1.3
Other expense (income), net.................. 0.2 (14.9) 0.1 (4.1)
----- ----- ----- -----
(Loss) income before income taxes............ (5.0) 4.8 (1.1) (4.1)
Income tax expense........................... 0.9 -- 0.4 0.1
----- ----- ----- -----
Net (loss) income............................ (5.9)% 4.8% (1.5)% (4.2)%
===== ===== ===== =====
</TABLE>
Revenue for the three months ended September 28, 1997 was $21.6 million, a
decrease of $26.6 million or 55.3% from $48.2 million for the three months ended
September 29, 1996. Revenue for the first nine months of 1997 was $84.5 million,
a decrease of $95.9 million or 53.2% from $180.4 million for the first nine
months of 1996. During the first nine months of 1997 as compared to the year
earlier period, GTC's domestic manufacturing and engineering operations
decreased by $59.0 million. This decline in revenue is associated with decreased
customer demand and the termination or completion of certain contracts.
The decreased customer demand and termination or completion of contracts
experienced by GTC principally reflects the change in out-sourcing strategies of
three customers which resulted in a $44.7 million reduction of revenue during
the first nine months of 1997 as compared to the first nine months of 1996. One
such customer utilized the contract manufacturing services of GTC on a temporary
basis while it increased its capacity to provide its manufacturing services
internally. The other two customers with a change in out-sourcing strategy moved
their manufacturing solutions overseas. After considering the effect of these
contract curtailments, GTC believes its consolidated revenue of $21.6 million in
the third quarter of 1997 represents a sustainable level of quarterly revenue
for GTC during the fourth quarter of 1997 and during 1998. Additionally, GTC
believes that its existing customer base and related contracts, together with
additional customers GTC is pursuing, will provide modest growth opportunities
during the next twelve months. However, GTC cannot make any assurances with
regard to its ability to attract or retain new and existing customers or that
any related increase in volume or revenue will significantly improve the results
of operations or financial position of GTC.
GTC's divestiture of its name brand products business units during the
first quarter of 1996 and the recognition of $4.1 million of revenue for a
favorable claim settlement during the second quarter of 1996 accounted for an
additional $5.7 million of the $59.0 million decline in domestic revenue during
1997. Changes in customer demand on other less significant contracts
collectively accounted for the remaining $8.6 million of the decreased domestic
revenue in 1997 as compared to 1996.
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GTC's Latin American operations contributed $16.9 million and $48.2 million
to revenue in the first nine months of 1997 and 1996 respectively. Revenue from
GTC's Latin American operations in the first nine months of 1997 as compared to
the year earlier period decreased $31.3 million, principally associated with the
completion or curtailment of certain contracts during the second half of 1996
and the first quarter of 1997 and GTC's divestiture of all of its Latin American
operations effective June 30, 1997, as more fully described in Note 3 of the
accompanying Interim Consolidated Financial Statements. During the year ended
December 31, 1996 and the nine month period ended September 28, 1997, the Latin
American operations accounted for approximately $1.3 million and $2.2 million,
respectively, of the operating loss of GTC. While a portion of those losses were
attributable to costs allocated from the Tampa headquarters, GTC expects the
divestiture of the Latin American operations and the corresponding reduction in
operating costs attributable to the Latin American operations will have an
overall positive impact on operating income. GTC has redirected its resources in
order to successfully improve the quality and profitability of its domestic
operations. However, GTC cannot make any assurances that its strategy to focus
on its core domestic manufacturing and engineering business will result in
improved profitability.
Gross loss for the three months ended September 28, 1997 was $0.5 million
or 2.5% of revenue compared to gross profit of $0.8 million or 1.7% of revenue
during the three months ended September 29, 1996. Gross loss for the first nine
months of 1997 was $0.7 million or 0.9% of revenue compared to a gross profit of
$9.8 million or 5.5% of revenue in the first nine months of 1996. The net
decrease in year-to-date gross profit during the first nine months of 1997 was
principally comprised of a $2.0 million decrease in gross profit from GTC's
domestic manufacturing and engineering services (excluding the name brand
products business), a $3.8 million decrease in gross profit from GTC's Latin
American operations and a $4.8 million decrease from the name brand products
business. The primary cause for the decline in gross profit (excluding the name
brand products business decline) was the fact that decreased revenue levels
experienced by GTC, as discussed above, caused GTC to underutilize its
manufacturing capacity. Additionally, included in the second quarter gross
profit in 1996 was a favorable name brand products business claim settlement of
$4.1 million. The reduced gross profit in 1997 was also caused by low margin
contracts and cost overruns on certain contracts. During the third quarter of
1997, GTC evaluated the status of certain loss contracts and recognized $0.8
million of additional costs for these contracts. These costs arose during the
third quarter due to shortages of materials, delays in attaining certain
contract milestones and increased warranty estimates based on returned product.
GTC also recorded, in the third quarter of 1997, a provision for excess and
obsolete inventories totaling $0.6 million. This provision was recorded to
reflect the aging of the residual inventory resulting from contract terminations
or curtailments and GTC's unsuccessful efforts to fully recover certain costs
from its customers. GTC has modified its marketing strategies to focus on
obtaining more profitable contractual agreements to mitigate the effects of the
low margin contracts.
Selling, general and administrative expense for the three months ended
September 28, 1997 decreased to $1.7 million or 8.1% of revenue from $2.4
million or 5.0% of revenue for the three months ended September 29, 1996.
Selling, general and administrative expenses for the nine months ended September
28, 1997 decreased to $5.0 million or 5.9% of revenue from $8.6 million or 4.8%
of revenue for the nine months ended September 29, 1996. The $3.6 million
decrease in selling, general and administrative expenses during the nine-month
period ended September 28, 1997 as compared to the year earlier period is
principally attributable to the aforementioned divestitures and an overall lower
business volume. Additionally, for these same periods, GTC experienced a lower
level of warehouse relocation costs and accounts receivable provisions during
1997 which accounted for a reduction in selling, general and administrative
expense of $0.3 million and $0.7 million, respectively. With regard to warehouse
relocation costs, in the second quarter of 1996, GTC implemented a cost saving
strategy to integrate the materials warehousing function into its main Tampa
facility. During the second quarter of 1996, GTC initially estimated that costs
associated with this strategy would amount to $0.4 million, comprised of
planning and interior demolition costs, labor associated with the move of the
warehouse function to the main facility, the impairment of existing leasehold
improvements in the warehouse and estimated lease obligations net of estimated
sublease revenue. GTC later revised this estimate to $0.9
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million in the fourth quarter of 1996 principally to reflect additional costs
associated with moving the warehouse function and the inability to secure a
subtenant at favorable lease rates. During the third quarter of 1997, GTC again
assessed the probability of subleasing the space at favorable rates and
increased the provision for the warehouse relocation by $0.1 million to a total
of $1.0 million. The provision for doubtful accounts in the first nine months of
1997 and 1996 of $0.3 million and $1.0 million, respectively, represented a
change in estimate of collectibility following extensive communications with the
respective customers regarding non-payment of invoices and conclusions or
settlements reached during the period regarding ultimate collectibility.
Additional reductions in selling, general and administrative expense are
associated with the decreased business volume, GTC's divestiture of its Latin
American operations and cost saving initiatives implemented in 1996 and 1997,
including workforce reductions.
Research and development expense for the nine month period ended September
28, 1997 was $0.1 million. GTC's manufacturing and engineering services
businesses currently require low levels of research and development.
Interest expense for the three and nine month periods ended September 28,
1997 decreased $0.9 million and $1.6 million, respectively, from the comparable
prior year periods. GTC's reduced level of operations has required a lower level
of working capital and, therefore, reduced debt requirements. Additionally, on
June 30, 1997 GTC utilized the proceeds from the sale of its Latin American
operations to repay its debt with its principal lender. In connection with this
repayment, the lender forfeited a portion of its warrants previously expensed by
GTC, resulting in an additional reduction in interest expense amounting to $0.1
million.
Other income during the three month period ended September 28, 1997
includes a gain on the sale of GTC's Latin American operations totaling $3.2
million, which is more fully described in Note 3 of the Interim Consolidated
Financial Statements of GTC.
Income tax expense for the nine month period ended September 28, 1997 and
the three and nine month periods ended September 29, 1996, consists primarily of
income taxes on earnings in foreign countries.
Liquidity and Capital Resources
Net cash used in operating activities was $5.3 million for the first nine
months of 1997. GTC's accounts receivable decreased by $8.2 million during the
first nine months of 1997 principally because of the lower level of revenue
during 1997 compared to 1996 revenue amounts. While revenue declined during the
first nine months of 1997, GTC's inventory increased by $4.7 million because of
purchases GTC made in order to fulfill certain future contractual requirements.
GTC utilized the proceeds of the accounts receivable collections and the
proceeds from the sale of its Latin American operations, in part, to reduce its
accounts payable and accrued liabilities by $5.4 million. While GTC has
strengthened its working capital and improved the timeliness of its accounts
payable payments, it continues to maintain extended payment terms with its
suppliers. GTC has long-term relationships with a majority of its suppliers and
has been successful in maintaining reasonable credit terms with its supplier
base.
Net cash provided by investing activities was $17.4 million for the first
nine months of 1997. GTC received $18.0 million in connection with the sale of
its Latin American operations. Of this amount, GTC expects to repay $2.9 million
to the buyer based upon the value of net assets of its Latin American operations
at June 29, 1997, subject to final determination in accordance with the purchase
and sale agreement. Capital expenditures for the first nine months of 1997
amounted to $0.6 million. Current commitments for capital expenditures for the
remainder of 1997 are approximately $0.3 million.
Net cash used in financing activities was $8.7 million for the first nine
months of 1997. The financing activities were comprised of proceeds from the
issuance of GTC's Preferred Stock of $2.5 million off-set by repayments of debt
of $11.2 million. On June 30, 1997, GTC utilized the proceeds from the sale of
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its Latin American operations to repay all amounts outstanding under the Credit
Agreement with its primary lender and terminated the Credit Agreement.
In connection with execution of the Credit Agreement in the first quarter
of 1996, GFP invested $1.0 million in GTC in exchange for 374,531 shares of
GTC's Common Stock. GTC also issued warrants to the lender under the credit
agreement for purchase of 1,200,000 shares of GTC's Common Stock for $.01 per
share. Of the 1,200,000 warrants, 200,000 became exercisable at closing and
125,000 became exercisable on March 31, 1997. As a result of GTC repaying all
amounts payable under the Credit Agreement on June 30, 1997, the lender
forfeited the remaining 875,000 warrants.
In connection with a March 28, 1997 amendment to the Credit Agreement, GFP
invested $2.5 million in GTC in exchange for 250,000 shares of Preferred Stock.
The Preferred Stock pays quarterly dividends of 8.5% per annum and is redeemable
at the option of the holder upon repayment by GTC of all of its outstanding
Credit Agreement indebtedness. The Preferred Stock is also convertible and each
share may be exchanged for 8.1 shares of GTC's Common Stock.
On November 14, 1997, GTC joined in a credit agreement with several wholly-
owned subsidiaries of GFP. The credit agreement with Bank One, Kentucky, NA
totals $45 million, including a $30 million revolving credit loan and a $15
million term loan. The revolving credit loan matures on September 30, 2002. The
term loan matures in quarterly installments commencing on December 31, 1997 with
a payment of $500,000, occurring quarterly thereafter with payments of $750,000
and terminating on September 30, 2002 with a final payment of $1.0 million.
Revolving credit availability may be used on a shared basis for the general
corporate purposes of GTC and the other GFP subsidiaries and for ordinary
operating expenses of GFP. GTC believes that sufficient resources, including
resources to be provided by this financing and resources expected to be provided
by operations (with consideration given to the estimated modest revenue growth
as previously discussed), will be available to meet its cash requirements
through the next twelve months. If such resources otherwise prove insufficient
to provide GTC with adequate funding for its working capital, management will
undertake actions to mitigate the effect of such deficiencies. Such actions
could consist of financing initiatives, potential asset sales, and other actions
relative to maximizing the liquidity of GTC's financial resources. Cash
requirements for periods beyond the next twelve months depend on GTC's
profitability, its ability to manage working capital requirements and its growth
rate.
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Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Results of Operations
The following table sets forth certain data from GTC's Consolidated
Statements of Operations for the years ended December 31, 1994, 1995 and 1996
expressed as a percentage of revenue:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Revenue...................................... 100.0% 100.0% 100.0%
Cost of operations........................... 86.8 98.4 97.0
----- ----- -----
Gross profit................................. 13.2 1.6 3.0
Selling, general and administrative expense.. 7.5 7.2 5.1
Research and development..................... 1.9 1.1 0.1
----- ----- -----
Operating income (loss)...................... 3.8 (6.7) (2.2)
Interest expense............................. 0.7 1.1 1.3
Other expense................................ 0.2 0.2 0.0
----- ----- -----
Income (loss) before income taxes............ 2.9 (8.0) (3.5)
Income taxes (benefit)....................... 1.2 (1.5) 0.3
----- ----- -----
Net income (loss)............................ 1.7% (6.5)% (3.8)%
===== ===== =====
</TABLE>
Revenue
Revenue decreased by 17.9% to $224.7 million for 1996, as compared to
$273.6 million for 1995. The net decrease in revenue of $48.9 million is related
to the decrease in GTC's name brand product line revenue of $31.2 million (net
of contract claim revenue recognized in 1996 of $4.1 million) and a decrease in
the Tampa-based manufacturing and engineering services operations of $36.1
million, partially offset by an increase in sales by GTC's international EMS
operations of $18.4 million.
The decrease in name brand product line revenue results from the
disposition of substantially all of the assets of Metrum and GTC's Badger
business. These dispositions, which occurred during 1995 and 1996, are more
fully discussed under the caption "Disposition of Assets" included herein below.
The decrease in the name brand products revenues was partially offset by the
successful settlement of a $4.1 million name brand product contract claim during
the second quarter of 1996.
The Tampa manufacturing services business continued to suffer from
underutilized capacity. A large government contract was completed late in 1994
and orders on two commercial contracts were reduced during 1995 due to the
customers' need to reduce their inventory levels. GTC also lost opportunities
with two commercial customers due to a change in outsourcing strategies which
resulted in the loss of a significant level of planned business. During 1996,
GTC's domestic operations also experienced the impact of reduced demand from
certain semiconductor industry customers and also suffered from increased
facility underutilization related to certain contract terminations. In an effort
to mitigate the impact of these reduced contract requirements, management
implemented cost reduction strategies and increased its Tampa marketing efforts
on high mix/low volume and advanced packaging services.
GTC's Latin American manufacturing services business grew
significantly during 1995 and 1996. GTC entered into a manufacturing services
agreement in July 1995 to provide contract manufacturing services in Brazil to
GTC's largest commercial customer, IBM. The Brazilian operation began
contributing to revenue and operating profit during the third quarter of 1995.
During 1996, GTC's presence in Brazil
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expanded as a result of the start-up of a second Brazilian facility. While GTC
also fostered growth at its Mexican facility during 1995, certain Mexican-based
contracts were terminated during 1996, creating underutilized capacity at that
facility. In response to this underutilized capacity, GTC retained new marketing
management and has increased its high volume manufacturing marketing efforts.
To enhance GTC's prospects for achieving an adequate revenue load in
future periods, management structured the marketing and sales function to
optimize GTC's capabilities at each of its manufacturing facilities. The
marketing efforts for GTC's domestic, Mexican and Brazilian manufacturing
services operations were focused on high mix/low volume and advanced packaging,
high volume manufacturing, and box build services, respectively.
The overall decrease in revenue during 1996 resulted in significant
work force reductions during the year of approximately 36%. These reductions
resulted in decreased direct and indirect costs associated with both
international and domestic operations including decreases in employee benefit
plan expenses. The impact of the decreased work force is considered in the
following analyses of gross profit and selling, general and administrative
expense.
Gross Profit
Gross profit increased to $6.8 million for 1996, compared to $4.5
million for 1995. The gross margin increased to 3.0% in 1996 as compared to 1.6%
in 1995. The net increase of $2.3 million represents an increase in gross profit
in the Tampa-based manufacturing and engineering services operations of $9.0
million and an increase from increased sales by GTC's Latin American operations
of $1.4 million, partially offset by a decrease associated with GTC's
divestiture of name brand product lines of $8.1 million. The name brand product
line claim referred to above contributed $4.1 million to 1996 gross profit.
Therefore, adjusting for the effect of this claim, the gross margin percentage
in 1996 remained relatively consistent with the 1995 percentage. Included in the
costs of operations in 1996 are costs amounting to $7.4 million which are more
fully discussed below.
GTC's ability to generate the expected level of profitability on
contracts is highly dependent on its ability to effectively manage materials.
GTC recognized inventory adjustments of $3.6 million, including $1.7 million
related to two contract terminations during the year and $1.9 million related to
excessive domestic and foreign scrap and related physical inventory adjustments.
GTC performed its physical inventory counts on a semi-annual basis during 1996
and will continue to evaluate its inventory control and physical inventory count
procedures to minimize the risk of material adjustments in the future.
Management also evaluated the profitability on certain long-term contracts and
recorded costs associated with changes in contract estimates of loss contracts
of $1.0 million during the second quarter of 1996 and $0.8 million in the fourth
quarter. Other estimate changes on long-term contracts were also recognized
during 1996. These estimate changes principally resulted from GTC's inability to
achieve expected labor costs or material costs during the year. During 1996, GTC
also recognized charges associated with asset disposals and retirements of $0.9
million and amortization of lease payments due at the end of the respective
lease terms of $0.5 million. The $0.9 million charge for asset disposals and
retirements resulted from a fourth quarter review of GTC's fixed assets, in
which certain assets were not readily identifiable or were deemed to be surplus
as a result of the corresponding reduction in GTC's operations. The $0.5 million
charge for lease payments reflected the inception-to-date amortization of end-
of-lease payments for certain leases which originated during 1994. Severance
costs also negatively impacted gross margin by $0.4 million in 1996.
During 1995, GTC also recognized significant charges to its
operations, which are more fully discussed under the caption "Year ended
December 31, 1995 compared to year ended December 31, 1994" included herein
below.
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Selling, General and Administrative Expense
Selling, general and administrative expense was $11.5 million or 5.1%
of revenue in 1996, as compared to $19.7 million or 7.2% of revenue for 1995.
This decrease principally represented a $6.2 million reduction of costs
associated with the sale of substantially all of the assets of Metrum. Decreased
administrative expenses also resulted from continued cost reduction initiatives
including work force reductions during 1996. Cost reduction activities
implemented at various times during 1995 contributed to the significant cost
reductions realized in 1996 as compared to the full year ended December 31,
1995. These reductions offset the impact of $1.4 million of costs in 1996,
including severance costs of $0.5 million and costs incurred for the expected
closure of a Tampa warehouse of $0.9 million.
With regard to warehouse costs, in the second quarter of 1996 GTC
implemented a cost saving strategy to integrate the materials warehousing
function into its main Tampa facility. The total cost of the move was originally
estimated to be $0.4 million, but an increased cost of $0.5 million was recorded
in the fourth quarter based on actual costs incurred and the review of
additional information regarding sublease strategies.
Selling, general and administrative expense also included $1.0 million
of provisions for doubtful accounts receivable, as compared to $1.3 million
recognized in 1995. The provision for doubtful accounts in both 1995 and 1996
represented a change in estimate of collectibility following extensive
communications with the respective customers regarding non-payment of invoices
and conclusions or settlements reached during the year regarding ultimate
collectibility.
Research and Development
Research and development expense was $0.3 million or 0.1% of revenue
in 1996, as compared to $3.0 million or 1.1% of revenue for 1995. The decrease
reflects the fact that GTC's research and development efforts have historically
been concentrated on the divested name brand products business units. GTC's
manufacturing and engineering services businesses are expected to continue to
require limited levels of research and development in the future.
Interest Expense
Interest expense was $2.9 million or 1.3% of revenue in 1996, as
compared to $2.9 million or 1.1% of revenue in 1995. Interest expense remained
relatively constant with 1995 levels despite a significant reduction in
outstanding debt during 1996. The increased interest rate is partly attributable
to the amortization of warrants issued in the first quarter of 1996 in
connection with an amended and restated credit facility. The increased interest
rate also results from a higher weighted average interest rate incurred in the
second half of 1995 and throughout 1996 on GTC's principal credit facility.
Income Tax Expense
Income tax expense of $0.8 million in 1996 is primarily attributable
to GTC's international operations and Metrum state taxes payable. While an
income tax benefit of $4.0 million was recognized in 1995, as of December 31,
1995, GTC had substantially exhausted the benefits of any income tax loss
carrybacks. Also as of December 31, 1996, GTC has recorded a valuation allowance
for all temporary differences and income tax loss carryforwards.
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Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenue
Revenue decreased by 0.2% to $273.6 million for 1995, as compared to
$274.1 million for 1994. The net change in revenue was derived from an increase
in sales by GTC's expanding Latin American operations offset by a decrease in
sales related to the divestiture of certain of GTC's name brand product lines
during the second quarter of 1995, a decline in sales from the balance of the
name brand product lines and a decrease in sales to commercial customers of
GTC's domestic manufacturing services business.
Gross Profit
Gross profit decreased to $4.5 million for 1995, compared to $36.3
million for 1994. The gross margin decreased to 1.6% in 1995 as compared to
13.2% in 1994. The decline in gross profit is attributable to depressed margins
on GTC's domestic and international manufacturing services and charges during
1995 totaling $11.6 million related to inventories, estimated losses on
terminated contracts, asset disposals, operating lease liabilities and severance
costs. The lower-margin performance on the domestic and international
manufacturing service resulted from the start-up of new contracts in GTC's Tampa
and Mexican operations which replaced certain high-margin contracts completed in
the fourth quarter of 1994. Additionally, a higher percentage of GTC's 1994
revenue was realized from contracts performed with consigned materials at
relatively high gross margins as compared to 1995. During 1994, GTC also
recognized gross profit of $4.5 million resulting from favorable changes in
contract and claim estimates and $2.7 million from the settlement of a
government contract termination claim.
Charges recognized by GTC during the second and fourth quarters of
1995 were the result of evaluations conducted by management in the respective
quarters of its reserves for excess and obsolete inventory. GTC charged $2.0
million and $3.2 million to cost of operations during the second and fourth
quarters of 1995, respectively, to increase its reserve for excess and obsolete
inventories. Included in the fourth quarter charge for excess and obsolete
inventories was $2.2 million related to Badger inventories. The Badger product
line was divested in March 1996.
Concurrent with its review of inventory levels during the second
quarter of 1995, management also evaluated a number of its contracts which were
not meeting GTC's volume or margin targets. The review resulted in improved
pricing on certain contracts; however, it also resulted in decisions, mutually
agreed to with customers, to terminate certain unprofitable contracts. GTC
charged $1.8 million and $0.5 million to cost of operations during the second
and fourth quarters of 1995, respectively, to recognize estimated losses on
terminated or unprofitable contracts.
During the fourth quarter of 1995, management evaluated the
probability of a contribution to future earnings from a certain specialized
manufacturing equipment item currently under lease. The operating lease was
entered into in November 1994 and GTC has since been unsuccessful in attracting
customers requiring this specific technology. During the implementation of the
technology center concept during the fourth quarter of 1995, management
determined that this equipment did not adequately match the strategies of any of
the technology centers. Following its review of the business opportunities for
this equipment, management elected to pursue the disposition of the equipment
through a sale or assignment of lease. Management charged $1.1 million to cost
of operations during the fourth quarter of 1995 to recognize the net present
value of future costs associated with this lease.
GTC conducted its annual physical inventory count for its domestic and
international manufacturing businesses on October 31, 1995 and December 31,
1995, respectively. Management subsequently completed the reconciliation of its
perpetual inventory records to its physical count which resulted in a fourth
quarter charge to cost of operations of approximately $1.7 million and an
additional inventory adjustment for an accounts payable reconciliation performed
contemporaneously with the physical inventory of $0.8 million.
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The significant difference between the perpetual and physical amounts was not
anticipated by management. GTC also recognized certain other charges during the
fourth quarter totaling $0.5 million related to the disposal of idle
manufacturing equipment.
Selling, General and Administrative Expense
Selling, general and administrative expense was $19.7 million or 7.2%
of revenue in 1995, as compared to $20.6 million or 7.5% of revenue for 1994.
Selling, general and administrative expense decreased due to company-wide cost
reduction initiatives implemented at various times throughout 1995 and the
divestiture of two of Metrum's lines of name brand products during the second
quarter. These reductions offset the impact of a $1.3 million provision for
uncollectible accounts during 1995 (including $0.8 million recorded in the
second quarter following extensive communications with the respective customers
regarding non-payment of invoices and conclusions or settlements reached
regarding ultimate collectibility) and increased costs associated with GTC's
Latin American operations. GTC also recognized certain other charges during the
second quarter totaling $0.6 million related to employee severance costs and
costs associated with an uncompleted business acquisition. GTC also recognized a
charge during the fourth quarter totaling $0.5 million related to the write-off
of terminated financing agreement costs.
Research and Development
Research and development expense was $3.0 million or 1.1% of revenue
in 1995, as compared to $5.2 million or 1.9% of revenue for 1994. Reductions in
research and development expense were implemented in the first quarter of 1995,
and the second quarter Metrum divestitures resulted in further reductions.
Interest Expense
Interest expense was $2.9 million or 1.1% of revenue in 1995, as
compared to $2.0 million or 0.7% of revenue in 1994. Interest expense increased
due to a significant increase in the average debt outstanding and an increase in
GTC's interest rate which occurred during the third quarter of 1995.
Income Tax Expense
Income taxes include current and deferred tax benefits and expense in
1995 and 1994. GTC recorded a $4.4 million valuation allowance against its
deferred tax assets during 1995. GTC also recorded a current tax benefit for the
amount of federal and state income taxes refundable as a result of the 1995
operating loss.
Dispositions of Assets
Beginning in 1995, management focused its attention toward the actions
necessary to return GTC's core manufacturing services business to profitability.
Management believed that the focus of GTC's human and financial resources should
be directed to its core business and, therefore, made decisions during 1995 to
begin the divestiture of substantially all of GTC's line of name brand products.
Another factor considered by management in reaching its decision to divest these
operations was GTC's need to reduce its outstanding debt under its revolving
credit agreement, which resulted in part from non-compliance with its credit
agreement. These divestitures were completed during the first quarter of 1996.
GTC's product offerings historically included a line of name brand
products. All sales of GTC's Metrum subsidiary were considered name brand
products, namely computer peripheral products, digital color imaging products
and instrumentation recording products. GTC also marketed a line of ruggedized
computers under the Badger tradename. Management successfully completed sale
transactions for substantially all of the assets of the peripherals products and
imaging products businesses during the second
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quarter of 1995 and the instrumentation products and Badger products businesses
during the first quarter of 1996. The aggregate sales price of the name brand
products businesses was approximately $18.0 million, which was paid with $16.4
million in cash and a note receivable of $1.6 million. GTC retained
approximately $2.4 million in liabilities associated with the Metrum business,
which liabilities related primarily to certain employee benefits, accrued income
taxes and commissions. GTC retained certain warranty obligations of the Badger
product in addition to performance obligations under a contract with a customer
who is in competition with the buyer of the assets. GTC recorded charges of $0.2
million and $0.3 million to cost of operations and other expense, respectively,
during the second quarter of 1995 related to the Metrum divestitures and a $2.2
million charge to cost of operations during the fourth quarter of 1995 to write
down its Badger inventories to the negotiated sale price. GTC recorded a $0.6
million increase in capital related to the first quarter 1996 instrumentation
products divestiture.
Revenue from GTC's name brand products line, in the aggregate,
typically generated higher gross profit margins than revenue from GTC's
manufacturing and engineering services. However, the development of name brand
products and the maintenance and growth of the market position of these name
brand products require significantly higher amounts of research and development
and selling, general and administrative expenditures than are required by GTC's
manufacturing and engineering services.
Foreign Currency
In addition to its domestic operations, GTC provides manufacturing
services in Brazil and Mexico. GTC recognized foreign currency exchange losses
due to the devaluation of the Mexican new peso, which, in the aggregate,
amounted to $0.5 million or 0.2% of revenue in 1994. Foreign currency
transaction gains and losses in Latin America have generally not been
significant.
Liquidity and Capital Resources
Net cash provided by operating activities was $7.7 million and $9.4
million in 1996 and 1995, respectively. The principal contributors to the
positive operating cash flow in 1996 include recognition and collection of a
name brand products claim, collection of income tax refunds, collection of
accounts receivable and reduced inventory levels. Significant cash payments
reducing accounts payable served to partially off-set the positive contributing
items. At the end of 1995, GTC was substantially beyond its payment terms with
its suppliers. While GTC continued to extend its payments beyond normal terms, a
significant effort was made during 1996 to reduce the days accounts payable were
outstanding, contributing to the overall reduction in accounts payable. GTC has
long-term relationships with a majority of its suppliers and as a result, has
been successful in continuing to work on reasonable credit terms with its
supplier base.
Net cash provided by investing activities was $8.2 million as compared
to net cash used in investing activities of $2.8 million in 1995. Capital
expenditures in 1996 and 1995 were $3.4 million and $8.0 million, respectively.
GTC's investments in manufacturing equipment in both 1996 and 1995 were required
to expand its Latin American capacity, maintain its competitive position and
respond to technological changes. GTC expects its capital expenditures in 1997
to be comparable to or less than 1996 levels. The divestiture of GTC's name
brand product lines during 1996 and 1995 generated net proceeds of approximately
$11.6 million and $5.2 million, respectively.
Net cash used in financing activities was $17.4 million and $5.8
million during 1996 and 1995, respectively. During both 1996 and 1995, GTC
significantly reduced debt outstanding on its primary credit agreement and other
debt. The 1996 reductions were principally provided for by the divestiture of
GTC's name brand products line in the first quarter of 1996, settlement of a
name brand products claim, and by income tax refunds received during the year.
GFP also invested $0.3 million in 1995 to provide funding for the start-up of
GTC's Brazilian operation.
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GTC had a credit agreement in place at the beginning of 1996 with its
bank and thereafter entered into an amendment on March 29, 1996 (the "Credit
Agreement") and a further amendment on March 28, 1997. As more fully discussed
below, the March 27, 1997 amendment (the "Amendment") resulted in, among other
matters, reduced credit availability, an investment from GFP, and more lenient
financial covenants. A revolving credit facility issued under the Credit
Agreement provided credit availability up to $27.5 million through December 1996
and, as amended, provides $13.5 million through March 1998, subject to a
borrowing base consisting of eligible accounts receivable and inventories.
During 1996, GTC fully repaid a $5.0 million note and reduced the principal
outstanding on a $3.3 million term note by $0.6 million. Both of the notes
payable were issued under the Credit Agreement.
In connection with execution of the Credit Agreement in 1996, GFP
invested $1.0 million in GTC in exchange for 374,531 shares of GTC Common Stock.
GTC also issued warrants to the bank to purchase 1.2 million shares of GTC
Common Stock for $.01 per share, 0.2 million of which became vested at closing.
As amended, the Credit Agreement provided for the balance of the warrants to
become exercisable as follows: 125,000 on March 31, 1997; 375,000 on June 30,
1997; 250,000 on September 30, 1997; and 250,000 on December 31, 1997. Vesting
of these warrants was also subject to an acceleration clause included in the
Credit Agreement. The bank forfeited all remaining unvested warrants when GTC
repaid all debt outstanding on June 30, 1997.
130
<PAGE>
OWNERSHIP OF GFP COMMON STOCK
The authorized capital stock of GFP consists of 1,000,000 shares of
GFP Common Stock. As of November 14, 1997, there were 315,953 shares outstanding
which were held by 9 shareholders. The holders of GFP Common Stock are entitled
to one vote per share on all matters to be voted upon by the shareholders except
for the election of directors in which case shareholders may vote cumulatively.
The following table sets forth certain information with respect to
beneficial ownership of the GFP Common Stock as of November 14, 1997, including
beneficial ownership (i) by each person (or group of affiliated persons) who is
known by GFP to beneficially own more than 5% of the shares of GFP Common Stock,
(ii) by each of GFP's directors who owns shares, and (iii) by all directors and
executive officers as a group. Except as otherwise indicated below, the persons
named in the table have sole voting and investment power with respect to all
shares of GFP Common Stock shown as beneficially owned by them.
<TABLE>
<CAPTION>
Shares Beneficially Owned
-------------------------
Name Number Percent
- ---- ------- -------
<S> <C> <C>
Jeffrey T. Gill (1).............................. 102,943 32.3%
455 South Fourth Avenue
Louisville, Kentucky 40202
R. Scott Gill.................................... 88,565 28.0
455 South Fourth Avenue
Louisville, Kentucky 40202
Virginia G. Gill (2)............................. 62,234 19.7
455 South Fourth Avenue
Louisville, Kentucky 40202
Robert E. Gill (3)............................... 61,104 19.3
455 South Fourth Avenue
Louisville, Kentucky 40202
Anthony C. Allen (4)............................. 3,162 *
Richard L. Davis (5)............................. 2,909 *
All directors and executive officers as a group.. 320,917 99.8
</TABLE>
- ------------
* Less than 1%
(1) Includes 253 shares held by Mr. Gill's spouse and 650 shares issuable to
Mr. Gill's spouse under currently exercisable options.
(2) Shares held as trustee for the Virginia G. Gill Trust dated the fourth day
of November 1993, for which Virginia G. Gill has sole voting and investment
power.
(3) Shares held as trustee for the Robert E. Gill Trust dated the fourth day of
November 1993, for which Robert E. Gill has sole voting and investment
power.
(4) Includes 2,200 shares issuable under currently exercisable options.
(5) Includes 2,600 shares issuable under currently exercisable options.
131
<PAGE>
OWNERSHIP OF TUBE TURNS COMMON STOCK
The authorized capital stock of Tube Turns consists of 2,000,000
shares of no par value common stock. As of November 14, 1997, there were
1,307,225 shares outstanding which were held by [145] shareholders. The holders
of Tube Turns Common Stock are entitled to one vote per share on all matters to
be voted upon by the shareholders except for the election of directors in which
case shareholders may vote cumulatively.
The following table sets forth certain information with respect to
beneficial owners of the Tube Turns Common Stock as of November 14, 1997,
including beneficial ownership (i) by each person (or group of affiliated
persons) who is known by Tube Turns to beneficially own more than 5% of the
shares of Tube Turns Common Stock, (ii) by each of Tube Turns' directors who
owns shares, and (iii) by all directors and executive officers as a group. The
persons named in the table have sole voting and investment power with respect to
all shares of the Tube Turns Common Stock shown as beneficially owned by them.
<TABLE>
<CAPTION>
Shares Beneficially Owned
-------------------------
Name Number Percent
- ---- --------- -------
<S> <C> <C>
(a) Certain Beneficial Owners
Group Financial Partners, Inc. (1)............... 1,288,600 98.6%
455 South Fourth Avenue
Louisville, Kentucky 40202
(b) Management
John M. Kramer (2)............................... 32,068 2.4
Russell H. Johnson, Jr. (3)...................... 16,195 1.2
Norman E. Zelesky (4)............................ 6,043 *
Kevin H. Kramer.................................. 75 *
Robert E. Gill (5)............................... 502,554 38.4
Jeffrey T. Gill (6).............................. 417,506 31.9
R. Scott Gill (7)................................ 360,808 27.6
All directors and executive officers as a group.. 1,342,981 99.0
</TABLE>
- ------------
* Less than 1%
(1) GFP directly owns shares of Tube Turns Common Stock. Robert E. Gill,
Jeffrey T. Gill, R. Scott Gill, Virginia G. Gill and Patricia G. Gill own
19.3%, 32.3%, 28.0%, 19.7% and 0.1%, respectively (99.4% in the aggregate),
of the outstanding stock of GFP and, therefore, are deemed to have an
indirect beneficial interest in the shares of Tube Turns Common Stock owned
by GFP. Robert E. Gill, Jeffrey T. Gill and R. Scott Gill are also
directors of Tube Turns. All of the shares of Tube Turns Common Stock held
by GFP have been pledged by GFP to secure the credit facility between Tube
Turns and Bank One, Kentucky, NA, and other parties to the agreement.
(2) Includes 30,000 shares issuable under currently exercisable options.
(3) Includes 15,000 shares issuable under currently exercisable options.
(4) Includes 5,000 shares issuable under currently exercisable options.
(5) Includes 502,554 shares that are attributed to Robert E. Gill and his
spouse because of their combined 39.0% ownership interest in GFP.
(6) Includes 417,506 shares that are attributed to Jeffrey T. Gill and his
spouse because of their combined 32.4% ownership interest in GFP.
(7) Includes 360,808 shares that are attributed to R. Scott Gill because of his
28.0% ownership interest in GFP.
132
<PAGE>
OWNERSHIP OF BELL COMMON STOCK
The authorized capital stock of Bell consists of 1,500,000 shares of
$.01 par value common stock. As of November 14, 1997, there were 869,417 shares
outstanding which were held by [270] shareholders. The holders of Bell Common
Stock are entitled to one vote per share on all matters to be voted upon by the
shareholders.
The following table sets forth certain information with respect to
beneficial owners of the Bell Common Stock as of November 14, 1997, including
beneficial ownership (i) by each person (or group of affiliated persons) who is
known by Bell to beneficially own more than 5% of the shares of Bell Common
Stock, (ii) by each of Bell's directors who owns shares, and (iii) by all
directors and executive officers as a group. The persons named in the table have
sole voting and investment power with respect to all shares of the Bell Common
Stock shown as beneficially owned by them.
<TABLE>
<CAPTION>
Shares Beneficially Owned
-------------------------
Name Number Percent
---- ------- -------
<S> <C> <C>
(a) Certain Beneficial Owners
Group Financial Partners, Inc. (1)............ 842,694 96.9%
455 South Fourth Avenue
Louisville, Kentucky 40202
(b) Management
Edmund J. Laveck (2).......................... 35,832 4.0
Thomas C. Jamieson (3)........................ 5,360 *
Rick A. Affolter (4).......................... 4,000 *
John B. Krauss................................ 1,010 *
Robert Sroka (5).............................. 2,000 *
Robert E. Gill (6)............................ 328,651 37.8
Jeffrey T. Gill (7)........................... 273,033 31.4
R. Scott Gill (8)............................. 235,954 27.1
All directors and executive officers
as a group................................... 885,840 97.1
</TABLE>
- ---------------
* Less than 1%
(1) GFP directly owns shares of Bell Common Stock. Robert E. Gill, Jeffrey T.
Gill, R. Scott Gill, Virginia G. Gill and Patricia G. Gill own 19.3%,
32.3%, 28.0%, 19.7% and 0.1%, respectively (99.4% in the aggregate), of the
outstanding stock of GFP and, therefore, are deemed to have an indirect
beneficial interest in the shares of Bell Common Stock owned by GFP. Robert
E. Gill, Jeffrey T. Gill and R. Scott Gill are also directors of Bell. All
of the shares of Bell Common Stock held by GFP have been pledged by GFP to
secure the credit facility between Bell and Bank One, Kentucky, NA, and
other parties to the agreement.
(2) Includes 30,500 shares issuable under currently exercisable options.
(3) Includes 5,300 shares issuable under currently exercisable options.
(4) Includes 4,000 shares issuable under currently exercisable options.
(5) Includes 2,000 shares issuable under currently exercisable options.
(6) Includes 328,651 shares that are attributed to Robert E. Gill and his
spouse because of their combined 39.0% ownership interest in GFP.
(7) Includes 273,033 shares that are attributed to Jeffrey T. Gill and his
spouse because of their combined 32.4% ownership interest in GFP.
(8) Includes 235,954 shares that are attributed to R. Scott Gill because of his
28.0% ownership interest in GFP.
133
<PAGE>
BUSINESS OF GFP
General
GFP is a private holding company that was founded in 1983 by Robert E.
Gill and Jeffrey T. Gill. The initial strategy of GFP was to acquire divisions
of Fortune 500 companies which were viewed to be underperforming. Once
purchased, GFP's strategy was to install employee profit sharing plans, stock
purchase plans and provide management of the companies with the autonomy to run
the companies as stand-alone enterprises. Each company assumed responsibility
for the management of its own treasury function and, as the acquisition
indebtedness was reduced, management of each company was free to utilize the
balance sheet and excess cash flow of its business to acquire businesses that
were synergistic and/or diversified the risk of its main business operation.
Between 1986 and 1995, GFP acquired thirteen (13) businesses from a
variety of companies. Over the years, these businesses were combined to form
GTC, Bell and Tube Turns. As of November 14, 1997, GFP owned 80% or more of the
common stock of each of Bell, GTC and Tube Turns. The material operating assets
of GFP consist of its investments in these operating companies.
Between 1984 and 1988, GFP also invested in the purchase of commercial
real estate. The objective was to utilize the investment as an inflationary
hedge and to increase the after tax cash flow of GFP by using the accelerated
depreciation then available for real estate to reduce the consolidated taxable
earnings of GFP. GFP formed Unison to manage these properties. In 1995, GFP made
the decision to exit the real estate business and to concentrate the investment
of its resources in support of its other businesses. On February 28, 1997, GFP
completed the sale of its sole remaining commercial property.
It is anticipated that after the completion of the Reorganization,
Robert E. Gill will become the Chairman of GTC and Jeffrey T. Gill will become
the President and Chief Executive Officer of GTC. After consummation of the
Reorganization, the Gill Family will continue to control in excess of 80% of the
shares of the GTC Common Stock.
The Company is currently organized in two business segments: the
Electronics Manufacturing Support Services Segment and the Forged and Fabricated
Products Support Services Segment.
The Electronics Manufacturing Support Services Segment ("Electronics
Services") provides custom manufacturing and related design and quality
assurance services to its customers in the high technology electronics industry.
The Company's Electronics Services operations are conducted by GTC and Bell,
which collectively offer comprehensive solutions for the engineering, design,
manufacture, qualification and service demands of modern electronic systems,
subsystems and end products used by its customers. The operations of Datatape,
which were acquired by the Company on November 14, 1997, will be included with
the Company's Electronics Services (see "Recent Developments").
The Forged and Fabricated Products Manufacturing Segment ("Forging and
Fabrication Services") provides custom manufacturing services to its customers
in the energy, powertrain and aerospace industries. The Company's Forging and
Fabrication Services are conducted exclusively by Tube Turns.
134
<PAGE>
Electronics Services
Group Technologies Corporation
See "Business of GTC."
Bell Technologies, Inc.
The Company
Bell was founded as F. W. Bell, Inc. in 1944 to market products that
measure an electrical circuit's performance through the uninterrupted
measurement of its electromagnetic field. Over the ensuing forty years, Bell
occupied a small but profitable niche selling gaussmeters and probes into a wide
variety of industrial and research applications. Bell was acquired in 1986 by
GFP from Allegheny International, Inc. ("Allegheny").
In December 1992, Bell expanded beyond its core product business with the
acquisition of Viking Laboratories and Metrum Services from Alliant.
Concurrently with these acquisitions, GFP merged Continental Testing
Laboratories, Inc. (another company purchased from Allegheny in 1986) into Bell.
Bell expanded further in 1995 with the acquisition of Associated Testing
Laboratories from Publicker Industries, Inc. and again in 1996, with the
acquisition of Teslatronics from its principal shareholder and the acquisition
of Metrum from GTC.
Today, Bell provides electronic products and services to the high
technology segment of the electronics industry. Bell manufactures and
distributes a line of data acquisition and storage products (Metrum), current
sensors, gaussmeters and probes (F. W. Bell), and provides a wide variety of
electronic testing (Associated, Continental/Viking) and calibration services
(Metrum Services). The President and Chief Executive Officer of Bell is Robert
E. Gill. Mr. Gill will serve in this position until a new Chief Executive
Officer is identified. Rick A. Affolter is Bell's Vice President and Chief
Financial Officer and John B. Krauss is Vice President and General Manager of
Metrum.
Sales and Marketing
Bell sells its products and services through its direct sales force, as
well as through a series of domestic and international sales representatives and
distributors. Bell utilizes a central marketing organization to insure that a
consistent marketing message is delivered to all customers across all divisions.
National sales organizations exist in all divisions to serve the specific needs
of the varying customer base. In addition to the centralized marketing
organization, the managers of each of the testing and calibration branches
provide sales and marketing coverage for their specific geographical regions.
Bell's sales efforts are supported by advertising in numerous trade media, sales
literature, participation in trade shows and direct mail promotions.
Bell considers its presence in international markets important to its
success in attracting new customers, to retaining existing customers, and to
servicing certain customers' manufacturing facilities outside of the U.S.,
principally in the Pacific Rim. Bell markets and sells its products overseas
primarily through independent sales representatives. Bell's overseas sales are
subject to risks common to many technology export activities, such as the
imposition of government controls, the need to comply with a variety of foreign
and U.S. export laws, political and economic instability, trade restrictions,
changes in tariffs and taxes, and the greater difficulty associated with the
administration of business oversees.
135
<PAGE>
Customers
Bell's customers include Allied Signal, Bailey Controls, Boeing, Honeywell,
General Electric, ITT, Lockheed-Martin, Westinghouse, Fluke, General Motors,
Hughes Aircraft, John Deere, various agencies of the U.S. government, as well as
hundreds of smaller customers located in various countries around the world.
Bell's principal sources of new business originate from the expansion of
existing relationships, referrals and direct sales through senior management,
direct sales personnel, distributors and sale representatives. Bell considers
repeat business to be important to its success and strives to maintain close
relationships with its customers. No single customer accounted for 10% or more
of revenue in any of the past three years.
Competition
The market for Bell's products and services is highly competitive and is
divided among a large number of companies, most of which provide only regional
and/or local coverage. Bell believes that the amount of competition can vary in
any given market based upon the technical capabilities and characteristics of
the products and services offered and the local needs of the individual
customer. Bell faces competition from a wide variety of large and small
companies, including Ampex, Loral, Lake Shore Cryotronics, LEM USA, GE, AT&T,
Simco, National Technical Services and QPL.
Employees
Bell has approximately 539 employees. Many of these employee's have
specialized skills that are of great value to Bell. The future success of Bell
will depend in large part upon its ability to attract and retain highly skilled
technical, managerial, sales, financial and marketing personnel. Bell has never
experienced a work stoppage or strike and none of its employees are represented
by a union or covered by a collective bargaining agreement. Bell believes that
its relationships with its employees are good.
Properties
Bell owns a 62,000 square foot facility situated on ten acres of land on
Hanging Moss Road in Orlando, Florida. Bell's principal executive offices and
corporate headquarters are located in this facility, along with various testing,
calibration and manufacturing operations. The electronic testing division of
Bell leases an aggregate of 94,000 square feet in facilities located in Arizona,
California, Massachusetts and New Jersey. The repair and calibration division
leases offices in Arizona, California, Georgia, Illinois, Maryland,
Massachusetts, Michigan, Ohio and Texas, and has approximately 76,000 square
feet under lease. The instrumentation division leases approximately 70,000
square feet in a single facility located in Colorado. This facility in Colorado
is subject to certain environmental contamination. See "Business of GTC--
Government Regulation."
Lease commitments for these facilities are short term, ranging in length
typically from one to three years. Management believes that its existing
facilities are in good condition and are suitable and adequate to meet its
requirements for the foreseeable future and that suitable additional or
substitute space will be readily available as needed. Most of the manufacturing
and testing equipment, fixtures and furnishings are owned by Bell and are
considered by it to be modern, efficient and adequate for Bell's immediate
requirements. Bell believes that its operations are in compliance in all
material respects with requirements relating to the environmental quality and
energy conservation.
Legal Proceedings
Bell is, from time to time, a party to litigation which arises in the
normal course of business. There is no litigation pending or, to Bell's
knowledge, threatened which, if determined adversely, would have a material
adverse effect upon the business or financial condition of Bell.
136
<PAGE>
Forging and Fabrication Services
Tube Turns Technologies, Inc.
The Company
Tube Turns was founded in 1927 by the Girdler Corporation and
originally manufactured elbows and fittings for high pressure oil and gas
pipelines. Tube Turns has been a participant in the forgings market for over
fifty years and continues to benefit from wide-spread name recognition. Tube
Turns was acquired in 1988 by GFP from Sumitomo Metals and in 1991 was merged
with Tri-Tech, a company that had been purchased by GFP from Sumitomo in 1986.
Today, Tube Turns is a contract manufacturer of forged products and
proprietary piping components for use in a wide variety of markets, including
the energy, power train and aerospace industries. Tube Turns manufactures heavy
duty truck axles, aircraft engine cylinders and shafts, high pressure closures
for storage tanks, insulated joints for underground piping, and numerous other
forged and fabricated products. The President and Chief Executive Officer of
Tube Turns is John M. Kramer, the Executive Vice President and Chief Operating
Officer is Russell H. Johnson, Jr. and the Controller is Norman E. Zelesky.
Sales and Marketing
Tube Turns serves a broad range of Fortune 500, specialty and niche
companies in a wide variety of markets, including the energy, aerospace and
power train industries. Tube Turns depends in large part on repeat business and
its ability to retain customers for extended periods of time to insure the
financial success of the company. Tube Turns' principle sources of new business
originate from the expansion of existing relationships, inquiries stemming from
the company's name being found on end-user specification lists, referrals and
direct sales. The executive staff also identifies and attempts to develop
relationships with project managers and potential customers who meet a certain
profile.
Tube Turns markets its products to potential customers through senior
management, direct sales personnel and independent representatives worldwide.
Tube Turns identifies prospective customers through networking in the industry
and attempts to develop long-term business relationships. Though competition is
intense for new accounts, once an account is won, it is generally retained
unless Tube Turns does not meet the needs of the customer. Prospective accounts
are identified through networking in the industry, outside sales efforts to get
on end user specification lists requiring suppliers to use Tube Turns' products,
direct contact with pipeline project managers, advertising in trade journals and
through direct mail. Most new business is received from inquiries due to being
on end user specification lists. Tube Turns is currently marketing most heavily
in the Southwest and Northeast corridors of the U.S. and internationally. Though
virtually all the company's products are used internationally, many companies
working on the international pipelines incorporating Tube Turns' products are
located in the Southwest and Northeast corridor of the United States.
Customers
Tube Turns' major customers include Rockwell, John Deere, Caterpillar,
TCM, Pratt & Whitney, Dow Chemical, Exxon, Shell and Smith Systems. Tube Turns'
two largest customers are Rockwell and John Deere, which accounted for 13.5% and
14.0% of total revenue, respectively, during 1996. Tube Turns markets it line of
proprietary products to hundreds of small customers in the energy, gas
transmission and chemical industries.
137
<PAGE>
Competition
Tube Turns faces substantial competition in its chosen market segments
from both established competitors and potential new entrants. The company's
major competitors include Commercial Forge, Midwest Forge, Fox Valley Forge and
Portland Forge. Tube Turns believes that its name, its reputation for being a
very responsive, low-cost supplier and the quality of its products broadens its
appeal to local, national and international customers. In the market for
proprietary products, the company's major competitors include GD Engineering,
Huber Yale, Perry Equipment, Thaxton, EPI, Bi-Braze and Alltech. Tube Turns also
faces international competition from companies including TD Williamson in Great
Britain, Prochind and Zunt in Italy, RMA in Germany, and Hydratech in Mexico.
Tube Turns believes that its name, reputation, niche in the high pressure piping
market and ability to both fabricate and machine its products broadens its
appeal to local, national and international customers.
Employees
Tube Turns employs approximately 174 persons, the majority of which
belonged to one of three unions. Many of these employees have specialized skills
of value to the company. Tube Turns' future success will depend in large part
upon its ability to attract and retain highly skilled engineering, technical,
managerial, sales, financial, and marketing personnel. Tube Turns believes its
relationships with non-union employees to be good.
Tube Turns employs approximately 128 union workers represented by
three unions. The United Steelworkers of America has 114 members, the
International Brotherhood of Electrical Workers has 4 members, and the
International Association of Machinists and Aerospace Workers has 10 members.
The current union contracts expire in June 2000 and have set wages and benefits.
In June 1995, Tube Turns experienced a one-week work stoppage by the United
Steelworkers of America prior to the signing of the current contract with that
union. The company believes its relationships with its union employees are good.
Properties
The headquarters of Tube Turns are located in a 383,000 square foot
office and manufacturing facility at 2820 West Broadway in Louisville, Kentucky.
Tube Turns owns its headquarters facility, as well as an unoccupied 58,000
square foot facility that is being offered for sale. Tube Turns believes that
its existing facilities are in good condition and are suitable and adequate to
meet its requirements for the foreseeable future and that suitable additional or
substitute space will be available as needed. All of the manufacturing
equipment, fixtures and furnishings are owned by the company and are considered
by the company to be efficient and adequate for the company's immediate
requirements. The facility of Tube Turns was subject to environmental
contamination involving underground storage tanks by a predecessor owner. Tube
Turns has obtained a $1.0 million indemnity from Sumitomo Metal Industries,
Ltd., Sumitomo Corporation and Sumitomo Corporation of America for these
matters, substantially all of which has been expended. Tube Turns believes,
however, that such contamination has been substantially remediated and that any
further costs of remediation, if any, will not be material.
Legal Proceedings
Tube Turns is, from time to time, a party to litigation which arises
in the normal course of its business. Other than as discussed below, there is no
litigation pending, or to Tube Turns' knowledge, threatened which, if determined
adversely, would have a material adverse effect upon the business or financial
condition of Tube Turns. Tube Turns is a co-defendant in two lawsuits described
under the heading "Risk Factors" in this Joint Proxy Statement/Prospectus which,
if determined adversely, could have a material adverse effect on Tube Turns
business and financial condition. However, Tube Turns believes that it has valid
defenses in such litigation.
138
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF GFP
The following discussion and analysis is based on the Consolidated
Financial Statements of GFP which include the accounts of GFP and its majority-
owned subsidiaries. GFP's majority-owned subsidiaries for all periods presented
include GTC, Bell and Tube Turns and certain other entities engaged in the
ownership and operation of commercial real estate properties. GFP has divested
its ownership in all of its real estate operations and, accordingly, these
operations have been accounted for as discontinued operations in the
Consolidated Financial Statements of GFP for all periods presented.
For segment reporting purposes, the operations of GTC and Bell are
included in Electronics Services and Tube Turns' operations are included in
Forging and Fabrication Services (see "Business of GFP"). Segment discussion is
included for revenue and operating income in the following discussion and
analysis of GFP's consolidated results of operations. The following tables
present revenue and operating income data for GFP's two industry segments:
<TABLE>
<CAPTION>
Revenue
Nine months ended
Years ended December 31, September 30,
--------------------------------------------- -----------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ------------- ------------
Amount % Amount % Amount % Amount % Amount %
-------- --- -------- --- -------- --- -------- --- -------- ---
(in thousands, except percent data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Electronics Services.................. $303,179 93 $305,119 93 $283,915 92 $222,803 92 $136,739 86
Forging and Fabrication Services...... 23,148 7 23,858 7 24,683 8 18,160 8 22,497 14
-------- --- -------- --- -------- --- -------- --- -------- ---
Total revenue......................... $326,327 100 $328,977 100 $308,598 100 $240,963 100 $159,236 100
======== === ======== === ======== === ======== === ======== ===
</TABLE>
Income (Loss) before Gain on Issuance of Stock by Subsidiary, Income Taxes,
Minority Interests and Discontinued Operations
<TABLE>
<CAPTION>
Nine months ended
Years ended December 31, September 30,
----------------------------------------------- -----------------------------
1994 1995 1996 1996 1997
-------------- -------------- ------------ ------------- -------------
Amount % Amount % Amount % Amount % Amount %
------- --- -------- --- ------- --- ------- --- ------- ---
(in thousands, except percent data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Electronics Services............................... $12,302 90 $(15,975) -- $ (501) -- $ 4,473 86 $(1,391) --
Forging and Fabrication Services................... 1,402 10 1,280 -- 1,225 -- 707 14 1,750 --
------- --- -------- --- ------- --- ------- --- ------- ---
Operating income(loss)............................. 13,704 100 (14,695) 100 724 100 5,180 100 359 100
=== === === === ===
Interest expense, net.............................. (2,558) (3,397) (3,979) (3,549) (1,724)
Corporate and other income (expense), net(a)....... 65 (317) 617 505 3,432
------- -------- ------- ------- -------
Income (loss) before gain on issuance of stock by
subsidiary, income taxes, minority interests and
discontinued operations........................... $11,211 $(18,409) $(2,638) $ 2,136 $ 2,067
======= ======== ======= ======= =======
</TABLE>
- -------------
(a) Includes general corporate expenses, gains and losses on disposals of
assets and miscellaneous income and expense.
Due to the relative size of GTC as compared to the balance of GFP's
consolidated operations, the following discussion and analysis should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations of GTC" included elsewhere in this Joint Proxy
139
<PAGE>
Statement/Prospectus. The following discussion and analysis should also be read
in conjunction with the "Selected Historical Consolidated Financial Data of
GFP," the "Selected Unaudited Pro Forma Combined Financial Data" and the
Consolidated Financial Statements of GFP and accompanying notes included
elsewhere in this document.
Nine months ended September 30, 1996 and 1997
Revenue for the first nine months of 1997 was $159.2 million, a
decrease of $81.8 million or 33.9% from $241.0 million for the first nine months
of 1996. The decrease in revenue is due to a $95.9 million decline in revenue at
GTC, which is associated with decreased customer demand and termination or
completion of certain contracts. Revenue from GTC's Latin American operations in
the first nine months of 1997 as compared to the year earlier period decreased
$31.3 million, principally associated with the completion or curtailment of
certain contracts during the second half of 1996 and the first quarter of 1997
and the divestiture of GTC's Latin American operations effective June 30, 1997.
The significant decline in revenue at GTC was partly offset by increased sales
of services and related products by Bell, resulting in a net decrease in revenue
of $86.1 million in Electronics Services. Electronics Services' percentage of
consolidated revenue for the nine months ended September 30, 1997 decreased to
86% from 92% for the comparable prior year period. Forging and Fabrication
Services continued its trend of stable revenue growth for the comparable nine
month periods, increasing from $18.2 million in 1996 to $22.5 million in 1997.
The increase in Forging and Fabrication Services revenue is attributable to
increased volume in the production and shipments of a forged product.
Selling, general and administrative expenses were $21.7 million, or
13.6% of revenue for 1997 as compared to $21.1 million, or 8.7% of revenue for
1996. The components of the year-to-year change include an increase of $0.5
million in expenses directly traceable to Forging and Fabrication Services
associated with additional volume and an increase of $1.0 million in operating
expenses incurred that are allocable to GFP's two industry segments. These
increases were partly offset by a reduction in expenses of $0.9 million directly
traceable to Electronics Services associated with the decrease in volume in 1997
as compared to 1996.
Operating income was $0.4 million for the nine months ended September
30, 1997 as compared to $5.2 million for the comparable prior year period. The
$4.8 million decrease in operating income was driven by the depressed level of
gross profit generated by the substantially lower revenue base. Electronics
Services' operating income decreased by $5.8 million during the comparable year-
to-year periods. In addition to a 39% decline in Electronic Services revenue,
the 1996 nine month period also included the recognition of $4.1 million of
operating profit at GTC related to a favorable claim settlement. Forging and
Fabrication Services' operating income improved by $1.0 million as a result of
obtaining additional business in the forging operations at improved margins as
well as reducing operating costs.
Interest expense for the first nine months of 1997 decreased to $1.7
million from $3.5 million for the comparable prior year period. GTC's reduced
level of operations has required a lower level of working capital and,
therefore, reduced debt requirements.
Other income during the period ended September 30, 1997 includes a
gain on the sale of GTC's Latin American operations totaling $3.2 million, after
giving consideration to an expected repayment to the buyer of $2.9 million,
which is subject to final determination to be made in accordance with the
purchase and sale agreement.
Income tax expense for the nine months ended September 30, 1997
consists principally of currently payable state income taxes on the stand-alone
taxable income of Tube Turns and Bell and foreign income taxes on the taxable
income of GTC's Latin American operations.
GFP recorded the minority shareholders' proportionate share of the net
loss of GTC for the nine month periods as a reduction in the consolidated loss
before discontinued operations.
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<PAGE>
Results of operations of GFP's real estate segment are presented as
discontinued operations in the consolidated statements of operations. The
divestiture of real estate properties occurred in the second quarter of 1996 and
the first quarter of 1997 of the comparable nine month periods.
Liquidity and Capital Resources
Net cash used in operating activities was $0.7 million for the nine
months ended September 30, 1997. Accounts receivable decreased by $7.6 million
due primarily to the reduction in revenue at GTC. Inventories increased by $5.3
million due primarily to the increase in purchases at GTC to fulfill certain
future contractual requirements. GFP also reduced accounts payable by $5.9
million, primarily attributable to increased cash availability and a
corresponding reduction in balances with suppliers. These changes in working
capital accounts are exclusive of the changes resulting from the sale of the
Latin American operations of GTC.
Net cash provided by investing activities was $35.2 million for the
nine months ended September 30, 1997. GFP made capital expenditures of $4.1
million in the nine months ended September 30, 1997 as compared to $5.2 million
in the year earlier period. The reduction in capital expenditures is related to
efforts to minimize capital expenditures at GTC due to its underutilized
capacity. Included in net cash provided by investing activities in 1997 is $39.6
million of proceeds from the disposal of assets, of which $18 million is due to
the disposition of the Latin American operations of GTC and the balance is
primarily due to the disposition of the remaining real estate owned by GFP. The
disposition of the real estate assets has been accounted for in the statement of
operations as discontinued operations.
Net cash used in financing activities was $30.3 million for the nine
months ended September 30, 1997. The mortgage on the real estate sold in the
first quarter of 1997 was repaid which accounted for an $18.7 million reduction
in debt. On June 30, 1997, GTC utilized $11.2 million of the proceeds from the
sale of its Latin American operations to repay all amounts outstanding under the
credit agreement with its primary lender and terminated that credit agreement.
On March 21, 1997, GFP, through a newly formed subsidiary, BT
Holdings, entered into a $30 million credit agreement with Bank One, Kentucky,
NA to provide a credit facility to Bell and Tube Turns. On November 14, 1997,
the credit agreement was amended and expanded to include GTC and to provide
funding for the acquisition of Datatape. The credit agreement, as amended,
totals $45 million, including a $30 million revolving credit loan and a $15
million term loan. The revolving credit loan matures on September 30, 2002. The
term loan is payable in quarterly installments through the scheduled maturity
date of September 30, 2002. Proceeds from the March 1997 loan were used to repay
the outstanding debt obligations of Bell and Tube Turns. Revolving credit
availability may be used for the general corporate purposes of GTC, Bell, Tube
Turns and Metrum-Datatape and for ordinary operating expenses of GFP.
GFP believes that sufficient resources, including the amended BT
Holdings credit agreement and resources provided by the sale of GTC's Latin
American operations, will be available to meet its cash requirements through the
next twelve months. Cash requirements for periods beyond the next twelve months
depend on GFP's consolidated profitability, its working capital requirements,
its capital expenditure requirements and its rate of growth.
Year ended December 31, 1995 and 1996
Revenue for 1996 was $308.6 million, a decrease of $20.4 million or
6.2% from $329.0 million for 1995. The overall decrease in revenue reflects
several changes in GFP's business which occurred during 1995 and 1996.
Electronics Services' revenue decreased by $21.2 million from 1995 to 1996,
representing a 7% decrease, while Forging and Fabrication Services' revenue
increased by $0.8 million, representing a 3% increase. The primary components of
the change in Electronics Services' revenue are an increase in foreign
operations of $18.4 million offset by a reduction in domestic manufacturing
services operations of $36.1 million.
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<PAGE>
Revenue at the Mexico facility increased due to a large contract which
began in the second half of 1995, while the Brazil operation commenced
operations in the third quarter of 1995. The majority of the domestic
manufacturing services revenue decrease was related to a reduction in customer
demand and to decisions by management to cancel certain non-profitable contracts
during 1995. Revenue for 1996 also includes $4.1 million of revenue derived from
a favorable contract claim settlement.
A decrease in consolidated selling, general and administrative
expenses of $1.7 million contributed to an improvement in GFP's operating
profit. Reductions in the fixed and variable costs of the Tampa contract
manufacturing facility which began in 1995 were continued in 1996.
Operating income in 1996 improved to $0.7 million from an operating
loss of $14.7 million for 1995. The $15.4 million improvement resulted from
increased profitability for both of GFP's industry segments. The largest
component of the improved profitability related to Electronics Services, which
reported an operating loss of $16.0 million in 1995 as compared to an operating
loss of $0.5 million in 1996. Gross margins from the contract manufacturing
business improved significantly as provisions for obsolete inventories, contract
estimate changes and severance costs charged to operations during 1996 were
lower than those provisions made in 1995. Additionally, the impact of the $4.1
million favorable contract claim settlement was included in its entirety in
gross profit and operating income for 1996. Forging and Fabrication Services
accounted for operating income of $1.3 million in 1995 and $1.2 million in 1996.
Interest expense in 1996 increased to $4.0 million from $3.4 million
for the comparable prior year period. Interest increased despite the reduction
in debt due primarily to an increased interest rate at GTC and due to the
amortization of warrants issued in the first quarter of 1996 in connection with
the GTC credit agreement.
GFP divested certain facilities consisting of excess manufacturing and
office space associated with Forging and Fabrication Services in 1996 and
recognized a gain of $0.8 million which is included in other income.
Income tax expense in 1996 consists of currently payable income tax of
$0.7 million for state income taxes on the stand-alone taxable income of Tube
Turns and Bell and foreign income taxes on taxable income of GTC's Latin
American operations. Additionally, approximately $0.9 million of deferred
federal income tax expense was recognized during 1996 as a result of taxable
temporary differences. Income tax expense in 1995 included the recognition of a
valuation allowance of $4.4 million against the consolidated deferred tax assets
of GFP and a current tax benefit for federal and state income taxes refundable
which were generated by GTC's operating loss.
GFP recorded the minority shareholders' proportionate share of the net
loss of GTC for both years as a reduction in the consolidated loss before
discontinued operations.
Results of operations of GFP's real estate segment are presented as
discontinued operations in the consolidated statements of operations. The
divestiture of real estate properties occurred in the fourth quarter of 1995 and
the second and fourth quarters of 1996.
Liquidity and Capital Resources
Net cash provided by operating activities was $14.1 million for 1996.
Accounts receivable and inventories decreased by $2.0 million and $15.2 million,
respectively, due to the decline in volume in GFP's domestic contract
manufacturing operations and improved control and management of inventories. GFP
also reduced accounts payable by $17.8 million, primarily attributable to the
decline in volume and a reduction in balances with suppliers.
Net cash used in investing activities was $1.5 million for 1996. GFP
made capital expenditures of $7.4 million in 1996 as compared to $10.2 million
in 1995. GFP received proceeds of $3.5 million on the sale
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<PAGE>
of a real estate property. In addition, GTC received proceeds of $1.5 million in
February 1996 for the sale of its Badger product line and Tube Turns received
proceeds of $0.9 million from the disposition of certain underutilized land and
buildings in September 1996.
Net cash used in financing activities was $12.2 million for 1996. The
Electronics Services' segment reduced its debt by $11.2 million in 1996
primarily as a result of cash provided by operating activities. The financing
activities related to the transaction for the sale of the instrumentation
product line from GTC to Bell during the first quarter of 1996 did not impact
aggregate debt outstanding. During 1996, Tube Turns reduced its outstanding
borrowings by $0.2 million and mortgage payments on real estate borrowings
amounted to $0.7 million.
Years ended December 31, 1994 and 1995
Revenue was $326.3 million and $329.0 million for 1994 and 1995,
respectively, representing an increase of $2.7 million or 0.8% from 1994 to
1995. Electronics Services' revenue increased by $1.9 million from $303.2
million in 1995 to $305.1 million in 1996, representing a 0.6% increase, while
Forging and Fabrication Services' revenue increased by $0.8 million, from $23.1
million to $23.9 million representing a 3.1% increase. Electronics Services'
revenue growth has been slowed by reductions in volume during both 1994 and 1995
with certain of its domestic commercial contract manufacturing customers,
reductions in volume with government customers through the completion of a large
government contract during the fourth quarter of 1994, the general decline in
government spending in recent years, and the divestiture of certain of its name
brand product lines during the second quarter of 1995. The cumulative impact of
these contractions has served to offset revenue growth from GTC's entry into
international contract manufacturing operations, and the expansion of Bell's
electronic testing services. The revenue growth in Forging and Fabrication
Services is attributable to increased volume and pricing for Tube Turns' forged
and fabricated product lines for commercial customers, partly offset by the
completion of a certain government contract.
GTC's Mexico contract manufacturing operation continued to contribute
to the increase in Electronics Services' revenue, primarily as a result of the
start-up on a large contract during the second half of 1995. GTC also entered
into a manufacturing services agreement in July 1995 to provide contract
manufacturing services in Brazil which generated additional revenue growth.
Revenue generated by the Mexico and Brazil operations during 1995 was $40.2
million. Bell also acquired an electronic testing facility in January 1995 to
expand its geographic presence and increase its testing capabilities.
GTC's domestic contract manufacturing operation, which suffered volume
reductions during 1994, experienced further declines during 1995. GTC's
aggressive sales efforts during 1994 and 1995 to counterbalance the reduction in
volume yielded a number of new contracts; however, the volumes and pricing
associated with these contracts were not sufficient to maintain 1995 revenue at
the previous year level. Revenue also decreased in response to the divestiture
of two product lines during the second quarter of 1995. The divestitures were
accomplished through the sale of the net assets associated with the non-
strategic product lines to unrelated entities.
Operating income was $13.7 million for 1994 as compared to an
operating loss of $14.7 million for 1995. The $28.4 million decrease in
profitability was comprised of a decrease of $28.3 million in Electronics
Services and a decrease of $0.1 million in Forging and Fabrication Services. The
decline in profitability at GTC has dominated the year-to-year changes in
profitability of the Electronics Services' operations. Forging and Fabrication
Services accounted for operating income of $1.4 million in 1994 and $1.3 million
in 1995.
The decrease in profitability from 1994 to 1995 is attributable to
depressed margins on GTC's domestic and international contract manufacturing
services and charges totaling $12.0 million related to inventories, estimated
losses on terminated contracts, asset disposals and severance costs. The lower
margin performance on the domestic and international manufacturing operations
resulted from the start-up of new contracts in GTC's Tampa and Mexico operations
which replaced certain high margin contracts completed in the fourth quarter of
1994. Additionally, a higher percentage of GTC's 1994 revenue was
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<PAGE>
realized from contracts performed with consigned materials at relatively high
gross margins as compared to 1995.
Interest expense was $2.6 million and $3.4 million in 1994 and 1995,
respectively. The increase is due to an increase in the average debt outstanding
and an increase in the interest rate of GTC's revolving credit facility during
the third quarter of 1995.
During 1994, GFP recognized a gain of $13.3 million on the issuance of
2,050,000 shares of GTC Common Stock in an initial public offering. The gain was
based upon the increase in GFP's proportional share of GTC's total shareholders'
equity giving effect to the initial public offering as compared to the book
value of GFP's investment in GTC prior to the offering.
Income taxes consist primarily of current and deferred tax expense in
1994 and current tax benefits in 1995. GFP recorded a $4.4 million valuation
allowance against its deferred tax assets during 1995. GFP also recorded a
current tax benefit for the amount of federal and state income taxes refundable
which were generated by GTC's 1995 operating loss.
GFP recorded the minority shareholders' proportionate share of the net
income or net loss of GTC for the periods subsequent to the initial public
offering of GTC common stock as a reduction in the consolidated income or loss.
Liquidity and Capital Resources
Cash at December 31, 1994 and 1995 was $6.4 million and $5.7 million,
respectively. Net cash used by operating activities was $4.4 million in 1994
while net cash provided by operating activities was $14.9 million in 1995.
Net cash was provided by operating activities in 1995 as reductions in
working capital generated an offset to the consolidated operating loss. Accounts
receivable and inventories were reduced by the impact of $8.5 million in
provisions for doubtful accounts and excess and obsolete inventories combined
with a reduction of $4.0 million in accounts receivable and inventories. The
accounts receivable and inventory provisions were the result of evaluations
conducted by management regarding the adequacy of its reserves for excess and
obsolete inventories and the collectibility of accounts receivable. The balance
of the reduction in accounts receivable and inventories resulted from a decline
in GTC's domestic contract manufacturing operations. An increase in accounts
payable of $8.8 million related to the extension of payment terms to GTC's
supplier base as a result of a reduction in borrowing capacity on its revolving
credit note.
Net cash used in investing activities was $10.2 million and $7.0
million in 1994 and 1995, respectively. GFP invested $11.9 million and $10.2
million in capital assets during 1994 and 1995, respectively, to improve its
technological capabilities and increase production capacity. GFP sold various
excess and idle real property and equipment during 1994 and 1995, and divested
two product lines in 1995, together providing net cash of $5.9 million.
A series of acquisitions were completed during 1994 and 1995. GTC
acquired a contract manufacturing operation in Mexico City, Mexico in July 1994
for $1.2 million which was payable to the seller under an earn-out provision.
Bell acquired an electronic testing operation in Massachusetts in January 1995
for $2.2 million which was financed by borrowings from a bank. GTC acquired a
contract manufacturing operation in Hortolandia, Brazil in July 1995 for $4.9
million which is payable to the seller.
Net cash provided by financing activities was $10.0 million in 1994
and net cash of $8.6 million was used in financing activities during 1995. The
various credit agreements of GFP's subsidiaries have experienced several
modifications during 1994 and 1995 as a result of refinancings, acquisitions,
and, in the case of GTC, technical defaults occurring during 1995 under certain
terms and conditions of its revolving credit agreement. In 1994, Bell had a net
reduction in total borrowings and in 1995 Bell had a net increase,
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<PAGE>
attributable to its acquisition of ATL. During 1994, Tube Turns refinanced a
term note and revolving credit note with a $5.0 million revolving credit note
and reduced total borrowings in 1994 and 1995.
During 1994, the completion of the initial public offering of GTC
Common Stock provided net cash of $17.8 million. The proceeds from the offering
were used to repay the balance of the $15.0 million term note and to reduce
outstanding borrowings on the revolving credit note. Also during 1994, GTC's
revolving credit and term notes were restructured with their primary bank in the
form of a $100.0 million revolving credit facility. The increase in working
capital during 1994 required GTC to increase its borrowings under the revolving
credit facility. In November 1995, GTC and its bank entered into a forbearance
agreement which subjected GTC's credit availability to a collateral pool which
resulted in a reduction in liquidity. The forbearance agreement expired in
January 1996, and the bank continued to provide financing under terms similar to
those contained in the forbearance agreement until the debt was restructured on
March 29, 1996.
GFP's real estate entities also decreased borrowings in 1994 and 1995
through the scheduled payments on mortgage notes. The extinguishment of debt
related to the divestiture of a real estate property during 1995 further reduced
GFP's consolidated outstanding debt.
LEGAL MATTERS
The validity of the issuance of the shares of GTC Common Stock offered
pursuant to this Joint Proxy Statement/Prospectus will be passed upon for GTC by
Fowler, White, Gillen, Boggs, Villareal and Banker, P.A., counsel to GTC. In
addition, Wyatt, Tarrant & Combs has advised GFP that the information set forth
in the description of federal income tax consequences contained in the section
entitled "The Reorganization--Certain Federal Income Tax Consequences," and in
"The GTC Special Meeting--Proposal to Approve the Reincorporation" subject to
the limitations set forth therein, contains a summary of the material federal
income tax considerations relevant to the GFP, Tube Turns and Bell shareholders
receiving GTC Common Stock pursuant to the Reorganization and relevant to GTC
shareholders receiving Sypris Common Stock pursuant to the Reincorporation.
EXPERTS
The consolidated financial statements and schedule of Group Technologies
Corporation at December 31, 1995 and 1996 and for each of the three years in the
period ended December 31, 1996, appearing in this Joint Proxy
Statement/Prospectus, have been audited by Ernst & Young LLP, independent
certified public accountants, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements and schedule of Group Financial
Partners, Inc. and subsidiaries at December 31, 1995 and 1996, and for each of
the three years in the period ended December 31, 1996, appearing in this Joint
Proxy Statement/Prospectus, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
Other Matters
The Board of Directors of each of GTC, Bell, GFP and Tube Turns know of no
other matters to be presented at the Special Meetings other than as described in
the Notices of Special Meetings accompanying this Joint Proxy
Statement/Prospectus. If any other matter does properly come before the Special
Meetings, the appointees named in the proxies will vote their proxies in
accordance with their best judgment.
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<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following audited consolidated financial statements of GTC, GFP and
Datatape, respectively, together with the related reports of Ernst & Young LLP
and Coopers & Lybrand LLP, and unaudited condensed consolidated financial
statements of GTC, GFP and Datatape, respectively, are filed as part of this
Joint Proxy Statement/Prospectus:
<TABLE>
<CAPTION>
Page
----
GROUP TECHNOLOGIES CORPORATION
AUDITED CONSOLIDATED FINANCIAL STATEMENTS (Years ended
December 31, 1994, 1995 and 1996)
<S> <C>
Report of Independent Certified Public Accountants..................................... F-2
Consolidated Balance Sheets............................................................ F-3
Consolidated Statements of Operations.................................................. F-4
Consolidated Statements of Shareholders' Equity........................................ F-5
Consolidated Statements of Cash Flows.................................................. F-6
Notes to Consolidated Financial Statements............................................. F-7
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets (December 31, 1996 and September 28, 1997)................. F-25
Consolidated Statements of Operations (Three months and nine months ended
September 29, 1996 and September 28, 1997)........................................... F-26
Consolidated Statements of Cash Flows (Nine months ended September 29, 1996
and September 28, 1997).............................................................. F-27
Notes to Condensed Consolidated Financial Statements................................... F-28
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
AUDITED CONSOLIDATED FINANCIAL STATEMENTS (Years ended
December 31, 1994, 1995 and 1996)
Report of Independent Public Accountants............................................... F-31
Consolidated Balance Sheets............................................................ F-32
Consolidated Statements of Operations.................................................. F-33
Consolidated Statements of Shareholders' Equity........................................ F-34
Consolidated Statements of Cash Flows.................................................. F-35
Notes to Consolidated Financial Statements............................................. F-36
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets (December 31, 1996 and September 30, 1997)................. F-61
Consolidated Statements of Operations (Nine months ended September 30, 1996 and 1997).. F-62
Consolidated Statements of Cash Flows (Nine months ended September 30, 1996 and 1997).. F-63
Notes to Condensed Consolidated Financial Statements................................... F-64
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
Page
----
DATATAPE, INCORPORATED
AUDITED FINANCIAL STATEMENTS (Period from July 22, 1994 through
December 31, 1994 and the years ended December 31, 1995 and 1996)
<S> <C>
Report of Independent Accountants............................................ F-69
Balance Sheets............................................................... F-70
Statements of Operations..................................................... F-71
Statements of Stockholders' Equity (Deficiency).............................. F-72
Statements of Cash Flows..................................................... F-73
Notes to Financial Statements................................................ F-74
UNAUDITED CONDENSED FINANCIAL STATEMENTS
Balance Sheets (December 31, 1996 and September 28, 1997).................... F-92
Statements of Operations (Nine months ended September 29, 1996 and
September 28, 1997)........................................................ F-93
Consolidated Statements of Cash Flows (Nine months ended September 29, 1996
and September 28, 1997).................................................... F-94
Notes to Condensed Financial Statements...................................... F-95
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Group Technologies Corporation
We have audited the accompanying consolidated balance sheets of Group
Technologies Corporation as of December 31, 1995 and 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. Our audits also
included the financial statement schedule listed in the index. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Group Technologies Corporation at December 31, 1995 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Ernst & Young LLP
Tampa, Florida
March 28, 1997
F-3
<PAGE>
GROUP TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
<TABLE>
<CAPTION>
December 31,
------------------
1995 1996
-------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 2,143 $ 661
Accounts receivable, net.............................. 31,167 22,754
Inventories, net...................................... 46,499 20,220
Other current assets.................................. 7,965 2,102
-------- -------
Total current assets................................. 87,774 45,737
Property and equipment, net............................ 24,090 21,206
Other assets........................................... 1,242 522
-------- -------
$113,106 $67,465
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 37,789 $17,969
Accrued liabilities................................... 17,892 16,416
Current portion of long-term debt..................... 8,171 3,513
-------- -------
Total current liabilities............................ 63,852 37,898
Long-term debt......................................... 23,050 10,119
Other liabilities...................................... 364 45
-------- -------
Total liabilities................................... 87,266 48,062
Commitments and contingencies
Shareholders' equity:
Preferred Stock, $.01 par value, 1,000,000 shares
authorized, no shares issued and outstanding......... -- --
Common Stock, $.01 par value, 40,000,000 shares
authorized; 15,828,707 and 16,220,629 shares issued
and outstanding in 1995 and 1996, respectively....... 158 162
Additional paid-in capital............................ 22,537 24,675
Retained earnings (deficit)........................... 3,145 (5,434)
-------- -------
Total shareholders' equity.......................... 25,840 19,403
-------- -------
$113,106 $67,465
======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
GROUP TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data)
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Revenue..................................................... $274,147 $273,647 $224,661
Cost of operations.......................................... 237,867 269,150 217,890
-------- -------- --------
Gross profit.............................................. 36,280 4,497 6,771
Selling, general and administrative expense................. 20,561 19,683 11,453
Research and development.................................... 5,170 3,041 299
-------- -------- --------
Operating income (loss)................................... 10,549 (18,227) (4,981)
Interest expense............................................ 2,048 2,907 2,858
Other expense............................................... 504 521 (59)
-------- -------- --------
Income (loss) before income taxes......................... 7,997 (21,655) (7,780)
Income taxes................................................ 3,297 (3,982) 799
-------- -------- --------
Net income (loss)......................................... $ 4,700 $(17,673) $ (8,579)
======== ======== ========
Net income (loss) per share:
Primary................................................... $ 0.30 $ (1.13) $ (0.53)
Fully diluted............................................. $ 0.30 $ (1.13) $ (0.53)
Shares used in computing per share amounts:
Primary................................................... 15,644 15,695 16,157
Fully diluted............................................. 15,789 15,695 16,157
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
GROUP TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except for share data)
<TABLE>
<CAPTION>
Common Stock Additional
-------------------- Paid-In Retained Deferred Shareholders'
Shares Amount Capital Earnings Compensation Equity
------------ ------ ------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993............................ 12,508,800 $125 $ 875 $ 16,492 $(152) $ 17,340
Common stock issued..................................... 2,050,560 20 17,793 -- -- 17,813
Compensation expense recorded in connection with
issuance of redeemable common stock.................... -- -- -- 277 -- 277
Deferred compensation................................... -- -- -- -- 152 152
Conversion of redeemable common stock to shareholders'
equity................................................. 1,067,187 11 3,157 (651) -- 2,517
Net income.............................................. -- -- -- 4,700 -- 4,700
---------- ---- ------- -------- ----- --------
Balance at December 31, 1994............................ 15,626,547 156 21,825 20,818 -- 42,799
Common stock issued and issuable........................ 202,160 2 712 -- -- 714
Net loss................................................ -- -- -- (17,673) -- (17,673)
---------- ---- ------- -------- ----- --------
Balance at December 31, 1995............................ 15,828,707 158 22,537 3,145 -- 25,840
Common stock issued..................................... 391,922 4 1,045 -- -- 1,049
Warrants issued......................................... -- -- 480 -- -- 480
Capital contribution.................................... -- -- 613 -- -- 613
Net loss................................................ -- -- -- (8,579) -- (8,579)
---------- ---- ------- -------- ----- --------
Balance at December 31, 1996............................ 16,220,629 $162 $24,675 $ (5,434) $ -- $ 19,403
========== ==== ======= ======== ===== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
GROUP TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1994 1995 1996
-------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................................. $ 4,700 $(17,673) $ (8,579)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization................................................... 5,402 5,596 5,214
Compensation paid with redeemable common stock.................................. 429 -- --
Deferred income taxes........................................................... 2,499 741 251
Provision for inactive, obsolete and unsalable inventories...................... 540 6,939 3,567
Provision for doubtful accounts................................................. 571 1,293 961
Provision for idle leased equipment............................................. -- 1,104 --
Other........................................................................... 273 778 1,134
Changes in operating assets and liabilities, net of acquisitions and
dispositions:
Accounts receivable............................................................ (2,856) 1,875 4,195
Inventories.................................................................... (7,172) 3,287 15,497
Other current and non-current assets........................................... (4,403) (3,752) 4,737
Accounts payable............................................................... (3,829) 8,043 (18,872)
Accrued and other liabilities.................................................. (9,052) 1,183 (389)
-------- -------- --------
Net cash (used in) provided by operating activities........................... (12,898) 9,414 7,716
Cash flows from investing activities:
Capital expenditures.............................................................. (7,271) (8,042) (3,408)
Purchase of the net assets of acquired entities................................... -- -- --
Proceeds from disposal of assets.................................................. -- 5,214 11,561
-------- -------- --------
Net cash (used in) provided by investing activities........................... (7,271) (2,828) 8,153
Cash flows from financing activities:
Net (repayments) proceeds under line of credit agreement.......................... 19,212 (4,667) (10,418)
Proceeds from long-term debt...................................................... -- -- --
Repayments of long-term debt...................................................... (22,573) (1,505) (7,933)
Net proceeds from issuance of common stock........................................ 17,801 401 1,000
-------- -------- --------
Net cash provided by (used in) financing activities........................... 14,440 (5,771) (17,351)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents............................... (5,729) 815 (1,482)
Cash and cash equivalents at beginning of year..................................... 7,057 1,328 2,143
-------- -------- --------
Cash and cash equivalents at end of year........................................... $ 1,328 $ 2,143 $ 661
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
GROUP TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Business
Group Technologies Corporation (the "Company") was incorporated on December
27, 1988 as a subsidiary of Group Financial Partners, Inc. (the "Parent"), a
private holding company. The Parent owns approximately 80% of the outstanding
Common Stock of the Company.
The Company provides advanced manufacturing, engineering and testing
services to original equipment manufacturers ("OEMs") of electronic products.
The Company custom manufactures complex circuit card assemblies, subsystems and
end-user products for use in a wide variety of markets, including automotive,
commercial avionics, computer, government systems, industrial electronics,
networking, space, and telecommunications.
(2) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries (hereinafter collectively referred to as the
"Company"). The Company's operating subsidiaries are Group Technologies, S.A. de
C.V. ("GTC Mexico") and Group Technologies Suprimentos de Informatica Industria
e Comercio Ltda. ("GTC Brazil"). Substantially all of the assets of Metrum Inc.
("Metrum"), which remains a wholly owned subsidiary of the Company, were sold on
February 9, 1996 (see Note 4). All significant intercompany transactions and
accounts have been eliminated.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all liquid investments with an original maturity of
three months or less when purchased to be cash equivalents.
Inventories
Contract inventories are stated at actual production costs, reduced by the
cost of units for which revenue has been recognized. Gross contract inventories
are considered work in process. Progress payments under long-term contracts are
specified in the contracts as a percentage of cost and are liquidated as
contract items are completed and shipped. Other inventories are stated at lower
of cost (first-in, first-out) or market. Inventories of Metrum are stated at
lower of cost (last-in, first-out) or market.
Property and Equipment
Property and equipment is stated at cost. Leasehold improvements are
amortized over the lease term using the straight-line method. Machinery,
equipment, furniture and fixtures are depreciated over their estimated economic
lives (three to ten years). Expenditures for maintenance, repairs and renewals
of minor items are expensed as incurred. Major renewals and improvements are
capitalized.
Effective January 1, 1995, the Company changed its method of depreciation
for financial reporting purposes for newly acquired machinery, equipment,
furniture and fixtures from principally an accelerated
F-8
<PAGE>
GROUP TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
method to the straight-line method. Management believes that the straight-line
method of depreciation provides a preferable matching between expected
productivity and cost allocation since the equipment's operating capacity and
consumption generally remains consistent over time. The change had no cumulative
effect on prior year earnings and was not material to operating results for the
year ended December 31, 1995.
Amortization
Noncompete agreements are amortized over five years and patents and other
intangible assets are amortized over their composite economic life of seven
years, using the straight-line method. The excess of the fair value of the net
assets of an acquired business over the purchase price of such net assets
(negative goodwill) is amortized using the straight-line method over five years.
Negative goodwill included in other non-current liabilities at December 31, 1995
was $261,000. Accumulated amortization of negative goodwill at December 31, 1995
was $396,000. In connection with the disposition of a portion of Metrum's assets
during 1995, negative goodwill with an unamortized basis of $330,000 was
included in the net book value of assets sold for purposes of determining the
loss. As a result of the disposition of substantially all of Metrum's remaining
assets during 1996, there was no negative goodwill remaining at December 31,
1996.
Contract Revenue Recognition
A portion of the Company's business is conducted under long-term fixed-
price contracts with OEMs, the United States government and its prime
contractors. Contract revenue is included in the statement of operations as
units are completed and shipped using the units of delivery, percentage of
completion method of accounting. The costs attributed to contract revenue are
based upon the estimated average costs of all units to be shipped. The
cumulative average costs of units shipped to date is adjusted through current
operations as estimates of future costs to complete change (see Contract
Accounting).
Revenue recognized under the percentage of completion method of accounting
amounted to $60,500,000, $57,945,000 and $54,397,000 in 1994, 1995 and 1996,
respectively. Substantially all such amounts were accounted for under the units
of delivery method. All other revenue is recognized as product is shipped and
title passes.
Contract Accounting
For long-term contracts, the Company capitalizes in inventory direct
material, direct labor and factory overhead as incurred. The Company also
capitalizes certain general and administrative costs for estimating and bidding
on contracts awarded (of which approximately $210,000 remained in inventory at
December 31, 1995 and 1996). Selling costs are expensed as incurred. Costs to
complete long-term contracts are estimated on a monthly basis. Estimated margins
at completion are applied to cumulative contract revenue to arrive at costs
charged to operations.
Accounting for long-term contracts under the percentage of completion
method involves substantial estimation processes, including determining the
estimated cost to complete a contract. As contracts may require performance over
several accounting periods, formal detailed cost to complete estimates are
performed which are updated monthly via performance reports. Management's
estimates of costs to complete change due to internal and external factors such
as labor rate and efficiency variances, revised estimates of warranty costs,
estimated future material prices and customer specification and testing
requirement changes. Changes in estimated costs are reflected in gross profit in
the period in which they are known. If increases in projected costs to complete
are sufficient to create a loss contract, the entire estimated
F-9
<PAGE>
GROUP TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
loss is charged to operations in the period the loss first becomes known.
Provisions for losses on firm fixed-price contracts amounted to $1,226,000,
$700,000 and $2,327,000 in 1994, 1995 and 1996, respectively.
The Company recognized income before income taxes in 1994 of approximately
$4,500,000 resulting from favorable changes in contract and contract claim
estimates for which all related costs had been charged to operations in previous
years. Approximately $3,100,000 of such estimate revisions were recognized by
the Company during the fourth quarter of 1994. While contract claim reserves
were initially established in response to customer assertions regarding product
failures, tests regarding the alleged failures ultimately were determined to be
inconclusive, requiring a change in estimate. The Company also successfully
negotiated the settlement of a government contract termination claim and
recognized income before income taxes of approximately $2,700,000 in 1994.
During the second quarter of 1996, the Company successfully settled a name brand
products contract claim and recognized revenue and income before income taxes of
approximately $4,100,000 associated with that settlement.
Research and Development
Company sponsored research and development costs are expensed as incurred.
Income Taxes
The Company and its domestic subsidiaries were included in the consolidated
federal income tax return of the Parent from the Company's inception through
March 22, 1995. Effective March 23, 1995, as a result of a decrease in the
Parent's ownership percentage of the Company, the Company did not meet the 80-
percent-voting power and value requirements defined by the Internal Revenue Code
for affiliated group membership and ceased to be an includable member of the
Parent's affiliated group. The Company and its domestic subsidiaries separately
filed its initial consolidated federal income tax return for the period March
23, 1995 through December 31, 1995. Effective March 29, 1996, as a result of an
increase in the Parent's ownership percentage of the Company, the Company again
met the 80-percent-voting power and value requirements defined by the Internal
Revenue Code for affiliated group membership and expects to be an includable
member of the Parent's affiliated group beginning March 29, 1996.
For financial reporting purposes during the tax periods in which the
Company is or expects to be included in the Parent's consolidated federal income
tax return, income taxes are accounted for on a separate return basis, including
deferred income taxes. For those tax periods, liabilities for, or refunds of,
federal income taxes were calculated on a stand-alone basis and were payable to,
or receivable from, the Parent.
The Company has applied the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," which requires an asset and
liability approach in accounting for income taxes for all years presented.
Concentrations of Credit Risk
Financial instruments which potentially expose the Company to
concentrations of credit risk consist of accounts receivable. The Company's OEM
customer base consists primarily of large computer and electronic manufacturers
and its commercial accounts receivable are concentrated with a few of these
large companies. Although the Company is directly affected by the well being of
the computer and electronics industry, management does not believe significant
credit risk exists at December 31, 1996.
F-10
<PAGE>
GROUP TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
The Company earned revenue from the United States government and its
agencies of approximately $51,200,000 (19% of revenue), $53,643,000 (20% of
revenue) and $38,635,000 (17% of revenue) during 1994, 1995 and 1996,
respectively. The Company also served as a subcontractor to a variety of prime
contractors under contract with the federal government, which in the aggregate,
represented approximately 11%, 9% and 12% of the Company's revenue in 1994, 1995
and 1996, respectively. The Company's largest commercial customer was IBM which
represented approximately 14%, 16% and 16% of the Company's revenue in 1994,
1995 and 1996, respectively. Sales to International Game Technology represented
approximately 10% of the Company's revenue in 1996. No other single customer
accounted for more than 10% of the Company's revenue in 1994, 1995 or 1996.
Foreign Currency Translation
The United States dollar is the functional currency for the Company's GTC
Mexico and GTC Brazil subsidiaries. Foreign currency transaction gains and
losses, which are insignificant in all years presented, are included in
determining net income.
Net Income (Loss) Per Share
Net income per share is computed using the weighted average number of
issued and issuable common shares, redeemable common shares and equivalent
shares outstanding. Net loss per share is computed using the weighted average
number of issued and issuable common shares outstanding. The computation of
fully diluted net loss per share was antidilutive during the years ended
December 31, 1995 and 1996; therefore, the number of shares used for computing
primary and fully diluted loss per share are the same. Stock issued within one
year of the Company's initial public offering at below the estimated initial
public offering price is reflected as outstanding for 1994. All share and per
share data in the accompanying financial statements retroactively reflect a 6-
for-1 stock split effected March 4, 1994.
Impact of Recently Issued Accounting Standards
In March 1995, Statement of Financial Accounting Standard No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", was issued which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' underlying carrying amount. Statement No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. The effect of the implementation of Statement No. 121 in 1996 was not
significant.
(3) Acquisitions
On July 4, 1994, GTC Mexico, a wholly-owned subsidiary of the Company,
acquired certain assets and assumed certain liabilities of Philips Mexicana,
S.A. de C.V. The transaction was accounted for as a purchase in which a
liability of $1,200,000 to the seller based on sales to customers of GTC Mexico
during the next five years was allocated based on fair values of assets acquired
and liabilities assumed. No goodwill resulted from this transaction. The 1994
consolidated statement of operations includes amounts for GTC Mexico from July
4, 1994.
On July 18, 1995, GTC Brazil acquired certain manufacturing equipment of
IBM Brasil-Industria, Maquinas e Sevicos Ltda. ("IBM Brasil"). The transaction
was accounted for as a purchase in which the purchase price of $4,900,000, in
the form of a note payable to the seller, was allocated based on fair values of
assets acquired. No goodwill resulted from this transaction. The 1995
consolidated statement of operations includes amounts for GTC Brazil from July
18, 1995.
F-11
<PAGE>
GROUP TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
These acquisitions did not have a significant effect on the Company's
results of operations in 1994 and 1995.
(4) Dispositions
The Company completed two transactions during 1995 and one transaction on
February 9, 1996, which, in the aggregate, resulted in the sale of substantially
all of the assets of its Metrum subsidiary. On May 31, 1995, the assets of the
peripherals products business unit of Metrum were sold to MountainGate Data
Systems, Inc., a subsidiary of Lockheed Martin Corporation for $5,247,000,
consisting of cash of $3,655,000 and a note receivable from the buyer of
$1,592,000. On June 6, 1995, the assets of the imaging business unit of Metrum
were sold to Sienna Imaging, Inc. for $1,331,000 cash. On February 9, 1996, the
assets of the instrumentation products business unit of Metrum were sold to Bell
Technologies, Inc. ("Bell"), also a subsidiary of the Parent, for $10,104,000
cash and an earn-out provision which provides for additional payments to the
Company, up to $3,000,000, in the event annual earnings before interest and
taxes exceeds defined amounts through December 31, 2000. The sales price for
each 1995 transaction approximated the net book value of the respective business
units on the date of sale. The sales price for the February 9, 1996 transaction
exceeded the net book value of assets and liabilities transferred by $613,000.
The proceeds from the sale transactions were used to reduce the Company's debt
balance and to fund working capital needs. Revenue, net income and net income
per share for Metrum were $31,268,000, $2,348,000 and $0.15, respectively, for
the year ended December 31, 1995.
Due to the common ownership interest of the Parent in the Company and Bell,
the Company requested and obtained an independent opinion, which indicated that
the consideration received by the Company for the sale of the instrumentation
products business was fair, from a financial point of view, to the unaffiliated
shareholders of the Company. In addition, due to the common ownership, the
amount by which the sales price exceeds the net book value of assets and
liabilities transferred of $613,000 was recorded by the Company as a
contribution to its capital.
On March 22, 1996, the Company sold substantially all of the assets related
to its Badger line of name brand products. The Company recorded a $2,200,000
charge to cost of operations during the fourth quarter of 1995 to reduce Badger
inventory to the sale price.
<TABLE>
<CAPTION>
(5) Accounts Receivable
Accounts receivable consist of the following:
December 31,
-----------------
1995 1996
------- -------
(in thousands)
<S> <C> <C>
Commercial customers............................ $28,088 $20,237
United States Government........................ 3,862 3,763
------- -------
31,950 24,000
Allowance for doubtful accounts................. (783) (1,246)
------- -------
$31,167 $22,754
======= =======
</TABLE>
Accounts receivable from the United States Government includes amounts due
under long-term contracts, which are all billed, at December 31, 1995 and 1996
of $2,568,000 and $2,463,000, respectively. The provision for doubtful accounts
was $571,000, $1,293,000 and $961,000 for the years ended December 31, 1994,
1995 and 1996, respectively.
F-12
<PAGE>
GROUP TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(6) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
------------------
1995 1996
-------- -------
(in thousands)
Raw materials.......................................................... $ 34,469 $12,538
Work in process........................................................ 6,840 4,100
Finished goods......................................................... 330 107
Costs relating to long-term contracts and programs,
net of amounts attributed to revenue recognized to
date.................................................................. 25,766 11,655
Progress payments related to long-term contracts
and programs.......................................................... (12,300) (3,292)
Reserve for inactive, obsolete and unsalable inventory................. (8,606) (4,888)
-------- -------
$ 46,499 $20,220
======== =======
</TABLE>
The above amounts include inventory valued under the last-in, first-out
("LIFO") method totaling $5,318,000 at December 31, 1995, which approximates
replacement cost at that date. Provisions for inactive, obsolete and unsalable
inventories were $540,000, $6,939,000 and $3,567,000 for the years ended
December 31, 1994, 1995 and 1996, respectively.
(7) Other Current Assets
Other current assets consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
-------------------
1995 1996
-------- --------
(in thousands)
Net deferred tax assets......................... $ 589 $ --
Refundable income taxes......................... 5,000 744
Other........................................... 2,376 1,358
-------- --------
$ 7,965 $ 2,102
======== ========
</TABLE>
(8) Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
--------------------
1995 1996
-------- --------
(in thousands)
Leasehold improvements.......................... $ 6,954 $ 6,426
Machinery, equipment, furniture and fixtures.... 39,780 38,594
-------- --------
46,734 45,020
Less accumulated depreciation................... (22,644) (23,814)
-------- --------
$ 24,090 $ 21,206
======== ========
</TABLE>
Depreciation expense was $5,350,000, $5,073,000 and $4,848,000 for the
years ended December 31, 1994, 1995 and 1996, respectively.
F-13
<PAGE>
GROUP TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(9) Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
------------------
1995 1996
------- -------
(in thousands)
Payments received from customers in excess of contract costs.. $ 5,340 $ 3,657
Employee benefit plan accruals................................ 4,045 2,423
Other......................................................... 8,507 10,336
------- -------
$17,892 $16,416
======= =======
</TABLE>
Included in other current liabilities are employee payroll deductions,
advance payments, accrued operating expenses and accrued interest, none of
which exceed 5% of total current liabilities.
(10) Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
-----------------
1995 1996
------- -------
(in thousands)
Revolving credit (a).......................... $25,583 $ 6,934
Term note (a)................................. -- 2,690
Other (b)..................................... 5,638 4,128
------- -------
Total long-term debt.......................... 31,221 13,752
Less unamortized original issue discount (a).. -- (120)
Less current portion of long-term debt........ (8,171) (3,513)
------- -------
$23,050 $10,119
======= =======
</TABLE>
(a) On March 29, 1996, the Company entered into a financing agreement (the
"Credit Agreement") with its bank to replace a prior debt instrument. The
Credit Agreement provided the Company with a revolving line of credit
facility (the "Revolver"), a $3,300,000 two-year facility (the "Term Note")
and an additional $5,000,000 facility (the "1996 Note"). Borrowings under
the Credit Agreement are secured by substantially all of the assets of the
Company. Under the terms of the Credit Agreement, the Company pays interest
monthly on outstanding borrowings at the prime rate (8.25% at December 31,
1996) plus 1.25%. The Company was provided credit availability on the
Revolver equal to the lesser of $27,500,000 or the applicable amount of its
eligible accounts receivable and inventories through December 31, 1996.
Available borrowings on the Revolver at December 31, 1996 were
approximately $6,800,000. As amended, the Credit Agreement provides credit
availability on the Revolver equal to the lesser of $13,500,000 or the
applicable amount of its eligible accounts receivable and inventories
through March 1998. Principal payments are due monthly on the Term Note.
The 1996 Note was repaid in full during 1996.
The Company, in connection with the execution of the Credit Agreement, paid
a $250,000 fee and issued warrants to purchase 1,200,000 shares of Common
Stock at $0.01 per share to the lender. Upon execution of the Credit
Agreement, 200,000 of the warrants became exercisable. As amended, the
Credit Agreement provides for the balance of the warrants to become
exercisable as follows; 125,000 on March 31, 1997; 375,000 on June 30,
1997, 250,000 on September 30, 1997; and, 250,000 on December 31, 1997.
F-14
<PAGE>
GROUP TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
The warrants will expire five years following the issue date. The lender
will forfeit any unvested warrants in the event the Company repays all debt
outstanding under the Credit Agreement prior to any vesting date. On March
29, 1996, the Company believed that it was probable that the Credit
Agreement would be refinanced prior to the remaining warrants becoming
exercisable. Therefore, only the 200,000 warrants were considered in
determining the fair value of the transaction. Unamortized original issue
discount related to the issuance of the vested warrants is $120,000 at
December 31, 1996.
In connection with an amendment to the Credit Agreement on March 28, 1997,
the Parent invested $2,500,000 in GTC in exchange for 250,000 shares of GTC
Preferred Stock (the "Preferred Stock"). The Preferred Stock is redeemable
and pays quarterly dividends of 8.5% per annum. The Company agreed to
utilize $500,000 of the proceeds of the Preferred Stock to partially repay
the Term Note. The Preferred Stock is redeemable at the option of the
holder upon repayment by the Company of all of its outstanding Credit
Agreement indebtedness. The Preferred Stock is also convertible and each
share may be exchanged for 8.1 shares of the Company's Common Stock.
(b) In connection with two business acquisitions, the Company agreed to make
additional payments to the sellers over a five-year period from the
respective dates of acquisition based upon sales to certain customers. The
Company believed the maximum future payments were probable and recorded
debt equal to the net present value of the maximum future payments on the
date of acquisition. At December 31, 1996, $587,000 was payable to the
sellers.
In connection with the acquisition of GTC Brazil, the Company is obligated
on a note payable to IBM Brasil. The note is for a term of three years and
is secured by GTC Brazil's equipment. The Company recorded the note at its
net present value discounted at current market interest rates for
comparable financing. The principal balance of the note is subject to
annual adjustment under an economic price adjustment clause in the debt
agreement. The adjustment calculated in 1996 was not significant. At
December 31, 1996, $2,928,000 was payable to the seller.
During 1996, the Company purchased approximately $1,100,000 of equipment
which was financed by the manufacturer. At December 31, 1996, $613,000 was
payable to the manufacturer.
The annual maturities of long-term debt for each year ended December 31 are
presented below. Maturities of debt incurred under the Credit Agreement have
been reported on the basis that the commitment to lend under this agreement will
be terminated at the end of its current term.
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
1997............................................ $3,513
1998............................................ 10,119
</TABLE>
Interest paid during 1994, 1995 and 1996 was $2,161,000, $3,427,000 and
$2,974,000, respectively.
(11) Fair Value of Financial Instruments
Cash, accounts receivable, accounts payable and accrued liabilities are
reflected in the financial statements at their carrying amount which
approximates fair value because of the short-term maturity of those instruments.
The carrying amount of debt outstanding under the Company's revolving credit
agreement approximates fair value, due to the short-term nature of the
instrument. The carrying amount of other long-
F-15
<PAGE>
GROUP TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
term debt is assumed to approximate fair value because there have not been any
significant changes in market conditions or specific circumstances since the
instruments were recorded at fair value.
(12) Employee Benefit Plans
The Company sponsors defined contribution plans (the "Plans") for
substantially all domestic employees of the Company. The Plans are intended to
meet the requirements of Section 401(k) of the Internal Revenue Code. The Plans
allow the Company to match participant contributions as approved by the Board of
Directors. Contributions to the Plans during 1994, 1995 and 1996 were
$2,271,000, $1,783,000 and $902,000, respectively.
The Company has partially self-insured employee medical plans. The plans
limit the Company's annual obligations to fund claims to specified amounts per
participant and in the aggregate. The Company is insured for amounts in excess
of these limits. Employees are responsible, in some instances, for payment of a
portion of the premiums. During 1994, 1995 and 1996, the Company charged
$5,287,000, $4,526,000 and $3,732,000, respectively, to operations related to
reinsurance premiums, medical claims incurred and estimated, and administrative
costs for its employee medical plans. The Company accounts for medical claims in
the period in which they are incurred, which includes estimated costs of claims
incurred but not reported. The Company estimates the amount of claims incurred
but not reported based on historical experience and average monthly claims. The
Company also estimates and records the effect of known claims in excess of
average monthly claim amounts. Claims paid during 1994, 1995 and 1996 did not
exceed the aggregate limits.
(13) Stock Plans
In January 1990, the Company's Board of Directors adopted a stock option
plan, a stock purchase plan and various incentive plans and adopted a formula
price (the "Formula Price") valuation as a basis for establishing a value for a
share of Common Stock. All shares of Common Stock issued to employees were
subject to a restriction agreement, under which the Company was required to
redeem all shares offered for redemption at the option of the employee or upon
the termination, retirement, disability or death of the employee. On May 18,
1994, the effective date of the Offering, the 1990 Stock Option Plan and the
Stock Purchase Plan were terminated and all restrictions on outstanding shares
lapsed.
Stock Purchase Plan
The Company maintained a stock purchase plan (the "Stock Purchase Plan")
from 1990 through May 1994. Eligible employees were permitted to purchase Common
Stock annually for cash or semi-annually through payroll deductions and were
awarded one bonus share of Common Stock (a "Bonus Share") for every three shares
purchased. The Company amortized compensation expense related to Bonus Shares on
a straight-line method over an eighteen-month vesting period. When the Stock
Purchase Plan was terminated in 1994 all Bonus Shares became fully vested and
the Company recognized the unamortized compensation related to the Bonus Shares
as an expense.
In addition, compensation expense of $247,000 was recorded in 1994 on
shares purchased between December 31, 1993 and April 3, 1994 for the excess of
the fair market value over the purchase price.
During 1994, 20,520 shares valued at $295,000 were issued under the Stock
Purchase Plan.
F-16
<PAGE>
GROUP TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
Stock Option Plans
In October 1994, the Board of Directors adopted the 1994 Stock Option Plan
for Key Employees (the "1994 Plan") and the Independent Directors' Stock Option
Plan (the "Directors Plan"). The 1994 Plan replaced the Stock Option Plan
adopted in January 1990 (the "1990 Plan"). Options remain outstanding and
exercisable under the terminated 1990 Plan; however, no further grants will be
made under the 1990 Plan. During 1994, no options were granted under the 1990
Plan prior to its termination on May 18, 1994.
Under the 1994 Plan, as amended, options may be granted to employees to
purchase a maximum of 800,000 shares of Common Stock. Options to purchase
179,000 and 553,066 shares were granted under the 1994 Plan during 1995 and
1996, respectively.
Under the Directors Plan, as amended, options may be granted to members of
the Board of Directors who are not employees of the Parent, the Company or its
subsidiaries to purchase a maximum of 300,000 shares of Common Stock. Options to
purchase 10,000, 25,951 and 78,371 shares were granted under the Directors Plan
during 1994, 1995 and 1996, respectively.
On February 2, 1996, the Board of Directors approved, subject to further
approval by the shareholders, the Group Technologies Corporation Employee Stock
Purchase Plan (the Purchase Plan) and reserved 1,000,000 shares of Common Stock
for issuance under the Purchase Plan. No shares have been issued under this
plan.
Options granted under the 1990 Plan have a maximum term of 13 years.
Options granted under the 1994 Plan and the Directors' Plan have a maximum term
of 10 years. The exercise price of all options granted under such plans must be
at least 100% of the fair market value of such shares on the date of grant. The
Option Plan Committee of the Board of Directors was formed in 1994 to administer
the 1994 Plan and the Directors Plan. Until October 1996, the Option Plan
Committee had the sole authority to select the individuals who were granted
options and determine the number of shares subject to each option, fix the
period during which each option may be exercised and fix the price at which
shares subject to options may be purchased. Beginning in October 1996, both the
full Board of Directors and the Option Plan Committee have authority to
administer the stock option plans.
F-17
<PAGE>
GROUP TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
The following table summarizes option activity for the three years ended
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding
----------------------
Option
price
Shares per share
---------- ----------
<S> <C> <C>
Balance at December 31, 1993.. 1,080,000 $1.67-2.35
Granted...................... 10,000 7.75
Terminated/forfeited......... (60,000) 2.12
--------- ----------
Balance at December 31, 1994.. 1,030,000 1.67-7.75
Granted...................... 204,951 4.50-6.38
Exercised.................... (90,000) 1.67
Terminated/forfeited......... (125,000) 6.00-6.25
--------- ----------
Balance at December 31, 1995.. 1,019,951 1.67-7.75
Granted...................... 631,437 0.84-3.00
Terminated/forfeited......... (401,700) 2.35-6.00
--------- ----------
Balance at December 31, 1996.. 1,249,688 $0.84-7.75
========= ==========
</TABLE>
Accounting for Stock Based Compensation
The Company applies Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123, "Accounting
for Stock-Based Compensation", requires use of option valuation models that were
not developed for use in valuing employee stock options. Under APB Opinion No.
25, because the exercise price of the Company's employee stock options is equal
to the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income and net income per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options were estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for the years ended December 31, 1995 and 1996: risk-free interest
rates of 5.88% for both years; volatility factors of the expected market price
of the Company's common stock of 0.71 for both years; no dividend yield; and a
weighted average expected life of the options of 2.7 years and 2.6 years in 1995
and 1996, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
F-18
<PAGE>
GROUP TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1995 1996
------------- -----------
(in thousands, except
per share data)
<S> <C> <C>
Pro forma net loss............. $(17,745) $(8,747)
======== =======
Pro forma net loss per share:
Primary....................... $ (1.13) $ (0.54)
Fully diluted................. $ (1.13) $ (0.54)
</TABLE>
The following table summarizes the weighted average exercise prices for
option activity for the year ended December 31, 1996:
<TABLE>
<S> <C>
Balance at December 31, 1995...................... $2.33
Granted at exercise price equal to market price... 2.46
Granted at exercise price less than market price.. --
Exercised......................................... --
Forfeited......................................... 2.79
Expired........................................... 2.35
-----
Balance at December 31, 1996...................... $2.30
=====
</TABLE>
The following table summarizes certain weighted average data for options
outstanding and currently exercisable as of December 31, 1996:
<TABLE>
<CAPTION>
Outstanding Exercisable
-------------------------------- ---------------------
Weighted Average
--------------------- Weighted
Remaining Average
Exercise Contractual Exercise
Exercise Price Range Shares Price Life Shares Price
- ---------------------- --------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.84 - $1.27.... 19,308 $0.84 7.0 -- $ --
$1.38 - $2.06.... 570,705 $1.67 2.8 495,352 $1.67
$2.25 - $3.38.... 577,901 $2.53 7.1 53,929 $2.68
$3.75 - $5.63.... 59,823 $4.79 7.3 23,090 $4.50
$5.75 - $7.75.... 21,951 $6.84 8.3 21,951 $6.84
--------- -------
Total.......... 1,249,688 $2.30 5.0 594,322 $2.07
========= =======
</TABLE>
The per share weighted average fair value of options granted during the
years ended December 31, 1995 and 1996 were $2.76 and $1.10, respectively.
(14) Shareholders' Equity
On February 18, 1994, the Company increased the number of shares of
authorized Common Stock from 8,000,000 to 40,000,000 and authorized a new class
of 1,000,000 shares of no par value Preferred Stock, none of which have been
issued. On March 4, 1994, a 6-for-1 stock split was approved and ratified by the
Board of Directors.
F-19
<PAGE>
GROUP TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
On April 20, 1994, the Company's Articles of Incorporation were amended to
change the no par value Common Stock and Preferred Stock to $.01 par value. The
stock split and the change to $.01 par value Common Stock have been
retroactively reflected in the accompanying consolidated financial statements.
On May 18, 1994, the Company completed an initial public offering of
2,000,000 shares of Common Stock at $10.00 per share (the "Offering"). The net
proceeds of the Offering, after deducting applicable issuance costs and expenses
were $17,348,000, of which $13,393,000 was used to reduce the Company's
outstanding debt. On June 23, 1994, the Company issued an additional 50,000
shares of Common Stock at $10.00 per share and applied the net proceeds of
approximately $465,000 to reduce the Company's outstanding debt. The effect on
unaudited pro forma earnings per share giving effect to the Offering as if the
Offering were consummated as of the beginning of 1994 is not significant.
Also during 1995 and 1996, certain transactions were executed with related
parties (see Note 17).
(15) Commitments and Contingencies
The Company leases all of its real property and certain computer,
manufacturing and office equipment. The real property operating leases have
terms up to ten years and contain various renewal and rent escalation clauses.
The equipment operating leases have terms of up to five years. Future minimum
noncancelable lease payments for each year ending December 31, are as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
1997......................................................... $3,638
1998......................................................... 3,553
1999......................................................... 2,449
2000......................................................... 1,151
2001......................................................... 1,187
Thereafter................................................... 593
</TABLE>
Rent expense for the years ended December 31, 1994, 1995 and 1996, was
$3,354,000, $5,194,000 and $3,660,000, respectively.
The Company is involved in certain litigation and contract issues arising
in the normal course of business. While the outcome of these matters cannot, at
this time, be predicted in light of the uncertainties inherent therein,
management does not expect that these matters will have a material adverse
effect on the consolidated financial position or results of operations of the
Company.
F-20
<PAGE>
GROUP TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(16) Income Taxes
The components of income tax expense (benefit) are:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1994 1995 1996
------- --------- ------
(in thousands)
<S> <C> <C> <C>
Income taxes currently payable (refundable):
Federal...................................... $ 528 $(5,263) $(333)
State........................................ 270 112 62
Foreign...................................... -- 428 481
------ ------- -----
798 (4,723) 210
Deferred income taxes:
Federal...................................... 2,301 668 589
State........................................ 198 73 --
------ ------- -----
2,499 741 589
------ ------- -----
$3,297 $(3,982) $ 799
====== ======= =====
</TABLE>
Income taxes paid during 1994 and 1996 were $6,421,000 and $762,000,
respectively, including federal income taxes paid to the Parent of $5,628,000 in
1994. Income tax refunds received during 1995 and 1996 were $2,350,000 and
$4,928,000, respectively, all of which was received from the Parent. At December
31, 1995 and 1996, federal income taxes receivable from the Parent of $5,073,000
and $330,000, respectively, were included in other current assets.
The following is a reconciliation of income tax expense recognized to that
computed by applying the federal statutory rate of 34% in 1994, 1995 and 1996 to
income before income taxes:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1994 1995 1996
------ -------- --------
(in thousands)
<S> <C> <C> <C>
Federal tax at the statutory rate..................... $2,719 $(7,363) $(2,645)
State income taxes net of federal tax benefit......... 305 (76) 46
State tax net operating loss carry forward............ -- (1,080) (617)
Change in valuation allowance for deferred tax asset.. -- 4,367 3,175
Other................................................. 273 170 840
------ ------- -------
$3,297 $(3,982) $ 799
====== ======= =======
</TABLE>
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Due to the uncertain nature of the ultimate realization of deferred
tax assets based upon the Company's financial performance during 1995 and 1996
and the potential expiration of the net operating loss carryforward, the Company
has established a valuation allowance against its deferred tax assets. The
Company will recognize the benefits associated with the deferred tax assets only
as reassessment demonstrates they are realizable. Realization is entirely
dependent upon future earnings in specific tax jurisdictions. While the need for
this valuation allowance is subject to periodic review, if the allowance is
reduced, the tax benefits will be recorded in future operations as a reduction
of the Company's income tax expense.
F-21
<PAGE>
GROUP TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
December 31,
------------------
1995 1996
-------- --------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Compensation and benefit accruals................. $ 920 $ 773
Inventory valuation............................... 2,279 1,550
Net operating loss carryforward................... 1,080 4,442
Other............................................. 1,037 1,409
------- -------
5,316 8,174
Valuation allowance................................ (4,367) (7,542)
Deferred tax liabilities:
Depreciation...................................... -- (458)
Contract provisions............................... (360) (130)
Other............................................. -- (44)
------- -------
Net deferred tax asset............................. $ 589 $ --
======= =======
</TABLE>
During the years ended December 31, 1995 and 1996, the Company recorded a
valuation allowance of $4,367,000 and $3,175,000, respectively, on its deferred
tax assets to reduce the total to an amount that management believes will more
likely than not be realized. Realization of deferred tax assets is dependent
upon sufficient taxable income during the period that temporary differences and
carryforwards are expected to be available to reduce taxable income.
At December 31, 1996, for federal income tax purposes, the Company had a
net operating loss carryforward of approximately $7,920,000, which will expire
in 2011. At December 31, 1996, for state income tax purposes, the Company had a
net operating loss carryforward of approximately $31,830,000, which will expire
beginning in 2010.
(17) Related Party Transactions
The Company paid a corporate allocation (0.2% of revenue) to the Parent of
$548,000 during 1994. The Company's corporate allocation for 1995, charged to
operations, consisted of $274,000 in cash and 69,813 shares of Common Stock
valued at $300,000, based on the fair market value of the shares during the
related period. All shares issuable as of December 31, 1995 were issued during
1996. During 1996, the corporate allocation consisted of the issuance of 17,391
shares of Common Stock valued at approximately $50,000. The Company is also a
party to a consolidated federal income tax sharing agreement with the Parent
applicable to the tax periods during which the Company is includable in the
Parent's consolidated federal income tax return.
The Company issued 374,531 shares of its Common Stock to the Parent in a
private placement transaction in March 1996. The shares were sold to the Parent
in exchange for $1,000,000 in cash. The per share price of the transaction was
equal to an average of the prices for the last sale transactions of the Common
Stock on each of the last three business days immediately preceding the date of
sale.
On February 9, 1996, the Company sold substantially all of the assets of
its Metrum subsidiary to a related party, which resulted in the recognition of
additional paid-in capital of $613,000 (see Note 4).
F-22
<PAGE>
GROUP TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(18) Geographic Segments
The Company is a multinational corporation with operations in the United
States, Mexico and Brazil. For the year ended December 31, 1994, revenue,
operating profit and identifiable assets of the Company's foreign operations
were not significant. Information about the Company's operations in geographic
areas for the years ended December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1995 1996
--------- ---------
(in thousands)
<S> <C> <C>
Revenue:
United States................................... $233,515 $166,204
Latin America................................... 40,132 58,457
-------- --------
$273,647 $224,661
======== ========
Operating Loss:
United States................................... $(16,172) $ (3,665)
Latin America................................... (2,055) (1,316)
-------- --------
$(18,227) $ (4,981)
======== ========
Identifiable Assets:
United States................................... $ 87,049 47,311
Latin America................................... 26,057 20,154
-------- --------
$113,106 $ 67,465
======== ========
</TABLE>
Identifiable assets of foreign subsidiaries are those assets related to the
operations of those subsidiaries. The Company's domestic assets consist of all
other operating assets of the Company.
(19) Fourth Quarter Adjustments
The Company recognized charges during the fourth quarter of 1995 totaling
approximately $8,300,000, which increased cost of operations by $7,300,000,
selling, general and administrative expense by $800,000 and other expense by
$200,000. The charges to cost of operations were primarily related to an
inventory adjustment for the discontinued Badger line of name brand products of
$2,200,000, inventory adjustments required based upon the October physical
inventory count of $1,700,000, inventory adjustments for an accounts payable
reconciliation performed contemporaneously with the physical inventory of
$800,000, the idle status of specialized manufacturing equipment under lease
amounting to $1,100,000, an increase to the excess and obsolete inventory
reserve of $1,000,000 and the recognition of estimated losses on terminated or
unprofitable contracts of $500,000. The Company believes the inventory
adjustments totaling $2,500,000, including the effect of account
reconciliations, arose principally from excessive scrap and shrinkage rates and
were not determinable prior to a physical count of the inventory. The Company
believes that the implementation of system software contributed to the inventory
adjustments. The account reconciliation which contributed $800,000 to the
inventory adjustment identified receipts of inventory which the general ledger
failed to properly accumulate due to system software problems. Upon completion
of the reconciliation and revision of the general ledger to reflect all
inventory received, the total general ledger inventory amount exceeded the
physical inventory by $2,500,000. Both the physical inventory and inventory and
accounts payable reconciliations were performed during the fourth quarter of
1995. The fourth quarter charges to selling, general and administrative expense
related primarily to the acceleration of loan fee amortization due to the
Company's refinancing agreement described in Note 10 and the increase in the
reserve for uncollectible accounts receivable. The fourth quarter charges to
other expense related primarily to losses on the sale of equipment.
F-23
<PAGE>
GROUP TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
The Company recognized charges during the fourth quarter of 1996 totaling
approximately $5,100,000, which increased cost of operations by $3,800,000 and
selling, general and administrative expense by $1,300,000. The charges to cost
of operations were primarily related to a December domestic operations physical
inventory adjustment of $300,000, a December foreign operations physical
inventory adjustment of $700,000, estimate revisions for costs of sales related
to long-term contracts of $800,000, increased reserves for excess inventories of
$600,000, and costs associated with asset disposals and retirements of $900,000
and amortization of lease payments due at the end of the respective lease terms
of $500,000. The $900,000 charge for asset disposals and retirements resulted
from a fourth quarter review of the Company's fixed assets, in which certain
assets were not readily identifiable or were deemed to be surplus as a result of
the corresponding reduction in the Company's operations. The $500,000 charge for
lease payments reflected the inception-to-date amortization of end-of-lease
payments for certain lease agreements which originated during 1994. The fourth
quarter charges to selling, general and administrative expense include severance
costs of $500,000, warehouse move costs of $500,000 and an increase in the
reserve for uncollectible accounts receivable of $300,000. With regard to the
warehouse costs, in the second quarter of 1996 GTC implemented a cost saving
strategy to integrate the materials warehousing function into its main Tampa
facility. The total cost of the move was originally estimated to be $400,000
comprised of planning and interior demolition costs, labor associated with the
move of the warehouse function to the main facility, the impairment of existing
leasehold improvements in the warehouse and estimated lease obligations net of
estimated sublease revenue. However, an increased cost of $500,000 was recorded
in the fourth quarter based on actual costs incurred and the review of
additional information regarding sublease strategies, including GTC's ability to
sublease the warehouse at favorable lease rates. The anticipated date of
completion of the warehouse relocation activity is contingent upon early
termination of the lease. The lease currently provides for an early termination
during January, 2000.
F-24
<PAGE>
GROUP TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
<TABLE>
<CAPTION>
December 31, September 28,
1996 1997
------------ -------------
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents.......................................................................... $ 661 $ 4,070
Accounts receivable, net........................................................................... 22,754 10,145
Inventories, net................................................................................... 20,220 20,780
Other current assets............................................................................... 2,102 1,374
------- -------
Total current assets.............................................................................. 45,737 36,369
Property and equipment, net......................................................................... 21,206 8,477
Other assets........................................................................................ 522 40
------- -------
$67,465 $44,886
======= =======
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Current liabilities:
<S> <C> <C>
Accounts payable................................................................................... $17,969 $ 9,027
Accrued liabilities................................................................................ 16,416 17,224
Current portion of long-term debt.................................................................. 3,513 198
------- -------
Total current liabilities......................................................................... 37,898 26,449
Long-term debt...................................................................................... 10,119
Other liabilities................................................................................... 45 --
------- -------
Total liabilities................................................................................ 48,062 26,449
Redeemable preferred stock, $.01 par value, 1,000,000 shares authorized;
250,000 shares issued and outstanding in 1997..................................................... -- 3
Additional paid-in capital - preferred stock........................................................ -- 2,497
Shareholders' equity:
Common stock, $.01 par value, 40,000,000 shares authorized;
16,220,629 shares issued and outstanding in 1996 and 1997......................................... 162 162
Additional paid-in capital......................................................................... 24,675 24,793
Retained earnings.................................................................................. (5,434) (9,018)
------- -------
Total shareholders' equity....................................................................... 19,403 15,937
------- -------
$67,465 $44,886
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-25
<PAGE>
GROUP TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------------------ ------------------------------
September 29, September 28, September 29, September 28,
1996 1997 1996 1997
-------------- -------------- -------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue...................................... $48,190 $21,555 $180,380 $84,452
Cost of operations........................... 47,376 22,098 170,549 85,173
------- ------- -------- -------
Gross profit (loss)........................ 814 (543) 9,831 (721)
Selling, general and administrative expense.. 2,393 1,737 8,597 4,986
Research and development..................... 2 -- 296 99
------- ------- -------- -------
Operating income (loss).................... (1,581) (2,280) 938 (5,806)
Interest expense............................. 756 (106) 2,682 1,087
Other (income) expense, net.................. 93 (3,206) 166 (3,461)
------- ------- -------- -------
Income (loss) before income taxes.......... (2,430) 1,032 (1,910) (3,432)
Income tax expense........................... 388 -- 845 152
------- ------- -------- -------
Net income (loss)............................ $(2,818) $ 1,032 $ (2,755) $(3,584)
======= ======= ======== =======
Net income (loss) per share:
Primary.................................... $ (0.17) $ 0.06 $ (0.17) $ (0.22)
Fully diluted.............................. $ (0.17) $ 0.06 $ (0.17) $ (0.22)
Shares used in computing per share amounts:
Primary.................................... 16,221 16,885 16,135 16,221
Fully diluted.............................. 16,221 17,530 16,135 16,221
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-26
<PAGE>
GROUP TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine months ended
------------------------------
September 29, September 28,
1996 1997
-------------- --------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................................................... $ (2,755) $(3,584)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization....................................................... 3,887 3,017
Other............................................................................... 230 (2,882)
Changes in operating assets and liabilities, net of dispositions:
Accounts receivable................................................................ 7,097 8,189
Inventories........................................................................ 13,264 (4,713)
Other current and non-current assets............................................... 1,888 109
Accounts payable................................................................... (19,655) (4,832)
Accrued and other liabilities...................................................... (998) (586)
-------- -------
Net cash used in operating activities............................................. (2,958) (5,282)
Cash flows from investing activities:
Capital expenditures.................................................................. (2,376) (590)
Proceeds from disposal of assets...................................................... 11,561 18,000
-------- -------
Net cash provided by (used in) investing activities............................... 9,185 17,410
Cash flows from financing activities:
Net (repayments) proceeds under revolving credit agreement............................ (8,511) (6,934)
Repayments of notes payable and long-term debt........................................ (5,551) (4,285)
Net proceeds from issuance of common stock............................................ 1,000 --
Net proceeds from issuance of redeemable preferred stock.............................. -- 2,500
-------- -------
Net cash (used in) provided by financing activities............................... (13,062) (8,719)
-------- -------
Net decrease in cash and cash equivalents.............................................. (919) 3,409
Cash and cash equivalents at beginning of period....................................... 2,143 661
-------- -------
Cash and cash equivalents at end of period............................................. $ 1,224 $ 4,070
======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-27
<PAGE>
GROUP TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Organizational Structure
Group Technologies Corporation (the "Company") was incorporated on December
27, 1988 as a subsidiary of Group Financial Partners, Inc. (the "Parent"), a
private holding company. The Parent owns approximately 80% of the outstanding
Common Stock of the Company.
The Company provides advanced manufacturing, engineering and testing
services to original equipment manufacturers ("OEMs") of electronic products.
The Company custom manufactures complex circuit card assemblies, subsystems and
end-user products for use in a wide variety of markets, including automotive,
commercial avionics, computer, government systems, industrial electronics,
networking, space, and telecommunications.
(2) Basis of Presentation
The unaudited consolidated financial statements and related notes have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission and on substantially the same basis as the annual
consolidated financial statements. The consolidated financial statements include
the accounts of the Company and its subsidiaries. All significant intercompany
transactions and accounts have been eliminated.
In the opinion of management, the consolidated financial statements reflect
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial position, operating results, and cash flows
for those periods presented. Operating results for the three and nine month
periods ended September 28, 1997 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1997. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements, and notes thereto, for the year ended December 31, 1996 as
presented in the Company's annual report on Form 10-K.
During the first quarter of 1997, Statement of Financial Accounting
Standard No. 128, "Earnings per Share," was issued which revises the manner in
which earnings per share are calculated. In accordance with the effective date
of Statement No. 128, the Company will implement the new standard during the
fourth quarter of 1997. The Company does not expect that the provisions of
Statement No. 128 will have a material impact upon the Company's reported
earnings per share for the year ending December 31, 1997.
(3) Disposition
On June 30, 1997, The Company sold to SCI Systems, Inc., SCI Systems De
Mexico S.A de C.V. and SCI Holdings, Inc. (collectively, "SCI"), all of the
Company's investment in the capital stock and/or equity interests of three of
its wholly-owned subsidiaries, Group Technologies S.A. DE C.V., Group
Technologies Suprimentos de Informatica Industria E Comercio Ltda., and Group
Technologies Integracoes em Electronica Ltda. These three subsidiaries comprised
all of the Company's Latin American operations. The Company also sold or
assigned to SCI certain assets principally used in or useful to the operations
being sold, including accounts receivable, inventory, equipment, accounts
payable and equipment leases.
The initial sales price of the aforementioned assets amounted to
$18,000,000 in cash and the assumption by SCI of certain liabilities. Pursuant
to procedures described in the purchase and sale agreement, the price is subject
to subsequent adjustment, upward or downward, based upon, among other things,
the value of the net assets of the Company's Latin American operations at June
29, 1997.
F-28
<PAGE>
GROUP TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
The Company expects to repay $2,900,000 of the initial sales price to SCI,
subject to a final determination to be made in accordance with the purchase and
sale agreement. The Company recognized a gain of $3,200,000 during the three
month period ended September 28, 1997, after giving consideration to the
Company's recorded liability and expected repayment of $2,900,000, relative to
this disposition.
(4) Net (Loss) Income Per Share
Net (loss) income per share is computed using the weighted average number
of issued and issuable common shares and dilutive common equivalent shares
outstanding during the applicable period. Common equivalent shares consist of
stock options and warrants (vested and unvested) and are computed using the
treasury stock method. The computation includes those common shares and common
equivalent shares as prescribed by the Securities and Exchange Commission Staff
Accounting Bulletins.
(5) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, September 28,
1996 1997
------------ -------------
(in thousands)
<S> <C> <C>
Raw materials............................................................... $ 12,538 $ 8,055
Work in process............................................................. 4,100 5,011
Finished goods.............................................................. 107 --
Costs relating to long-term contracts and programs, net
of amount attributed to revenue recognized to date........................ 11,655 17,263
Progress payments related to long-term contracts and programs............... (3,292) (5,397)
Reserve for inactive, obsolete and unsalable inventories.................... (4,888) (4,152)
------------ -------------
$ 20,220 $ 20,780
============ =============
</TABLE>
The Company recognized revenue and income before income taxes during the
second quarter of 1996 of $4,083,000 upon the favorable settlement of a
contractual claim.
(6) Note Payable and Long-Term Debt
On June 30, 1997, the Company utilized the proceeds from the sale of its
Latin American operations (see Note 3) to repay all of its outstanding
borrowings under a financing agreement (the "Credit Agreement") with its bank
and terminated the Credit Agreement which previously provided the Company with a
revolving line of credit facility (the "Revolver") and a term note (the "Term
Note").
In connection with the initial execution of the Credit Agreement during
1996, the Company issued warrants to purchase 1,200,000 shares of Common Stock
at $0.01 per share to the lender. At the time of issuance, the Company estimated
that 1,000,000 warrants would be forfeited by the lender, based on the warrant
vesting schedule and the Company's intent to refinance the debt outstanding
under the Credit Agreement. During the first quarter of 1997, the Company, based
upon the continued utilization of the Credit Agreement, revised its estimate of
warrants to be forfeited by the lender to 500,000, and therefore recognized
additional paid-in capital and original issue discount of $471,000. As a result
of the early repayment and termination of the Credit Agreement on June 30, 1997,
875,000 unvested warrants were forfeited by the lender. The Company therefore
reduced additional paid-in capital by $353,000, which was the value of recorded
but unvested warrants, and it reduced interest expense by $118,000 which was the
value of warrants that were amortized but subsequently forfeited by the lender.
F-29
<PAGE>
GROUP TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
In connection with the March 28, 1997 amendment to the Credit Agreement,
the Parent invested $2,500,000 in the Company in exchange for 250,000 shares of
the Company's Preferred Stock (the "Preferred Stock").
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, September 28,
1996 1997
------------ -------------
(in thousands)
<S> <C> <C>
Revolver....................................................... $ 6,934 $ --
Term Note...................................................... 2,690 --
Other.......................................................... 4,128 198
------- -----
Total long-term debt........................................... 13,752 198
Unamortized original issue discount related to issuance of
warrants exercisable on date of issuance...................... (120) --
Current portion of long-term debt.............................. (3,513) (198)
------- -----
$10,119 $ --
======= =====
</TABLE>
(7) Preferred Stock
Each share of Preferred Stock outstanding may be exchanged for 8.1 shares
of the Company's Common Stock. The Preferred Stock outstanding is also
redeemable at the option of the holder (the Parent), subject to certain
restrictions, and pays quarterly dividends of 8.5% per annum. The shares of
Preferred Stock outstanding have voting rights equal to the voting rights of the
Company's Common Stock, except that the holder of each share of Preferred Stock
is entitled to the number of votes equal to the number of shares of Common Stock
that would be receivable upon conversion. The rates and preferences of Preferred
Stock authorized but not issued have not been determined.
F-30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Group Financial Partners Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Group
Financial Partners Inc. and Subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations, shareholders' equity, and
cash flows and schedule for each of the three years in the period ended December
31, 1996. These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Group Financial
Partners Inc. and Subsidiaries at December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Ernst & Young LLP
Louisville, Kentucky
September 10, 1997
F-31
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
<TABLE>
<CAPTION>
December 31,
--------------------
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 5,696 $ 6,012
Accounts receivable, net................................. 39,531 37,254
Inventories, net......................................... 54,970 34,288
Other current assets..................................... 7,869 2,307
-------- --------
Total current assets.................................... 108,066 79,861
Property, plant and equipment, net........................ 59,832 48,602
Other assets.............................................. 5,130 4,497
-------- --------
$173,028 $132,960
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 41,543 $ 23,920
Accrued liabilities...................................... 23,498 24,595
Notes payable............................................ 5,920 --
Current portion of long-term debt........................ 10,946 25,009
-------- --------
Total current liabilities............................... 81,907 73,524
Noncurrent liabilities:
Long-term debt........................................... 52,868 21,588
Other noncurrent liabilities............................. 10,459 10,381
-------- --------
Total noncurrent liabilities............................ 63,327 31,969
Minority interests in subsidiaries........................ 4,525 3,262
Redeemable common stock................................... 1,806 1,821
Shareholders' equity:
Common stock, no par value, 1,000,000 shares authorized;
314,196 shares issued and outstanding in 1995 and 1996,
respectively............................................ 7,892 7,892
Retained earnings........................................ 13,571 14,492
-------- --------
Total shareholders' equity.............................. 21,463 22,384
-------- --------
$173,028 $132,960
======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-32
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for share and per share data)
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Revenue........................................................................... $326,327 $328,977 $308,598
Cost and expenses:
Cost of services rendered and products sold...................................... 279,609 312,712 278,678
Selling, general and administrative expense...................................... 33,148 31,081 29,407
Interest expense, net............................................................ 2,558 3,397 3,979
Other (income) expense, net...................................................... (199) 196 (828)
-------- -------- --------
Total cost and expenses........................................................... 315,116 347,386 311,236
-------- -------- --------
Income (loss) before gain on issuance of stock by subsidiary, income taxes,
minority interests and discontinued operations................................... 11,211 (18,409) (2,638)
Gain on issuance of stock by subsidiary........................................... 13,307 -- --
-------- -------- --------
Income (loss) before income taxes, minority interests and discontinued operations. 24,518 (18,409) (2,638)
Income taxes...................................................................... 9,845 (3,109) 1,614
-------- -------- --------
Income (loss) before minority interests and discontinued operations............... 14,673 (15,300) (4,252)
Minority interests in (earnings) losses of consolidated subsidiaries.............. (331) 3,535 1,716
-------- -------- --------
Income (loss) from continuing operations.......................................... 14,342 (11,765) (2,536)
Loss from discontinued operations (net of applicable tax of $166, $406 and $205
in 1994, 1995 and 1996, respectively)............................................ (437) (905) (609)
Gain on disposal of discontinued operations (net of applicable tax of $2,389 and
$2,932 in 1995 and 1996, respectively)........................................... -- 4,637 4,066
-------- -------- --------
Net income (loss)................................................................. $ 13,905 $ (8,033) $ 921
======== ======== ========
Earnings per share:
Income (loss) from continuing operations......................................... $ 44.62 $(36.64) $ (7.92)
Net income (loss)................................................................ $ 43.26 $(25.02) $ 2.88
Shares used in computing per share amounts........................................ 321,424 321,084 320,128
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-33
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except for share data)
<TABLE>
<CAPTION>
Common Stock Total
---------------- Retained Shareholders'
Shares Amount Earnings Equity
------- ------ -------- -------------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 ...... 314,196 $7,892 $ 7,699 $15,591
Net income ...................... -- -- 13,905 13,905
------- ------ ------- -------
Balance at December 31, 1994 .... 314,196 7,892 21,604 29,496
Net loss ........................ -- -- (8,033) (8,033)
------- ------ ------- -------
Balance at December 31, 1995 .... 314,196 7,892 13,571 21,463
Net income ...................... -- -- 921 921
------- ------ ------- -------
Balance at December 31, 1996 .... 314,196 $7,892 $14,492 $22,384
======= ====== ======= =======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-34
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................................................. $ 13,905 $ (8,033) $ 921
Adjustments to reconcile net income (loss) to net cash (used in) provided by
operating activities:
Depreciation and amortization .................................................. 10,076 10,244 9,897
Deferred income taxes .......................................................... 7,079 (142) 563
Minority interests in earnings (losses) of consolidated subsidiaries ........... 331 (3,535) (1,716)
Provision for excess and obsolete inventories .................................. 573 6,990 4,106
Provision for doubtful accounts ................................................ 650 1,523 1,208
Gain on disposal of discontinued operations, net of tax ........................ -- (4,637) (4,066)
Gain on issuance of stock by subsidiary ........................................ (13,307) -- --
Other noncash charges .......................................................... 1,075 1,930 1,011
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Accounts receivable ............................................................ (1,862) 1,027 2,047
Inventories .................................................................... (6,838) 2,950 15,164
Other current and noncurrent assets ............................................ (4,652) (2,144) 3,921
Accounts payable ............................................................... (4,480) 8,801 (17,774)
Accrued and other liabilities .................................................. (6,985) (36) (1,221)
-------- -------- --------
Net cash (used in) provided by operating activities .................................... (4,435) 14,938 14,061
Cash flows from investing activities:
Capital expenditures ............................................................... (11,871) (10,201) (7,366)
Proceeds from disposal of assets ................................................... 1,344 5,928 6,399
Purchase of the net assets of acquired entities .................................... -- (2,245) --
Changes in nonoperating assets and liabilities ..................................... 300 (509) (548)
-------- -------- --------
Net cash used in investing activities .................................................. (10,227) (7,027) (1,515)
Cash flows from financing activities:
Net proceeds (repayments) under revolving credit agreements ........................ 19,068 (6,573) 216
Proceeds from long-term debt ....................................................... 1,085 2,240 10,000
Principal payments on long-term debt ............................................... (27,950) (4,151) (22,321)
Proceeds from GTC initial public offering .......................................... 17,813 -- --
Payments for redemption of common stock in subsidiaries, net ....................... (17) (112) (125)
-------- -------- --------
Net cash provided by (used in) financing activities .................................... 9,999 (8,596) (12,230)
-------- -------- --------
Net (decrease) increase in cash and cash equivalents ................................... (4,663) (685) 316
Cash and cash equivalents at beginning of year ......................................... 11,044 6,381 5,696
-------- -------- --------
Cash and cash equivalents at end of year ............................................... $ 6,381 $ 5,696 $ 6,012
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-35
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(1) Organization and Significant Accounting Policies
Organization and Consolidation Policy
Group Financial Partners Inc. ("GFP"), located in Louisville, Kentucky, is
a privately-held holding company which owns a majority interest in the entities
described below. The accompanying consolidated financial statements include the
accounts of GFP and its subsidiaries (collectively, the "Company"). All
significant accounts and transactions between GFP and its subsidiaries have been
eliminated. The Company records gains or losses arising from issuances of stock
by subsidiaries as non-operating income or expense in its consolidated statement
of operations.
GFP is the parent for the following corporations (the "Operating
Companies"): Tube Turns Technologies, Inc.; Bell Technologies, Inc.; Group
Technologies Corporation; and Unison Commercial Group, Inc. GFP or a subsidiary
is the General Partner of the following limited partnerships (the "Real Estate
Companies"): GFP Partners-II, Limited; GFP Partners-III, Limited; GFP Partners-
IV, Limited; and GFP Partners-VI, Limited. As of December 31, 1996, GFP owned
80% or greater of the outstanding common stock of each of the Operating
Companies. Partnerships in which the Company or a subsidiary serves as General
Partner with a 99% interest are accounted for as subsidiaries in the
accompanying consolidated financial statements.
Tube Turns Technologies, Inc. ("TTT"), located in Louisville, Kentucky,
manufactures forgings, fittings and related subassemblies primarily for the
aerospace, commercial vehicle, petrochemical and defense markets.
Bell Technologies, Inc. ("Bell"), headquartered in Orlando, Florida,
manufactures magnetic sensing components and instruments and digital and analog
recording products, provides qualification and reliability testing and
electronic component screening services and provides maintenance, calibration
and repair services for test and measurement equipment to customers located
primarily in the United States. On February 9, 1996, Bell acquired substantially
all of the assets of Metrum, Inc. ("Metrum") from GTC (see Note 15).
Group Technologies Corporation ("GTC"), headquartered in Tampa, Florida,
provides advanced manufacturing, engineering and testing services to original
equipment manufacturers ("OEMs") of electronic products. GTC custom manufactures
complex circuit card assemblies, subsystems and end-user products for use in a
wide variety of markets, including automotive, commercial avionics, computer,
government systems, industrial electronics, networking, space and
telecommunications. GTC is the parent for Group Technologies, S.A. de C.V. ("GTC
Mexico") located in Mexico City, Mexico and Group Technologies Suprimentos de
Informatica Industria e Comercio Ltda. ("GTC Brazil") located in Hortolandia,
Brazil. Substantially all of the assets of Metrum, which remains a wholly owned
subsidiary of GTC, were sold during 1995 and 1996 (see Notes 3 and 15).
The Real Estate Companies' assets were primarily comprised of land,
commercial office and industrial buildings owned or under capitalized lease by
the respective limited partnerships. Unison Commercial Group, Inc. ("Unison")
provided management and other services for these assets as well as other third-
party owned properties. During 1995, 1996 and the first quarter of 1997, the
Company completed a series of transactions which resulted in the sale or
transfer of ownership interest in substantially all of the assets of each
limited partnership (see Note 17).
F-36
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Inventories
Contract inventories are stated at actual production costs, reduced by
the cost of units for which revenue has been recognized. Gross contract
inventories are considered work in process. Progress payments under long-term
contracts are specified in the contracts as a percentage of cost and are
liquidated as contract items are completed and shipped. Other inventories are
stated at lower of cost (first-in, first-out method) or market. Certain
inventories of TTT, and inventories of Metrum, while a subsidiary of GTC in 1994
and 1995, are stated at lower of cost (last-in, first-out method) or market.
Property, Plant and Equipment
Property, plant and equipment, including property under capitalized
leases, is stated on the basis of cost. Buildings and building improvements are
depreciated over their estimated economic lives principally using the straight-
line method. Machinery, equipment, furniture and fixtures are depreciated over
their estimated economic lives principally using accelerated methods. Leasehold
improvements are amortized over the lease term using the straight-line method.
Depreciation methods and lives are generally consistent for financial reporting
and income tax purposes. Expenditures for maintenance, repairs and renewals of
minor items are expensed as incurred. Major renewals and improvements are
capitalized.
Effective January 1, 1995, GTC changed its method of depreciation for newly
acquired machinery, equipment, furniture and fixtures from principally an
accelerated method to the straight-line method. Management believes that the
straight-line method of depreciation provides a preferable matching between
expected productivity and cost allocation since the equipment's operating
capacity and consumption generally remains consistent over time. The change had
no cumulative effect on prior year earnings and was not material to operating
results for the year ended December 31, 1995.
Amortization
Goodwill, patents, non-compete agreements, product drawings, and similar
intangible assets are amortized over their estimated economic lives of five to
fifteen years, using the straight-line method. Lease commissions and tenant
improvement allowances are deferred and amortized over the related lease terms
using the straight-line method. Accumulated amortization at December 31, 1995
and 1996 was $1,809,000 and $1,798,000, respectively.
The excess of the fair value of the net assets of an acquired business over
the purchase price of such net assets (negative goodwill) is being amortized
using the straight-line method over five years. Negative goodwill included in
other noncurrent liabilities at December 31, 1995 was $261,000. Accumulated
amortization of negative goodwill at December 31, 1995 was $396,000. In
connection with
F-37
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
GTC's disposition of a portion of Metrum's assets during 1995, negative goodwill
with an unamortized basis of $330,000 was included in the net book value of
assets sold for purposes of determining the loss. As a result of GTC's
disposition of substantially all of Metrum's remaining assets during 1996, there
was no negative goodwill remaining at December 31, 1996.
Minority Interests in Subsidiaries
Minority interests in subsidiaries represents minority shareholders'
proportionate share of the equity of GTC.
Contract Revenue Recognition
A portion of the Company's business is conducted under long-term, fixed-
price contracts with OEMs, the United States Government and its prime
contractors. Contract revenue is included in the consolidated statement of
operations as units are completed and shipped using the units of delivery,
percentage of completion method of accounting. The costs attributed to contract
revenue are based upon the estimated average costs of all units to be shipped.
The cumulative average costs of units shipped to date is adjusted through
current operations as estimates of future costs to complete change (see Note 1--
Contract Accounting).
Revenue recognized under the percentage of completion method of accounting
amounted to $60,500,000, $57,945,000 and $54,397,000 in 1994, 1995 and 1996,
respectively. Substantially all such amounts were accounted for under the units
of delivery method. All other revenue is recognized as product is shipped and
title passes or when services are rendered.
Contract Accounting
For long-term contracts, the Company capitalizes in inventory direct
material, direct labor and factory overhead as incurred. The Company also
capitalizes certain general and administrative costs for estimating and bidding
on contracts awarded (of which approximately $210,000 remained in inventories at
December 31, 1995 and 1996). Selling costs are expensed as incurred. Costs to
complete long-term contracts are estimated on a monthly basis. Estimated margins
at completion are applied to cumulative contract revenue to arrive at costs
charged to operations.
Accounting for long-term contracts under the percentage of completion
method involves substantial estimation processes, including determining the
estimated cost to complete a contract. As contracts may require performance over
several accounting periods, formal detailed cost to complete estimates are
performed which are updated monthly via performance reports. Management's
estimates of costs to complete change due to internal and external factors such
as labor rate and efficiency variances, revised estimates of warranty costs,
estimated future material prices and customer specification and testing
requirement changes. Changes in estimated costs are reflected in gross profit in
the period in which they are known. If increases in projected costs to complete
are sufficient to create a loss contract, the entire estimated loss is charged
to operations in the period the loss first becomes known. Provisions for losses
on firm fixed priced contracts amounted to $1,226,000, $700,000 and $2,327,000
in 1994, 1995 and 1996, respectively.
The Company recognized income before income taxes in 1994 of approximately
$4,500,000 resulting from favorable changes in contract and contract claim
estimates for which all related costs had been charged to operations in previous
years. Approximately $3,100,000 of such estimate revisions were recognized by
the Company during the fourth quarter of 1994. While contract claim reserves
were initially established in response to customer assertions regarding product
failures, tests regarding the alleged failures
F-38
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
ultimately were determined to be inconclusive, requiring a change in estimate.
The Company also successfully negotiated the settlement of a government contract
termination claim and recognized income before income taxes of approximately
$2,700,000 in 1994. During the second quarter of 1996, the Company successfully
settled a name brand products contract claim and recognized revenue and income
before income taxes of approximately $4,100,000 associated with that settlement.
Research and Development
Company sponsored research and development costs are expensed as incurred.
Research and development expense was $5,799,000, $3,893,000 and $3,049,000 in
1994, 1995 and 1996, respectively.
Income Taxes
GFP files a consolidated federal income tax return which includes all
domestic subsidiaries in which it has at least an 80% ownership interest.
Subsidiaries prepare income tax provisions on a stand-alone basis.
Effective March 23, 1995, as a result of a decrease in GFP's ownership
percentage of GTC, GTC did not meet the 80% voting power and value requirements
defined by the Internal Revenue Code for affiliated group membership and ceased
to be an includable member in GFP's affiliated group. GTC and its domestic
subsidiaries separately filed its initial consolidated federal income tax return
for the period beginning March 23, 1995 through December 31, 1995. Effective
March 29, 1996, as a result of an increase in GFP's ownership percentage of GTC,
GTC again met the 80% voting power and value requirements defined by the
Internal Revenue Code for affiliated group membership, and therefore has filed
an election for reaffiliation and expects to be an includable member of GFP's
affiliated group beginning March 29, 1996.
Concentrations of Credit Risk
Financial instruments which potentially expose the Company to
concentrations of credit risk consist of accounts receivable. The Company's OEM
customer base consists primarily of large computer and electronic manufacturers
and its commercial accounts receivable are concentrated with a few of these
large companies. Although the Company is directly affected by the well being of
the computer and electronics industry, management does not believe significant
credit risk exists at December 31, 1996. The Company performs periodic credit
evaluations of its customers' financial condition and does not require
collateral on its commercial accounts receivable. Credit losses are provided for
in the financial statements and consistently have been within management's
expectations.
The Company earned revenue from the United States Government and its
agencies of approximately $51,352,000, $53,643,000 and $38,725,000 during 1994,
1995 and 1996, respectively. The Company also served as a subcontractor to a
variety of prime contractors under contract with the federal government which,
in the aggregate, represented 12%, 11% and 12% of the Company's revenue in 1994,
1995 and 1996, respectively. The Company's largest commercial customer was IBM
which represented approximately 12%, 13% and 12% of the Company's revenue in
1994, 1995 and 1996, respectively. No other single customer accounted for more
than 10% of the Company's revenue in 1994, 1995 or 1996.
F-39
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
Foreign Currency Translation
The United States dollar is the functional currency for GTC Mexico and GTC
Brazil. Foreign currency transaction gains and losses, which are insignificant
in all years presented, are included in determining net income.
Earnings Per Share
Earnings per share are computed using the weighted average number of common
and common equivalent shares outstanding during each period. Shares of common
stock issuable under the Company's stock plans are treated as common stock
equivalents when dilutive. Primary and fully diluted earnings per share are the
same.
Impact of Recently Issued Accounting Standards
In March 1995, Statement of Financial Accounting Standard ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," was issued which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the asset's underlying carrying amount. SFAS No. 121 also addresses
the accounting for long-lived assets that are expected to be disposed. The
effect of the implementation of Statement No. 121 in 1996 was not significant.
Reclassifications
Certain amounts in the Company's 1994 and 1995 consolidated financial
statements have been reclassified to conform with the 1996 presentation.
(2) Acquisitions
On July 4, 1994, GTC Mexico acquired certain assets and assumed certain
liabilities of Philips Mexicana, S.A. de C.V. The transaction was accounted for
as a purchase in which a liability of $1,200,000, payable to the seller based on
sales to certain customers of GTC Mexico during the next five years, was
allocated based on fair values of assets acquired and liabilities assumed. The
1994 consolidated statement of operations includes amounts for GTC Mexico from
July 4, 1994. GTC sold its investment in the capital stock of GTC Mexico in June
1997 (see Note 18).
On January 31, 1995, Bell acquired certain assets and assumed certain
liabilities of Associated Testing Laboratories, Inc. ("ATL"). The transaction
was accounted for as a purchase in which the purchase price of $2,245,000 was
allocated based on the fair values of assets acquired and liabilities assumed.
Goodwill in the amount of $1,000,000 was recorded as a result of the transaction
and will be amortized over fifteen years. The acquisition was financed by a term
note with a bank. The 1995 consolidated statement of operations includes amounts
for ATL from January 31, 1995.
On July 18, 1995, GTC Brazil acquired certain manufacturing equipment of
IBM Brasil-Industria, Maquinas e Sevicos Ltda. ("IBM Brasil"). The transaction
was accounted for as a purchase in which the purchase price of $4,900,000, in
the form of a note payable to the seller, was allocated based on fair values of
assets acquired. No goodwill resulted from this transaction. The 1995
consolidated statement of operations includes amounts for GTC Brazil from July
18, 1995. GTC sold its investment in the equity interests of GTC Brazil in June
1997 (see Note 18).
F-40
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(3) Dispositions
GTC completed a series of transactions which, in the aggregate, resulted in
the sale of substantially all of the assets of its name brand products business
units, including the assets of its Metrum subsidiary. On May 31, 1995, the
assets of the peripherals products business unit of Metrum were sold for
$5,247,000, consisting of cash of $3,655,000 and a note receivable from the
buyer of $1,592,000. On June 6, 1995, the assets of the imaging business unit of
Metrum were sold for $1,331,000 cash. On February 9, 1996, the assets of the
instrumentation products business unit of Metrum were sold to Bell (see Note
15). On March 22, 1996, GTC sold substantially all of the assets related to its
Badger line of name brand products for $1,457,000 in cash. The sales price for
each transaction approximated the net book value of the respective business
units on the date of sale. The proceeds from the sale transactions were used to
reduce GTC's debt balance and to fund working capital needs.
(4) Accounts Receivable
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1996
-------- --------
(in thousands)
<S> <C> <C>
Commercial...................................... $ 36,205 $ 33,641
U.S. Government................................. 4,416 5,624
-------- --------
40,621 39,265
Allowance for doubtful accounts................. (1,090) (2,011)
-------- --------
$ 39,531 $ 37,254
======== ========
</TABLE>
Accounts receivable from the U.S. Government includes amounts due under
long-term contracts, all of which are billed at December 31, 1995 and 1996 of
$2,904,000 and $2,463,000, respectively. The provision for doubtful accounts was
$650,000, $1,523,000 and $1,208,000 for the years ended December 31, 1994, 1995
and 1996, respectively.
(5) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1996
-------- --------
(in thousands)
<S> <C> <C>
Raw materials.................................................... $ 37,363 $ 20,360
Work-in process.................................................. 12,139 11,993
Finished goods................................................... 1,274 847
Costs relating to long-term contracts and programs, net of
amounts attributed to revenue recognized to date............... 25,766 11,655
Progress payments related to long-term contracts and programs.... (12,300) (3,292)
LIFO reserve..................................................... (709) (744)
Reserve for excess and obsolete inventories...................... (8,563) (6,531)
-------- --------
$ 54,970 $ 34,288
======== ========
</TABLE>
The preceding amounts include inventories valued under the last-in, first-
out ("LIFO") method totaling $10,798,000 and $6,512,000 at December 31, 1995 and
1996, respectively, which approximates
F-41
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
replacement cost. Provisions for obsolete, inactive and unsalable inventories
were $573,000, $6,990,000 and $4,106,000 for the years ended December 31, 1994,
1995 and 1996, respectively.
(6) Property, Plant and Equipment
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1995 1996
--------- ---------
(in thousands)
<S> <C> <C>
Land and land improvements.................... $ 5,753 $ 4,656
Buildings and building improvements........... 49,054 35,990
Machinery, equipment, furniture and fixtures.. 56,604 59,356
Facilities in progress........................ 333 943
-------- --------
111,744 100,945
Accumulated depreciation...................... (51,912) (52,343)
-------- --------
$ 59,832 $ 48,602
======== ========
</TABLE>
Depreciation expense was $9,641,000, $9,350,000 and $9,218,000 for
the years ended December 31, 1994, 1995 and 1996, respectively.
(7) Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
-------------------
1995 1996
------- -------
(in thousands)
Payments received from customers in excess of contract costs.. $ 5,340 $ 3,657
Employee benefit plan accruals................................ 5,470 6,241
Other......................................................... 12,688 14,697
------- -------
$23,498 $24,595
======= =======
</TABLE>
Included in other current liabilities are employee payroll deductions,
advance payments, accrued operating expenses and accrued interest, none of which
exceed 5% of total current liabilities.
(8) Notes Payable
Notes payable at December 31, 1995 consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
(in thousands)
Bell Line of Credit Note.. $ 112
P-III Mortgage Note....... 5,808
------
$5,920
======
</TABLE>
The Bell Line of Credit Note was refinanced on March 21, 1997 (see
Note 9). No amounts were outstanding on the Bell Line of Credit Note
at December 31, 1996.
F-42
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
The Company was released from its obligation on the P-III Mortgage Note in
connection with the transfer of title for the mortgaged property to the lender
on April 1, 1996 (see Note 17).
(9) Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1995 1996
-------- --------
(in thousands)
<S> <C> <C>
TTT Revolving Credit Agreement............ $ 143 $ --
Bell Term Note............................ 2,000 --
Bell Mortgage Note........................ 2,146 1,993
Bell Equipment Term Note.................. 325 --
Bell 1995 Note............................ 2,010 --
Bell Reducing Revolver Note............... -- 11,850
GTC Revolver.............................. 25,583 6,934
GTC Term Note............................. -- 2,690
P-IV Mortgage Note........................ 17,775 17,398
P-IV Second Mortgage Note................. 1,650 1,300
P-VI Industrial Revenue Bonds............. 6,228 --
Other..................................... 5,954 4,552
-------- --------
63,814 46,717
Less unamortized original issue discount.. -- (120)
Less current portion...................... (10,946) (25,009)
-------- --------
$ 52,868 $ 21,588
======== ========
</TABLE>
On March 21, 1997, Bell and TTT entered into a financing agreement (the "BT
Credit Agreement", under the terms of which a bank committed a maximum of
$30,000,000 to Bell and TTT for cash borrowings and letters of credit. The BT
Credit Agreement provides for a term loan which permits borrowings up to
$10,000,000 and a revolving credit loan which permits borrowings and letters of
credit up to a maximum of $20,000,000, subject to a $5,000,000 limit for letters
of credit. Under the terms of the BT Credit Agreement, interest rates are
determined at the time of borrowing and are based on the prime rate, the London
Interbank Offered Rates plus a spread, or certain alternative rates. The
commitment fee on the unused portion of the revolving credit loan is 0.15% to
0.375% per annum. Principal payments on the term loan of $500,000 are due
quarterly beginning September 1997. All borrowings under the BT Credit Agreement
are secured by substantially all of the assets of Bell and TTT and a pledge of
all shares of common stock of Bell and TTT owned by GFP. The proceeds from the
BT Credit Agreement were used to repay all debt outstanding under the credit
agreements of Bell and TTT.
GTC's financing agreement with its bank (the "Credit Agreement") was
entered into on March 29, 1996 and amended on March 28, 1997. The Credit
Agreement provided GTC with a revolving line of credit facility (the
"Revolver"), a $3,300,000 two-year facility (the "Term Note") and an additional
$5,000,000 facility (the "1996 Note"). The 1996 Note was repaid in full during
1996. The Revolver and the Term Note were repaid in full on June 30, 1997 with
proceeds from the sale of GTC's Latin American operations (see Note 18), and the
Credit Agreement was terminated.
GTC, in conjunction with the Credit Agreement, paid a $250,000 fee and
issued warrants to purchase 1,200,000 shares of common stock at $0.01 per share
to the lender. Upon execution of the Credit Agreement, 200,000 of the warrants
became exercisable and, on March 31, 1997, an additional
F-43
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
125,000 of the warrants became exercisable. The exercise period for the 325,000
warrants expires on March 29, 2001. As a result of the early repayment and
termination of the Credit Agreement, the remaining 875,000 unvested warrants
were forfeited by the lender.
The P-IV mortgage notes were repaid on February 28, 1997 in connection with
the sale of assets by P-IV (see Note 17).
Long-term debt is subject to various credit agreements which contain a
number of restrictive financial covenants and other covenants, including
covenants requiring the respective subsidiary to maintain a minimum level of
working capital, tangible net worth and various financial ratios. The various
credit agreements also contain certain restrictive covenants which impose
limitations with respect to, among other things, dividends, capital
expenditures, additional borrowings, investments, and cash transfers to GFP and
between and among subsidiaries.
The annual maturities of long-term debt, as adjusted for the effects of the
refinancing of the Bell and TTT debt and the repayment of the GTC debt with the
proceeds from the sale of its Latin American operations, are presented below.
Maturities of debt under the Bell and TTT revolving credit notes issued pursuant
to the March 1997 financing agreement have been reported on the basis that the
commitment to lend under this agreement will be terminated at the end of its
current term.
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
1997......................................................................... $ 1,330
1998......................................................................... 2,332
1999......................................................................... 2,067
2000......................................................................... 2,000
2001......................................................................... 2,000
Thereafter................................................................... 4,843
-------
14,572
Reduction in debt outstanding at December 31, 1996 due to the
repayment of P-IV mortgage note and second mortgage
note on February 26, 1997................................................... 18,698
Reduction in debt outstanding at December 31, 1996 due to the
repayment of the GTC term note and revolving credit
agreement and the assumption by the buyer of debt carried
by GTC's Latin American operations on June 30, 1997......................... 13,447
-------
$46,717
=======
</TABLE>
Interest paid during 1994, 1995 and 1996 was $6,179,000, $7,381,000
and $6,082,000, respectively.
(10) Fair Value of Financial Instruments
Cash, accounts receivable, accounts payable and accrued liabilities are
reflected in the financial statements at their carrying amount which
approximates fair value because of the short-term maturity of those instruments.
The carrying amount of debt outstanding under the Company's revolving credit
agreement approximates fair value, due to the short-term nature of the
instrument. The carrying amount of other long-term debt is assumed to
approximate fair value because there have not been any significant changes in
market conditions or specific circumstances since the instruments were recorded
at fair value.
F-44
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(11) Employee Benefit Plans
TTT has a number of noncontributory defined benefit pension plans (the
"TTT Pension Plans") covering substantially all employees. TTT Pension Plans
covering salaried and management employees provide pension benefits that are
based on the employees' highest 5-year average compensation within 10 years
before retirement. TTT Pension Plans covering hourly employees and union members
generally provide benefits at stated amounts for each year of service. TTT's
funding policy is to make the minimum annual contributions required by the
applicable regulations. Pension expense for 1994, 1995 and 1996 was $476,000,
$708,000 and $825,000, respectively. The net pension cost of the TTT Pension
Plans included the following components:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1994 1995 1996
-------- -------- -------
(in thousands)
<S> <C> <C> <C>
Service cost benefits earned during the period............................................. $ 149 $ 147 $ 183
Interest cost of projected benefit obligation.............................................. 1,047 1,175 1,266
Net amortizations and deferrals............................................................ (879) 1,323 32
Actual return on plan assets............................................................... 159 (1,937) (656)
------ ------- ------
$ 476 $ 708 $ 825
====== ======= ======
</TABLE>
The significant assumptions used in accounting for the TTT Pension Plans
are as follows:
<TABLE>
<S> <C> <C>
1995 1996
------- ------
Discount rate used in determining present values........................................... 8.00% 8.75%
Annual increase in future compensation levels.............................................. 4.00% 4.75%
Expected long-term rate of return on assets................................................ 8.50% 8.50%
</TABLE>
The funded status of the TTT Pension Plans and amounts recognized in
the Company's consolidated balance sheet are as follows:
<TABLE>
<CAPTION>
December 31,
------------------
1995 1996
-------- --------
(in thousands)
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of 1995 - $13,768,000; 1996 - $14,576,000.. $14,828 $15,337
======= =======
Projected benefit obligation for service rendered to date............................................ $15,074 $15,637
Plan assets at fair value (primarily debentures, stocks and cash).................................... 9,300 10,303
------- -------
Projected benefit obligation in excess of plan assets................................................ 5,774 5,334
Unrecognized prior service cost...................................................................... (1,217) (1,075)
Unrecognized net gain................................................................................ 1,423 837
Additional pension liability......................................................................... -- 790
------- -------
Accrued pension cost................................................................................. $ 5,980 $ 5,886
======= =======
Included in:
Current liabilities................................................................................ $ 1,252 $ 1,263
Noncurrent liabilities............................................................................. $ 4,728 $ 4,623
</TABLE>
The Company sponsors defined contribution plans (the "Defined
Contribution Plans") for substantially all employees of the Company. The Defined
Contribution Plans are intended to meet the requirements of Section 401(k) of
the Internal Revenue Code. The Defined Contribution Plans allow the
F-45
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
Company to match participant contributions as approved by the respective Board
of Directors of GFP and of each of the Operating Companies, and certain of the
Defined Contribution Plans include required base contributions and discretionary
contributions. Contributions to the Defined Contribution Plans for 1994, 1995
and 1996 were $3,280,000, $3,079,000 and $2,676,000, respectively.
The Company has partially self-insured medical plans (the "Medical
Plans") for the employees of GTC. The Medical Plans limit the Company's annual
obligations to fund claims to specified amounts per participant and in the
aggregate. The Company is adequately insured for amounts in excess of these
limits. Employees are responsible, in some instances, for payment of a portion
of the premiums. During 1994, 1995 and 1996, the Company charged $5,287,000,
$4,526,000 and $3,732,000, respectively, to operations related to reinsurance
premiums, medical claims incurred and estimated, and administrative costs for
the Medical Plans. The Company accounts for medical claims in the period in
which they are incurred, which includes estimated costs of claims incurred but
not reported. The Company estimates the amount of claims incurred but not
reported based on historical experience and average monthly claims. The Company
also estimates and records the effect of known claims in excess of average
monthly claim amounts. Claims paid during 1994, 1995 and 1996 did not exceed the
aggregate limits.
(12) Commitments And Contingencies
The Company leases certain of its real property and certain computer,
manufacturing and office equipment under operating leases with terms ranging
from month-to-month to 10 years and which contain various renewal and rent
escalation clauses. Future minimum noncancelable lease payments for each year
ending December 31, are as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
1997................. $ 5,052
1998................. 4,328
1999................. 3,040
2000................. 1,680
2001................. 1,632
2002 and thereafter.. 903
-------
$16,635
=======
</TABLE>
Rent expense for the years ended December 31, 1994, 1995 and 1996 was
$4,393,000, $6,104,000 and $4,892,000, respectively.
TTT is a co-defendant in two lawsuits in Louisiana arising out of an
explosion in a coker plant owned by Exxon Corporation located in Baton Rouge,
Louisiana. According to the complaints, TTT is the alleged manufacturer of a
carbon steel pipe elbow which failed causing the explosion which destroyed the
coker plant and caused unspecified damages to surrounding property owners. The
suits are being defended for TTT by its insurance carrier. One of the actions
was brought by Exxon and claims damages for destruction of the plant which Exxon
estimates exceed $100,000,000. In this action TTT is a co-defendant with the
fabricator who built the pipe line in which the elbow was incorporated and with
the general contractor for the plant. The second action is a class action filed
on behalf of the residents living around the plant and claims damages in an
amount as yet undetermined. Exxon is a co-defendant with TTT, the contractor and
the fabricator in this action. TTT intends to vigorously defend its case and
although it is not possible to reasonably estimate the extent of TTT's liability
at this time, TTT believes that a settlement or related judgement would not
result in a material loss to TTT or the Company. No amounts are recorded on the
books of the Company in anticipation of a loss on this contingency.
F-46
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
The Company is involved in certain litigation and contract issues arising
in the normal course of business. While the outcome of these matters cannot, at
this time, be predicted in light of the uncertainties inherent therein,
management does not expect that these matters will have a material adverse
effect on the consolidated financial position or results of operations of the
Company.
(13) Stock Plans
The Company has various stock option plans, stock purchase plans and
incentive plans which provide for the issuance of common stock to the employees
of each company. The Company has also adopted a formula price (the "Formula
Price") valuation as a basis for establishing a value for a share of common
stock for all stock which is not publicly traded. Effective March 31, 1996,
Unison terminated its existing stock plans and repurchased all outstanding
shares from its employees.
The Formula Prices for GFP, Bell and TTT are determined by the Board of
Directors of the respective companies. In determining the Formula Prices, the
Boards consider a number of factors generally used in the evaluation of
securities of closely held and of publicly held companies; however, the
decisions by the Boards have been based primarily on the judgment of the Boards
in the application of these factors to arrive at Formula Prices which the Boards
believe approximate market value. The judgment of the Boards is based on the
long-range prospects of the respective companies as opposed to short-range
trends of the companies or to the values of securities generally.
The principal shareholders of GFP consist of five members of the Gill
family, who, in the aggregate, own approximately 99.4% of the issued and
outstanding stock of GFP as of December 31, 1996. The remaining shares of common
stock of GFP are held by four employees not related to the Gill family.
Shares of common stock issued to employees of GFP, Bell and Tube Turns
are subject to restriction agreements (the "Stock Restriction Agreements"),
under which the Company is required to redeem all shares offered for redemption
at the option of the employee. The Stock Restriction Agreements also require the
redemption of all shares held by an employee upon the termination, retirement,
disability or death of the employee. Such redeemable common stock is shown
separately in the accompanying consolidated balance sheet separately from
shareholders' equity and is carried at its redemption value at December 31, 1995
and 1996. Common stock held by the principal shareholders of GFP represents the
permanent capital of the company and therefore is shown in the accompanying
consolidated balance sheet in shareholders' equity and is carried at its
historical basis.
Stock Purchase Plan
The stock purchase plans (the "Stock Purchase Plans") permit eligible
employees to purchase common stock of their respective companies for cash or
through payroll deductions for the Formula Price at the purchase date. An
employee is awarded one bonus share of common stock (a "Bonus Share") for every
three shares purchased. Bonus Shares vest over periods ranging from 18 to 24
months following the award date. Deferred compensation is recorded for Bonus
Shares and is amortized on a straight-line basis over the vesting period.
Incentive Plans
The incentive plans (the "Incentive Plans") provide for incentive awards to
be made to certain employees for individual performance and to all employees or
certain key employees based upon the achievement of selected financial measures
of the respective companies for each calendar year as
F-47
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
compared to its business plan. Compensation expense is recognized for the
Incentive Plans in the year in which the individual performance and financial
measures are achieved. The incentive awards are generally paid to the employee
with 50% in cash and 50% in Bonus Shares of common stock of their respective
companies.
Stock Option Plan
Under the stock option plans (the "Stock Option Plans"), options to
purchase common stock may be granted to certain key employees and independent
directors of subsidiaries. Options granted under the Stock Option Plans have
maximum terms ranging from 8 to 13 years. The exercise price of all options
issued under the Stock Option Plans must be at least 100% of the Formula Price
or, in the case of GTC, the fair market value of such shares on the date of
grant. Stock options issued by companies which do not have publicly traded
common stock are subject to agreements which require the respective companies to
redeem the options for the amount by which the Formula Price on the exercise
date exceeds the exercise price. Each company's Board of Directors or its
designated committee selects the individuals who will be granted options and
determines the number of shares subject to each option, fixes the period during
which each option may be exercised and fixes the price at which shares subject
to options may be purchased.
The following table summarizes option activity for the years ended December
31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
GFP TTT Bell GTC
--------------------- -------------------- -------------------- ----------------------
Exercise Exercise Exercise Exercise
Price Price Price Price
Shares Range Shares Range Shares Range Shares Range
------- ------------ ------ ----------- -------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1994 6,880 $45.99-73.40 55,000 $9.05 69,350 $9.92-13.56 1,080,000 $1.67-2.35
Granted............ -- -- -- -- -- -- 10,000 7.75
Exercised.......... -- -- -- -- -- -- -- --
Forfeited.......... -- -- -- -- (7,200) 9.92-11.78 (60,000) 2.12
Expired............ -- -- -- -- -- -- -- --
----- ------------ ------ ----------- ------- ------------ --------- ---------
Balance at
December 31, 1994 6,880 45.99-73.40 55,000 9.05 62,150 9.92-13.56 1,030,000 1.67-7.75
Granted............ -- -- -- -- 24,500 15.49 204,951 4.50-6.38
Exercised.......... -- -- -- -- -- -- (90,000) 1.67
Forfeited.......... -- -- -- -- (2,000) 15.49 (125,000) 6.00-6.25
Expired............ -- -- -- -- (10,000) 10.38 -- --
----- ------------ ------ ----------- ------- ------------ --------- ---------
- -
Balance at
December 31, 1995 6,880 45.99-73.40 55,000 9.05 74,650 9.92-15.49 1,019,951 1.67-7.75
Granted............ -- -- 20,000 10.75 35,000 13.47-16.56 631,437 0.84-3.00
Exercised.......... (280) 73.40 -- -- -- -- -- --
Forfeited.......... -- -- -- -- -- -- (251,700) 2.35-6.00
Expired............ -- -- -- -- -- -- (150,000) 2.35
----- ------------ ------ ----------- ------- ------------ --------- ---------
Balance at
December 31, 1996 6,600 $45.99-73.40 75,000 $9.05-10.75 109,650 $9.92-16.56 1,249,688 $0.84-7.75
===== ============ ====== =========== ======= ============ ========= ==========
Exercisable at
December 31, 1996.. 6,250 $45.99-73.40 55,000 $9.05 51,475 $9.92-15.49 594,322 $0.84-7.75
===== ============ ====== =========== ======= ============ ========= ==========
</TABLE>
Accounting for Stock Based Compensation
The Company applies Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations in
accounting for its employee stock options because,
F-48
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
as discussed below, the alternative fair value accounting provided for under
SFAS No. 123, "Accounting for Stock-Based Compensation", requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB Opinion No. 25, when the exercise price of the Company's
employee stock options is equal to the market price of the underlying stock on
the date of grant, no compensation expense is recognized.
The Company recognized compensation expense of $535,000 in its 1996
consolidated statement of operations for the excess of the fair market value of
the GFP common stock on the date of extension over the stated exercise price
related to the change in terms of the GFP options. Fair market value on the date
of extension was determined by reference to the applicable Formula Price for the
GFP common stock at such date. In the case of certain employee stock options
granted by Bell during the year ended December 31, 1996, the Company recognized
compensation expense of approximately $30,000 for stock options granted with an
exercise price below the applicable Formula Price for the Bell common stock on
the date of grant.
Pro forma information regarding net income and net income per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for the options issued by the Company, excluding those
issued by GTC which is a public company, were estimated at the date of grant
using the minimum value method. The fair value for the options issued by GTC
were estimated at the date of grant using a Black-Scholes option pricing model.
The following weighted-average assumptions were used for options granted during
the years ended December 31, 1995 and 1996:
<TABLE>
<CAPTION>
GFP, TTT and
Bell Options GTC Options
------------- -------------
Years ended Years ended
December 31, December 31,
------------- -------------
1995 1996 1995 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Risk-free interest rate.. 5.00% 5.00% 5.88% 5.88%
Expected life in years... 9.2 8.2 2.7 2.6
Expected dividend yield.. 0.00% 0.00% 0.00% 0.00%
Expected volatility...... -- -- 0.71 0.71
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
F-49
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1995 1996
------------- -----------
(in thousands, except
per share data)
<S> <C> <C>
Pro forma loss from continuing operations.. $(11,889) $(2,805)
======== =======
Pro forma net (loss) income................ $ (8,157) $ 652
======== =======
Pro forma earnings per share:
Loss from continuing operations........... $ (37.03) $ (8.76)
Net (loss) income......................... $ (25.40) $ 2.04
</TABLE>
The per share weighted average fair value of options granted during the
years ended December 31, 1995 and 1996 follows:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------
1995 1996
--------- ---------
(in thousands, except
per share data)
<S> <C> <C>
TTT........................................ $ -- $3.88
Bell
Exercise price equal to market price on
date of grant............................ $6.52 $6.64
Exercise price less than market price on
date of grant............................ $ -- $5.44
GTC........................................ $2.76 $1.10
</TABLE>
The following table summarizes the weighted average exercise prices for
option activity for the year ended December 31, 1996:
<TABLE>
<CAPTION>
GFP TTT Bell GTC
------ ------ ------ -----
<S> <C> <C> <C> <C>
Balance at December 31, 1995...................... $49.89 $ 9.05 $12.57 $2.33
Granted at exercise price equal to market price... -- 10.75 16.41 2.46
Granted at exercise price less than market price.. -- -- 13.47 --
Exercised......................................... 73.40 -- -- --
Forfeited......................................... -- -- -- 2.79
Expired........................................... -- -- -- 2.35
------ ------ ------ -----
Balance at December 31, 1996...................... $48.90 $ 9.50 $13.24 $2.30
====== ====== ====== =====
</TABLE>
F-50
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
The following table summarizes certain weighted average data for options
outstanding and currently exercisable as of December 31, 1996:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------- ----------------------
Weighted Average Weighted
Remaining Average
Exercise Contractual Exercise
Exercise Price Range Shares Price Life Shares Price
-------------------------------------------- ------------ -------- -------------- ------------ --------
<S> <C> <C> <C> <C> <C>
GFP
$45.99................................... 5,900 $ 45.99 8.7 5,900 $ 45.99
$73.40................................... 700 $ 73.40 9.2 350 $ 73.40
--------- --------
Total................................... 6,600 $ 48.90 8.8 6,250 $ 47.52
========= ========
TTT
$9.05 - $10.75........................... 75,000 $ 9.50 5.1 55,000 $ 9.05
Bell
$9.92 - $13.56........................... 62,150 $ 11.16 3.6 49,475 $ 10.75
$15.49 - $16.56.......................... 47,500 $ 15.97 8.8 2,000 15.49
--------- --------
Total................................... 109,650 $ 13.24 5.8 51,475 $ 10.94
========= ========
GTC
$0.84 - $1.27............................ 19,308 $ 0.84 7.0 -- $ --
$1.38 - $2.06............................ 570,705 $ 1.67 2.8 495,352 $ 1.67
$2.25 - $3.38............................ 577,901 $ 2.53 7.1 53,929 $ 2.68
$3.75 - $5.63............................ 59,823 $ 4.79 7.3 23,090 $ 4.50
$5.75 - $7.75............................ 21,951 $ 6.84 8.3 21,951 $ 6.84
--------- --------
Total................................... 1,249,688 $ 2.30 5.0 594,322 $ 2.07
========= ========
</TABLE>
(14) Income Taxes
The components of income tax expense are:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1994 1995 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Current:
Federal.................................... $ 2,341 $ (4,123) $ (189)
State...................................... 402 507 407
Foreign and other.......................... -- 449 495
-------- -------- --------
2,743 (3,167) 713
Deferred:
Federal.................................... 6,359 22 931
State...................................... 743 36 (30)
-------- -------- --------
7,102 58 901
-------- -------- --------
$ 9,845 $ (3,109) $ 1,614
======== ======== ========
</TABLE>
Income taxes paid during 1994, 1995 and 1996 were $8,851,000, $954,000 and
$3,708,000, respectively. Income tax refunds received during 1995 and 1996 were
$2,377,000 and $4,518,000, respectively.
F-51
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
The following is a reconciliation of income tax expense to that computed by
applying the federal statutory rate of 34% in 1994, 1995 and 1996 to income
before income taxes, minority interest and discontinued operations:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Federal tax at the statutory rate...................... $ 8,336 $ (6,259) $ (897)
State income taxes, net of federal tax benefit......... 739 215 372
Foreign income taxes................................... -- 428 481
State tax net operating loss carryforward.............. -- (1,080) (671)
Change in valuation allowance for deferred tax asset... -- 4,367 1,144
Other.................................................. 770 (780) 1,185
------- -------- -------
$ 9,845 $ (3,109) $ 1,614
======= ======== =======
</TABLE>
Deferred income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1995 1996
-------- -------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Compensation and benefit accruals................................ $ 1,283 $ 1,356
Inventory valuation.............................................. 1,837 1,168
Net operating loss carryforward.................................. 1,080 1,908
Accounts receivable allowance.................................... 173 603
Depreciation..................................................... 430 27
Defined benefit pension plan..................................... 1,607 1,476
Other............................................................ 1,084 1,075
-------- -------
7,494 7,613
Valuation allowance.............................................. (5,367) (6,511)
-------- -------
2,137 1,102
Deferred tax liabilities:
Stock issuance by subsidiary..................................... (5,051) (5,051)
Contract provisions.............................................. (360) (130)
Other............................................................ -- (54)
-------- -------
(5,411) (5,235)
-------- -------
Net deferred tax liability........................................ $ (3,274) $(4,133)
======== =======
</TABLE>
During the years ended December 31, 1995 and 1996, the Company recorded a
valuation allowance of $4,367,000 and $1,144,000 on its deferred tax assets to
reduce the total to an amount that management believes will more likely than not
be realized. Realization of deferred tax assets is dependent upon sufficient
taxable income during the period that temporary differences and carryforwards
are expected to be available to reduce taxable income.
At December 31, 1996, for state income tax purposes, GTC and Bell had net
operating loss carryforwards of approximately $31,830,000 and $2,486,000,
respectively. The GTC and Bell state tax net operating loss carryforwards will
expire beginning in 2010 and 2001, respectively.
F-52
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(15) Related Party Transaction
On February 9, 1996, Bell purchased the assets of the instrumentation
products business unit of Metrum from GTC for $10,000,000 cash and an earn-out
provision which provides for additional payments to GTC, up to $3,000,000 in the
event annual earnings before interest and taxes exceeds defined amounts through
December 31, 2000. Due to the common ownership of GFP in GTC and Bell, an
independent opinion was obtained which indicated that the consideration received
by GTC for the sale of the instrumentation products business was fair, from a
financial point of view, to unaffiliated shareholders of GTC.
(16) Segment Information
Industry Segments
The Company currently operates in two industry segments: Electronics
Services and Forging and Fabrication Services. The Company's real estate
operations were formerly included in a third industry segment; however, these
operations were terminated effective with the divestiture of the Company's sole
remaining property in the first quarter of 1997, and accordingly, the results of
operations for the real estate segment are presented as discontinued operations
in the Company's consolidated statements of operations for the years ended
December 31, 1994, 1995 and 1996 (see Note 17). All of the real estate
operations were located in the United States.
Revenue by industry segment consists of sales to customers, as reported in
the Company's consolidated statements of operations. There were no intersegment
sales during the three years ended December 31, 1996.
Operating profit by industry segment is total revenue less operating
expenses. In computing operating profit by industry segment, the effects of
general corporate expenses, interest income and expense, gains and losses on
asset disposals, minority interests, other income and expense items and income
taxes are not included.
Identifiable assets by industry segment are those assets used in the
Company's operations in each segment. General corporate assets are principally
cash and cash equivalents. Capital expenditures are reported exclusive of
acquisitions.
Information about the Company's industry segments for the three years ended
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
<S> <C> <C> <C>
1994 1995 1996
-------- -------- --------
(in thousands)
Revenue:
Electronics Services.............. $303,179 $305,119 $283,915
Forging and Fabrication Services.. 23,148 23,858 24,683
-------- -------- --------
$326,327 $328,977 $308,598
======== ======== ========
</TABLE>
F-53
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Income (Loss) before Gain on Issuance of
Stock by Subsidiary, Income Taxes,
Minority Interests and Discontinued
Operations:
Electronics Services..................... $ 12,302 $(15,975) $ (501)
Forging and Fabrication Services......... 1,402 1,280 1,225
-------- -------- --------
Operating Profit (Loss).................. 13,704 (14,695) 724
General Corporate........................ (134) (121) (211)
Interest expense......................... (2,558) (3,397) (3,979)
Other income (expense), net.............. 199 (196) 828
-------- -------- --------
$ 11,211 $(18,409) $ (2,638)
======== ======== ========
Identifiable Assets:
Electronics Services..................... $136,257 $129,330 $ 97,160
Forging and Fabrication Services......... 13,214 13,174 16,221
General Corporate........................ 6,205 4,021 4,084
-------- -------- --------
155,676 146,525 117,465
Discontinued Operations (Real Estate).... 32,624 26,503 15,495
-------- -------- --------
$188,300 $173,028 $132,960
======== ======== ========
Depreciation and Amortization:
Electronics Services..................... $ 6,307 $ 6,713 $ 7,033
Forging and Fabrication Services......... 667 581 629
General Corporate........................ 62 59 56
-------- -------- --------
7,036 7,353 7,718
Discontinued Operations (Real Estate).... 3,040 2,891 2,179
-------- -------- --------
$ 10,076 $ 10,244 $ 9,897
======== ======== ========
Capital Expenditures:
Electronics Services..................... $ 9,362 $ 8,844 $ 5,266
Forging and Fabrication Services......... 1,436 369 1,614
General Corporate........................ 64 78 29
-------- -------- --------
10,862 9,291 6,909
Discontinued Operations (Real Estate).... 1,009 910 457
-------- -------- --------
$ 11,871 $ 10,201 $ 7,366
======== ======== ========
</TABLE>
F-54
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
Geographic Segments:
The Company is a multinational corporation with operations in the United
States, Mexico and Brazil. For the year ended December 31, 1994, revenue,
operating profit and identifiable assets of the Company's foreign operations
were not significant. Revenue and operating profit information presented below
for the Company's geographic segments relates to the Company's continuing
operations. Information about the Company's operations in geographic areas for
the years ended December 31, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1995 1996
-------- --------
(in thousands)
<S> <C> <C>
Revenue:
United States............. $288,845 $250,141
Latin America............. 40,132 58,457
-------- --------
$328,977 $308,598
======== ========
Operating Profit (Loss):
United States............. $(12,640) $ 2,040
Latin America............. (2,055) (1,316)
-------- --------
$(14,695) $ 724
======== ========
Identifiable Assets:
United States............. $146,971 $112,806
Latin America............. 26,057 20,154
-------- --------
$173,028 $132,960
======== ========
</TABLE>
Identifiable assets of foreign subsidiaries are those assets related to the
operations of those subsidiaries. United States assets consist of all other
operating assets of the Company.
(17) Discontinued Operations
The Company's real estate operations were divested at various times
beginning in October 1995 and ending in February 1997. The real estate segment
is accounted for as discontinued operations and, accordingly, the results of
operations and related gain on the disposal of the properties are segregated in
the accompanying consolidated statements of operations. Per share data for the
results of discontinued operations and the gain on disposal of discontinued
operations included in the accompanying consolidated statements of operations is
as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Loss from discontinued operations (net of
applicable income tax)..................... $ (1.36) $ (2.82) $ (1.90)
Gain on disposal of discontinued operations
(net of applicable income tax)............. $ -- $ 14.44 $ 12.70
Shares used in computing per share amounts... 324,424 321,084 320,128
</TABLE>
On October 1, 1995, GFP Partners-II, Ltd. ("P-II") and its lender, which
held a promissory note secured by a mortgage on a commercial office building and
land located at 515 West Market Street in Louisville, Kentucky (the "515
Building"), executed an agreement which transferred title for the 515
F-55
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
Building to the lender in exchange for a release of P-II's liability for payment
of the unpaid balance of the principal and accrued and unpaid interest due on
the mortgage. As a result of the exchange, the Company recognized a gain on the
extinguishment of debt of $7,026,000, before applicable income taxes of
$2,389,000, in its 1995 consolidated statement of operations.
On April 1, 1996, GFP Partners-III, Ltd. ("P-III") and its lender, which
held a promissory note secured by a mortgage on a commercial office building and
land located at 500 New Circle Road in Lexington, Kentucky (the "North Park
Building"), executed an agreement which transferred title for the North Park
Building to the lender in exchange for a release of P-III's liability for
payment of the unpaid balance of the principal and accrued and unpaid interest
due on the mortgage. As a result of the exchange, the Company recognized a gain
on the extinguishment of debt of $2,182,000, before applicable income taxes of
$915,000, in its 1996 consolidated statement of operations.
On November 19, 1996, GFP Partners-VI, Ltd. ("P-VI") completed a
transaction in which it sold to BSRT Riverport Corp. substantially all of the
assets associated with the industrial warehouse and land located at 6310 Cane
Run Road in Louisville, Kentucky. Assets sold included the leasehold interest in
the real property and improvements thereon, related personal property and
leases. The proceeds from the sale, net of related disposition expenses was
approximately $3,900,000. The Company recognized a gain on the sale of
$4,816,000, before applicable income taxes of $2,017,000, in its 1996
consolidated statement of operations.
On February 28, 1997, GFP Partners-IV, Ltd. ("P-IV") completed a
transaction in which it sold to Empire State Collateral Corporation
substantially all of the assets associated with the commercial office building
and land located at 455 Fourth Avenue in Louisville, Kentucky and the parking
garage and land located at 430 South Third Street in Louisville, Kentucky.
Assets sold included the real property and improvements thereon, related
personal property and leases. The proceeds from the sale, net of related
disposition expenses was approximately $21,200,000, a portion of which was used
to repay the mortgage note and second mortgage note secured by the real
property. The Company recognized a gain on the sale of $6,352,000, before
applicable income taxes of $2,160,000, in its 1997 consolidated statement of
operations.
The components of net assets related to discontinued operations included in
the consolidated balance sheets as of December 31, 1995 and 1996 were as
follows:
<TABLE>
<CAPTION>
December 31,
----------------
1995 1996
------- -------
(in thousands)
<S> <C> <C>
Current assets............................. $ 205 $ 156
Property, plant and equipment, net......... 25,986 15,248
Accounts payable and accrued liabilities... 1,351 232
Long-term debt, including current portion.. 31,461 18,698
Total assets............................... 26,503 15,495
</TABLE>
F-56
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
The components of the gain on disposal of discontinued operations included
in the accompanying consolidated statements of operations is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
<S> <C> <C>
1995 1996
------- -------
(in thousands)
Gain on extinguishment of debt.. $ 7,026 $ 2,182
Gain on sale of assets.......... -- 4,816
------- -------
7,026 6,998
Income tax expense.............. (2,389) (2,932)
------- -------
$ 4,637 $ 4,066
======= =======
</TABLE>
(18) Subsequent Event
On June 30, 1997, GTC sold to SCI Systems, Inc., SCI Systems De Mexico S.A.
de C.V. and SCI Holdings, Inc. (collectively, "SCI"), all of GTC's investment in
the capital stock and/or equity interests of three of its wholly-owned
subsidiaries, GTC Mexico, GTC Brazil and Group Technologies Integracoes em
Electronica Ltda. These three subsidiaries comprised all of the Company's Latin
American operations. GTC also sold or assigned to SCI certain assets principally
used in or useful to the operations being sold, including accounts receivable,
inventories, equipment, accounts payable and equipment leases.
The initial sales price of the aforementioned assets amounted to
$18,000,000 in cash and the assumption by SCI of certain liabilities. Pursuant
to procedures described in the purchase and sale agreement, the price is subject
to subsequent adjustment, upward or downward, based upon, among other things,
the value of the net assets of GTC's Latin American operations at June 29, 1997.
The Company expects to repay $2,900,000 of the initial sales price to SCI,
subject to final determination in accordance with the purchase and sale
agreement. GTC recognized a gain of $3,200,000 during the third quarter of 1997,
after giving consideration to GTC's recorded liability and expected repayment of
$2,900,000, relative to this disposition.
GFP has entered into an Agreement and Plan of Reorganization with TTT, Bell
and GTC (the "Reorganization"), which will result in, among other things, the
merger of GFP with and into GTC and the conversion of all outstanding shares of
common stock of GFP, TTT and Bell into shares of common stock of GTC. On January
24, 1997, GTC filed a registration statement on Form S-4 with the Securities and
Exchange Commission which includes the Joint Proxy Statement/Prospectus relating
to the Reorganization. GTC will file an amendment to Form S-4 during the third
quarter of 1997 and expects the Reorganization will become effective prior to
December 31, 1997.
F-57
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(19) Supplementary Information on Certain Subsidiaries
Condensed financial data as of December 31, 1995 and 1996, and for each of
the three years in the period ended December 31, 1996, for the Company's TTT and
Bell subsidiaries, respectively, are presented below. The condensed financial
data for these subsidiaries excludes intercompany eliminations.
<TABLE>
<CAPTION>
TTT Bell
---------------- -----------------
December 31, December 31,
---------------- -----------------
1995 1996 1995 1996
------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Current assets:
Cash and cash equivalents................. $ 119 $ 992 $ 127 $ 700
Accounts receivable, net.................. 3,038 2,882 5,189 11,516
Inventories, net.......................... 5,480 6,512 2,991 7,556
Other current assets...................... 95 87 549 723
------- ------- ------- -------
Total current assets........................ 8,732 10,473 8,856 20,495
Property and equipment, net................. 3,471 4,355 6,122 7,657
Other assets................................ 3,471 3,893 1,246 1,543
------- ------- ------- -------
Total assets................................ $15,674 $18,721 $16,224 $29,695
======= ======= ======= =======
Current liabilities:
Accounts payable.......................... $ 1,818 $ 3,724 $ 1,847 $ 2,211
Accrued liabilities....................... 2,129 1,752 1,142 4,671
Note payable.............................. -- -- 112 --
Current portion of long-term debt......... -- -- 1,748 2,798
------- ------- ------- -------
Total current liabilities................... 3,947 5,476 4,849 9,680
Long-term debt.............................. 143 -- 5,049 11,469
Other liabilities........................... 4,728 4,623 307 482
------- ------- ------- -------
Total noncurrent liabilities................ 4,871 4,623 5,356 11,951
Redeemable common stock..................... 419 535 1,059 1,056
Shareholders' equity:
Common stock.............................. 1,860 1,860 9 9
Additional paid-in capital................ -- -- 4,999 4,999
Retained earnings......................... 4,577 6,227 (48) 2,000
------- ------- ------- -------
Total shareholders' equity.................. 6,437 8,087 4,960 7,008
------- ------- ------- -------
Total liabilities and shareholders' equity.. $15,674 $18,721 $16,224 $29,695
======= ======= ======= =======
</TABLE>
F-58
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
<TABLE>
<CAPTION>
TTT Bell
--------------------------- ------------------------
Years Ended December 31, Years Ended December 31,
---------------------------- -------------------------
1994 1995 1996 1994 1995 1996
-------- -------- -------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue....................................... $23,148 $23,858 $24,683 $30,264 $33,499 $59,254
Cost and expenses:
Cost of services rendered and products sold.. 20,063 20,730 21,656 22,911 24,859 39,132
Selling, general and administrative expense.. 1,683 1,848 1,741 5,179 6,119 14,242
Interest expense, net........................ 224 70 22 479 658 1,210
Other (income) expense, net.................. (703) (446) (832) -- 121 63
------- ------- ------- ------- ------- -------
Total cost and expenses....................... 21,267 22,202 22,587 28,569 31,757 54,647
------- ------- ------- ------- ------- -------
Income before income taxes.................... 1,881 1,656 2,096 1,695 1,742 4,607
Income taxes.................................. 855 601 432 642 682 1,840
------- ------- ------- ------- ------- -------
Net income.................................... $ 1,026 $ 1,055 $ 1,664 $ 1,053 $ 1,060 $ 2,767
======= ======= ======= ======= ======= =======
</TABLE>
F-59
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
<TABLE>
<CAPTION>
TTT Bell
------------------------------- --------------------------------
Years ended December 31, Years ended December 31,
------------------------------- --------------------------------
1994 1995 1996 1994 1995 1996
------- ------- ------- ------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement of Cash Flows Data:
Cash flows from operating activities:
Net income............................................. $ 1,026 $ 1,055 $ 1,664 $ 1,053 $ 1,060 $ 2,767
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.......................... 667 581 629 905 1,117 1,819
Other.................................................. (683) (197) (717) 410 340 584
Changes in operating assets and liabilities............ 1,032 (117) 656 613 83 221
------- ------- ------- ------- ------- --------
Net cash provided by operating activities.............. 2,042 1,322 2,232 2,981 2,600 5,391
Cash flows from investing activities:
Capital expenditures................................... (1,436) (369) (1,614) (2,091) (802) (1,858)
Proceeds from sale of assets........................... 1,344 708 953 -- -- --
Purchase of the net assets of acquired entities........ -- -- -- -- (2,245) (10,000)
Changes in nonoperating assets and liabilities......... 259 (485) (551) -- -- --
------- ------- ------- ------- ------- --------
Net cash provided by (used in)
investing activities................................ 167 (146) (1,212) (2,091) (3,047) (11,858)
Cash flows from financing activities:
Net proceeds (repayments) under line of credit
agreement............................................. 1,104 (1,561) (143) (1,248) (345) 10,777
Proceeds from long-term debt........................... -- -- -- 1,085 2,240 10,000
Repayments of long-term debt........................... (3,000) -- (1,061) (1,361) (13,661)
Net proceeds from issuance of common stock............. (7) (74) (4) 63 38 (76)
------- ------- ------- ------- ------- --------
Net cash (used in) provided by financing activities.... (1,903) (1,635) (147) (1,161) 572 7,040
------- ------- ------- ------- ------- --------
Net increase (decrease) in cash and cash equivalents.... 306 (459) 873 (271) 125 573
Cash and cash equivalents at beginning of year.......... 272 578 119 273 2 127
------- ------- ------- ------- ------- --------
Cash and cash equivalents at end of year................ $ 578 $ 119 $ 992 $ 2 $ 127 $ 700
======= ======= ======= ======= ======= ========
</TABLE>
F-60
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
December 31, September 30,
1996 1997
----------- ------------
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
Current assets:
<S> <C> <C>
Cash and cash equivalents...................... $ 6,012 $ 10,197
Accounts receivable, net....................... 37,254 25,140
Inventories, net............................... 34,288 35,267
Other current assets........................... 2,307 2,961
----------- ------------
Total current assets.......................... 79,861 73,565
Property, plant and equipment, net.............. 48,602 21,860
Other assets.................................... 4,497 3,105
----------- ------------
$ 132,960 $ 98,530
=========== ============
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Current liabilities:
<S> <C> <C>
Accounts payable............................... $ 23,920 $ 13,865
Accrued liabilities............................ 24,595 26,964
Current portion of long-term debt.............. 25,009 2,356
----------- ------------
Total current liabilities..................... 73,524 43,185
Noncurrent liabilities:
Long-term debt................................. 21,588 13,114
Other noncurrent liabilities................... 10,381 10,339
----------- ------------
Total noncurrent liabilities.................. 31,969 23,453
Commitments and contingencies
Minority interests in subsidiaries.............. 3,262 2,662
Redeemable common stock......................... 1,821 1,079
Shareholders' equity:
Common stock, no par value, 1,000,000 shares
authorized; 314,196 shares issued and
outstanding in 1996 and 1997................. 7,892 7,892
Retained earnings.............................. 14,492 20,259
----------- ------------
Total shareholders' equity................. 22,384 28,151
----------- ------------
$ 132,960 $ 98,530
=========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-61
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data)
<TABLE>
<CAPTION>
Nine months ended September 30,
---------------------------------
1996 1997
----------------- --------------
(Unaudited)
<S> <C> <C>
Revenue......................................................................................... $240,963 $159,236
Cost and expenses:
Cost of services rendered and products sold.................................................... 214,753 137,369
Selling, general and administrative expense.................................................... 21,133 21,719
Interest expense, net.......................................................................... 3,549 1,724
Other income, net.............................................................................. (608) (3,643)
-------- --------
Total cost and expenses......................................................................... 238,827 157,169
-------- --------
Income before income taxes, minority
interests and discontinued operations.......................................................... 2,136 2,067
Income taxes.................................................................................... 2,317 750
-------- --------
(Loss) income before minority interests and
discontinued operations........................................................................ (181) 1,317
Minority interests in losses of consolidated
subsidiaries................................................................................... 551 717
-------- --------
Income from continuing operations............................................................... 370 2,034
Loss from discontinued operations (net of applicable tax of $129 and $164 in 1996 and 1997,
respectively).................................................................................. (336) (327)
Gain on disposal of discontinued operations (net of applicable tax of $805 and $2,160 in 1996
and 1997, respectively)........................................................................ 1,210 4,192
-------- --------
Net income...................................................................................... $ 1,244 $ 5,899
======== ========
Earnings per share:
Income from continuing operations.............................................................. $1.16 $6.33
Net income..................................................................................... $3.89 $18.35
Shares used in computing per share amounts...................................................... 320,131 321,449
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-62
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------
1996 1997
-------- --------
<S> <C> <C>
(Unaudited)
Cash flows from operating activities:
Net income.............................................. $ 1,244 $ 5,899
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization......................... 7,411 5,832
Deferred income taxes................................. (8) (176)
Minority interests in earnings (losses) of
consolidated subsidiaries............................ (551) (717)
Gain on disposal of discontinued operations, net of
tax.................................................. (1,210) (4,192)
Other noncash credits................................. (530) (2,602)
Changes in operating assets and liabilities, net of
acquisitions and disposals:
Accounts receivable................................. 5,545 7,631
Inventories......................................... 13,867 (5,300)
Other current and non-current assets................ 2,869 (1,339)
Accounts payable.................................... (19,992) (5,940)
Accrued and other liabilities....................... (1,207) 178
-------- --------
Net cash (used in) provided by operating
activities....................................... 7,438 (726)
Cash flows from investing activities:
Capital expenditures.................................... (5,180) (4,094)
Proceeds from disposal of assets........................ 2,396 39,588
Other................................................... 492 (323)
-------- --------
Net cash (used in) provided by investing
activities....................................... (1,378) 35,171
Cash flows from financing activities:
Net (repayments) proceeds under revolving credit
agreement.............................................. (8,763) (15,331)
Proceeds from long-term debt............................ 10,000 10,000
Principal payments on long-term debt.................... (8,101) (23,483)
Payments for retirement of common stock, net............ (149) (1,446)
-------- --------
Net cash used in financing activities............. (7,013) (30,260)
-------- --------
Net (decrease) increase in cash and cash equivalents...... (1,867) 4,185
Cash and cash equivalents at beginning of period.......... 5,696 6,012
-------- --------
Cash and cash equivalents at end of period................ $ 3,829 $ 10,197
======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-63
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
(1) Basis Of Presentation
The accompanying consolidated balance sheet of Group Financial Partners
Inc. and Subsidiaries (the "Company") as of September 30, 1997, and the related
consolidated statements of operations and cash flows for the nine months ended
September 30, 1996 and 1997, have been prepared on substantially the same basis
as the annual consolidated financial statements. In the opinion of the Company,
the financial statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position, operating results, and cash flows for the periods presented. The
results of operations for the nine months ended September 30, 1997 are not
necessarily indicative of results to be expected for the entire year. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements, and notes thereto, for the year ended
December 31, 1996.
(2) Dispositions
On February 28, 1997, GFP Partners-IV, Ltd. ("P-IV") completed a
transaction in which it sold substantially all of the assets associated with the
commercial office building and land located at 455 Fourth Avenue in Louisville,
Kentucky and the parking garage and land located at 430 South Third Street in
Louisville, Kentucky. Assets sold included the real property and improvements
thereon, related personal property and leases.
On June 30, 1997, GTC sold to SCI Systems, Inc., SCI Systems De Mexico S.A
de C.V. and SCI Holdings, Inc. (collectively, "SCI"), all of GTC's investment in
the capital stock and/or equity interests of three of its wholly-owned
subsidiaries, Group Technologies S.A. de C.V., Group Technologies Suprimentos de
Informatica Industria E Comercio Ltda., and Group Technologies Integracoes em
Electronica Ltda. These three subsidiaries comprised all of the Company's Latin
American operations. GTC also sold or assigned to SCI certain assets principally
used in or useful to the operations being sold, including accounts receivable,
inventory, equipment, accounts payable and equipment leases.
The initial sales price of the aforementioned assets amounted to
$18,000,000 in cash and the assumption by SCI of certain liabilities. Pursuant
to procedures described in the purchase and sale agreement, the price is subject
to subsequent adjustment, upward or downward, based upon, among other things,
the value of the net assets of the GTC's Latin American operations at June 29,
1997. GTC expects to repay $2,900,000 of the initial sales price to SCI, subject
to a final determination to be made in accordance with the purchase and sale
agreement. The Company recognized a gain of $3,200,000 during the three month
period ended September 30, 1997, after giving consideration to GTC's recorded
liability and expected repayment of $2,900,000, relative to this disposition.
F-64
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
<TABLE>
<CAPTION>
(3) Inventories
Inventories consist of the following:
December 31, September 30,
1996 1997
------------ ------------
(in thousands)
<S> <C> <C>
Raw materials................................................................................. $20,360 $16,681
Work in process............................................................................... 11,993 12,641
Finished goods................................................................................ 847 1,116
Costs relating to long-term contracts and programs,
net of amounts attributed to revenue recognized to date...................................... 11,655 17,263
Progress payments related to long-term contracts and programs................................. (3,292) (5,397)
LIFO reserve.................................................................................. (744) (744)
Reserve for inactive, obsolete and unsalable inventory........................................ (6,531) (6,293)
------- -------
$34,288 $35,267
======= =======
</TABLE>
The Company recognized revenue and income before income taxes during the
second quarter of 1996 of $4,083,000 upon the favorable settlement of a
contractual claim.
(4) Long-Term Debt
On February 28, 1997, the first and second mortgage notes of P-IV were
repaid in connection with the sale of assets by P-IV (see Note 2). The total
amount repaid on February 28, 1997 was $18,781,000, including accrued interest
and repayment penalty of $98,000 and $100,000, respectively.
On March 21, 1997, Bell and TTT entered into a financing agreement (the
"BTH Loan"), under the terms of which a bank committed a maximum of $30,000,000
to Bell and TTT for cash borrowings and letters of credit. The financing
agreement provides for a term loan which permits borrowings up to $10,000,000
and a revolving credit loan which permits borrowings and letters of credit up to
a maximum of $20,000,000, subject to a $5,000,000 limit for letters of credit.
Under the terms of the financing agreement, interest rates are determined at the
time of borrowing and are based on the prime rate, the London Interbank Offered
Rates plus a spread, or certain alternative rates. The commitment fee on the
unused portion of the revolving credit loan is 0.15% to 0.375% per annum.
Principal payments on the term loan of $500,000 are due quarterly beginning
September 1997. Proceeds from the BTH Loan were used to repay all debt
outstanding under the credit agreements of Bell and TTT in March 1997.
On June 30, 1997, GTC utilized a portion of the proceeds from the sale of
its Latin American operations (see Note 2) to repay all of its outstanding
borrowings under a financing agreement (the "Credit Agreement") with its bank
and terminated the Credit Agreement which previously provided GTC with a
revolving line of credit facility (the "GTC Revolving Credit Agreement") and a
term note (the "GTC Term Note").
In connection with the initial execution of the Credit Agreement during
1996, GTC issued warrants to purchase 1,200,000 shares of Common Stock at $0.01
per share to the lender. At the time of issuance, GTC estimated that 1,000,000
warrants would be forfeited by the lender based upon the warrant vesting
schedule and GTC's intent to refinance the debt outstanding under the Credit
Agreement. During the first quarter of 1997, GTC, based upon the continued
utilization of the Credit Agreement, revised its estimate of warrants to be
forfeited by the lender to 500,000, and therefore recognized additional paid-in
capital and original issue
F-65
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
discount of $471,000. As a result of the early repayment and termination of the
Credit Agreement on June 30, 1997, 875,000 unvested warrants were forfeited by
the lender. GTC therefore reduced additional paid-in capital by $353,000, which
was the value of recorded but unvested warrants, and it reduced interest expense
by $118,000 which was the value of warrants that were amortized but subsequently
forfeited by the lender.
In connection with the March 28, 1997 amendment to the Credit Agreement,
GFP invested $2,500,000 in GTC in exchange for 250,000 shares of GTC's Preferred
Stock (the "Preferred Stock"). Each share of GTC's Preferred Stock may be
exchanged for 8.1 shares of GTC's Common Stock, at the option of GFP, subject to
certain revisions, and pays quarterly dividends of 8.5% per annum.
On November 14, 1997, the BTH Loan was amended to increase the maximum
borrowings to $45,000,000, consisting of a $15,000,000 term loan and a
$30,000,000 revolving credit loan. The Company borrowed $14,400,000 on the BTH
Loan on November 14, 1997 to finance the acquisition of substantially all of the
assets of Datatape Incorporated by Metrum-Datatape, Inc., a newly formed wholly-
owned subsidiary of the Company (see Note 6). Metrum-Datatape and GTC became
additional borrowers under the amendment to the BTH Loan. Under the terms of the
amendment, principal payments will increase to $750,000 per quarter beginning
March 1998,and the amended BTH Loan matures in 2002.
<TABLE>
<CAPTION>
Long-term debt consists of the following:
December 31, September 30,
1996 1997
------------- -------------
(in thousands)
<S> <C> <C>
Bell Mortgage Note........................ $ 1,993 $ --
Bell Reducing Revolver Note............... 11,850 --
BTH Term Loan............................. -- 9,500
BTH Revolver Loans........................ -- 5,500
GTC Revolving Credit Agreement............ 6,934 --
GTC Term Note............................. 2,690 --
P-IV Mortgage Note........................ 17,398 --
P-IV Second Mortgage Note................. 1,300 --
Other..................................... 4,552 470
------- -------
28,019 15,470
Less unamortized original issue discount.. (120) --
Less current portion...................... (6,311) (2,356)
------- -------
$21,588 $13,114
======= =======
</TABLE>
F-66
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(6) Subsequent Event
On November 14, 1997, Metrum-Datatape, Inc. acquired substantially all of
the assets and assumed certain liabilities of Datatape Incorporated
("Datatape"). The purchase price of $14,400,000 will be allocated based on the
fair values of assets acquired, with the excess amount allocated to goodwill.
The acquisition was financed by proceeds from the amended BTH Loan. Datatape
provides a range of special purpose digital and analog data acquisition and
storage systems for use in a variety of high performance applications.
(7) Supplementary Information on Certain Subsidiaries
Condensed financial data as of September 30, 1997, and for the nine month
periods ended September 30, 1996 and 1997, for the Company's TTT and Bell
subsidiaries, respectively, are presented below. The condensed financial data
for these subsidiaries excludes intercompany eliminations.
<TABLE>
<CAPTION>
September 30, 1997
------------------
TTT Bell
------- -------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Current assets:
Cash and cash equivalents .......................... $ (754) $ 775
Accounts receivable, net ........................... 3,645 11,022
Inventories, net ................................... 5,767 8,720
Other current assets ............................... 88 932
------- -------
Total current assets ................................... 8,746 21,449
Property and equipment, net ............................ 5,614 7,625
Other assets ........................................... 5,135 1,440
------- -------
Total assets ........................................... $19,495 $30,514
======= =======
Current liabilities:
Accounts payable ................................... $ 2,892 $ 2,047
Accrued liabilities ................................ 2,402 4,951
Current portion of long-term debt .................. -- 158
------- -------
Total current liabilities .............................. 5,294 7,156
Long-term debt ......................................... -- 12,396
Other liabilities ...................................... 4,623 482
------- -------
Total noncurrent liabilities ........................... 4,623 12,878
Redeemable common stock ................................ 261 590
Shareholders' equity:
Common stock ....................................... 1,860 9
Additional paid-in capital ......................... -- 4,999
Retained earnings .................................. 7,457 4,882
------- -------
Total shareholders' equity ............................. 9,317 9,890
------- -------
Total liabilities and shareholders' equity ............. $19,495 $30,514
======= =======
</TABLE>
F-67
<PAGE>
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
<TABLE>
<CAPTION>
TTT Bell
------------------- -------------------
Nine Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1996 1997 1996 1997
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue ........................................................ $ 18,160 $ 22,497 $ 42,445 $ 52,287
Cost and expenses:
Cost of services rendered and products sold ................ 16,179 18,774 28,047 33,422
Selling, general and administrative expense ................ 1,274 1,778 10,170 12,972
Interest expense ........................................... 13 8 942 822
Other expense .............................................. (774) (154) -- --
-------- -------- -------- --------
Total cost and expenses ........................................ 16,692 20,406 39,159 47,216
-------- -------- -------- --------
Income before income taxes ..................................... 1,468 2,091 3,286 5,071
Income taxes ................................................... 368 694 1,282 2,049
-------- -------- -------- --------
Net income ..................................................... $ 1,100 $ 1,397 $ 2,004 $ 3,022
======== ======== ======== ========
<CAPTION>
TTT Bell
------------------- -------------------
Nine Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1996 1997 1996 1997
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Statement of Cash Flows Data:
Cash flows from operating activities:
Net income ................................................. $ 1,100 $ 1,397 $ 2,004 $ 3,022
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization .......................... 451 607 1,339 1,766
Other .................................................. (794) (164) 31 273
Changes in operating assets and liabilities ............ (753) (215) 1,398 (702)
-------- -------- -------- --------
Net cash provided by operating activities .................. 4 1,625 4,772 4,359
Cash flows from investing activities:
Capital expenditures ....................................... (923) (1,827) (1,522) (1,605)
Proceeds from sale of assets ............................... 939 243
Purchase of the net assets of acquired entities ............ -- -- (10,104)
Other ...................................................... 10 (1,287) 496 (27)
-------- -------- -------- --------
Net cash provided by (used in) in investing activities ..... 26 (2,871) (11,130) (1,632)
Cash flows from financing activities:
Net (repayments) proceeds under line of credit agreement ... (140) -- (112) (1,714)
Proceeds from long-term debt ............................... -- -- 10,000 --
Repayments of long-term debt ............................... -- -- (2,045) --
Payments for retirement of common stock .................... (9) (500) (95) (942)
-------- -------- -------- --------
Net cash (used in) provided by financing activities ........ (149) (500) 7,748 (2,656)
-------- -------- -------- --------
Net (decrease) increase in cash and cash equivalents ........... (119) (1,746) 1,390 71
Cash and cash equivalents at beginning of period ............... 119 992 127 700
-------- -------- -------- --------
Cash and cash equivalents at end of period ..................... $ -- $ (754) $ 1,517 $ 771
======== ======== ======== ========
</TABLE>
F-68
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
----------
The Board of Directors and Stockholder
DATATAPE Incorporated
We have audited the accompanying balance sheets of DATATAPE Incorporated (a
wholly-owned subsidiary of Delta Tango, Inc.) as of December 31, 1995 and 1996,
and the related statements of operations, stockholder's equity (deficiency) and
cash flows for the period from July 22, 1994 through December 31, 1994 and for
the years ended December 31, 1995 and 1996. The financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of DATATAPE Incorporated as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for the period from July 22, 1994 through December 31, 1994 and for the years
ended December 31, 1995 and 1996, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 17 to
the financial statements, in November 1997, the Company sold substantially all
of its assets, and used the proceeds to pay off certain debt, in which the
Company and the Company's Parent were in default. The proceeds of the asset
sale, after repayment of the debt, together with the remaining assets of the
Company are not sufficient to meet all of the remaining obligations of the
Company or to fund ongoing operating needs. Management's plans in regard to
these matters are also described in Note 17. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ COOPERS & LYBRAND, L.L.P.
Newport Beach, California
April 25, 1997, except for Note 17,
as to which the date is November 14, 1997
F-69
<PAGE>
DATATAPE INCORPORATED
(A Wholly-Owned Subsidiary Of Delta Tango, Inc.)
BALANCE SHEETS
December 31, 1995 And 1996
----------
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............................................................... $ 273,860 $ 728,633
Accounts receivable, less allowance for doubtful accounts of $16,769 and $273,789 at
December 31, 1995 and 1996, respectively............................................. 8,044,816 8,329,825
Inventories, net......................................................................... 15,425,094 13,667,186
Prepaid expenses and other current assets................................................ 372,484 333,697
------------ ------------
Total current assets................................................................ 24,116,254 23,059,341
Property and equipment, net............................................................... 8,443,110 8,681,102
Intangible assets, net of accumulated amortization of $353,069 and $562,115 at
December 31, 1995 and 1996, respectively................................................ 885,900 765,994
Restricted cash........................................................................... -- 232,530
Other assets.............................................................................. -- 164,690
------------ ------------
Total assets........................................................................ $ 33,445,264 $ 32,903,657
============ ============
LIABILITIES, SENIOR PREFERRED STOCK AND STOCKHOLDER'S EQUITY (DEFICIENCY):
Current liabilities:
Line of credit.......................................................................... $ 5,852,558 $ 3,987,108
Industrial revenue bonds, current....................................................... -- 170,000
Accounts payable........................................................................ 2,595,610 2,802,654
Accrued liabilities (Note 12)........................................................... 8,130,168 7,611,590
Income tax payable...................................................................... 196,083 196,883
Notes payable and obligation under capital leases, current.............................. 6,219,953 8,440,050
------------ ------------
Total current liabilities........................................................... 22,994,372 23,208,285
Deferred compensation and other credits................................................... 2,152,453 1,967,267
Post-retirement benefits.................................................................. 8,154,900 7,909,400
Industrial revenue bonds, noncurrent...................................................... -- 1,530,000
Notes payable and obligation under capital lease, noncurrent.............................. 1,829,514 271,272
------------ ------------
Total liabilities................................................................... 35,131,239 34,886,224
------------ ------------
Commitments and contingencies (Notes 3, 14, 15 and 17)
Senior preferred stock, liquidation preference of $4,696,250 and $4,993,750 at
December 31, 1995 and 1996, respectively, mandatorily redeemable, cumulative
dividends at 7%, $100 par value, 42,500 shares authorized issued and outstanding........ 4,696,250 4,993,750
Stockholder's equity (deficiency):
Common stock, no par value, 1,000 shares authorized, 500 shares issued and outstanding.. 4,000,000 4,000,000
Additional paid-in capital.............................................................. 4,238,992 3,941,492
Amount due from stockholder............................................................. (10,759,557) (10,759,557)
Accumulated deficit..................................................................... (3,861,660) (4,158,252)
------------ ------------
Total stockholder's equity (deficiency)............................................. (6,382,225) (6,976,317)
------------ ------------
Total liabilities, senior preferred stock and stockholder's equity (deficiency)..... $ 33,445,264 $ 32,903,657
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-70
<PAGE>
DATATAPE INCORPORATED
(A Wholly-Owned Subsidiary Of Delta Tango, Inc.)
STATEMENTS OF OPERATIONS
For The Period From July 22, 1994 Through December 31, 1994
And For The Years Ended December 31, 1995 And 1996
<TABLE>
<CAPTION>
July 22, 1994
Through
December 31, 1994 1995 1996
------------------ ------------ ------------
<S> <C> <C> <C>
Net sales................................................... $19,608,899 $49,904,514 $50,485,065
Cost of sales............................................... 13,845,532 36,401,233 33,111,126
----------- ----------- -----------
Gross profit........................................... 5,763,367 13,503,281 17,373,939
Operating expenses:
Selling and distribution................................... 2,175,651 4,690,319 4,974,860
General and administrative................................. 1,863,280 5,280,370 4,840,317
Research and development................................... 1,640,933 2,645,660 4,358,551
Management and administrative services provided by Parent.. 990,000 1,647,500 1,720,000
----------- ----------- -----------
(Loss) income from operations.......................... (906,497) (760,568) 1,480,211
----------- ----------- -----------
Other expense (income):
Interest expense........................................... 591,338 1,490,519 1,437,048
Other...................................................... 114,004 (197,349) 338,955
----------- ----------- -----------
Total other expense.................................... 705,342 1,293,170 1,776,003
----------- ----------- -----------
Loss before provision (benefit) for income taxes............ (1,611,839) (2,053,738) (295,792)
Provision (benefit) for income taxes........................ 762,333 (566,250) 800
----------- ----------- -----------
Net loss.................................................... $(2,374,172) $(1,487,488) $ (296,592)
=========== =========== ===========
Net loss attributable to holders of common stock............ $(2,522,922) $(1,784,988) $ (594,092)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-71
<PAGE>
DATATAPE INCORPORATED
(A Wholly-Owned Subsidiary Of Delta Tango, Inc.)
STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIENCY)
For The Period From July 22, 1994 Through December 31, 1994
And For The Years Ended December 31, 1995 And 1996
<TABLE>
<CAPTION>
Common Stock Additional Amounts
------------------ Paid-In Due From Accumulated
Shares Amount Capital Stockholder Deficit Total
------ ---------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, July 22, 1994..................... 500 $4,000,000 $4,685,242 $(10,583,858) $ -- $ (1,898,616)
Loan to stockholder......................... -- -- -- (88,892) -- (88,892)
Senior preferred stock accretion (Note 14).. -- -- (148,750) -- -- (148,750)
Net loss.................................... -- -- -- -- (2,374,172) (2,374,172)
------ ---------- ---------- ------------ ----------- ------------
Balances, December 31, 1994................. 500 4,000,000 4,536,492 (10,672,750) (2,374,172) (4,510,430)
Loan to stockholder......................... -- -- -- (86,807) -- (86,807)
Senior preferred stock accretion (Note 14).. -- -- (297,500) -- -- (297,500)
Net loss.................................... -- -- -- -- (1,487,488) (1,487,488)
------ ---------- ---------- ------------ ----------- ------------
Balances, December 31, 1995................. 500 4,000,000 4,238,992 (10,759,557) (3,861,660) (6,382,225)
Senior preferred stock accretion (Note 14).. -- -- (297,500) -- -- (297,500)
Net loss.................................... -- -- -- -- (296,592) (296,592)
------ ---------- ---------- ------------ ----------- ------------
Balances, December 31, 1996................. 500 $4,000,000 $3,941,492 $(10,759,557) $(4,158,252) $ (6,976,317)
====== ========== ========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-72
<PAGE>
DATATAPE INCORPORATED
(A Wholly-Owned Subsidiary Of Delta Tango, Inc.)
STATEMENTS OF CASH FLOWS
For The Period From July 22, 1994 Through December 31, 1994
And For The Years Ended December 31, 1995 And 1996
<TABLE>
<CAPTION>
July 22, 1994 Through
December 31, 1994 1995 1996
---------------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................................................... $ (2,374,172) $(1,487,488) $ (296,592)
Adjustments to reconcile net loss to net cash provided by operating activities:
Loss on disposal of property and equipment.................................... 149,896 49,710 141,567
Inventory valuation provisions................................................ (382,197) (462,195) 22,009
Depreciation and amortization................................................. 1,426,658 2,142,559 2,295,548
Bad debt expense.............................................................. 16,769 23 268,713
Change in assets and liabilities:
Accounts receivable.......................................................... 5,849,307 (1,768,958) (553,722)
Inventories.................................................................. (3,076,216) 4,714,460 1,735,899
Prepaid expenses and other current assets.................................... (17,800) (104,537) 38,787
Accounts payable............................................................. 1,817,098 94,227 207,044
Accrued liabilities.......................................................... 1,253,899 (1,505,373) (518,578)
Income tax payable........................................................... 762,333 (566,250) 800
Other assets................................................................. 83,875 -- (164,690)
Deferred compensation and other credits...................................... 164,942 (274,697) (185,186)
Post-retirement benefits..................................................... 49,200 233,700 (245,500)
------------ ----------- -----------
Net cash provided by operating activities.................................. 5,723,592 1,065,181 2,746,099
------------ ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment............................................ (886,752) (2,910,867) (2,413,509)
Proceeds from sale of property and equipment................................... 134,000 7,075 --
Expenditures made for intangible assets........................................ (36,522) (28,477) (141,692)
------------ ----------- -----------
Net cash used in investing activities...................................... (789,274) (2,932,269) (2,555,201)
------------ ----------- -----------
Cash flows from financing activities:
Net borrowings (payments) on line of credit.................................... 3,452,956 1,964,603 (1,865,450)
Proceeds from notes payable.................................................... 3,930,000 -- 1,785,000
Proceeds from industrial revenue bonds......................................... 1,700,000
Payments of notes payable and obligation under capital lease................... (409,375) (1,029,677) (1,123,145)
Loans made to Parent........................................................... (11,921,693) (86,807) --
Restricted cash................................................................ -- -- (232,530)
------------ ----------- -----------
Net cash (used in) provided by financing activities........................ (4,948,112) 848,119 263,875
------------ ----------- -----------
Increase (decrease) in cash and cash equivalents........................... (13,794) (1,018,969) 454,773
Cash and cash equivalents, beginning of period.................................. 1,306,623 1,292,829 273,860
------------ ----------- -----------
Cash and cash equivalents, end of year.......................................... $ 1,292,829 $ 273,860 $ 728,633
============ =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes.................................................................. $ 18,268 $ 154,869 $ 73,388
============ =========== ===========
Interest...................................................................... $ 417,974 $ 1,069,649 $ 1,016,178
============ =========== ===========
During the year ended December 31, 1995, the Company entered into a capital
lease for equipment that totaled $486,320.
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-73
<PAGE>
DATATAPE INCORPORATED
(A Wholly-Owned Subsidiary Of Delta Tango, Inc.)
NOTES TO FINANCIAL STATEMENTS
------
1. The Company And Basis Of Presentation:
DATATAPE Incorporated (the "Company"), a wholly-owned subsidiary of Delta
Tango, Inc. ("Delta Tango" or the "Parent"), is primarily in the business
of designing, developing, and producing high-performance recorders, storage
devices and systems. The Company produces standard off-the-shelf recorders
which may be selected from a catalog. The Company also customizes products
to meet the specific needs of its customers. The Company's primary
customers are military contractors and the U.S. Government.
As more fully discussed in Note 3, the accompanying statements of
operations for the period from July 22, 1994 through December 31, 1994 and
for the years ended December 31, 1995 and 1996, reflect the operations of
the Company since its acquisition by Delta Tango, Inc. Prior to July 22,
1994, the Company was a wholly-owned subsidiary of the Eastman Kodak
Company ("EKC").
2. Summary Of Significant Accounting Policies:
Fiscal Year:
The Company's fiscal year is the 52-53 week period ending on the last
Sunday of December. The fiscal year-end dates for the years being reported
herein are December 25, 1994, December 31, 1995 and December 29, 1996. For
clarity of presentation, fiscal year-end dates in the accompanying
financial statements and notes thereto are referred to as December 31.
Management Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash And Cash Equivalents:
Cash and cash equivalents consist primarily of cash in banks and money
market funds. All highly liquid investments with maturity dates of three
months or less when acquired are considered to be cash equivalents.
Accounts Receivable from Long-term Contracts:
The balances billed but not paid by customers pursuant to retainage
provisions in long-term sales contracts will be due upon completion of the
contracts and acceptance by the customer. Included in trade accounts
receivable at December 31, 1995 and 1996 are retention balances of
approximately $729,000 and $790,000, respectively. Based on the Company's
experience with similar contracts in recent years, the retention balances
at December 31, 1996 are expected to be collected within one year.
F-74
<PAGE>
DATATAPE INCORPORATED
(A Wholly-Owned Subsidiary Of Delta Tango, Inc.)
NOTES TO FINANCIAL STATEMENTS--Continued
------
Inventories:
Inventories are stated at the lower of cost or market. Cost is determined
using the standard cost method, which approximates the average cost method.
Cost accumulated under long-term contracts are stated at cost, not to
exceed net realizable value.
Work-in-process inventory includes direct production costs and allocable
operating overhead.
In some instances, inventories are attributable to long-term contacts or
programs in which the related operation cycles are longer than one year. In
accordance with industry practice, these inventories are included in
current assets.
Property And Equipment:
Property and equipment are stated at cost, less accumulated depreciation.
Upon retirement or other disposal, the asset cost and related accumulated
depreciation are removed from the accounts, and the net amount less any
proceeds, is charged or credited to operations. Maintenance and repairs are
charged to expense as incurred.
The Company provides for depreciation on the straight-line method over the
estimated useful lives of the respective assets. Leasehold improvements are
amortized on the straight-line method over the estimated useful lives of
the respective assets or the terms of the respective leases, whichever are
shorter.
Property and equipment are depreciated over the following estimated useful
lives:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Computer equipment and software.. 5
Office furniture and equipment... 5
Production equipment............. 8
</TABLE>
Intangible Assets:
Intangible assets are stated at cost, less accumulated amortization, and
consist of goodwill, which is amortized on the straight-line method over 15
years and loan costs which are amortized on the straight-line method over
the term of the respective loan, which approximates the effective interest
method. The Company assesses whether there has been a permanent impairment
in the value of intangible assets by considering such factors as expected
future operating income, trends and prospects, and the effects of demand,
competition, and other economic factors. Management believes no permanent
impairment has occurred.
Revenue Recognition:
Revenue is generally recognized upon shipment to the customer. The Company
provides for the estimated costs of warranty at the time of sale.
F-75
<PAGE>
DATATAPE INCORPORATED
(A Wholly-Owned Subsidiary Of Delta Tango, Inc.)
NOTES TO FINANCIAL STATEMENTS--Continued
------
Sales on long-term production-type contracts are recorded as units are
shipped; profits applicable to such shipments are recorded pro rata, based
upon estimated total profit at completion of the contract. Sales and
estimated profits on cost reimbursable contracts are recognized as costs
are incurred. Sales and estimated profits under other long-term contracts
are recognized under the percentage-of-completion method of accounting
using the units of delivery method. Amounts representing contract change
orders or claims are included in sales only when they can be reliably
estimated and realization is probable.
Losses on contracts are recognized when estimable. Revisions in estimates
are reflected in the period in which the factors affecting such revisions
become known.
Net Loss Attributable to Holders of Common Stock:
Net loss attributable to holders of common stock is based on reported net
loss with such reported net loss increased for accretion of the redeemable
preferred stock (Note 13). The resulting amount is presented below as net
loss attributable to holders of common stock.
<TABLE>
<CAPTION>
July 22, 1994
Through
December 31, 1994 1995 1996
------------------ ------------ ----------
<S> <C> <C> <C>
Reported net loss....................................... $(2,374,172) $(1,487,488) $(296,592)
Adjustment for accretion of redeemable preferred stock.. (148,750) (297,500) (297,500)
----------- ----------- ---------
Net loss attributable to holders of common stock........ $(2,522,922) $(1,784,988) $(594,092)
=========== =========== =========
</TABLE>
Income Taxes:
The Company utilizes Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which requires the recognition of deferred
tax liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax returns.
Under this method, deferred income taxes are recognized for the tax
consequences, in future years, of differences between the tax bases of
assets and liabilities and their financial reporting amounts at each year-
end based on enacted tax laws and statutory tax rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred
tax assets to the amount expected to be realized. The provision for income
taxes represents the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
Risks And Uncertainties:
Financial instruments which potentially subject the Company to a
concentration of credit risk principally consist of accounts receivable. As
of December 31, 1995 and 1996, approximately 56% and 36%, respectively, of
accounts receivable were concentrated with one customer, the U.S.
government. The Company does not generally require collateral on accounts
receivable.
F-76
<PAGE>
DATATAPE INCORPORATED
(A Wholly-Owned Subsidiary Of Delta Tango, Inc.)
NOTES TO FINANCIAL STATEMENTS--Continued
------
At December 31, 1995 and 1996, the Company had amounts on deposit with
financial institutions that were in excess of the federally insured limit
of $100,000.
Reclassifications:
Certain reclassifications have been made to the 1994 and 1995 financial
statements to conform to the 1996 presentation.
3. Acquisition By Delta Tango, Inc.:
On July 22, 1994, Delta Tango, Inc. and EKC closed an acquisition
transaction (the "Acquisition") under a Stock Purchase Agreement (the
"Agreement") that provided for the sale of all of the Company's issued and
outstanding common stock to Delta Tango, for $4.1 million in cash, the
issuance of $4.25 million of the Company's Senior Preferred Stock to EKC
and a note payable to EKC from Delta Tango (the "Seller Note"), recorded at
issuance by Delta Tango in the amount of $12.65 million. The Company's
initial capitalization at the date of the Acquisition consisted of the
Senior Preferred Stock, common stock and additional paid in capital, less
amounts loaned to Delta Tango at the date of the Acquisition.
The Seller Note is noninterest-bearing (interest at 10% accrues under
certain circumstances such as events of default) and was due on July 20,
1995. It is collateralized by substantially all the assets of the Company,
although such collateralization is subordinate, except with respect to
certain types of accounts receivable amounting to approximately $500,000 at
December 31, 1996, to the collateralization under the credit facility
described in Notes 7 and 8. At December 31, 1996, Delta Tango had recorded
a remaining balance of $2,288,340 due on the note, such amount being
subject to the resolution of the matters discussed below.
Delta Tango and EKC are in dispute over certain aspects of the Agreement
and Seller Note. Delta Tango's position in such dispute is that: (a) the
Seller Note payable to EKC should have been reduced by $325,000 from its
original face amount at the date of the Acquisition, and (b) remittances
made by the Company to EKC prior to the date of the Acquisition, amounting
to $2,429,000, should have been applied against the Seller Note.
As more fully described in Note 17 to the financial statements, in July
1997, EKC declared Delta Tango in default of the Seller Note in the
remaining principal amount of $4,208,701, plus interest at the rate of 10%
per annum from July 21, 1994 forward, which is reflected in the Company's
financial statements, and the Company and Delta Tango settled all amounts
due under the Seller Note and related interest.
4. Related Party Transactions:
Delta Tango charged the Company a discretionary fee of $990,000, $1,647,500
and $1,720,000 for the period from July 22, 1994 through December 31, 1994
and for the years ended December 31, 1995 and 1996, respectively. In return
for such fees, Delta Tango provided the services of the Company's CEO, as
well as other management services. All such amounts have been paid to Delta
Tango.
F-77
<PAGE>
DATATAPE INCORPORATED
(A Wholly-Owned Subsidiary Of Delta Tango, Inc.)
NOTES TO FINANCIAL STATEMENTS--Continued
------
Additionally, the Company has recorded a receivable from the Parent, which
is treated as a reduction of stockholder's equity in the balance sheet, and
relates to amounts loaned to Delta Tango.
5. Restricted Cash:
Proceeds from the Industrial Revenue Bonds ("IRBs") (Note 10) are
restricted for payments for the rehabilitation of the property being leased
at the facility located in San Diego, California. Payments are administered
by an independent trustee. Approximately $2,000 of unused IRB proceeds were
remaining at the completion of the Project during 1997 and were paid to the
Bond Redemption Fund.
Fund assets held by the trustee at December 31, 1996 were $232,530.
Restricted funds are invested in certain short-term interest-bearing
securities. The market prices of the investments as of December 31, 1996
approximate cost.
6. Inventories:
Inventories, net consist of the following:
<TABLE>
<CAPTION>
December 31
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
Finished goods, purchased parts, and spare parts........................... $14,968,428 $15,064,960
Work-in-process............................................................ 6,227,365 4,394,934
----------- -----------
21,195,793 19,459,894
Allowance to reduce inventories to their net realizable value.............. (5,770,699) (5,792,708)
----------- -----------
$15,425,094 $13,667,186
=========== ===========
</TABLE>
F-78
<PAGE>
DATATAPE INCORPORATED
(A Wholly-Owned Subsidiary Of Delta Tango, Inc.)
NOTES TO FINANCIAL STATEMENTS--Continued
------
7. Property And Equipment:
Property and equipment, net consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
Machinery and equipment................................................. $ 6,636,867 $ 7,933,519
Furniture, fixtures and equipment....................................... 62,318 100,900
Computers............................................................... 1,202,773 1,338,717
Software................................................................ 1,181,659 1,302,354
Leasehold improvements.................................................. 695,561 1,928,335
Equipment under capital lease obligations............................... 599,599 497,713
Construction in progress................................................ 717,453 193,630
----------- -----------
11,096,230 13,295,168
Less, Accumulation depreciation and amortization........................ (2,653,120) (4,614,066)
----------- -----------
$ 8,443,110 $ 8,681,102
=========== ===========
</TABLE>
Depreciation expense was $1,258,834, $1,969,336 and $2,008,791 for the
period from July 22, 1994 through December 31, 1994 and for the years ended
December 31, 1995 and 1996, respectively.
8. Line Of Credit:
At the date of the Acquisition, the Company entered into a loan agreement
("Old Agreement") with its principal lender which provided for a $13.0
million credit facility at that date, comprised of a revolving line of
credit and a note payable (Note 9). This agreement was subsequently
renegotiated ("New Agreement") during 1996. The original credit facility
was collateralized by the Company's accounts receivable, intangibles,
inventories, and property and equipment, with interest at the principal
lender's prime rate plus 2.25% (an effective rate of 10.75% as of December
31, 1995) with interest payable monthly, maturing on July 21, 1996.
Under the terms of the New Agreement, interest is payable at the principal
lender's prime rate plus 1.75% (an effective rate of 10% as of December 31,
1996), the due date of the revolving line of credit was extended to July
1999, at which time the credit facility may be renegotiated or extended,
the Company may borrow up to 85% of eligible accounts receivable, the
borrowing limit under the line of credit was established at $9,250,000 and
principal balance of the note payable was increased to $3,750,000 (Note 9).
At December 31, 1996, the balance outstanding on the revolving line of
credit was $3,987,108.
The credit facility requires that the Company meet certain financial
(working capital and equity) and nonfinancial covenants and limits the
payment of dividends.
F-79
<PAGE>
DATATAPE INCORPORATED
(A Wholly-Owned Subsidiary Of Delta Tango, Inc.)
NOTES TO FINANCIAL STATEMENTS--Continued
----------
As more fully described in Note 17 to the financial statements, in August
1997, the Company was declared in default by the principal lender on the
credit facility, and subsequently the Company repaid all amounts due under
the credit facility.
The credit facility is guaranteed by the shareholder of Delta Tango.
9. Notes Payable, Bonds And Obligation Under Capital Leases:
Notes payable, bonds and obligation under capital leases consists of the
following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
Note payable to the Eastman Kodak Company
(Notes 3 and 16).............................. $ 5,072,199 $ 5,072,199
Note payable, collateralized by substantially
all of the Company's tangible and intangible
property, with interest at prime rate plus
2.25% as of December 31, 1995 and 1.75% as
of December 31, 1996 (an effective rate of
10.75% at December 31, 1995 and 10.00% at
December 31, 1996), payable in monthly
installments of $100,000 and $81,875 under
the New and Old Agreements, respectively...... 2,538,125 3,250,000
Industrial revenue bonds (note 10).............. -- 1,700,000
Obligation under capital leases................. 439,143 389,123
----------- -----------
Total notes payable, bonds and obligation
under capital leases.......................... 8,049,467 10,411,322
Less, current maturities........................ 6,219,953 8,610,050
----------- -----------
$ 1,829,514 $ 271,272
=========== ===========
</TABLE>
F-80
<PAGE>
DATATAPE INCORPORATED
(A Wholly-Owned Subsidiary Of Delta Tango, Inc.)
NOTES TO FINANCIAL STATEMENTS--Continued
----------
The maturities of notes payable, bonds and obligation under capital leases
are as follows:
<TABLE>
<CAPTION>
Note Payable Capital
For The Years Ending December 31, and Bonds Leases
--------------------------------- ------------ ------------
<S> <C> <C>
1997........................................ $ 8,492,199 $ 117,851
1998........................................ 170,000 185,671
1999........................................ 170,000 147,677
2000........................................ 170,000 --
2001........................................ 170,000 --
Thereafter.................................. 850,000 --
------------ ------------
10,022,199 451,199
Less, amounts on obligation under capital
leases representing interest.............. -- 62,076
------------ ------------
$ 10,022,199 $ 389,123
============ ============
</TABLE>
In connection with the renegotiation of the Company's credit facility
discussed in Note 8, the Company refinanced the note payable due thereunder
in July 1996. Under the terms of the New Agreement, the due date of the
note payable to the principal lender was extended to July 1999, at which
time the credit facility may be renegotiated or extended. The principal
balance of the note payable to the principal lender was increased to
$3,750,000, payable in monthly principal installments of $100,000.
The note payable to the principal lender is guaranteed by a shareholder of
the Parent.
As more fully described in Note 17 to the financial statements, in July and
August 1997, respectively, the Company was declared in default on the
Seller Note and the credit facility by EKC and the principal lender,
respectively, and the amounts owed under the credit facility, the Seller
Note and the Industrial Revenue Bonds were repaid.
10. Industrial Revenue Bonds:
During June 1996, the Company received proceeds of $1,700,000 from the
issuance of variable rate Industrial Revenue Bonds ("IRB's") by California
Statewide Communities Development Authority for the rehabilitation of a
facility leased by the Company in San Diego, California (the "Project").
This lease also commenced in June 1996. The Project was completed during
the first quarter in fiscal 1997. The IRBs mature on June 1, 2006. The IRBs
are collateralized by a letter of credit issued by a bank to the trustee of
the IRBs in the amount of $1,751,000. The Company has guaranteed and
collateralized the payment of the letter of credit with the fixed assets
under construction at the facility, the unused IRB proceeds, and payments
made to the Bond Redemption Fund.
Interest on the IRBs is payable monthly based on a variable weekly rate.
The annualized interest rates have ranged from 2.45% to 4.15%. As of
December 31, 1996, the IRBs had a weighted average interest rate of 3.457%.
The Company may elect to change the method of calculating interest to a
number of other methods at any time in the future upon 45 days' written
notice. All
F-81
<PAGE>
DATATAPE INCORPORATED
(A Wholly-Owned Subsidiary Of Delta Tango, Inc.)
NOTES TO FINANCIAL STATEMENTS--Continued
----------
interest, however, must be paid monthly. Interest for the year ended
December 31, 1996 was approximately $30,000, and such amount was
capitalized into construction in process.
The IRBs are subject to partial redemption annually on June 1, commencing
in 1997 through the maturity date in installments of $170,000 per year,
including accrued interest up to the redemption date.
If in the future the Company elects to change the method of calculating
interest to the fixed rate method, the Company may redeem the outstanding
bonds, in whole or in part, on any interest payment date during certain
periods, with consent of the trustee.
As described in Note 17 to the financial statements, the IRB's were repaid
subsequent to December 31, 1996.
11. Income Taxes:
The following table presents the current and deferred income tax provision
(benefit) for federal and state income taxes for the period from July 22,
1994 through December 31, 1994 and for the years ended December 31, 1995
and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
--------- ---------- ---------
<S> <C> <C> <C>
Current:
Federal.................... $ 596,192 ($ 567,050) --
State...................... 166,141 800 $ 800
Deferred:
Federal.................... -- -- --
State...................... -- -- --
--------- ---------- ---------
$ 762,333 ($ 566,250) $ 800
========= ========== =========
</TABLE>
F-82
<PAGE>
DATATAPE INCORPORATED
(A Wholly-Owned Subsidiary of Delta Tango, Inc.)
NOTES TO FINANCIAL STATEMENTS--Continued
------
The temporary differences which give rise to the deferred income tax
provision (benefit) consist of the following for the period from July 22,
1994 through December 31, 1994 and for the years ended December 31, 1995
and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ----------
<S> <C> <C> <C>
Depreciation.......................... $ 17,300 $ 401,700 $ 256,800
Disallowed cost reserve............... (215,100) (261,600) 73,900
Sec. 263A adjustment.................. (119,100) (170,000) (147,900)
Deferred liabilities.................. (133,600) 118,000 (40,100)
Estimated losses...................... (730,000) 730,000 --
Accrued warranty expense.............. (134,500) 81,600 (10,700)
Deferred income....................... (53,800) 30,700 23,000
Capitalized assets.................... -- 293,400 24,600
Credit carryovers..................... -- (60,900) --
Net operating losses.................. -- (1,332,400) (90,300)
State tax and other................... (37,700) 78,500 (110,000)
----------- ----------- ---------
Total................................. (1,406,500) (91,000) (20,700)
Valuation allowance................... 1,406,500 91,000 20,700
----------- ----------- ---------
Net deferred tax provision (benefit).. $ -- $ -- $ --
=========== =========== =========
</TABLE>
The provision (benefit) for income taxes for the period from July 22, 1994
through December 31, 1994 and for the years ended December 31, 1995 and
1996 differs from the amount that would result from applying the federal
statutory rate as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------ -------
<S> <C> <C> <C>
Statutory regular federal income tax rate.. 34.00% 34.00% 34.00%
Non-deductible expenses.................... (0.29) (1.39) (16.67)
Change in valuation allowance.............. (69.27) (5.67) (12.43)
Other, net................................. (11.74) 0.63 (5.17)
------ ----- ------
Effective income tax rate.................. (47.30)% 27.57% (0.27)%
====== ===== ======
</TABLE>
F-83
<PAGE>
DATATAPE INCORPORATED
(A Wholly-Owned Subsidiary of Delta Tango, Inc.)
NOTES TO FINANCIAL STATEMENTS--Continued
------
The components of the deferred tax asset and (liability) as of December 31
are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1995 1996
-------------- ------------
<S> <C> <C>
Depreciation............... $ (419,000) $ (675,700)
Disallowed cost reserve.... 476,700 402,800
Sec. 263A adjustment....... 289,100 437,000
Deferred liabilities....... 15,700 55,800
Estimated losses........... -- --
Accrued warranty expense... 53,000 63,700
Deferred income............ 23,000 --
Capitalized assets......... (293,400) (318,000)
Credit carryovers.......... 60,900 60,900
Net operating losses....... 1,332,400 1,422,600
State tax and other........ (40,800) 69,200
----------- -----------
Total...................... 1,497,600 1,518,300
Valuation allowance........ (1,497,600) (1,518,300)
----------- -----------
Net deferred income taxes.. $ -- $ --
=========== ===========
</TABLE>
The Company has established a valuation allowance against its deferred tax
assets following the criteria under SFAS 109 as it is considered more
likely than not that such assets will not be realized.
As of December 31, 1996, the Company had net operating loss carryforwards
for federal and state purposes of $3,502,000 and $2,494,000, respectively.
The net operating loss carryforwards begin expiring in 2009 and 1999,
respectively.
The Company also has research and experimentation credit carryforwards for
federal and state purposes of approximately $20,500 and $11,200,
respectively. The research and experimentation credits begin to expire in
2010 for federal purposes and carryforward indefinitely for state purposes.
The Company has an alternative minimum tax credit carryforward for federal
purpose of approximately $29,100. The alternative minimum tax credit will
begin to expire in 2009.
F-84
<PAGE>
DATATAPE INCORPORATED
(A Wholly-Owned Subsidiary of Delta Tango, Inc.)
NOTES TO FINANCIAL STATEMENTS--Continued
------
12. Accrued Liabilities:
Accrued liabilities consisted of the following as of December 31, 1995 and
1996:
<TABLE>
<CAPTION>
December 31,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
Accrued compensation absences.................. $1,300,000 $1,600,000
Accrued interest............................... 596,233 1,022,103
Reserve for close-out of government contracts.. 2,212,621 2,041,845
Payroll related................................ 1,306,224 963,092
Other accrued liabilities...................... 2,715,090 1,984,550
---------- ----------
$8,130,168 $7,611,590
========== ==========
</TABLE>
13. Post-Retirement Benefits Other Than Pensions:
The Company provides certain healthcare and life and dental insurance
benefits for retired employees. Generally, qualified employees may become
eligible for these benefits if they retire in accordance with the Company's
established retirement policy and are continuously insured under the
Company's insurance plans prior to retirement. All retired employees of the
Company who are age 55 with 10 years of service in a plan offered by the
Company are eligible for these benefits. The Company's post-retirement
benefit plans currently are not funded. The Company accrues the cost of
retiree healthcare and life insurance benefits during the employee's
service with the Company.
Post-retirement benefit costs for the period from July 22, 1994 through
December 31, 1994 and for the years ended December 31, 1995 and 1996
consist of the following:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Service costs earned during the period............................ $ 58,100 $142,300 $ 59,000
Interest costs on accumulated post-retirement benefit obligation.. 254,700 575,900 360,300
-------- -------- --------
Post-retirement benefit costs..................................... $312,800 $718,200 $419,300
======== ======== ========
</TABLE>
F-85
<PAGE>
DATATAPE INCORPORATED
(A Wholly-Owned Subsidiary of Delta Tango, Inc.)
NOTES TO FINANCIAL STATEMENTS--Continued
------------
Accumulated post-retirement benefits at December 31, 1995 and 1996 consist
of the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
Accumulated post-retirement benefit
obligation:
Retirees and dependents........................... $5,299,900 $3,897,300
Fully eligible active plan participants........... 789,300 522,500
Other active plan participants.................... 2,065,700 769,900
---------- ----------
Accumulated post-retirement benefit
obligation....................................... 8,154,900 5,189,700
Unrecognized gain................................... -- 2,719,700
---------- ----------
Accrued post-retirement benefit
costs recognized in the balance
sheets........................................... $8,154,900 $7,909,400
========== ==========
</TABLE>
The weighted average healthcare costs trend rate used in measuring the
accumulated post-retirement benefit obligation and post-retirement benefit
cost was 7.0% in 1996, gradually declining to 5.0% in 2000, and remained at
that level thereafter. A 1.0% increase in the assumed healthcare cost trend
rate for each year would increase the accumulated post-retirement benefit
obligation by $276,100 and would increase the sum of the service cost and
interest cost by $30,600.
The weighted average discount rate used in determining the accumulated
post-retirement benefit obligation was 7.5%.
14. Redeemable Preferred Stock:
In connection with the acquisition of the Company by Delta Tango as
discussed in Note 3, the Company issued 42,500 shares of Senior Preferred
Stock to EKC. The Senior Preferred Stock has a par value of $100 per share,
is nonvoting, and the holder is entitled to cumulative, quarterly dividends
at the rate of $7 per share per annum. The Company has not declared any
dividends, and accumulated, unpaid dividends amounted to $446,250 and
$743,750 as of December 31, 1995 and 1996, respectively, which have been
accreted. The holder of the Senior Preferred Stock may request the Company
to redeem all or part of the shares in accordance with the following
schedule:
<TABLE>
<CAPTION>
Maximum Number Of
Shares Redeemable
-----------------
<S> <C>
1997.................................................... 10,625
1998.................................................... 21,250
1999.................................................... 31,875
2000.................................................... 42,500
</TABLE>
F-86
<PAGE>
DATATAPE INCORPORATED
(A Wholly-Owned Subsidiary Of Delta Tango, Inc.)
NOTES TO FINANCIAL STATEMENTS--Continued
-------------
The redemption price shall be $100 per share plus an amount equal to all
cumulative, unpaid dividends. The Company is not required to honor any
redemption requests subsequent to June 30, 2001. If, prior to June 30,
2001, control of the Company is acquired by another party, the Company is
required to redeem all outstanding shares of Senior Preferred Stock for
$100 per share plus an amount equal to all cumulative, unpaid dividends.
Any shares of Senior Preferred Stock that are redeemed by the Company shall
be retired and may not be reissued.
Under the terms of the loan agreement between the company and its principal
lender, discussed in Notes 8 and 9, during the period in which there are
outstanding amounts due under such loan agreement, EKC must obtain the
consent of the Company's lender, which consent shall not be unreasonably
withheld by the lender, before EKC receives payments related to the Senior
Preferred Stock.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holder of the Senior Preferred Stock shall
be entitled to be paid out of the assets of the Company available for
distribution to its stockholders, whether from capital, surplus or
earnings, for each share held, an amount in cash equal to $100 plus all
dividends accrued but unpaid on the Senior Preferred Stock and the
proportional part of the quarterly dividend accrued from the immediately
preceding quarterly dividend payment date to the date of final
distribution, before any distribution of the assets of the Company shall be
made to the holders of any class of common stock or of any other class of
preferred stock. If the assets of the Company available for distribution to
holders of Senior Preferred Stock shall be insufficient to pay the full
amount of the liquidation preference, the available assets shall be
distributed on a pro rata basis among the outstanding shares of Senior
Preferred Stock.
As described in Note 17 to the financial statements, the Senior Preferred
Stock has been settled subsequent to December 31, 1996.
15. Commitments and Contingencies:
Government Contract Compliance:
In 1996, the General Services Administration ("GSA") made an oral demand to
the Company for payments of approximately $8 million related to the GSA's
contention that the Company failed to provide cost and pricing data to the
government relating to the pricing of the Company's DTR-6 product. The
Company believes that it was not required to submit cost or pricing data
and that the product was properly priced. No written demand has been
received by the Company, and the Company will vigorously contest any such
claim, should it be received, since the Company is not aware of an
appropriate basis for such claim.
Certain of the Company's cost reimbursable contracts are subject to audit
by the U.S. government for compliance with government procurement
regulations. Although the precise outcome of such audits is not currently
determinable, management believes that such outcome will not have a
material effect on the Company's financial position or results of
operations. As of December 31, 1995 and 1996, the Company had recorded
reserves of approximately $2,200,000 and $2,000,000, respectively, for
contracts which have not been audited by the U.S. Government.
F-87
<PAGE>
DATATAPE INCORPORATED
(A Wholly-Owned Subsidiary Of Delta Tango, Inc.)
NOTES TO FINANCIAL STATEMENTS--Continued
-----------
Default On The Seller Note:
As further discussed in Note 17, Delta Tango was declared in default by EKC
on the Seller Note, and EKC initiated civil action against Delta Tango to
recover the note balance plus accrued interest and the costs incurred in
recovering the amounts.
Legal Matters:
The Company is involved in other various legal matters resulting from the
normal course of business. Such legal matters, when ultimately determined,
will not, in the opinion of management, have a material effect on the
financial position or the results of operations of the Company.
Operating Leases:
The Company leases certain of its facilities and equipment under
noncancelable operating leases. Minimum annual rental commitments under
noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
For The Years Ending December 31,
- ---------------------------------
<S> <C>
1997.................................................. $ 1,662,910
1998.................................................. 1,549,993
1999.................................................. 1,441,964
2000.................................................. 1,441,061
2001.................................................. 4,593,208
-----------
$10,689,136
===========
</TABLE>
Rent expense was $869,576, $2,880,796 and $1,963,493 for the period from
July 22, 1994 through December 31, 1994 and for the years ended December
31, 1995 and 1996, respectively.
Profit-Sharing Plan:
The Company's Capital Accumulation Plan (the "Plan") is a defined
contribution plan. The Plan became effective October 1, 1983. The Plan was
amended and restated effective January 1, 1995. Employees are eligible to
participate in the Plan as of their employment date. Employees who are
eligible may elect to contribute from 2% to 16% of their total compensation
to the Plan. The Company will then contribute the employee's elected
deferral amount to the Plan on the employee's behalf for investment by the
Plan trustee. Prior to January 1, 1995, the Company made a matching
contribution in the amount of at least 50% of the first 6% of compensation
contributed by an employee. These Company matching contributions vested
over five years in even 20% increments. Participating employees are
immediately and fully vested in the value of their salary contribution and
the earnings on them. Beginning January 1, 1995, the Plan was amended and
modified to be a discretionary profit-sharing plan. The profit-sharing plan
is available to all employees of the Company. Profit-sharing contributions
are 100% vested automatically and are allocated to the funds selected by
the participant. Profit-sharing contributions are determined and
contributed on a quarterly basis at the discretion of the
F-88
<PAGE>
DATATAPE INCORPORATED
(A Wholly-Owned Subsidiary Of Delta Tango, Inc.)
NOTES TO FINANCIAL STATEMENTS--Continued
------------
Company. Total contributions from the Company for the period from July 22,
1994 through December 31, 1994 and for the years ended December 31, 1995
and 1996 were $227,332, $198,812 and $180,941, respectively.
Deferred Compensation Plan:
The Company has an unfunded Deferred Compensation Plan which allows
officers and key employees to defer a portion of their earned compensation.
Compensation deferred under the plan earns interest at the prime lending
rate as stated by Morgan Guaranty Trust Company (8.50% at December 31, 1995
and 8.25% at December 31, 1996). The payment of deferred compensation will
commence upon retirement, disability, or death of eligible employees.
Payments are made in installments at the discretion of the plan
administrator, with a maximum of 10 payments, and all payments must be
received by the participant by age 71. In the event of termination,
compensation deferred pursuant to this plan will become payable as agreed
upon by the Plan Administrator and the participant.
16. Fair Value Information:
The following disclosure of the estimated fair value of financial
instruments at December 31, 1995 and 1996, is made in accordance with the
requirements of Statement of Financial Accounting Standards No. 107,
Disclosures about Fair Value of Financial Instruments. The estimated fair
value amounts have been determined by the Company using available market
information and appropriate valuation methodologies. However, considerable
judgment is required in interpreting market data to develop these estimates
of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.
The carrying values of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities are a reasonable estimate of their
fair value.
The fair value of the line of credit and notes payable and obligation under
capital leases approximates carrying value based upon the Company's
effective borrowing rate for the issuance of debt with similar terms and
remaining maturities.
Fair value information herein is based on pertinent information available
to management as of December 31, 1995 and 1996. Although management is not
aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for
purposes of these financial statements since that date, and current
estimates of fair value may differ significantly from the amounts presented
herein.
F-89
<PAGE>
DATATAPE INCORPORATED
(A Wholly-Owned Subsidiary Of Delta Tango, Inc.)
NOTES TO FINANCIAL STATEMENTS--Continued
------------
17. Subsequent Events:
Acquisition:
On March 7, 1997, the Company acquired the assets, which consist primarily
of inventory and equipment, of a former distributor for $800,000. The
transaction was financed through a deposit of $200,000 and a note payable
for the difference. The note payable expires on July 31, 2001.
Defaults And Proposed Asset Sale:
In July 1997, EKC initiated civil action against Delta Tango and Delta
Tango's principal stockholder, declaring Delta Tango and the stockholder in
default of the Seller Note (Note 3) in the amount of $4,208,701, plus
interest, accruing daily at the rate of 10% per annum from July 21, 1994
forward (approximately $1,330,000 as of September 30, 1997) together with
all costs and expenses incurred by EKC in determining and enforcing its
rights under the Seller Note, and seeking judicial relief, jointly and
severally against Delta Tango and the stockholder. Simultaneously, EKC
notified the Company's principal lender (Notes 8 and 9) that the Company
has been in default under the Seller Note since July 21, 1994.
As a result of such notice, in August 1997, the Company's principal lender
notified the Company that an event of default has occurred under the New
Agreement. As discussed in Notes 3, 8 and 9 to the financial statements,
the Seller Note, the revolving line of credit and the note payable to the
principal lender are collateralized by substantially all the assets of the
Company.
In November 1997, Delta Tango entered into an agreement with Group
Financial Partners, Inc. (the "Buyer") for the Company and Delta Tango to
sell, transfer and assign to the Buyer substantially all of the assets and
certain of the liabilities of the Company (the "Asset Sale"). The purchase
price received for the sale and transfer of the assets was $14,400,000,
consisting of $13,000,000 at the closing date and $1,400,000 which was
placed into an escrow account at the closing date, plus the assumption of
the assumed liabilities. The escrow account is provided for in the
agreement to fund certain liabilities of the Company.
Upon completion of the Asset Sale, the Company paid in full the line of
credit and note payable with its principal lender.
In November 1997, The Company, Delta Tango and Delta Tango's principal
stockholder entered into a settlement and release agreement with EKC,
whereby EKC received $4,208,701 in full settlement of all liabilities and
obligations of Delta Tango, the Company and the Delta Tango's principal
stockholder, EKC dismissed its litigation against the Company as described
above, and EKC canceled the Company's Senior Preferred Stock (Note 14). The
$4,208,701 was paid for out of the proceeds of the Asset Sale described
above.
Out of the remaining proceeds of the Asset Sale, the Company repaid its
principal lender all amounts due under the revolving line of credit and the
note payable (Notes 8 and 9), and repaid the remaining balance of the
Industrial Revenue Bonds (Notes 9 and 10).
F-90
<PAGE>
DATATAPE INCORPORATED
(A Wholly-Owned Subsidiary Of Delta Tango, Inc.)
NOTES TO FINANCIAL STATEMENTS--Continued
-----------
Subsequent to the Asset Sale, the Company plans to continue to operate with
its Spin Physics division and Impact Data division. The remaining proceeds
from the Asset Sale after the payments to EKC and the Company's principal
lender as described above, together with other assets remaining in the
Company, are not sufficient to meet all the remaining obligations of the
Company or to fund ongoing operating needs. Management is giving
consideration to potential additional restructuring of the Company's
liabilities and additional financing sources in order to alleviate these
conditions. There can be no assurance, however, as to the ultimate outcome
of these plans.
The above factors raise substantial doubt about the Company's ability to
continue as a going-concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
F-91
<PAGE>
DATATAPE INCORPORATED
(A Wholly-Owned Subsidiary Of Delta Tango, Inc.)
BALANCE SHEETS
December 31, 1996 and September 28, 1997
(in thousands, except for share data)
__________
<TABLE>
<CAPTION>
December 31, September 28,
1996 1997
----------- ------------
(Unaudited)
ASSETS:
Current assets:
<S> <C> <C>
Cash and cash equivalents .............................................................................. $ 729 $ 610
Accounts receivable, net................................................................................ 8,330 4,413
Inventories, net........................................................................................ 13,667 15,299
Other current assets.................................................................................... 334 311
------- -------
Total current assets................................................................................ 23,060 20,633
Property and equipment, net.............................................................................. 8,681 7,491
Intangible assets, net................................................................................... 766 737
Restricted cash.......................................................................................... 232 --
Other assets............................................................................................. 165 127
------- -------
Total assets........................................................................................ $32,904 $28,988
======= =======
</TABLE>
LIABILITIES, SENIOR PREFERRED STOCK AND STOCKHOLDER'S EQUITY (DEFICIENCY):
<TABLE>
<CAPTION>
Current liabilities:
<S> <C> <C>
Line of credit.......................................................................................... $ 3,987 $ 2,456
Industrial revenue bonds, current....................................................................... 170 170
Accounts payable........................................................................................ 2,803 4,116
Accrued liabilities..................................................................................... 7,610 8,406
Income tax payable...................................................................................... 197 228
Notes payable and obligation under capital leases, current.............................................. 8,440 7,540
======= ======
Total current liabilities........................................................................... 23,207 22,916
Deferred compensation and other credits.................................................................. 1,967 1,722
Post-retirement benefits................................................................................. 7,909 7,909
Industrial revenue bonds, noncurrent..................................................................... 1,530 1,360
Obligation under capital leases, noncurrent.............................................................. 272 184
------- -------
Total liabilities................................................................................... 34,885 34,091
Commitments and contingencies
Senior preferred stock, liquidation preference at $4,994 and $5,217 at December 31, 1996 and September 28,
1997, respectively, manditorily redeemable, cumulative dividends at 7%, $100 par value, 42,500 shares
authorized, issued and outstanding...................................................................... 4,994 5,217
Stockholders' equity (deficiency):
Common stock, no par value, 1,000 shares authorized; 500 shares issued and outstanding.................. 4,000 4,000
Additional paid-in capital.............................................................................. 3,942 3,719
Amount due from Stockholder and affiliates.............................................................. (10,759) (11,374)
Accumulated deficit..................................................................................... (4,158) (6,665)
------- -------
Total stockholder's equity (deficiency)............................................................. (6,975) (10,320)
------- -------
Total liabilities, senior preferred stock and stockholder's equity (deficiency)..................... $32,904 $28,988
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-92
<PAGE>
DATATAPE INCORPORATED
(A Wholly-Owned Subsidiary Of Delta Tango, Inc.)
STATEMENTS OF OPERATIONS
For The Nine Months Ended September 29, 1996 And September 28, 1997
(in thousands)
--------------
<TABLE>
<CAPTION>
Nine months ended
------------------------------
September 29, September 28,
1996 1997
-------------- --------------
(Unaudited)
<S> <C> <C>
Net sales............................................................................. $38,612 $29,880
Cost of sales......................................................................... 26,026 18,125
------- -------
Gross profit..................................................................... 12,586 11,755
Operating expenses:
Selling and distribution............................................................. 3,591 3,984
General and administration........................................................... 3,855 3,536
Research and development............................................................. 2,881 4,768
Management and administrative services provided by Parent............................ 1,120 757
------- -------
Income (loss) from operations.................................................... 1,139 (1,290)
------- -------
Other expenses:
Interest expense..................................................................... 1,121 1,090
Other................................................................................ 246 127
------- -------
Total other expense.............................................................. 1,367 1,217
------- -------
Loss before provision for income taxes................................................ (228) (2,507)
Provision for income taxes............................................................ 73 --
------- -------
Net loss.............................................................................. $ (301) $(2,507)
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
F-93
<PAGE>
DATATAPE INCORPORATED
(A Wholly-Owned Subsidiary Of Delta Tango, Inc.)
STATEMENTS OF CASH FLOWS
For The Nine Months Ended September 29, 1996 And September 28, 1997
(in thousands)
----------
<TABLE>
<CAPTION>
Nine months ended
-------------------------------
September 29, September 28,
1996 1997
------------- -------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................................. $ (301) $ (2,507)
Adjustments to reconcile net income to net cash provided by operating activities:
Inventory valuation provisions...................................................... -- (222)
Depreciation and amortization....................................................... 1,744 1,604
Change in assets and liabilities:
Accounts receivable................................................................ (2,429) 3,917
Inventories........................................................................ 3,634 (1,403)
Prepaid expenses and other current assets.......................................... 61 23
Accounts payable................................................................... (580) 1,313
Accrued liabilities................................................................ 241 813
Other assets....................................................................... 62 72
Deferred compensation and other credits............................................ (211) (245)
Post-retirement benefits........................................................... (283) --
------------- -------------
Net cash provided by operating activities........................................ 1,938 3,365
------------- -------------
Cash flows from investing activities:
Purchases of property and equipment.................................................. (2,184) (414)
------------- -------------
Net cash used in investing activities............................................ (2,184) (414)
------------- -------------
Cash flows from financing activities:
Net payments on line of credit....................................................... (2,163) (1,531)
Proceeds from note payable........................................................... 1,785 --
Proceeds from industrial revenue bonds............................................... 1,700 --
Payments of note payable and obligation under capital leases......................... (889) (1,157)
Loans made to Parent and affiliates.................................................. -- (615)
Restricted cash...................................................................... (466) 233
------------- -------------
Net cash used in financing activities............................................ (33) (3,070)
------------- -------------
Decrease in cash and cash equivalents............................................ (279) (119)
Cash and cash equivalents, beginning of period........................................ 274 729
------------- -------------
Cash and cash equivalents, end of period.............................................. $ (5) $ 610
============= =============
</TABLE>
The accompanying notes are an integral part of these unaudited financial
statements.
F-94
<PAGE>
DATATAPE INCORPORATED
(A Wholly-Owned Subsidiary Of Delta Tango, Inc.)
NOTES TO INTERIM FINANCIAL STATEMENTS
----------
1. The Company and Basis of Presentation:
The accompanying unaudited balance sheet of DATATAPE Incorporated (the
"Company") as of September 28, 1997 and the related unaudited statements of
operations and cash flows for the nine months ended September 29, 1996 and
September 28, 1997, have been prepared on substantially the same basis as
the annual financial statements. In the opinion of the Company, these
financial statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position, operating results, and cash flows for the periods presented. The
results of operations for the nine months ended September 28, 1997 are not
necessarily indicative of results to be expected for the entire year. These
unaudited financial statements should be read in conjunction with the
financial statements, and notes thereto, for the year ended December 31,
1996.
2. Inventories:
Inventories, net consist of the following:
<TABLE>
<CAPTION>
December 31, September 28,
1996 1997
------------ -------------
(unaudited)
(in thousands)
<S> <C> <C>
Finished goods, purchased parts, and spare parts................ $ 15,065 $ 16,547
Work-in-process................................................. 4,395 4,323
------------ -------------
19,460 20,870
Allowance to reduce inventories to their net realizable value... (5,794) (5,571)
------------ -------------
$ 13,667 $ 15,299
============ =============
</TABLE>
F-95
<PAGE>
3. Note Payable and Obligation Under Capital Leases:
Note payable and obligation under capital leases consist of
the following:
<TABLE>
<CAPTION>
December 31, September 28,
1996 1997
----------- ------------
(unaudited)
(in thousands)
<S> <C> <C>
Note payable to Eastman Kodak............................................ $ 5,072 $ 5,072
Note payable, collateralized by substantially all of the
Company's tangible and intangible property, with interest at
prime rate plus 2.0% as of December 31, 1996 and September
28, 1997, payable in monthly installments of $100,000.................. 3,250 2,350
Obligation under capital leases......................................... 389 302
------- -------
Total notes payable and obligation under capital leases.................. 8,712 7,724
Less current maturities.................................................. 8,440 7,540
------- -------
Total notes payable and obligation under capital leases.................. $ 272 $ 184
======= =======
</TABLE>
F-96
<PAGE>
SECOND AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
SECOND AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION, dated as
of November 25, 1997 (the "Agreement"), by and among GROUP FINANCIAL PARTNERS,
INC., a Kentucky corporation ("GFP"), BELL TECHNOLOGIES, INC., a Florida
corporation and a subsidiary of GFP ("Bell"), TUBE TURNS TECHNOLOGIES, INC., a
Kentucky corporation and a subsidiary of GFP ("Tube Turns") and GROUP
TECHNOLOGIES CORPORATION, a Florida corporation and a subsidiary of GFP ("Group
Tech").
W I T N E S S E T H :
WHEREAS, the Board of Directors of each of GFP, Tube Turns, Bell and Group
Tech, as applicable, have approved, to occur in the following chronological
order, [i] the distribution of all of the outstanding shares of GFP Partners-V,
Inc. ("Partners-V"), Unison Commercial Group, Inc. ("Unison") and BW Riverport,
Inc. ("BW") to the shareholders of GFP (the "Spin Off"), [ii] the merger of GFP
with and into Group Tech (the "Merger"), [iii] the merger of Tube Turns with and
into New Tube Turns Technologies, Inc. ("New Tube Turns"), a newly formed,
wholly owned subsidiary of Group Tech (the "Tube Turns Merger"), [iv] the merger
of Bell with and into Bell Acquisition Corporation ("New Bell"), a newly formed,
wholly owned subsidiary of Group Tech (the "Bell Merger") and [v] the
contribution of all of the assets of Group Tech (other than the shares of New
Tube Turns and New Bell and the shares of BT Holdings, Inc. and Metrum-DATATAPE,
Inc., former wholly owned subsidiaries of GFP) into a newly formed, wholly owned
subsidiary of Group Tech and the assumption of the liabilities of Group Tech by
this subsidiary (the "Group Tech Contribution"), all in accordance with the
Florida Business Corporation Act, as amended (the "FBCA") and the Kentucky
Revised Statutes, as amended (the "KRS");
WHEREAS, the Board of Directors of each of GFP, Tube Turns, Bell and Group
Tech, as applicable, has determined that each of the Spin Off, the Merger, the
Tube Turns Merger, the Bell Merger and the Group Tech Contribution, as
applicable, is fair to and in the best interest of the stockholders of GFP, Tube
Turns, Bell and Group Tech, as applicable, and resolved to approve and adopt
this Agreement and the transactions contemplated hereby and, subject to the
terms and conditions set forth herein, to recommend the approval and adoption of
this Agreement by the stockholders of GFP, Tube Turns, Bell and Group Tech;
WHEREAS, for federal income tax purposes, it is intended that [i] the
Merger, the Tube Turns Merger and the Bell Merger shall qualify as tax free
reorganizations under Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code"), and [ii]
<PAGE>
the Group Tech Contribution shall qualify as a tax-free transfer of property to
a controlled corporation under Section 351 of the Code;
WHEREAS, GFP, Bell, Tube Turns and Group Tech previously entered into an
Amended and Restated Agreement and Plan of Reorganization dated September 22,
1997 and desire to amend and restate such agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto, intending to be
legally bound, agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Definitions. As used in this Agreement, the following
terms shall have the following meanings unless the context otherwise requires:
(i) "Bell Shareholder Approval" means the approval of the Bell Merger by
the holders of shares of Bell Common Stock (hereinafter defined) voted, in
person or by proxy, at the stockholders meeting of Bell held to approve such
transaction.
(ii) "Business Day" means each day that banking institutions in New York
City are not authorized or obligated by law or executive order to close.
(iii) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
(iv) "GFP Stockholder Approval" means the approval of the Spin Off and
the Merger by the holders of shares of GFP Common Stock (hereinafter defined)
voted, in person or by proxy, at the stockholders meeting of GFP held to approve
such transactions.
(v) "Group Tech Stockholder Approval" means the approval of the Merger
and the Group Tech Contribution by the holders of shares of Group Tech Common
Stock (hereinafter defined) and, if necessary, Group Tech Preferred Stock voted,
in person or by proxy, at the stockholders meetings of Group Tech held to
approve such transactions.
(vi) "Hazardous Wastes" include, without limitation: [i] hazardous
substances or hazardous wastes, as those terms are defined by the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq., the Resource
2
<PAGE>
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., and any other
applicable federal, state or local law, rule, regulation, ordinance or
requirement, all as amended or hereafter amended; [ii] petroleum, including
without limitation crude oil or any fraction thereof which is liquid at standard
conditions of temperature and pressure (60 degrees Fahrenheit and 14.7 pounds
per square inch absolute); [iii] any radioactive material, including without
limitation any source, special nuclear, or by-product material as defined in 42
U.S.C. Section 2011 et seq.; and [iv] asbestos or any asbestiform minerals in
any form or condition.
(vii) "Knowledge" means, (i) with respect to any Person that is a
corporation, the actual knowledge after due inquiry of any of such Person's
respective executive officers or directors or (ii) with respect to any Person
that is a group, the actual knowledge after due inquiry of the members of such
group.
(viii) "Lien" means and includes any lien, security interest, pledge,
charge, option, right of first refusal, claim, mortgage, lease, easement or any
other encumbrance whatsoever.
(ix) "Material Adverse Effect" means any change or effect that,
individually or when taken together with all other such changes or effects, is
or is reasonably likely to be materially adverse to the business, assets,
prospects, liabilities, results of operations or condition (financial or
otherwise) of the entity to which the term relates and such entity's (or
entities') Subsidiaries, taken as a whole.
(x) "Person" means any individual, corporation, general or limited
partnership, limited liability company, firm, joint venture, association,
enterprise, joint stock company, trust, unincorporated organization or other
entity.
(xi) "Subsidiary" or "Subsidiaries" of any Person, means any
corporation, partnership, limited liability company, joint venture or other
legal entity of which such Person (either alone or through or together with any
other Subsidiary), owns, directly or indirectly, 50% or more of the stock or
other equity interests the holders of which are generally entitled to vote for
the election of the board of directors or other governing body of such
corporation or other legal entity.
(xii) "Tube Turns Shareholder Approval" means the approval of the Tube
Turns Merger by the holders of shares of Tube Turns Common Stock (hereafter
defined) voted, in person or by proxy, at the stockholders meeting of Tube Turns
held to approve such transaction.
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ARTICLE II
THE SPIN OFF OF GFP PARTNERS-V, INC.,
UNISON COMMERCIAL GROUP, INC. AND BW RIVERPORT, INC.
Section 2.01. The Spin Off. (a) Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the KRS
immediately prior to the Effective Time as defined in Article III, all of the
issued and outstanding shares of Partners-V, Unison and BW shall be distributed
by GFP to the shareholders of GFP in accordance with and as set forth in the
letter (the "GFP Disclosure Letter") delivered by GFP to GTC prior to the
execution hereof.
Section 2.02. Distribution of Shares. Immediately prior to the Effective
Time as defined in Article III, by virtue of the Spin Off, GFP shall transfer,
and GFP shall cause Partners-V, Unison and BW to transfer, the shares of
Partners-V, Unison and BW held by GFP on the books of Partners-V, Unison and BW
to the shareholders of GFP in accordance with the GFP Disclosure Letter, and to
thereafter cancel the certificates representing shares of Partners-V, Unison and
BW held by GFP immediately prior to the Effective Time.
ARTICLE III
THE MERGER OF GROUP FINANCIAL PARTNERS, INC.
Section 3.01. The Merger. (a) Upon the terms and subject to the conditions
set forth in this Agreement and the exhibits hereto, and in accordance with the
KRS and the FBCA at the Effective Time, GFP shall be merged with and into Group
Tech in accordance with the KRS and the FBCA, whereupon the separate existence
of GFP shall cease and Group Tech shall continue as the surviving corporation
(for purposes of this Article, the "Surviving Corporation").
(b) As promptly as practicable after satisfaction or, to the extent
permitted hereunder, waiver of all the conditions set forth in Article XI
hereof, GFP and Group Tech shall file articles of merger, executed in accordance
with the relevant provisions of the KRS and the FBCA, with the Secretary of
State of each of the Commonwealth of Kentucky and the State of Florida and make
all other filings or recordings required by the KRS and/or the FBCA in
connection with the Merger. A plan of merger in substantially the form attached
as Exhibit A hereto and incorporated by reference herein shall be attached to,
included in and filed with such articles of merger. The Merger shall become
effective at such time as the articles of merger are duly filed with the
Secretary of State of the Commonwealth of Kentucky and the Secretary of State of
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the State of Florida or at such later time as is specified in the articles of
merger (for purposes of this Article, the "Effective Time"). The date on which
the Effective Time occurs shall, for purposes of this Article, be the "Effective
Date".
Section 3.02. Effects of the Merger. At the Effective Time, the Merger
shall have the effects set forth in the applicable provisions of the KRS and the
FBCA. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time, all the properties, rights, privileges, powers, and
franchises of GFP and Group Tech, shall vest in the Surviving Corporation
without further act or deed, and all debts, liabilities and duties of GFP and
Group Tech shall become the debts, liabilities and duties of the Surviving
Corporation.
Section 3.03. Conversion of Shares; Adjustments. At the Effective Time, by
virtue of the Merger and without any action on the part of GFP or Group Tech or
the stockholders of either of the foregoing entities:
(i) each share of the outstanding common stock, no par value per
share, of GFP ("GFP Common Stock"), issued and outstanding immediately
prior to the Effective Time shall be cancelled and extinguished and
automatically converted into the right to receive such shares of common
stock, $.01 par value, of Group Tech ("Group Tech Common Stock") as is
equal to the GFP Conversion Ratio (hereinafter defined);
(ii) each share of Group Tech Common Stock issued and outstanding
immediately prior to the Effective Time which is held by GFP shall be
cancelled and retired and all rights in respect thereof shall cease to
exist, without any conversion thereof or payment of any consideration
therefor; and
(iii) each share of Group Tech Common Stock issued and outstanding
immediately prior to the Effective Time and which is not held by GFP shall
be unchanged after the Effective Time.
Section 3.04. Exchange of Certificates. (a) On or prior to the Effective
Time, Group Tech shall make available to each record holder who, as of the
Effective Time, was a holder of an outstanding certificate or certificates which
immediately prior to the Effective Time represented shares of GFP Common Stock
(for purposes of this Article, the "Certificate" or "Certificates"), a form of
letter of transmittal and instructions for use in effecting the surrender of the
Certificates for payment therefor and conversion thereof. Delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
proper delivery of the Certificates to Group Tech and the form of letter of
transmittal shall so reflect. Upon surrender to Group Tech of a
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Certificate, together with such letter of transmittal duly executed, the holder
of such Certificate shall be entitled to receive in exchange therefor one or
more certificates as requested by the holder (properly issued, executed and
countersigned, as appropriate) representing that number of whole shares of Group
Tech Common Stock to which such holder of GFP Common Stock shall have become
entitled pursuant to the provisions of Section 3.03 hereof, and the Certificate
so surrendered shall forthwith be cancelled. No interest will be paid or accrued
on any cash payable upon the surrender of the Certificates. If any portion of
the consideration to be received pursuant to Section 3.03 hereof, upon exchange
of a Certificate, is to be issued or paid to a Person other than the Person in
whose name the Certificate surrendered in exchange therefor is registered, it
shall be a condition of such issuance and payment that the Certificate so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer. From the Effective Time until surrender in accordance with the
provisions of this Section 3.04, each Certificate shall represent for all
purposes only the right to receive the consideration provided in Section 3.03
hereof. All payments in respect of shares of GFP Common Stock that are made in
accordance with the terms hereof shall be deemed to have been made in full
satisfaction of rights pertaining to such securities.
(b) In the case of any lost, mislaid, stolen or destroyed Certificate, the
holder thereof may be required, as a condition precedent to delivery to such
holder of the consideration described in Section 3.03, to deliver to Group Tech
a lost stock certificate affidavit and satisfactory indemnity agreement as Group
Tech may direct as indemnity against any claim that may be made against Group
Tech with respect to the Certificate alleged to have been lost, mislaid, stolen
or destroyed.
(c) After the Effective Time, there shall be no transfers on the stock
transfer books of Group Tech of the shares of GFP Common Stock that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to Group Tech for transfer, they shall be
cancelled and exchanged for the consideration described in Section 3.03 hereof.
Section 3.05. Stock Options. (a) At the Effective Time, Group Tech shall
assume all of GFP's rights and obligations with respect to certain outstanding
stock options held by certain employees of GFP, which are outstanding and
unexercised at the Effective Time (the "GFP Options"), whether or not the GFP
Options are then exercisable. Immediately following such assumption, Group Tech
shall substitute for the GFP Options non-qualified options to be granted under
the Group Tech 1994 Stock Option Plan for Key Employees (the "Non-Qualified
Options (GFP)") with vesting terms and conditions matching those contained in
the GFP Options at the Effective Time to the extent such vesting terms and
conditions are consistent with the terms and conditions of the Group Tech 1994
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Stock Option Plan for Key Employees and such other revisions to such terms and
conditions as Group Tech and GFP shall mutually agree upon. Each Non-Qualified
Option (GFP) shall thereafter evidence the right to purchase the number of
shares of Group Tech Common Stock equal to the product (rounded up or down as
appropriate to a whole share) of (i) the number of shares of GFP Common Stock
covered by such GFP Option immediately prior to the Effective Time, multiplied
by (ii) the GFP Conversion Ratio. The exercise price of such Non-Qualified
Options (GFP) for each share of Group Tech Common Stock subject thereto shall be
equal to the quotient rounded up or down as appropriate to a whole cent) obtain
by dividing (i) the per share exercise price for shares of GFP Common Stock
subject to such GFP Option immediately prior to the Effective Time, by (ii) the
GFP Conversion Ratio.
(b) At least ten (10) days prior to the Effective Time, Group Tech shall
deliver to each holder of a GFP Option an appropriate written notice and option
assumption agreement (the "Option Assumption Agreement") setting forth Group
Tech's assumption of the GFP Option and substitution of the Non-Qualified
Option (GFP) in accordance with the terms of this Section 3.05. The form of such
Option Assumption Agreement shall be delivered to GFP prior to its distribution
to holders of the GFP Options and shall be subject to its reasonable approval.
Group Tech shall have received from each of the holders of GFP Options a duly
executed Option Assumption Agreement on or prior to the Closing Date. GFP shall
not grant any options under any plan or otherwise after the date of this
Agreement.
(c) Group Tech agrees to cause the shares of Group Tech Common Stock
issuable upon exercise of the Non-Qualified Options to be registered with the
Securities and Exchange Commission (the "Commission") on a form S-8 Registration
Statement as promptly following the Effective Time as is reasonably practicable.
Group Tech further agrees to cause the shares of Group Tech Common Stock
issuable upon exercise of the Non-Qualified Options to be registered or exempt
from the registration requirements of all applicable state securities laws,
rules and regulations.
(d) Approval by the stockholders of GFP of this Agreement shall constitute
authorization and approval of any and all of the actions described in this
Section 3.05.
Section 3.06. Dissenting Shares. (a) To the extent that appraisal rights
are available under the KRS, shares of GFP Common Stock that are issued and
outstanding immediately prior to the Effective Time and that have not been voted
for adoption of the Merger and with respect to which appraisal rights have been
properly demanded in accordance with the KRS (for purposes of this Article,
"Dissenting Shares") shall not be converted into the right to receive the
consideration provided for in Section 3.03 hereof at or after the Effective Time
unless and until the holder of such
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shares becomes ineligible for such appraisal. If a holder of Dissenting Shares
becomes ineligible for such appraisal, then, as of the Effective Time or the
occurrence of such event whichever later occurs, such holder's Dissenting Shares
shall cease to be Dissenting Shares and shall be converted into and represent
the right to receive the consideration provided for in Section 3.03 hereof. If
any holder of GFP Common Stock shall assert the right to be paid the fair value
of such GFP Common Stock as described above, GFP shall give Group Tech notice
thereof and Group Tech shall have the right to participate in all negotiations
and proceedings with respect to any such demands. GFP shall not, except with the
prior written consent of Group Tech, voluntarily make any payment with respect
to, or settle or offer to settle, any such demand for payment. Payment for
Dissenting Shares shall be made as required by the KRS.
(b) To the extent that appraisal rights are available under the FBCA,
shares of Group Tech Common Stock that are issued and outstanding immediately
prior to the Effective Time and that have not been voted for adoption of the
Merger and with respect to which appraisal rights have been properly demanded in
accordance with the FBCA shall receive payment as required by the FBCA.
Section 3.07. Articles of Incorporation of Surviving Corporation. The
Articles of Incorporation of Group Tech, as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation until thereafter amended as provided therein and in accordance with
applicable law.
Section 3.08. By-Laws of Surviving Corporation. The By-Laws of Group Tech
in effect at the Effective Time shall be the By-Laws of the Surviving
Corporation and thereafter may be amended or repealed in accordance with their
terms or the terms of the Articles of Incorporation of the Surviving Corporation
and as provided by applicable law.
Section 3.09. Directors and Officers of Surviving Corporation. From and
after the Effective Time: (i) the directors of Group Tech immediately prior to
the Effective Time shall be the directors of the Surviving Corporation; and (ii)
the officers of Group Tech immediately prior to the Effective Time shall be the
officers of the Surviving Corporation, in each case, until their respective
successors are duly elected or appointed and qualify in the manner provided in
the Articles of Incorporation and By-Laws of the Surviving Corporation or as
otherwise provided by applicable law.
Section 3.10. GFP Conversion Ratio and Adjustment Event. (a) The "GFP
Conversion Ratio" shall be equal to such fraction as is obtained by dividing the
Group Tech Merger Shares (as hereinafter defined) by the Total GFP Shares (as
hereinafter defined). For
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purposes of this Article, the "Group Tech Merger Shares" shall be equal to such
number of whole shares of Group Tech Common Stock as is obtained by dividing the
Aggregate GFP Consideration (hereinafter defined) by the Average Closing Price
(hereinafter defined). The "Total GFP Shares" shall be equal to 315,953. The
"Aggregate GFP Consideration" shall be equal to the sum of $51,833,006 plus the
amount of cash held by GFP as of the Effective Time and plus the product of
15,064,625 multiplied by the Average Closing Price.
(b) In the event of any change in Group Tech Common Stock or GFP Common
Stock between the date of this Agreement and the Effective Time by reason of any
stock dividend, stock split, subdivision, reclassification, recapitalization,
combination, exchange of shares or the like (an "Adjustment Event"), the GFP
Conversion Ratio shall be appropriately adjusted so that each holder of GFP
Common Stock will receive in the Merger the same proportionate amount of the
Group Tech Common Stock such holder would have been entitled to receive if the
Effective Time had been immediately prior to such Adjustment Event.
Section 3.11. Fractional Shares. No scrip or fractional shares of Group
Tech Common Stock shall be issued in the Merger. All fractional shares of Group
Tech Common Stock to which a holder of GFP Common Stock immediately prior to the
Effective Time would otherwise be entitled at the Effective Time shall be
aggregated. If a fractional share results from such aggregation, such stock
holder shall be entitled, after the later of (a) the Effective Time, or (b) the
surrender of such stockholder's Certificate(s) that represent such shares of the
GFP Common Stock, to receive from Group Tech an amount in cash in lieu of such
fractional share, based on the Average Closing Price (as hereinafter defined).
For purposes of this Agreement, the "Average Closing Price" shall be the greater
of (i) $2.50 per share of Group Tech Common Stock, or (ii) the arithmetic
average of the closing price per share of the Group Tech Common Stock, as
reported on The Nasdaq National Market, for each of the ten (10) consecutive
trading days ending with the trading day which occurs immediately prior to the
date of the Group Tech Stockholder Approval; provided, however, in no event
shall the Average Closing Price exceed $4.50 per share of Group Tech Common
Stock.
Section 3.12. GFP Stock Plans. At the Effective Time, the GFP Stock
Purchase Plan, Stock Option Plan and Stock Restriction Agreement shall
terminate and any shares of GFP Common Stock subject to vesting requirements
under such plans shall, upon conversion into the right to receive shares of
Group Tech Common Stock in accordance with this Agreement, continue to be
subject to such vesting requirements. Approval by the stockholders of GFP of
this Agreement shall constitute authorization and approval of any and all of the
actions described in this Section 3.12.
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ARTICLE IV
THE MERGER OF
TUBE TURNS TECHNOLOGIES, INC.
Section 4.01. The Tube Turns Merger. (a) Upon the terms and subject to the
conditions set forth in this Agreement and the exhibits hereto, and in
accordance with the KRS at the Effective Time, Tube Turns shall be merged with
and into New Tube Turns in accordance with the KRS, whereupon the separate
existence of Tube Turns shall cease and New Tube Turns shall continue as the
surviving corporation (for purposes of this Article, the "Surviving
Corporation").
(b) As promptly as practicable after satisfaction or, to the extent
permitted hereunder, waiver of all the conditions set forth in Article XI
hereof, Tube Turns and New Tube Turns shall file articles of merger, executed in
accordance with the relevant provisions of the KRS, with the Secretary of State
of the Commonwealth of Kentucky and make all other filings or recordings
required by the KRS in connection with the Tube Turns Merger. A plan of merger
in substantially the form attached as Exhibit B hereto and incorporated by
reference herein shall be attached to, included in and filed with such articles
of merger. The Tube Turns Merger shall become effective at such time as the
articles of merger are duly filed with the Secretary of State of the Common
wealth of Kentucky or at such later time as is specified in the articles of
merger (for purposes of this Article, the "Effective Time"). The date on which
the Effective Time occurs shall, for the purposes of this Article, be the
"Effective Date".
Section 4.02. Effects of the Tube Turns Merger. At the Effective Time, the
Tube Turns Merger shall have the effects set forth in the applicable provisions
of the KRS. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the properties, rights, privileges, powers,
and franchises of Tube Turns and New Tube Turns, shall vest in the Surviving
Corporation without further act or deed, and all debts, liabilities and duties
of Tube Turns and New Tube Turns shall become the debts, liabilities and duties
of the Surviving Corporation.
Section 4.03. Conversion of Shares; Adjustments. At the Effective Time, by
virtue of the Tube Turns Merger and without any action on the part of Tube Turns
or New Tube Turns or the stock holders of either of the foregoing entities:
(i) each share of the common stock of Tube Turns, no par value
per share (the "Tube Turns Common Stock"), issued and outstanding
immediately prior to the Effective Time, and held by a Person other than
Group Tech, shall be cancelled and extinguished and automatically converted
into the right to
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receive such shares of Group Tech Common Stock as is equal to the Tube
Turns Conversion Ratio; and
(ii) each share of Tube Turns Common Stock issued and outstanding
immediately prior to the Effective Time, and held by Group Tech, shall be
cancelled and extinguished.
Section 4.04. Exchange of Certificates. (a) On or prior to the Effective
Time, Group Tech and New Tube Turns shall make available to each record holder
(other than Group Tech) who, as of the Effective Time, was a holder of an
outstanding certificate or certificates which immediately prior to the Effective
Time represented shares of Tube Turns Common Stock (for purposes of this
Article, the "Certificate" or "Certificates"), a form of letter of transmittal
and instructions for use in effecting the surrender of the Certificates for
payment therefor and conversion thereof. Delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of the
Certificates to Group Tech and the form of letter of transmittal shall so
reflect. Upon surrender to Group Tech of a Certificate, together with such
letter of transmittal duly executed, the holder of such Certificate shall be
entitled to receive in exchange therefor one or more certificates as requested
by the holder (properly issued, executed and countersigned, as appropriate)
representing that number of whole shares of Group Tech Common Stock to which
such holder of Tube Turns Common Stock shall have become entitled pursuant to
the provisions of Section 4.03 hereof, and the Certificate so surrendered shall
forthwith be cancelled. No interest will be paid or accrued on any cash payable
upon the surrender of the Certificates. If any portion of the consideration to
be received pursuant to Section 4.03 hereof, upon exchange of a Certificate, is
to be issued or paid to a Person other than the Person in whose name the
Certificate surrendered in exchange therefor is registered, it shall be a
condition of such issuance and payment that the Certificate so surrendered shall
be properly endorsed or otherwise be in proper form for transfer. From the
Effective Time until surrender in accordance with the provisions of this Section
4.04, each Certificate shall represent for all purposes only the right to
receive the consideration provided in Section 4.03 hereof. All payments in
respect of shares of Tube Turns Common Stock that are made in accordance with
the terms hereof shall be deemed to have been made in full satisfaction of
rights pertaining to such securities.
(b) In the case of any lost, mislaid, stolen or destroyed Certificate, the
holder thereof may be required, as a condition precedent to delivery to such
holder of the consideration described in Section 4.03, to deliver to Group Tech
and New Tube Turns a lost stock certificate affidavit and satisfactory indemnity
agreement as Group Tech and New Tube Turns may direct as indemnity against any
claim that may be made against Group Tech and/or New
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Tube Turns with respect to the Certificate alleged to have been lost, mislaid,
stolen or destroyed.
(c) After the Effective Time, there shall be no transfers on the stock
transfer books of New Tube Turns of the shares of Tube Turns Common Stock that
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to Group Tech for transfer, they
shall be cancelled and exchanged for the consideration described in Section 4.03
hereof.
Section 4.05. Stock Options. (a) At the Effective Time, Group Tech shall
assume all of Tube Turns' rights and obligations with respect to certain
outstanding stock options held by certain employees of Tube Turns, which are
outstanding and unexercised at the Effective Time (the "Tube Turns Options"),
whether or not the Options are then exercisable. Immediately following such
assumption, Group Tech shall substitute for such Tube Turns Options non-
qualified options to be granted under the Group Tech 1994 Stock Option Plan for
Key Employees (the "Non-Qualified Options (Tube Turns)") with vesting terms and
conditions matching those contained in the Tube Turns Options at the Effective
Time to the extent such vesting terms and conditions are consistent with the
terms and conditions of the Group Tech 1994 Stock Option Plan for Key Employees
and such other revisions to such terms and conditions as Group Tech and Tube
Turns shall mutually agree upon. Each Non-Qualified Option (Tube Turns) shall
thereafter evidence the right to purchase the number of shares of Group Tech
Common Stock equal to the product (rounded up or down as appropriate to a whole
share) of (i) the number of shares of Tube Turns Common Stock covered by such
Tube Turns Option immediately prior to the Effective Time, multiplied by (ii)
the Tube Turns Conversion Ratio. The exercise price of such Non-Qualified
Options (Tube Turns) for each share of Group Tech Common Stock subject thereto
shall be equal to the quotient (rounded up or down as appropriate to a whole
cent) obtained by dividing (i) the per share exercise price for shares of Tube
Turns Common Stock subject to such Option immediately prior to the Effective
Time, by (ii) the Tube Turns Conversion Ratio.
(b) At least ten (10) days prior to the Effective Time, Group Tech shall
deliver to each holder of a Tube Turns Option an appropriate written notice and
option assumption agreement (the "Option Assumption Agreement") setting forth
Group Tech's assumption of the Tube Turns Option and substitution of the Non-
Qualified Option (Tube Turns) in accordance with the terms of this Section 4.05.
The form of such Tube Turns Option Assumption Agreement shall be delivered to
Tube Turns prior to its distribution to holders of the Tube Turns Options and
shall be subject to its reasonable approval. Group Tech shall have received from
each of the holders of Options a duly executed Option Assumption Agreement on or
prior to the Closing Date. Tube Turns shall not grant any
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options under any plan or otherwise after the date of this Agreement.
(c) Group Tech agrees to cause the shares of Group Tech Common Stock
issuable upon exercise of the Non-Qualified Options (Tube Turns) to be
registered with the Securities and Exchange Commission (the "Commission") on a
Form S-8 Registration Statement as promptly following the Effective Time as is
reasonably practicable. Group Tech further agrees to cause the shares of Group
Tech Common Stock issuable upon exercise of the Non-Qualified Options (Tube
Turns) to be registered or exempt from the registration requirements of all
applicable state securities laws, rules and regulations.
(d) Approval by the stockholders of Tube Turns of this Agreement shall
constitute authorization and approval of any and all of the actions described in
this Section 4.05.
Section 4.06. Dissenting Shares. To the extent that appraisal rights are
available under the KRS, shares of Tube Turns Common Stock that are issued and
outstanding immediately prior to the Effective Time and that have not been voted
for adoption of the Tube Turns Merger and with respect to which appraisal rights
have been properly demanded in accordance with the KRS (for purposes of this
Article, "Dissenting Shares") shall not be converted into the right to receive
the consideration provided for in Section 4.03 hereof at or after the Effective
Time unless and until the holder of such shares becomes ineligible for such
appraisal. If a holder of Dissenting Shares becomes ineligible for such
appraisal, then, as of the Effective Time or the occurrence of such event
whichever later occurs, such holder's Dissenting Shares shall cease to be
Dissenting Shares and shall be converted into and represent the right to receive
the consideration provided for in Section 4.03 hereof. If any holder of Tube
Turns Common Stock shall assert the right to be paid the fair value of such Tube
Turns Common Stock as described above, Tube Turns shall give New Tube Turns and
Group Tech notice thereof and New Tube Turns and Group Tech shall have the right
to participate in all negotiations and proceedings with respect to any such
demands. Tube Turns shall not, except with the prior written consent of Group
Tech and New Tube Turns, voluntarily make any payment with respect to, or settle
or offer to settle, any such demand for payment. Payment for Dissenting Shares
shall be made as required by the KRS.
Section 4.07. Articles of Incorporation of Surviving Corporation. The
Articles of Incorporation of New Tube Turns, as in effect immediately prior to
the Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation until thereafter amended as provided therein and in accordance with
applicable law, provided that, as of the Effective Time, such Articles of
Incorporation shall be amended to change the name of New Tube Turns to "Tube
Turns Technologies, Inc."
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Section 4.08. By-Laws of Surviving Corporation. The By-Laws of New Tube
Turns in effect at the Effective Time shall be the By-Laws of the Surviving
Corporation and thereafter may be amended or repealed in accordance with their
terms or the terms of the Articles of Incorporation of the Surviving Corporation
and as provided by applicable law.
Section 4.09. Directors and Officers of Surviving Corporation. From and
after the Effective Time: (i) the directors of New Tube Turns immediately prior
to the Effective Time shall be the directors of the Surviving Corporation; and
(ii) the officers of New Tube Turns immediately prior to the Effective Time
shall be the officers of the Surviving Corporation, in each case, until their
respective successors are duly elected or appointed and qualify in the manner
provided in the Articles of Incorporation and By-Laws of the Surviving
Corporation or as otherwise provided by applicable law.
Section 4.10. Tube Turns Conversion Ratio and Adjustment Event. (a) The
"Tube Turns Conversion Ratio" shall be equal to such fraction as is obtained by
dividing the Group Tech Merger Shares (as hereinafter defined) by the Total Tube
Turns Shares (as hereinafter defined). For purposes of this Article, the "Group
Tech Merger Shares" shall be equal to such number of whole shares of Group Tech
Common Stock as is obtained by dividing the Aggregate Tube Turns Consideration
(as hereinafter defined) by the Average Closing Price. The "Total Tube Turns
Shares" shall be equal to 88,625. The "Aggregate Tube Turns Consideration" shall
be equal to ONE MILLION SEVEN HUNDRED SEVENTY TWO THOUSAND FIVE HUNDRED DOLLARS
($1,772,500).
(b) In the event of any change in Group Tech Common Stock or Tube Turns
Common Stock between the date of this Agreement and the Effective Time by reason
of any stock dividend, stock split, subdivision, reclassification,
recapitalization, combination, exchange of shares or the like (an "Adjustment
Event"), the Tube Turns Conversion Ratio shall be appropriately adjusted so that
each holder of Tube Turns Common Stock will receive in the Merger the same
proportionate amount of Group Tech Common Stock such holder would have been
entitled to receive if the Effective Time had been immediately prior to such
Adjustment Event.
Section 4.11. Fractional Shares. No scrip or fractional shares of Group
Tech Common Stock shall be issued in the Tube Turns Merger. All fractional
shares of Group Tech Common Stock to which a holder of Tube Turns Common Stock
immediately prior to the Effective Time would otherwise be entitled at the
Effective Time shall be aggregated. If a fractional share results from such
aggregation, such stockholder shall be entitled, after the later of (a) the
Effective Time or (b) the surrender of such stockholder's Certificate(s) that
represent such shares of Tube Turns Common
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Stock, to receive from Group Tech an amount in cash in lieu of such fractional
share, based on the Average Closing Price.
Section 4.12. Tube Turns Stock Plans. At the Effective Time, the Tube Turns
Employee Stock Purchase Plan, Stock Option Plan dated January 22, 1991, and
Stock Restriction Agreement shall terminate and any shares of Tube Turns Common
Stock subject to vesting requirements under such plans shall, upon conversion
into the right to receive shares of Group Tech Common Stock in accordance with
this Agreement, continue to be subject to such vesting requirements. Approval by
the stockholders of Tube Turns of this Agreement shall constitute authorization
and approval of any and all of the actions described in this Section 4.12.
ARTICLE V
THE MERGER OF BELL TECHNOLOGIES, INC.
Section 5.01. The Bell Merger. (a) Upon the terms and subject to the
conditions set forth in this Agreement and the exhibits hereto, and in
accordance with the FBCA at the Effective Time, Bell shall be merged with and
into New Bell in accordance with the FBCA, whereupon the separate existence of
Bell shall cease and New Bell shall continue as the surviving corporation (for
purposes of this Article, the "Surviving Corporation").
(b) As promptly as practicable after satisfaction or, to the extent
permitted hereunder, waiver of all the conditions set forth in Article XI
hereof, Bell and New Bell shall file articles of merger, executed in accordance
with the relevant provisions of the FBCA, with the Secretary of State of the
State of Florida and make all other filings or recordings required by the FBCA
in connection with the Bell Merger. A plan of merger in substantially the form
attached as Exhibit C hereto and incorporated by reference herein shall be
attached to, included in and filed with such articles of merger. The Bell Merger
shall become effective at such time as the articles of merger are duly filed
with the Secretary of State of the State of Florida or at such later time as is
specified in the articles of merger (for purposes of this Article, the
"Effective Time"). The date on which the Effective Time occurs shall, for the
purposes of this Article, be the "Effective Date".
Section 5.02. Effects of the Bell Merger. At the Effective Time, the Bell
Merger shall have the effects set forth in the applicable provisions of the
FBCA. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time, all the properties, rights, privileges, powers, and
franchises of Bell and New Bell, shall vest in the Surviving Corporation without
further act or deed, and all debts, liabilities and duties of Bell and New Bell
shall become the debts, liabilities and duties of the Surviving Corporation.
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Section 5.03. Conversion of Shares; Adjustments. At the Effective Time, by
virtue of the Bell Merger and without any action on the part of Bell or New Bell
or the stockholders of either of the foregoing entities:
(i) each share of the common stock of Bell, $.01 par value per
share (the "Bell Common Stock"), issued and out standing immediately prior
to the Effective Time, and held by a Person other than Group Tech, shall be
cancelled and extinguished and automatically converted into the right to
receive such shares of Group Tech Common Stock as is equal to the Bell
Conversion Ratio; and
(ii) each share of Bell Common Stock issued and outstanding
immediately prior to the Effective Time, and held by Group Tech, shall be
cancelled and extinguished.
Section 5.04. Exchange of Certificates. (a) On or prior to the Effective
Time, Group Tech and New Bell shall make available to each record holder (other
than Group Tech) who, as of the Effective Time, was a holder of an outstanding
certificate or certificates which immediately prior to the Effective Time
represented shares of Bell Common Stock (for purposes of this Article, the
"Certificate" or "Certificates"), a form of letter of transmittal and
instructions for use in effecting the surrender of the Certificates for payment
therefor and conversion thereof. Delivery shall be effected, and risk of loss
and title to the Certificates shall pass, only upon proper delivery of the
Certificates to Group Tech and the form of letter of transmittal shall so
reflect. Upon surrender to Group Tech of a Certificate, together with such
letter of transmittal duly executed, the holder of such Certificate shall be
entitled to receive in exchange therefor one or more certificates as requested
by the holder (properly issued, executed and countersigned, as appropriate)
representing that number of whole shares of Group Tech Common Stock to which
such holder of Bell Common Stock shall have become entitled pursuant to the
provisions of Section 5.03 hereof, and the Certificate so surrendered shall
forthwith be cancelled. No interest will be paid or accrued on any cash payable
upon the surrender of the Certificates. If any portion of the consideration to
be received pursuant to Section 5.03 hereof, upon exchange of a Certificate, is
to be issued or paid to a Person other than the Person in whose name the
Certificate surrendered in exchange therefor is registered, it shall be a
condition of such issuance and payment that the Certificate so surrendered shall
be properly endorsed or otherwise be in proper form for transfer. From the
Effective Time until surrender in accordance with the provisions of this Section
5.04, each Certificate shall represent for all purposes only the right to
receive the consideration provided in Section 5.03 hereof. All payments in
respect of shares of Bell Common Stock that are made in accordance with the
terms hereof shall be deemed to have been made in full satisfaction of rights
pertaining to such securities.
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(b) In the case of any lost, mislaid, stolen or destroyed Certificate, the
holder thereof may be required, as a condition precedent to delivery to such
holder of the consideration described in Section 5.03, to deliver to Group Tech
and New Bell a lost stock certificate affidavit and satisfactory indemnity
agreement as Group Tech and New Bell may direct as indemnity against any claim
that may be made against Group Tech and/or New Bell with respect to the
Certificate alleged to have been lost, mislaid, stolen or destroyed.
(c) After the Effective Time, there shall be no transfers on the stock
transfer books of New Bell of the shares of Bell Common Stock that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to Group Tech for transfer, they shall be
cancelled and exchanged for the consideration described in Section 5.03 hereof.
Section 5.05. Stock Options. (a) At the Effective Time, Group Tech shall
assume all of Bell's rights and obligations with respect to certain outstanding
stock options held by certain employees of Bell which are outstanding and
unexercised at the Effective Time (the "Bell Options"), whether or not the Bell
Options are then exercisable. Immediately following such assumption, Group
Tech shall substitute for such Bell Options non-qualified options to be granted
under the Group Tech 1994 Stock Option Plan for Key Employees and the Group Tech
Independent Directors' Stock Option Plan (the "Non-Qualified Options (Bell)")
with vesting terms and conditions matching those contained in the Bell Options
at the Effective Time to the extent such vesting terms and conditions are
consistent with the terms and conditions of the Group Tech 1994 Stock Option
Plan for Key Employees and the Group Tech Independent Directors' Stock Option
Plan and such other revisions to such terms and conditions as Group Tech and
Bell shall mutually agree upon. Each Non-Qualified Option (Bell) shall
thereafter evidence the right to purchase the number of shares of Group Tech
Common Stock equal to the product (rounded up or down as appropriate to a whole
share) of (i) the number of shares of Bell Common Stock covered by such Bell
Option immediately prior to the Effective Time, multiplied by (ii) the Bell
Conversion Ratio. The exercise price of such Non-Qualified Options (Bell) for
each share of Group Tech Common Stock subject thereto shall be equal to the
quotient (rounded up or down as appropriate to a whole cent) obtained by
dividing (i) the per share exercise price for shares of Bell Common Stock
subject to such option immediately prior to the Effective Time, by (ii) the Bell
Conversion Ratio.
(b) At least ten (10) days prior to the Effective Time, Group Tech shall
deliver to each holder of a Bell Option an appropriate written notice and option
assumption agreement (the "Option Assumption Agreement") setting forth Group
Tech's assumption of the Bell Option and substitution of the Non-Qualified
Option (Bell) in accordance with the terms of this Section 5.05.
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The form of such Option Assumption Agreement shall be delivered to Bell prior to
its distribution to holders of the Bell Options and shall be subject to its
reasonable approval. Group Tech shall have received from each of the holders of
Bell Options a duly executed Option Assumption Agreement on or prior to the
Closing Date. Bell shall not grant any options under any plan or otherwise after
the date of this Agreement.
(c) Group Tech agrees to cause the shares of Group Tech Common Stock
issuable upon exercise of the Non-Qualified Options (Bell) to be registered with
the Securities and Exchange Commission (the "Commission") on a Form S-8
Registration Statement as promptly following the Effective Time as is reasonably
practicable. Group Tech further agrees to cause the shares of Group Tech Common
Stock issuable upon exercise of the Non-Qualified Options (Bell) to be
registered or exempt from applicable state securities laws, rules and
regulations.
(d) Approval by the stockholders of Bell of this Agreement shall
constitute authorization and approval of any and all of the actions described in
this Section 5.05.
Section 5.06. Dissenting Shares. To the extent that appraisal rights are
available under the FBCA, shares of Bell Common Stock that are issued and
outstanding immediately prior to the Effective Time and that have not been voted
for adoption of the Bell Merger and with respect to which appraisal rights have
been properly demanded in accordance with the FBCA (for purposes of this
Article, "Dissenting Shares") shall not be converted into the right to receive
the consideration provided for in Section 5.03 hereof at or after the Effective
Time unless and until the holder of such shares becomes ineligible for such
appraisal. If a holder of Dissenting Shares becomes ineligible for such
appraisal, then, as of the Effective Time or the occurrence of such event
whichever later occurs, such holder's Dissenting Shares shall cease to be
Dissenting Shares and shall be converted into and represent the right to receive
the consideration provided for in Section 5.03 hereof. If any holder of Bell
Common Stock shall assert the right to be paid the fair value of such Bell
Common Stock as described above, Bell shall give New Bell and Group Tech notice
thereof and New Bell and Group Tech shall have the right to participate in all
negotiations and proceedings with respect to any such demands. Bell shall not,
except with the prior written consent of Group Tech and New Bell, voluntarily
make any payment with respect to, or settle or offer to settle, any such demand
for payment. Payment for Dissenting Shares shall be made as required by the
FBCA.
Section 5.07. Articles of Incorporation of Surviving Corporation. The
Articles of Incorporation of New Bell, as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation until amended as provided therein and in accordance with applicable
law,
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provided that, as of the Effective Time, such Articles of Incorporation shall
be amended to change the name of New Bell to "Bell Technologies, Inc."
Section 5.08. By-Laws of Surviving Corporation. The By-Laws of New Bell in
effect at the Effective Time shall be the By-Laws of the Surviving Corporation
and thereafter may be amended or repealed in accordance with their terms or the
terms of the Articles of Incorporation of the Surviving Corporation and as
provided by applicable law.
Section 5.09. Directors and Officers of Surviving Corporation. From and
after the Effective Time: (i) the directors of New Bell immediately prior to the
Effective Time shall be the directors of the Surviving Corporation; and (ii) the
officers of New Bell immediately prior to the Effective Time shall be the
officers of the Surviving Corporation, in each case, until their respective
successors are duly elected or appointed and qualify in the manner provided in
the Articles of Incorporation and By-Laws of the Surviving Corporation or as
otherwise provided by applicable law.
Section 5.10. Bell Conversion Ratio and Adjustment Event. (a) The "Bell
Conversion Ratio" shall be equal to such fraction as is obtained by dividing the
Group Tech Merger Shares (as hereinafter defined) by the Total Bell Shares (as
hereinafter defined). For purposes of this Article, the "Group Tech Merger
Shares" shall be equal to such number of whole shares of Group Tech Common Stock
as is obtained by dividing the Aggregate Bell Consideration (as hereinafter
defined) by the Average Closing Price. The "Total Bell Shares" shall be equal to
100,023. The "Aggregate Bell Consideration" shall be equal to FOUR MILLION FOUR
HUNDRED ONE THOUSAND TWELVE DOLLARS ($4,401,012).
(b) In the event of any change in Group Tech Common Stock or Bell Common
Stock between the date of this Agreement and the Effective Time by reason of any
stock dividend, stock split, subdivision, reclassification, recapitalization,
combination, exchange of shares or the like (an "Adjustment Event"), the Bell
Conversion Ratio shall be appropriately adjusted so that each holder of Bell
Common Stock will receive in the Merger the same proportionate amount of Group
Tech Common Stock such holder would have been entitled to receive if the
Effective time had been immediately prior to such Adjustment Event.
Section 5.11. Fractional Shares. No scrip or fractional shares of Group
Tech Common Stock shall be issued in the Bell Merger. All fractional shares of
Group Tech Common Stock to which a holder of Bell Common Stock immediately prior
to the Effective Time would otherwise be entitled at the Effective Time shall be
aggregated. If a fractional share results from such aggregation, such
stockholder shall be entitled, after the later of (a) the
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Effective Time or (b) the surrender of such stockholder's Certificate(s) that
represent such shares of Bell Common Stock, to receive from Group Tech an amount
in cash in lieu of such fractional share, based on the Average Closing Price.
Section 5.12. Bell Stock Plans. At the Effective Time, the Bell Employee
Stock Purchase Plan dated July 6, 1988, Stock Option Plan dated January 24,
1990, as amended October 24, 1990, Employee Stock Restriction Agreement dated
July 1, 1988, as amended April 28, 1994, as further amended April 27, 1995, 1995
Stock Option Plan for Key Employees and the Independent Directors' Stock Option
Plan shall terminate and any shares of Bell Common Stock subject to vesting
requirements under such plans shall, upon conversion into the right to receive
shares of Group Tech Common Stock in accordance with this Agreement, continue to
be subject to such vesting requirements. Approval by the stockholders of Bell of
this Agreement shall constitute authorization and approval of any and all
actions described in this Section 5.12.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF GFP
With and subject to such exceptions as are set forth in the GFP Disclosure
Letter, GFP represents and warrants to Group Tech as follows:
Section 6.01. Organization and Qualification. Each of GFP, BT Holdings,
Inc. and Metrum-DATATAPE, Inc. is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation and has
all requisite corporate power and authority to own, lease and operate its
assets, properties and business and to carry on its business as it is now being
conducted, and is duly qualified and in good standing to do business in each
jurisdiction in which the ownership or leasing of its properties makes such
qualification necessary, except where the failure to so qualify would not have a
Material Adverse Effect on GFP. BT Holdings, Inc. has no assets other than cash
and its rights associated with its credit facility with Bank One, Kentucky, NA
(the "Bank One Facility") and any readvance by it, to its affiliates, of funds
advanced thereunder, and no liabilities other than as associated with the Bank
One Facility and the funds advanced thereunder.
Section 6.02. Capitalization. The authorized capital stock of GFP consists
of 1,000,000 shares of GFP Common Stock. As of June 30, 1997, there were (i)
315,953 shares of GFP Common Stock issued and outstanding, all of which were
duly authorized, validly issued, fully paid and nonassessable and are not
subject to any preemptive rights, and (ii) 6,600 shares of unissued GFP Common
Stock issuable upon exercise of outstanding options under the Group Financial
Partners, Inc. Stock Option Plan. Except as set forth in the GFP Disclosure
Letter, since June 30, 1997, no shares of GFP Common Stock have been issued by
GFP, except pursuant to the exercise of outstanding options in accordance with
their terms, and no options have been granted and the vesting schedule of any
outstanding options has not been changed (in either case, whether or not under
such GFP stock option plan). The GFP Disclosure
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Letter sets forth, as of the date hereof, a true and complete list of all of the
Subsidiaries of GFP (except Group Tech and the Subsidiaries of Group Tech),
including the jurisdiction of incorporation or organization of each such
Subsidiary and the percentage of each such Subsidiary's outstanding capital
stock or other ownership interest owned by GFP or another Subsidiary of GFP or
by any other Person. Each of the outstanding shares of capital stock of the
Subsidiaries of GFP listed on the GFP Disclosure Letter is duly authorized,
validly issued, fully paid and nonassessable and is not subject to any
preemptive rights. Except as set forth above, there are no options, warrants,
voting agreements or other rights, agreements, arrangements or commitments to
which GFP is a party of any character relating to the issued or unissued capital
stock of, or other equity interests in, GFP or obligating GFP to grant, issue or
sell any shares of the capital stock of, or other equity interests in, GFP by
sale, lease, license or otherwise. Except as set forth in the GFP Disclosure
Letter with respect to the shares of the Subsidiaries reflected on the GFP
Disclosure Letter as held by GFP, GFP has good and valid title to such shares,
free and clear of all Liens.
Section 6.03. Authority. GFP has the requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby (for purposes
of this Article, collectively, the "Transactions"). The execution and delivery
of this Agreement by GFP and the consummation by GFP of the Transactions have
been duly authorized by all necessary corporate action, and no other corporate
proceedings on the part of GFP are necessary to authorize this Agreement or to
consummate the Transactions (other than the GFP Stockholder Approval). This
Agreement has been duly executed and delivered by GFP and constitutes a legal,
valid and binding obligation of GFP, except that the enforcement thereof may be
limited by (a) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (b) general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity).
Section 6.04. No Conflict; Required Filings and Consents. (a) The execution
and delivery of this Agreement by GFP do not, the performance of this Agreement
by GFP will not and the consummation of the Merger and the other Transactions by
GFP will not, (i) conflict with or violate the Articles of Incorporation, as
amended, or By-Laws, as amended, of GFP (ii) subject to (x) obtaining GFP
Stockholder Approval and (y) obtaining the consents, approvals, authorizations
and permits of, and making filings with or notifications to, any governmental or
regulatory authority, domestic or foreign ("Governmental Entities"), pursuant to
the applicable requirements, if any, of the Securities Act of 1933, as amended,
and the rules and regulations thereunder (the "Securities Act"), the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder (the
"Exchange Act"), state securities or blue sky laws and the rules and regulations
thereunder ("Blue Sky Laws"), the National Association of Securities
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Dealers Automated Quotation System ("Nasdaq"), the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations thereunder
(the "HSR Act"), or with respect to the filing and recordation of appropriate
merger documents as required by the KRS, conflict with or violate any federal,
state, local or foreign law, statute, ordinance, rule, regulation, order,
judgment or decree (collectively, "Laws") applicable to GFP or by which any of
its respective properties are bound or affected, or (iii) other than as set
forth on the GFP Disclosure Letter, result in any breach of or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of any Lien on any of
the properties or assets of GFP pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which GFP is a party or by which GFP or any of its
respective properties are bound or affected, except for any such conflicts or
violations described in clause (ii) and except for such conflicts or violations
which will not, individually or in the aggregate, have a Material Adverse Effect
on GFP.
(b) The execution and delivery of this Agreement by GFP do not, and the
performance of the Transactions by GFP will not, require any action by or in
respect of, or filing with, any Governmental Entities, except (i) for applicable
requirements, if any, of the Securities Act, Exchange Act, Blue Sky Laws, Nasdaq
or the HSR Act, and the filing and recordation of appropriate merger documents
as required by the KRS or the FBCA or (ii) where the failure to obtain such
consents, approvals or authorizations, or to make such filings, would not
adversely affect the ability of GFP to consummate, or prevent or materially
delay the consummation of, the Merger or any of the other Transactions and would
not have a Material Adverse Effect on GFP.
Section 6.05. Litigation. Except as set forth in the GFP Disclosure Letter,
there are no actions, suits, proceedings, arbitrations or investigations pending
or, to the Knowledge of GFP, threatened against GFP which if adversely decided
would individually or in the aggregate, have a Material Adverse Effect on GFP.
GFP is not subject to any judgment, order, writ, injunction, or decree that
would have a Material Adverse Effect on it.
Section 6.06. Compliance with Applicable Laws. GFP holds all permits,
licenses, variances, exemptions, orders, franchises and approvals of all
Governmental Entities necessary for the lawful conduct of its business (the "GFP
Permits"), except where the failure so to hold would not have a Material Adverse
Effect on GFP. GFP is in compliance with the terms of the GFP Permits, except
where the failure so to comply would not have a Material Adverse Effect on GFP.
To GFP's Knowledge, GFP is in material compliance with all applicable Laws. As
of the date of
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this Agreement, no investigation or review by any Governmental Entity with
respect to GFP is pending or, to GFP's knowledge, threatened, the outcome of
which is reasonably likely to have a Material Adverse Effect on GFP.
Section 6.07. Taxes. Each member of the consolidated group of which GFP is
a member or has ever been a member (other than Group Tech and the Subsidiaries
of Group Tech) (for purposes of this Article, the "Group") has filed or caused
to be filed all federal and state income tax returns required to be filed and in
which the filing included or was required to include GFP (for purposes of this
Article, "Income Tax Returns"), and all such Income Tax Returns were correct and
complete in all material respects. Each member of the Group has filed or caused
to be filed all other tax returns, including franchise, gross receipts, payroll,
sales, use, withholding, occupancy, excise, real and personal property, and
employment, required to be filed in which the filing included or was required to
include GFP or any GFP Subsidiary (other than Group Tech and the Subsidiaries of
Group Tech) (for purposes of this Article, the "Other Tax Returns") and all such
Other Tax Returns are correct and complete in all material respects, except for
inaccuracies or omissions which do not and will not have a Material Adverse
Effect on GFP. With respect to the Income Tax Returns and the Other Tax Returns,
each member of the Group has paid, or made adequate provisions for the payment
of, all material taxes, interest payments, penalties and additions shown on such
returns to be owed by it. Except as set forth on the GFP Disclosure Letter, the
Income Tax Returns of GFP have not been audited during its existence, and, to
the Knowledge of GFP, no audit, examination or investigation is threatened
against GFP by any taxing authority. No unpaid tax deficiencies or additional
liabilities have been proposed by any governmental representative which have not
been resolved; and no agreements for the extension of time for the assessment of
any amounts of tax have been entered into at the present time by or on behalf of
any member of the Group.
Section 6.08. Employee Benefits; Labor. (a) The GFP Disclosure Letter lists
each bonus, pension (as defined in ERISA), profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical or other plan, providing benefits to any
current or former employee, officer or director of GFP maintained, or
contributed to, by GFP (for purposes of this Article, collectively, "Benefit
Plans"), and any employment, consulting, severance, termination or
indemnification agreement, arrangement or understanding between GFP and any
officer, director or employee of GFP.
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(b) The Benefit Plans are in compliance in all material respects with the
applicable provisions of ERISA, the Code and all other applicable laws.
(c) Each Benefit Plan which is an "Employee Benefit Pension Plan" as
defined in Section 3(2) of ERISA (for purposes of this Article, "Pension Plan"),
has been the subject of determination letters from the Internal Revenue Service
to the effect that such Pension Plans are qualified and exempt from Federal
income taxes under Section 401(a) and 501(a), respectively, of the Code, and no
such determination letter has been revoked nor, to the Knowledge of GFP, has
revocation been threatened, nor has any such Pension Plan been amended since the
date of its most recent determination letter or application therefor in any
respect that would adversely affect its qualification or, materially increase
its costs.
Section 6.09. Financial Statements; Undisclosed Liabilities. GFP has made
available to Group Tech: (i) the audited consolidated balance sheets of GFP as
of December 31, 1996, and the audited consolidated statements of income,
stockholders' equity and cash flows for the respective fiscal years then ended,
including the notes thereto, examined by and accompanied by the report of Ernst
& Young, independent public accountants with respect to GFP; and (ii) the
unaudited consolidated balance sheet of GFP as of June 30, 1997 and the related
unaudited consolidated statement of income and stockholders' equity for the six-
month period ended June 30, 1997. All of the foregoing financial statements
are hereinafter collectively referred to as the "GFP Financial Statements" and
the balance sheet as of June 30, 1997 is hereinafter referred to, for purposes
of this Article, as the "1997 Balance Sheet." The GFP Financial Statements
present fairly the consolidated financial position and consolidated results of
operations of GFP as of the dates and for the periods indicated, in each case
in conformity with generally accepted accounting principles ("GAAP"),
consistently applied, except as otherwise stated in the GFP Financial
Statements. GFP does not have any material liabilities or material obligations
or commitments except those disclosed in the GFP Financial Statements, those
entered into in the ordinary course of business since June 30, 1997, those
disclosed in or permitted by other sections or provisions of this Agreement, and
those incurred in connection with the transactions contemplated hereby.
Section 6.10. Title to Properties and Assets; Liens. Except as set forth
on the GFP Disclosure Letter, GFP has good and valid title to all of its
respective properties and assets free and clear of all Liens, except for (i)
Liens and imperfections of title that do not have a Material Adverse Effect on
GFP, and (ii) Liens reflected in the GFP Financial Statements and/or the 1997
Balance Sheet.
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Section 6.11. Business Contracts. (a) The GFP Disclosure Letter contains a
list of all material contracts, leases, agreements and arrangements, written or
oral, in force on the date hereof (for purposes of this Article, the "Business
Contracts") to which GFP or BT Holdings, Inc. is a party and that after the
Effective Time will involve the payment to or from GFP or BT Holdings, Inc. of
amounts in excess of $100,000 in any single case or $100,000 per year.
(b) Except as disclosed on the GFP Disclosure Letter, (i) each of the
Business Contracts, after giving effect to the consummation of the Transactions,
constitutes a valid and binding obligation of GFP or BT Holdings, Inc. as
applicable, and is in full force and effect and legally enforceable in all
material respects in accordance with its terms against the other parties
thereto, (ii) each of GFP and BT Holdings, Inc. has complied with all of the
material provisions of such Business Contracts, and (iii) to GFP's Knowledge,
there has not occurred any event that (whether with or without notice, lapse of
time, or the happening or occurrence of any other event) would constitute a
default thereunder. Except as disclosed on the GFP Disclosure Letter the parties
to the Business Contracts other than GFP and BT Holdings, Inc. are not, to GFP's
Knowledge, in material default under any such Business Contract nor is GFP aware
of any intent on the part of the other party to any Business Contract to cancel
or not to renew.
Section 6.12. Intangible Property. (a) Except as set forth on the GFP
Disclosure Letter, each material trademark, trade name, patent, service mark,
brand mark, brand name, computer program, database, industrial design and
copyright owned, used or useful in connection with and material to the operation
of GFP as well as all registrations thereof and pending applications therefor,
and each license or other contract relating thereto (for purposes of this
Article, collectively, the "Intangible Property") is in good standing and is
owned by GFP free and clear of any and all Liens. The use of the Intangible
Property by GFP does not conflict with, infringe upon, violate or interfere with
or constitute an appropriation of any right, title, interest or goodwill,
including, without limitation, any intellectual property right, trademark, trade
name, patent, service mark, brand mark, brand name, computer program, database,
industrial design, copyright or any pending application therefor of any other
Person and there have been no claims made and GFP has not received any notice of
any claim or otherwise knows that any of the Intangible Property is invalid or
conflicts with the asserted rights of any other Person or has not been used or
enforced or has failed to be used or enforced in a manner that would result in
the abandonment, cancellation or unenforceability of any of the Intangible
Property.
(b) To GFP's Knowledge, GFP possesses all Intangible Property necessary
for the operation of its business and has not forfeited or otherwise
relinquished any Intangible Property.
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(c) All of the licenses or other contracts relating to the Intangible
Property (for purposes of this Article, collectively, the "Intangible Property
Licenses"), are in full force and effect and are valid and enforceable in all
material respects in accordance with their respective terms, and there is no
default (or any event that with notice or the lapse of time or both could become
a default) under any Intangible Property License either by GFP or, to GFP's
Knowledge, by any other party thereto.
Section 6.13. Absence of Changes or Events. Except as set forth in the
GFP Disclosure Letter, since June 30, 1997 GFP has conducted its business only
in the ordinary course, and has not:
(a) Suffered any casualty loss or destruction which is not
covered by insurance, which would have a Material Adverse Effect on GFP;
(b) Made any declaration, setting aside or payment of any
dividend or other distribution of assets (whether in cash, stock or
property) with respect to the capital stock of GFP or any direct or
indirect redemption, purchase or other acquisition of such stock; provided
that GFP may declare and pay dividends on any outstanding GFP Common Stock
at or prior to the Closing;
(c) Materially increased the aggregate compensation payable or to
become payable to employees of GFP or materially increased any bonus,
insurance, pension or other employee benefit plan, payment or arrangement
for such employees or entered into or amended any employment, consulting,
severance or similar agreement other than increases and bonuses in the
ordinary course of GFP's business or consistent with industry practice;
(d) Paid, discharged or satisfied any claim, liability or
obligation which had a Material Adverse Effect on GFP;
(e) Sold, transferred or otherwise disposed of any of its assets
which had a Material Adverse Effect on GFP;
(f) Entered into any commitment or transaction which had a
Material Adverse Effect on GFP; or
(g) Agreed in writing, or otherwise, to take any action described
in this Section.
Section 6.14. Environmental Matters. To GFP's Knowledge, GFP is in
compliance in all material respects with all applicable federal, state and local
laws, rules, regulations, ordinances and requirements relating to health, safety
and the environment (collectively "Environmental Laws"), including but not
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limited to any pertaining to Hazardous Wastes. To the extent that any violation
of such Environmental Laws by GFP may exist, such violation does not and will
not have a Material Adverse Effect on GFP.
Section 6.15. GFP Stockholder Approval. No consent or approval of the
stockholders of GFP other than the GFP Stockholder Approval is required for
approval and adoption of this Agreement and the Transactions.
Section 6.16. Proxy Statement and Registration Statement. The
information with respect to GFP, its officers, directors and affiliates in the
definitive proxy statement to be furnished to the stockholders of GFP (for
purposes of this Article, the "Proxy Statement") that will form a part of the
Registration Statement on Form S-4 relating to the shares of Group Tech Common
Stock to be issued in connection with the Merger, the Tube Turns Merger and the
Bell Merger (the "Registration Statement") or in the Registration Statement will
not, in the case of the Proxy Statement, on the date the Proxy Statement is
first mailed to stockholders of GFP or on the effective date of the GFP
Stockholder Approval, or, in the case of the Registration Statement, at the time
it becomes effective and at the Effective Time, as such Proxy Statement or
Registration Statement is then amended or supplemented, contain any untrue
statement of a material fact, or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
Section 6.17. Datatape Transaction. GFP has provided to GTC a true and
correct copy of the Asset Purchase Agreement dated November 14, 1997 among
Datatape Incorporated ("Datatape"), Delta Tango, Inc., Metrum-D, Inc. (now known
as Metrum-DATATAPE, Inc.), Impactdata, Inc. and M. Stuart Millar (the "Datatape
Agreement"). To GFP's Knowledge, Datatape has not breached any of the
representations and warranties set forth in the Datatape Agreement.
Section 6.18. Full Disclosure. (a) No representation or warranty of GFP
contained in this Agreement (including the exhibits and schedules hereto)
pursuant to the terms hereof contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained
herein, in light of the circumstances under which they were made, not
misleading.
(b) From time to time prior to the Effective Time, GFP shall promptly
supplement or amend the schedules under this Article VI with respect to any
matter that, if existing or known as of the date of this Agreement, would be
required to be set forth in such schedules. Any such supplement or amendment
shall not be deemed to modify or affect the provisions of Section 11.02(b)
hereof.
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ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF GROUP TECH
With and subject to such exceptions as are set forth in the letter (the
"Group Tech Disclosure Letter") delivered by Group Tech to GFP, Tube Turns and
Bell prior to the execution hereof, Group Tech represents and warrants to GFP,
Tube Turns and Bell as follows:
Section 7.01. Organization and Qualification. Group Tech is a corporation
duly organized, validly existing and in good standing under the laws of Florida
and has all requisite corporate power and authority to own, lease and operate
its assets, properties and business and to carry on its business as it is now
being conducted, and is duly qualified and in good standing to do business in
each jurisdiction in which the ownership or leasing of its properties makes such
qualification necessary, except where the failure to so qualify would not have a
Material Adverse Effect on Group Tech.
Section 7.02. Capitalization. The authorized capital stock of Group Tech
consists of 40,000,000 shares of Group Tech Common Stock and 1,000,000 shares of
preferred stock, $.01 par value, of Group Tech ("Group Tech Preferred Stock").
As of June 30, 1997, there were (i) 16,220,629 shares of Group Tech Common Stock
issued and outstanding, all of which were duly authorized, validly issued, fully
paid and nonassessable and are not subject to any preemptive rights, and (ii)
1,452,785 shares of unissued Group Tech Common Stock issuable upon exercise of
outstanding options under the Group Technologies Corporation Stock Option Plan,
adopted January 22, 1990, as amended, the Group Technologies Corporation
Independent Directors Stock Option Plan, as amended, and the Group Technologies
Corporation 1994 Stock Option Plan for Key Employees, as amended, and (iii)
250,000 shares of Group Tech Preferred Stock issued and outstanding. Except as
set forth in the Group Tech Disclosure Letter, since June 30, 1997, no shares of
Group Tech Common Stock have been issued by Group Tech, except pursuant to the
exercise of outstanding options in accordance with their terms, and no options
have been granted and the vesting schedule of any outstanding options has not
been changed (in either case, whether or not under such Group Tech stock option
plan). The Group Tech Disclosure Letter sets forth, as of the date hereof, a
true and complete list of all of the Subsidiaries of Group Tech, including the
jurisdiction of incorporation or organization of each such Subsidiary and the
percentage of each such Subsidiary's outstanding capital stock or other
ownership interest owned by Group Tech or another Subsidiary of Group Tech or by
any other Person. Each of the outstanding shares of capital stock of the
Subsidiaries of Group Tech listed on the Group Tech Disclosure Letter is duly
authorized, validly issued, fully paid and nonassessable and is not subject to
any preemptive rights. Except as set forth above and on
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the Group Tech Disclosure Letter there are no options, warrants, voting
agreements or other rights, agreements, arrangements or commitments to which
Group Tech or any of its Subsidiaries is a party of any character relating to
the issued or unissued capital stock of, or other equity interests in, Group
Tech or any of its Subsidiaries or obligating Group Tech or any of its
Subsidiaries to grant, issue or sell any shares of the capital stock of, or
other equity interests in, Group Tech or any of its Subsidiaries, by sale,
lease, license or otherwise.
Section 7.03. Authority. Group Tech has the requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby (for purposes
of this Article, collectively, the "Transactions"). The execution and delivery
of this Agreement by Group Tech and the consummation by Group Tech of the
Transactions have been duly authorized by all necessary corporate action, and no
other corporate proceedings on the part of Group Tech are necessary to authorize
this Agreement or to consummate the Transactions (other than the Group Tech
Stockholder Approval). This Agreement has been duly executed and delivered by
Group Tech and constitutes a legal, valid and binding obligation of Group Tech,
except that the enforcement thereof may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally and (b) general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity).
Section 7.04. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by Group Tech do not, the performance
of this Agreement by Group Tech will not and the consummation of the Merger and
the other Transactions by Group Tech will not, (i) conflict with or violate the
Articles of Incorporation, as amended, or By-Laws, as amended, of Group Tech or
any of its Subsidiaries, (ii) subject to (x) obtaining Group Tech Stockholder
Approval and (y) obtaining the consents, approvals, authorizations and permits
of, and making filings with or notifications to, any Governmental Entities,
pursuant to the applicable requirements, if any, of the Securities Act, the
Exchange Act, Blue Sky Laws, Nasdaq, the HSR Act, or with respect to the filing
and recordation of appropriate merger documents as required by the KRS and the
FBCA, conflict with or violate any Laws applicable to Group Tech or any of its
Subsidiaries or by which any of their respective properties are bound or
affected, or (iii) other than as set forth on the Group Tech Disclosure Letter,
result in any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of any Lien on any of the properties or assets of Group Tech
pursuant to, any note, bond, mortgage, indenture, contract,
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agreement, lease, license, permit, franchise or other instrument or obligation
to which Group Tech is a party or by which Group Tech or any of its respective
properties is bound or affected, except for any such conflicts or violations
described in clause (ii) and except for such conflicts or violations which will
not, individually or in the aggregate, have a Material Adverse Effect on Group
Tech.
(b) The execution and delivery of this Agreement by Group Tech do not, and
the performance of the Transactions by Group Tech will not, require any action
by or in respect of, or filing with, any Governmental Entities, except (i) for
applicable requirements, if any, of the Securities Act, Exchange Act, Blue Sky
Laws, Nasdaq or the HSR Act, and the filing and recordation of appropriate
merger documents as required by the FBCA or (ii) where the failure to obtain
such consents, approvals or authorizations, or to make such filings, would not
adversely affect the ability of Group Tech to consummate, or prevent or
materially delay the consummation of, the Merger or any of the other
Transactions and would not have a Material Adverse Effect on Group Tech.
Section 7.05. Litigation. Except as set forth in the Group Tech
Disclosure Letter, there are no actions, suits, proceedings, arbitrations or
investigations pending or, to the Knowledge of Group Tech, threatened against
Group Tech which if adversely decided would, individually or in the aggregate,
have a Material Adverse Effect on Group Tech. Group Tech is not subject to any
judgment, order, writ, injunction, or decree that would have a Material Adverse
Effect on it.
Section 7.06. Compliance with Applicable Laws. Group Tech holds all
permits, licenses, variances, exemptions, orders, franchises and approvals of
all Governmental Entities necessary for the lawful conduct of its business (the
"Group Tech Permits"), except where the failure so to hold would not have a
Material Adverse Effect on Group Tech. Group Tech is in compliance with the
terms of the Group Tech Permits, except where the failure so to comply would not
have a Material Adverse Effect on Group Tech. To Group Tech's Knowledge, Group
Tech is in material compliance with all applicable Laws. As of the date of this
Agreement, no investigation or review by any Governmental Entity with respect to
Group Tech is pending or, to Group Tech's knowledge threatened, the outcome of
which is reasonably likely to have a Material Adverse Effect on Group Tech.
Section 7.07. Taxes. Group Tech has filed or caused to be filed all
federal and state income tax returns required to be filed and in which the
filing included or was required to include Group Tech (for purposes of this
Article, "Income Tax Returns"), and all such Income Tax Returns were correct and
complete in all material respects. Group Tech has filed or caused to be filed
all other tax returns, including franchise, gross receipts, payroll,
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sales, use, withholding, occupancy, excise, real and personal property, and
employment, required to be filed in which the filing included or was required to
include Group Tech or any Group Tech Subsidiary (for purposes of this Article,
the "Other Tax Returns") and all such Other Tax Returns are correct and complete
in all material respects, except for inaccuracies or omissions which do not and
will not have a Material Adverse Effect on Group Tech. With respect to the
Income Tax Returns and the Other Tax Returns, Group Tech has paid, or made
adequate provisions for the payment of, all material taxes, interest payments,
penalties and additions shown on such returns to be owed by it. The Income Tax
Returns of Group Tech have not been audited during its existence, and, to the
Knowledge of Group Tech, no audit, examination or investigation is threatened
against Group Tech by any taxing authority. No unpaid tax deficiencies or
additional liabilities have been proposed by any governmental representative
which have not been resolved; and no agreements for the extension of time for
the assessment of any amounts of tax have been entered into at the present time
by or on behalf of Group Tech.
Section 7.08. Employee Benefits; Labor. (a) The Group Tech Disclosure
Letter lists each bonus, pension (as defined in ERISA), profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical or other plan, providing benefits to any
current or former employee, officer or director of Group Tech maintain, or
contributed to, by Group Tech (for purposes of this Article, collectively,
"Benefit Plans"), and any employment, consulting, severance, termination or
indemnification agreement, arrangement or understanding between Group Tech and
any officer, director or employee of Group Tech.
(b) The Benefit Plans are in compliance in all material respects with the
applicable provisions of ERISA, the Code and all other applicable laws.
(c) Each Benefit Plan which is an "Employee Benefit Pension Plan" as
defined in Section 3(2) of ERISA (for purposes of this Article, "Pension Plan"),
has been the subject of determination letters from the Internal Revenue Service
to the effect that such Pension Plans are qualified and exempt from Federal
income taxes under Section 401(a) and 501(a), respectively, of the Code, and no
such determination letter has been revoked nor, to the Knowledge of Group Tech,
has revocation been threatened, nor has any such Pension Plan been amended since
the date of its most recent determination letter or application therefor in any
respect that would adversely affect its qualification or, materially increase
its costs.
Section 7.09. Title to Properties and Assets; Liens. Except as set forth
on the Group Tech Disclosure Letter, Group Tech
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has good, valid and marketable title to, or valid and subsisting leasehold
interests in, all of its respective properties and assets, reflected in the
Group Tech Financial Statements (hereinafter defined) or acquired since June 30,
1997, free and clear of all Liens, except for (i) Liens and imperfections of
title that do not materially interfere with the present use by Group Tech of the
property subject thereto or affected thereby or that otherwise do not have a
Material Adverse Effect on Group Tech, (ii) Liens for assessments or
governmental charges, or landlords', mechanics', workmen's, materialmen's or
similar liens, in each case that are not delinquent or that are being contested
in good faith and (iii) Liens reflected in the Group Tech Financial Statements.
Section 7.10. Business Contracts. (a) The Group Tech Disclosure Letter
contains a list of all material contracts, leases, agreements and arrangements,
written or oral, in force on the date hereof (for purposes of this Article, the
"Business Contracts") to which Group Tech is a party and that after the
Effective Time will involve the payment to or from Group Tech amounts in excess
of $500,000 in any single case or $500,000 per year.
(b) Except as disclosed on the Group Tech Disclosure Letter, (i) each of
the Business Contracts, after giving effect to the consummation of the
Transactions, constitutes a valid and binding obligation of Group Tech, and is
in full force and effect and legally enforceable in all material respects in
accordance with its terms against the other parties thereto, (ii) Group Tech has
complied with all of the material provisions of such Business Contracts, and
(iii) to Group Tech's Knowledge, there has not occurred any event that (whether
with or without notice, lapse of time, or the happening or occurrence of any
other event) would constitute a default thereunder. Except as disclosed on the
Group Tech Disclosure Letter, the parties to the Business Contracts other than
Group Tech are not, to Group Tech's Knowledge, in material default under any
such Business Contract nor is Group Tech aware of any intent on the part of the
other party to any Business Contract to cancel or not to renew.
Section 7.11. Intangible Property. (a) Except as set forth on the Group
Tech Disclosure Letter, each material trademark, trade name, patent, service
mark, brand mark, brand name, computer program, database, industrial design and
copyright owned, used or useful in connection with and material to the operation
of Group Tech as well as all registrations thereof and pending applications
therefor, and each license or other contract relating thereto (for purposes of
this Article, collectively, the "Intangible Property") is in good standing and
is owned by Group Tech free and clear of any and all Liens. The use of the
Intangible Property by Group Tech does not conflict with, infringe upon, violate
or interfere with or constitute an appropriation of any right, title, interest
or goodwill, including, without limitation, any intellectual
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property right, trademark, trade name, patent, service mark, brand mark, brand
name, computer program, database, industrial design, copyright or any pending
application therefor of any other Person and there have been no claims made and
Group Tech has not received any notice of any claim or otherwise knows that any
of the Intangible Property is invalid or conflicts with the asserted rights of
any other Person or has not been used or enforced or has failed to be used or
enforced in a manner that would result in the abandonment, cancellation or
unenforceability of any of the Intangible Property.
(b) To Group Tech's Knowledge, Group Tech possesses all Intangible
Property necessary for the operation of its business and has not forfeited or
otherwise relinquished any Intangible Property.
(c) All of the licenses or other contracts relating to the Intangible
Property (for purposes of this Article, collectively, the "Intangible Property
Licenses") are in full force and effect and are valid and enforceable in all
material respects in accordance with their respective terms, and there is no
default (or any event that with notice or the lapse of time or both could become
a default) under any Intangible Property License either by Group Tech or, to
Group Tech's Knowledge, by any other party thereto.
Section 7.12. Absence of Changes or Events. Except as set forth in the
Group Tech Disclosure Letter, since June 30, 1997 Group Tech has conducted its
business only in the ordinary course, and has not:
(a) Suffered any casualty loss or destruction which is not
covered by insurance, which would have a Material Adverse Effect on Group
Tech;
(b) Made any declaration, setting aside or payment of any
dividend or other distribution of assets (whether in cash, stock or
property) with respect to the capital stock of Group Tech or any direct or
indirect redemption, purchase or other acquisition of such stock; provided
that Group Tech may declare and pay dividends on any outstanding Group Tech
Common Stock at or prior to the Closing;
(c) Materially increased the aggregate compensation payable or to
become payable to employees of Group Tech or materially increased any
bonus, insurance, pension or other employee benefit plan, payment or
arrangement for such employees or entered into or amended any employment,
consulting, severance or similar agreement other than increases and bonuses
in the ordinary course of Group Tech's business or consistent with industry
practice;
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(d) Paid, discharged or satisfied any claim, liability or
obligation which had a Material Adverse Effect on Group Tech;
(e) Sold, transferred or otherwise disposed of any of its assets
which had a Material Adverse Effect on Group Tech;
(f) Entered into any commitment or transaction which had a
Material Adverse Effect on Group Tech; or
(g) Agreed in writing, or otherwise, to take any action described
in this Section.
Section 7.13. Environmental Matters. To Group Tech's Knowledge, Group
Tech is in compliance in all material respects with all Environmental Laws,
including but not limited to any pertaining to Hazardous Wastes. To the extent
that any violation of such Environmental Laws by Group Tech may exist, such
violation does not and will not have a Material Adverse Effect on Group Tech.
Section 7.14. Group Tech Stockholder Approval. No consent or approval of
the stockholders of Group Tech other than the Group Tech Stockholder Approval is
required for approval and adoption of this Agreement and the Transactions.
Section 7.15. Insurance. The Group Tech Disclosure Letter sets forth all
material insurance policies, including property, casualty, liability and other
insurance maintained with respect to the assets or businesses of Group Tech. To
the Knowledge of Group Tech, all such policies and bonds are legal, valid and
enforceable and in full force and effect and Group Tech is not in breach or
default in any material respect (including with respect to the payment of
premiums or the giving of notices) and no event has occurred which, with notice
or the lapse of time, would constitute such a material breach or default, or
permit termination, modification or acceleration under the policy by the
insurer.
Section 7.16. Proxy Statement and Registration Statement. The information
with respect to Group Tech, its officers, directors and affiliates in the
definitive information statement to be furnished to the stockholders of Group
Tech (for purposes of this Article, the "Proxy Statement") that will form a part
of the Registration Statement or in the Registration Statement will not, in the
case of the Proxy Statement, on the date the Proxy Statement is first mailed to
stockholders of Group Tech or on the effective date of the Group Tech
Stockholder Approval, or, in the case of the Registration Statement, at the time
it becomes effective and at the Effective Time, as such Proxy Statement or
Registration Statement is then amended or supplemented, contain any untrue
statement of a material fact, or omit to state any material fact required to be
stated therein or necessary in order to make the statements
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therein, in light of the circumstances under which they were made, not
misleading.
Section 7.17. Group Tech Commission Reports and Financial Statements.
Group Tech has heretofore made available to GFP, Tube Turns and Bell (i) Group
Tech's annual report on Form 10-K for the year ended December 31, 1996,
including all exhibits thereto and items incorporated therein by reference, (ii)
Group Tech's quarterly report on Form 10-Q for the quarter ended June 30, 1997,
including all exhibits thereto and items incorporated therein by reference,
(iii) the proxy statement relating to Group Tech's most recent annual meeting of
stockholders, and (iv) all current reports on Form 8-K filed by Group Tech with
the SEC since December 31, 1996, including all exhibits thereto and items
incorporated therein by reference (items (i) through (iv) in this sentence being
referred to herein collectively as the "Group Tech Commission Reports"). As of
their respective dates, the Group Tech Commission Reports did not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. Since December
31, 1996, Group Tech has filed all forms, reports and documents with the SEC
required to be filed by it pursuant to the Securities Laws each of which
complied as to form, at the time such form, document or report was filed, in all
material respects with the applicable requirements of the Securities Laws,
including, but not limited to, Regulation S-X, promulgated under the Exchange
Act.
The consolidated balance sheets of Group Tech and Group Tech Subsidiaries
as of December 31, 1995 and December 31, 1996 and the related statements of
operations, changes in shareholders' equity and cash flows for the years ended
December 31, 1995 and December 31, 1996, together with the notes thereto, are
included in Group Tech's annual reports on Form 10-K for the fiscal years ended
December 31, 1995 and December 31, 1996, respectively, as filed with the SEC,
and the unaudited consolidated balance sheets of Group Tech and Group Tech
Subsidiaries as of March 31, 1997 and June 30, 1997, and the related unaudited
statements of operations, changes in shareholders' equity and cash flows for the
periods then ended are included in Group Tech's quarterly reports on Form 10-Q
for the quarters ended March 31, 1997 and June 30, 1997, respectively, as filed
with the SEC (together, the "Group Tech Financial Statements"). The Group Tech
Financial Statements have been prepared in accordance with GAAP applied on a
consistent basis (except as disclosed therein) and fairly present, in all
material respects, the consolidated financial position and the consolidated
results of operations, changes in shareholders' equity and cash flows of Group
Tech and consolidated Group Tech Subsidiaries as of the dates and for the
periods indicated (subject, in the case of interim financial statements, to
normal recurring year-end adjustments, none of which are expected to be
material, and the absence of footnote disclosure). Group Tech and Group Tech
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Subsidiaries do not have any material liabilities or material obligations,
except those disclosed in the Group Tech Financial Statements, those entered
into in the ordinary course of business since June 30, 1997, those disclosed or
permitted by other sections or provisions of this Agreement and those incurred
in conjunction with the transactions contemplated hereby.
Section 7.18. Fairness Opinion. The Board of Directors of Group Tech has
received a written opinion, dated the date hereof, from J.C. Bradford & Company
to the effect that, from a financial point of view, the Merger, the Tube Turns
Merger and the Bell Merger are fair to Group Tech and its shareholders (other
than GFP).
Section 7.19. Full Disclosure. (a) No representation or warranty of
Group Tech contained in this Agreement (including the exhibits and schedules
hereto) pursuant to the terms hereof contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
contained herein, in light of the circumstances under which they were made, not
misleading and, to Group Tech's Knowledge, there is no fact material to its
business that has not been disclosed pursuant to this Agreement.
(b) From time to time prior to the Effective Time, Group Tech shall
promptly supplement or amend the schedules under this Article VII with respect
to any matter that, if existing or known as of the date of this Agreement, would
be required to be set forth in such schedules. Any such supplement or amendment
shall not be deemed to modify or affect the provisions of Section 11.03(b)
hereof.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF TUBE TURNS
With and subject to such exceptions as are set forth in the letter (the
"Tube Turns Disclosure Letter") delivered by Tube Turns to Group Tech prior to
the execution hereof, Tube Turns represents and warrants to Group Tech as
follows:
Section 8.01. Organization and Qualification. Tube Turns is a corporation
duly organized, validly existing and in good standing under the laws of Kentucky
and has all requisite corporate power and authority to own, lease and operate
its assets, properties and business and to carry on its business as it is now
being conducted, and is duly qualified and in good standing to do business in
each jurisdiction in which the ownership or leasing of its properties makes such
qualification necessary, except where the failure to so qualify would not have a
Material Adverse Effect on Tube Turns.
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Section 8.02. Capitalization. The authorized capital stock of Tube Turns
consists of 2,000,000 shares of Tube Turns Common Stock. As of June 30, 1997,
there were (i) 1,307,408 shares of Tube Turns Common Stock issued and
outstanding, all of which were duly authorized, validly issued, fully paid and
nonassessable and are not subject to any preemptive rights, and (ii) 70,000
shares of unissued Tube Turns Common Stock issuable upon exercise of outstanding
options under the Tube Turns Technologies, Inc. Stock Option Plan. Except as
set forth in the Tube Turns Disclosure Letter, since June 30, 1997, no shares
of Tube Turns Common Stock have been issued by Tube Turns, except pursuant to
the exercise of outstanding options in accordance with their terms, and no
options have been granted and the vesting schedule of any outstanding options
has not been changed (in either case, whether or not under such Tube Turns stock
option plan). The Tube Turns Disclosure Letter sets forth, as of the date
hereof, a true and complete list of all of the Subsidiaries of Tube Turns,
including the jurisdiction of incorporation or organization of each such
Subsidiary and the percentage of each such Subsidiary's outstanding capital
stock or other ownership interest owned by Tube Turns or another Subsidiary of
Tube Turns or by any other Person. Each of the outstanding shares of capital
stock of the Subsidiaries of Tube Turns listed on the Tube Turns Disclosure
Letter is duly auhtorized, validly issued, fully paid and nonassessable and is
not subject to any preemptive rights. Except as set forth above, there are no
options, warrants, voting agreements or other rights, agreements, arrangements
or commitments to which Tube Turns is a party of any character relating to the
issued or unissued capital stock of, or other equity interests in, Tube Turns or
obligating Tube Turns to grant, issue or sell any shares of the capital stock
of, or other equity interests in, Tube Turns by sale, lease, license or
otherwise.
Section 8.03. Authority. Tube Turns has the requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby (for purposes
of this Article, collectively, the "Transactions"). The execution and delivery
of this Agreement by Tube Turns and the consummation by Tube Turns of the
Transactions have been duly authorized by all necessary corporate action, and no
other corporate proceedings on the part of Tube Turns are necessary to authorize
this Agreement or to consummate the Transactions (other than the Tube Turns
Stockholder Approval). This Agreement has been duly executed and delivered by
Tube Turns and constitutes a legal, valid and binding obligation of Tube Turns,
except that the enforcement thereof may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally and (b) general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity).
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Section 8.04. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by Tube Turns do not, the performance
of this Agreement by Tube Turns will not and the consummation of the Tube Turns
Merger and the other Transactions by Tube Turns will not, (i) conflict with or
violate the Certificate of Incorporation, as amended, or By-Laws, as amended, of
Tube Turns (ii) subject to (x) obtaining Tube Turns Stockholder Approval and (y)
obtaining the consents, approvals, authorizations and permits of, and making
filings with or notifications to, any Governmental Entities, pursuant to the
applicable requirements, if any, of the Securities Act, the Exchange Act, Blue
Sky Laws, Nasdaq, the HSR Act, or with respect to the filing and recordation of
appropriate merger documents as required by the KRS, conflict with or violate
any Laws applicable to Tube Turns or by which any of their respective properties
are bound or affected, or (iii) other than as set forth on the Tube Turns
Disclosure Letter, result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or give
to others any rights of termination, amendment, acceleration or cancellation
of, or result in the creation of any Lien on any of the properties or assets of
Tube Turns pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Tube Turns is a party or by which Tube Turns or any of its respective
properties is bound or affected, except for any such conflicts or violations
described in clause (ii) and except for such conflicts or violations which will
not, individually or in the aggregate, have a Material Adverse Effect on Tube
Turns.
(b) The execution and delivery of this Agreement by Tube Turns do not, and
the performance of the Transactions by Tube Turns will not, require any action
by or in respect of, or filing with, any Governmental Entities, except (i) for
applicable requirements, if any, of the Securities Act, Exchange Act, Blue Sky
Laws, Nasdaq or the HSR Act, and the filing and recordation of appropriate
merger documents as required by the KRS or (ii) where the failure to obtain such
consents, approvals or authorizations, or to make such filings, would not
adversely affect the ability of Tube Turns to consummate, or prevent or
materially delay the consummation of, the Tube Turns Merger or any of the other
Transactions and would not have a Material Adverse Effect on Tube Turns.
Section 8.05. Litigation. Except as set forth in the Tube Turns
Disclosure Letter, there are no actions, suits, proceedings, arbitrations or
investigations pending or, to the Knowledge of Tube Turns, threatened against
Tube Turns which if adversely decided would individually or in the aggregate,
have a Material Adverse Effect on Tube Turns. Tube Turns is not subject to any
judgment, order, writ, injunction, or decree that would have a Material Adverse
Effect on it.
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Section 8.06. Compliance with Applicable Laws. Tube Turns holds all
permits, licenses, variances, exemptions, orders, franchises and approvals of
all Governmental Entities necessary for the lawful conduct of its business (the
"Tube Turns Permits"), except where the failure so to hold would not have a
Material Adverse Effect on Tube Turns. Tube Turns is in compliance with the
terms of the Tube Turns Permits, except where the failure so to comply would not
have a Material Adverse Effect on Tube Turns. To Tube Turns' Knowledge, Tube
Turns is in material compliance with all applicable Laws. As of the date of
this Agreement, no investigation or review by any Governmental Entity with
respect to Tube Turns is pending or, to Tube Turns' knowledge, threatened, the
outcome of which is reasonably likely to have a Material Adverse Effect on Tube
Turns.
Section 8.07. Taxes. Tube Turns has filed or caused to be filed all
federal and state income tax returns required to be filed and in which the
filing included or was required to include Tube Turns (for purposes of this
Article, "Income Tax Returns"), and all such Income Tax Returns were correct and
complete in all material respects. Tube Turns has filed or caused to be filed
all other tax returns, including franchise, gross receipts, payroll, sales, use,
withholding, occupancy, excise, real and personal property, and employment,
required to be filed in which the filing included or was required to include
Tube Turns or any Tube Turns Subsidiary (for purposes of this Article, the
"Other Tax Returns") and all such Other Tax Returns are correct and complete in
all material respects, except for inaccuracies or omissions which do not and
will not have a Material Adverse Effect on Tube Turns. With respect to the
Income Tax Returns and the Other Tax Returns, Tube Turns has paid, or made
adequate provisions for the payment of, all material taxes, interest payments,
penalties and additions shown on such returns to be owed by it. The Income Tax
Returns of Tube Turns have not been audited during its existence, and, to the
Knowledge of Tube Turns, no audit, examination or investigation is threatened
against Tube Turns by any taxing authority. No unpaid tax deficiencies or
additional liabilities have been proposed by any governmental representative
which have not been resolved; and no agreements for the extension of time for
the assessment of any amounts of tax have been entered into at the present time
by or on behalf of Tube Turns.
Section 8.08. Employee Benefits; Labor. (a) The Tube Turns Disclosure
Letter lists each bonus, pension (as defined in ERISA), profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical or other plan, providing benefits to any
current or former employee, officer or director of Tube Turns maintained, or
contributed to, by Tube Turns (for purposes of this Article, collectively,
"Benefit Plans"), and any employment, consulting, severance, termination or
indemnification agreement,
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arrangement or understanding between Tube Turns and any officer, director or
employee of Tube Turns.
(b) The Benefit Plans are in compliance in all material respects with the
applicable provisions of ERISA, the Code and all other applicable laws.
(c) Each Benefit Plan which is an "Employee Benefit Pension Plan" as
defined in Section 3(2) of ERISA (for purposes of this Article, "Pension Plan"),
has been the subject of determination letters from the Internal Revenue Service
to the effect that such Pension Plans are qualified and exempt from Federal
income taxes under Section 401(a) and 501(a), respectively, of the Code, and no
such determination letter has been revoked nor, to the Knowledge of Tube Turns,
has revocation been threatened, nor has any such Pension Plan been amended since
the date of its most recent determination letter or application therefor in any
respect that would adversely affect its qualification or, materially increase
its costs.
Section 8.09. Financial Statements; Undisclosed Liabilities. Tube Turns
has made available to Group Tech: (i) the unaudited balance sheets of Tube
Turns as of December 31, 1996, and the unaudited statements of income,
stockholders' equity and cash flows for the respective fiscal years then ended;
and (ii) the unaudited balance sheet of Tube Turns as of June 30, 1997 and the
related unaudited statement of income and stockholders' equity for the nine-
month period ended June 30, 1997. All of the foregoing financial statements are
hereinafter collectively referred to as the "Tube Turns Financial Statements"
and the balance sheet as of June 30, 1997 is hereinafter referred to, for
purposes of this Article, as the "1997 Balance Sheet." The Tube Turns Financial
Statements present fairly the financial position and results of operations of
Tube Turns as of the dates and for the periods indicated, in each case in
conformity with GAAP, consistently applied, except as otherwise stated in the
Tube Turns Financial Statements. Tube Turns does not have any material
liabilities or material obligations or commitments except those disclosed in the
Tube Turns Financial Statements, those entered into in the ordinary course of
business since June 30, 1997, those disclosed in or permitted by other sections
or provisions of this Agreement, and those incurred in connection with the
transactions contemplated hereby.
Section 8.10. Title to Properties and Assets; Liens. Except as set forth
on the Tube Turns Disclosure Letter, Tube Turns has good, valid and marketable
title to, or valid and subsisting leasehold interests in, all of its respective
properties and assets, reflected in the Tube Turns Financial Statements and/or
the 1997 Balance Sheet or acquired since the date of the 1997 Balance Sheet,
free and clear of all Liens, except for (i) Liens and imperfections of title
that do not materially interfere with the
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present use by Tube Turns of the property subject thereto or affected thereby or
that otherwise do not have a Material Adverse Effect on Tube Turns, (ii) Liens
for assessments or governmental charges, or landlords', mechanics', workmen's,
materialmen's or similar liens, in each case that are not delinquent or that are
being contested in good faith and (iii) Liens reflected in the Tube Turns
Financial Statements and/or the 1997 Balance Sheet.
Section 8.11. Business Contracts. (a) The Tube Turns Disclosure Letter
contains a list of all material contracts, leases, agreements and arrangements,
written or oral, in force on the date hereof (for purposes of this Article, the
"Business Contracts") to which Tube Turns is a party and that after the
Effective Time will involve the payment to or from Tube Turns of amounts in
excess of $500,000 in any single case or $1,000,000 per year.
(b) Except as disclosed on the Tube Turns Disclosure Letter, (i) each of
the Business Contracts, after giving effect to the consummation of the
Transactions, constitutes a valid and binding obligation of Tube Turns, and is
in full force and effect and legally enforceable in all material respects in
accordance with its terms against the other parties thereto, (ii) Tube Turns has
complied with all of the material provisions of such Business Contracts, and
(iii) to Tube Turns' Knowledge, there has not occurred any event that (whether
with or without notice, lapse of time, or the happening or occurrence of any
other event) would constitute a default thereunder. Except as disclosed on the
Tube Turns Disclosure Letter, the parties to the Business Contracts other than
Tube Turns are not, to Tube Turns' Knowledge, in material default under any such
Business Contract nor is Tube Turns aware of any intent on the part of the other
party to any Business Contract to cancel or not to renew.
Section 8.12. Intangible Property. (a) Except as set forth on the Tube
Turns Disclosure Letter, each material trademark, trade name, patent, service
mark, brand mark, brand name, computer program, database, industrial design and
copyright owned, used or useful in connection with and material to the operation
of Tube Turns as well as all registrations thereof and pending applications
therefor, and each license or other contract relating thereto (for purposes of
this Article, collectively, the "Intangible Property") is in good standing and
is owned by Tube Turns free and clear of any and all Liens. The use of the
Intangible Property by Tube Turns does not conflict with, infringe upon, violate
or interfere with or constitute an appropriation of any right, title, interest
or goodwill, including, without limitation, any intellectual property right,
trademark, trade name, patent, service mark, brand mark, brand name, computer
program, database, industrial design, copyright or any pending application
therefor of any other Person and there have been no claims made and Tube Turns
has not received any notice of any claim or otherwise knows that any of the
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Intangible Property is invalid or conflicts with the asserted rights of any
other Person or has not been used or enforced or has failed to be used or
enforced in a manner that would result in the abandonment, cancellation or
unenforceability of any of the Intangible Property.
(b) To Tube Turns' Knowledge, Tube Turns possesses all Intangible Property
necessary for the operation of its business and has not forfeited or otherwise
relinquished any Intangible Property.
(c) All of the licenses or other contracts relating to the Intangible
Property (for purposes of this Article, collectively, the "Intangible Property
Licenses") are in full force and effect and are valid and enforceable in all
material respects in accordance with their respective terms, and there is no
default (or any event that with notice or the lapse of time or both could become
a default) under any Intangible Property License either by Tube Turns or, to
Tube Turns' Knowledge, by any other party thereto.
Section 8.13. Absence of Changes or Events. Except as set forth in the
Tube Turns Disclosure Letter, since June 30, 1997 Tube Turns has conducted its
business only in the ordinary course, and has not:
(a) Suffered any casualty loss or destruction which is not
covered by insurance, which would have a Material Adverse Effect on Tube
Turns;
(b) Made any declaration, setting aside or payment of any
dividend or other distribution of assets (whether in cash, stock or
property) with respect to the capital stock of Tube Turns or any direct or
indirect redemption, purchase or other acquisition of such stock; provided
that Tube Turns may declare and pay dividends on any outstanding Tube Turns
Common Stock at or prior to the Closing;
(c) Materially increased the aggregate compensation payable or to
become payable to employees of Tube Turns or materially increased any
bonus, insurance, pension or other employee benefit plan, payment or
arrangement for such employees or entered into or amended any employment,
consulting, severance or similar agreement other than increases and
bonuses in the ordinary course of Tube Turns' business or consistent with
industry practice;
(d) Paid, discharged or satisfied any claim, liability or
obligation which had a Material Adverse Effect on Tube Turns;
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(e) Sold, transferred or otherwise disposed of any of its assets
which had a Material Adverse Effect on Tube Turns;
(f) Entered into any commitment or transaction which had a
Material Adverse Effect on Tube Turns; or
(g) Agreed in writing, or otherwise, to take any action described
in this Section.
Section 8.14. Environmental Matters. To Tube Turns' Knowledge, Tube Turns
is in compliance in all material respects with all Environmental Laws, including
but not limited to any pertaining to Hazardous Wastes. To the extent that any
violation of such Environmental Laws by Tube Turns may exist, such violation
does not and will not have a Material Adverse Effect on Tube Turns.
Section 8.15. Tube Turns Stockholder Approval. No consent or approval of
the stockholders of Tube Turns other than the Tube Turns Stockholder Approval is
required for approval and adoption of this Agreement and the Transactions.
Section 8.16. Insurance. The Tube Turns Disclosure Letter sets forth all
material insurance policies, including property, casualty, liability and other
insurance maintained with respect to the assets or businesses of Tube Turns. To
the Knowledge of Tube Turns, all such policies and bonds are legal, valid and
enforceable and in full force and effect and Tube Turns is not in breach or
default in any material respect (including with respect to the payment of
premiums or the giving of notices) and no event has occurred which, with notice
or the lapse of time, would constitute such a material breach or default, or
permit termination, modification or acceleration under the policy by the
insurer.
Section 8.17. Proxy Statement and Registration Statement. The
information with respect to Tube Turns, its officers, directors and affiliates
in the definitive information statement to be furnished to the stockholders of
Tube Turns (for purposes of this Article, the "Proxy Statement") that will form
a part of the Registration Statement or in the Registration Statement will not,
in the case of the Proxy Statement, on the date the Proxy Statement is first
mailed to stockholders of Tube Turns or on the effective date of the Tube Turns
Stockholder Approval, or, in the case of the Registration Statement, at the time
it becomes effective and at the Effective Time, as such Proxy Statement or
Registration Statement is then amended or supplemented, contain any untrue
statement of a material fact, or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
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Section 8.18. Full Disclosure. (a) No representation or warranty of Tube
Turns contained in this Agreement (including the exhibits and schedules hereto)
pursuant to the terms hereof contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained
herein, in light of the circumstances under which they were made, not
misleading.
(b) From time to time prior to the Effective Time, Tube Turns shall
promptly supplement or amend the schedules under this Article VIII with respect
to any matter that, if existing or known as of the date of this Agreement, would
be required to be set forth in such schedules. Any such supplement or amendment
shall not be deemed to modify or affect the provisions of Section 11.02(b)
hereof.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES OF BELL
With and subject to such exceptions as are set forth in the letter (the
"Bell Disclosure Letter") delivered by Bell to Group Tech prior to the execution
hereof, Bell represents and warrants to Group Tech as follows:
Section 9.01. Organization and Qualification. Bell is a corporation duly
organized, validly existing and in good standing under the laws of Florida and
has all requisite corporate power and authority to own, lease and operate its
assets, properties and business and to carry on its business as it is now being
conducted, and is duly qualified and in good standing to do business in each
jurisdiction in which the ownership or leasing of its properties makes such
qualification necessary, except where the failure to so qualify would not have a
Material Adverse Effect on Bell.
Section 9.02. Capitalization. The authorized capital stock of Bell
consists of 1,500,000 shares of Bell Common Stock. As of June 30, 1997, there
were (i) 869,838 shares of Bell Common Stock issued and outstanding, all of
which were duly authorized, validly issued, fully paid and nonassessable and are
not subject to any preemptive rights, and (ii) 73,300 shares of unissued Bell
Common Stock issuable upon exercise of outstanding options under the F.W. Bell,
Inc. Stock Option Plan dated January 24, 1990, the F.W. Bell, Inc. 1995 Stock
Option Plan for Key Employees and the F.W. Bell, Inc. Independent Directors
Stock Option Plan. Except as set forth in the Bell Disclosure Letter, since
June 30, 1997, no shares of Bell Common Stock have been issued by Bell, except
pursuant to the exercise of outstanding options in accordance with their terms,
and no options have been granted and the vesting schedule of any outstanding
options has not been changed (in either case, whether or not under such Bell
stock option plan). The Bell
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Disclosure Letter sets forth, as of the date hereof, a true and complete list of
all of the Subsidiaries of Bell, including the jurisdiction of incorporation or
organization of each such Subsidiary and the percentage of each such
Subsidiary's outstanding capital stock or other ownership interest owned by Bell
or another Subsidiary of Bell or by any other Person. Each of the outstanding
shares of capital stock of the Subsidiaries of Bell listed on the Bell
Disclosure Letter is duly authorized, validly issued, fully paid and
nonassessable and is not subject to any preemptive rights. Except as set forth
above, there are no options, warrants, voting agreements or other rights,
agreements, arrangements or commitments to which Bell is a party of any
character relating to the issued or unissued capital stock of, or other equity
interests in, Bell or obligating Bell to grant, issue or sell any shares of the
capital stock of, or other equity interests in, Bell by sale, lease, license or
otherwise.
Section 9.03. Authority. Bell has the requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby (for purposes
of this Article, collectively, the "Transactions"). The execution and delivery
of this Agreement by Bell and the consummation by Bell of the Transactions have
been duly authorized by all necessary corporate action, and no other corporate
proceedings on the part of Bell are necessary to authorize this Agreement or to
consummate the Transactions (other than, in the case of the Bell Merger, the
approval of the majority of the outstanding shares of Bell Common Stock (the
"Bell Stockholder Approval"). This Agreement has been duly executed and
delivered by Bell and constitutes a legal, valid and binding obligation of Bell,
except that the enforcement thereof may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally and (b) general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity).
Section 9.04. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by Bell do not, the performance of this
Agreement by Bell will not and the consummation of the Bell Merger and the other
Transactions by Bell will not, (i) conflict with or violate the Articles of
Incorporation, as amended, or By-Laws, as amended, of Bell (ii) subject to (x)
obtaining Bell Stockholder Approval and (y) obtaining the consents, approvals,
authorizations and permits of, and making filings with or notifications to, any
Governmental Entities, pursuant to the applicable requirements, if any, of the
Securities Act, the Exchange Act, Blue Sky Laws, Nasdaq, the HSR Act, or with
respect to the filing and recordation of appropriate merger documents as
required by the FBCA, conflict with or violate any Laws applicable to Bell or by
which any of their respective properties are bound or affected, or (iii) other
than as set forth
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on the Bell Disclosure Letter, result in any breach of or constitute a default
(or an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of any Lien on any of the properties
or assets of Bell pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Bell is a party or by which Bell or any of its respective properties is
bound or affected, except for any such conflicts or violations described in
clause (ii) and except for such conflicts or violations which will not,
individually or in the aggregate, have a Material Adverse Effect on Bell.
(b) The execution and delivery of this Agreement by Bell do not, and the
performance of the Transactions by Bell will not, require any action by or in
respect of, or filing with, any Governmental Entities, except (i) for applicable
requirements, if any, of the Securities Act, Exchange Act, Blue Sky Laws, Nasdaq
or the HSR Act, and the filing and recordation of appropriate merger documents
as required by the FBCA or (ii) where the failure to obtain such consents,
approvals or authorizations, or to make such filings, would not adversely affect
the ability of Bell to consummate, or prevent or materially delay the
consummation of, the Bell Merger or any of the other Transactions and would not
have a Material Adverse Effect on Bell.
Section 9.05. Litigation. Except as set forth in the Bell Disclosure
Letter, there are no actions, suits, proceedings, arbitrations or investigations
pending or, to the Knowledge of Bell, threatened against Bell which if adversely
decided would individually or in the aggregate, have a Material Adverse Effect
on Bell. Bell is not subject to any judgment, order, writ, injunction, or
decree that would have a Material Adverse Effect on it.
Section 9.06. Compliance with Applicable Laws. Bell holds all permits,
licenses, variances, exemptions, orders, franchises and approvals of all
Governmental Entities necessary for the lawful conduct of its business (the
"Bell Permits"), except where the failure so to hold would not have a Material
Adverse Effect on Bell. Bell is in compliance with the terms of the Bell
Permits, except where the failure so to comply would not have a Material Adverse
Effect on Bell. To Bell's Knowledge, Bell is in material compliance with all
applicable Laws. As of the date of this Agreement, no investigation or review
by any Governmental Entity with respect to Bell is pending or, to Bell's
knowledge, threatened, the outcome of which is reasonably likely to have a
Material Adverse Effect on Bell.
Section 9.07. Taxes. Bell has filed or caused to be filed all federal and
state income tax returns required to be filed and in which the filing included
or was required to include Bell (for purposes of this Article, "Income Tax
Returns"), and all such
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Income Tax Returns were correct and complete in all material respects. Bell has
filed or caused to be filed all other tax returns, including franchise, gross
receipts, payroll, sales, use, withholding, occupancy, excise, real and personal
property, and employment, required to be filed in which the filing included or
was required to include Bell or any Bell Subsidiary (for purposes of this
Article, the "Other Tax Returns") and all such Other Tax Returns are correct and
complete in all material respects, except for inaccuracies or omissions which do
not and will not have a Material Adverse Effect on Bell. With respect to the
Income Tax Returns and the Other Tax Returns, Bell has paid, or made adequate
provisions for the payment of, all material taxes, interest payments, penalties
and additions shown on such returns to be owed by it. The Income Tax Returns of
Bell have not been audited during its existence, and, to the Knowledge of Bell,
no audit, examination or investigation is threatened against Bell by any taxing
authority. No unpaid tax deficiencies or additional liabilities have been
proposed by any governmental representative which have not been resolved; and no
agreements for the extension of time for the assessment of any amounts of tax
have been entered into at the present time by or on behalf of Bell.
Section 9.08. Employee Benefits; Labor. (a) The Bell Disclosure Letter
lists each bonus, pension (as defined in ERISA), profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical or other plan, providing benefits to any
current or former employee, officer or director of Bell maintained, or
contributed to, by Bell (for purposes of this Article, collectively, "Benefit
Plans"), and any employment, consulting, severance, termination or
indemnification agreement, arrangement or understanding between Bell and any
officer, director or employee of Bell.
(b) The Benefit Plans are in compliance in all material respects with the
applicable provisions of ERISA, the Code and all other applicable laws.
(c) Each Benefit Plan which is an "Employee Benefit Pension Plan" as
defined in Section 3(2) of ERISA (for purposes of this Article, "Pension Plan"),
has been the subject of determination letters from the Internal Revenue Service
to the effect that such Pension Plans are qualified and exempt from Federal
income taxes under Section 401(a) and 501(a), respectively, of the Code, and no
such determination letter has been revoked nor, to the Knowledge of Bell, has
revocation been threatened, nor has any such Pension Plan been amended since the
date of its most recent determination letter or application therefor in any
respect that would adversely affect its qualification or, materially increase
its costs.
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Section 9.09. Financial Statements; Undisclosed Liabilities. Bell has
made available to Group Tech: (i) the audited balance sheets of Bell as of
December 31, 1994, 1995 and 1996, and the audited statements of income,
stockholders' equity and cash flows for the respective fiscal years then ended,
including the notes thereto, examined by and accompanied by the report of Ernst
& Young, independent public accountants with respect to Bell; and (ii) the
unaudited balance sheet of Bell as of June 30, 1997 and the related unaudited
statement of income and stockholders' equity for the six-month period ended June
30, 1997. All of the foregoing financial statements are hereinafter collectively
referred to as the "Bell Financial Statements" and the balance sheet as of June
30, 1997 is hereinafter referred to, for purposes of this Article, as the "1997
Balance Sheet." The Bell Financial Statements present fairly the financial
position and results of operations of Bell as of the dates and for the periods
indicated, in each case in conformity with GAAP, consistently applied, except as
otherwise stated in the Bell Financial Statements. Bell does not have any
material liabilities or material obligations or commitments except those
disclosed in the Bell Financial Statements, those entered into in the ordinary
course of business since June 30, 1997, those disclosed in or permitted by other
sections or provisions of this Agreement, and those incurred in connection with
the transactions contemplated hereby.
Section 9.10. Title to Properties and Assets; Liens. Except as set forth
on the Bell Disclosure Letter, Bell has good, valid and marketable title to, or
valid and subsisting leasehold interests in, all of its respective properties
and assets, reflected in the Bell Financial Statements and/or the 1997 Balance
Sheet or acquired since the date of the 1997 Balance Sheet, free and clear of
all Liens, except for (i) Liens and imperfections of title that do not
materially interfere with the present use by Bell of the property subject
thereto or affected thereby or that otherwise do not have a Material Adverse
Effect on Bell, (ii) Liens for assessments or governmental charges, or
landlords', mechanics', workmen's, materialmen's or similar liens, in each case
that are not delinquent or that are being contested in good faith and (iii)
Liens reflected in the Bell Financial Statements and/or the 1997 Balance Sheet.
Section 9.11. Business Contracts. (a) The Bell Disclosure Letter
contains a list of all material contracts, leases, agreements and arrangements,
written or oral, in force on the date hereof (for purposes of this Article, the
"Business Contracts") to which Bell is a party and that after the Effective Time
will involve the payment to or from Bell of amounts in excess of $100,000 in any
single case or $100,000 per year.
(b) Except as disclosed on the Bell Disclosure Letter, (i) each of the
Business Contracts, after giving effect to the consummation of the Transactions,
constitutes a valid and binding
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obligation of Bell, and is in full force and effect and legally enforceable in
all material respects in accordance with its terms against the other parties
thereto, (ii) Bell has complied with all of the material provisions of such
Business Contracts, and (iii) to Bell's Knowledge, there has not occurred any
event that (whether with or without notice, lapse of time, or the happening or
occurrence of any other event) would constitute a default thereunder. Except as
disclosed on the Bell Disclosure Letter, the parties to the Business Contracts
other than Bell are not, to Bell's Knowledge, in material default under any such
Business Contract nor is Bell aware of any intent on the part of the other party
to any Business Contract to cancel or not to renew.
Section 9.12. Intangible Property. (a) Except as set forth on the Bell
Disclosure Letter, each material trademark, trade name, patent, service mark,
brand mark, brand name, computer program, database, industrial design and
copyright owned, used or useful in connection with and material to the operation
of Bell as well as all registrations thereof and pending applications therefor,
and each license or other contract relating thereto (for purposes of this
Article, collectively, the "Intangible Property") is in good standing and is
owned by Bell free and clear of any and all Liens. The use of the Intangible
Property by Bell does not conflict with, infringe upon, violate or interfere
with or constitute an appropriation of any right, title, interest or goodwill,
including, without limitation, any intellectual property right, trademark, trade
name, patent, service mark, brand mark, brand name, computer program, database,
industrial design, copyright or any pending application therefor of any other
Person and there have been no claims made and Bell has not received any notice
of any claim or otherwise knows that any of the Intangible Property is invalid
or conflicts with the asserted rights of any other Person or has not been used
or enforced or has failed to be used or enforced in a manner that would result
in the abandonment, cancellation or unenforceability of any of the Intangible
Property.
(b) To Bell's Knowledge, Bell possesses all Intangible Property necessary
for the operation of its business and has not forfeited or otherwise
relinquished any Intangible Property.
(c) All of the licenses or other contracts relating to the Intangible
Property (for purposes of this Article, collectively, the "Intangible Property
Licenses") are in full force and effect and are valid and enforceable in all
material respects in accordance with their respective terms, and there is no
default (or any event that with notice or the lapse of time or both could become
a default) under any Intangible Property License either by Bell or, to Bell's
Knowledge, by any other party thereto.
Section 9.13. Absence of Changes or Events. Except as set forth in the
Bell Disclosure Letter, since June 30, 1997 Bell
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has conducted its business only in the ordinary course, and has not:
(a) Suffered any casualty loss or destruction which is not covered by
insurance, which would have a Material Adverse Effect on Bell;
(b) Made any declaration, setting aside or payment of any dividend or
other distribution of assets (whether in cash, stock or property) with
respect to the capital stock of Bell or any direct or indirect redemption,
purchase or other acquisition of such stock; provided that Bell may declare
and pay dividends on any outstanding Bell Common Stock at or prior to the
Closing;
(c) Materially increased the aggregate compensation payable or to
become payable to employees of Bell or materially increased any bonus,
insurance, pension or other employee benefit plan, payment or arrangement
for such employees or entered into or amended any employment, consulting,
severance or similar agreement other than increases and bonuses in the
ordinary course of Bell's business or consistent with industry practice;
(d) Paid, discharged or satisfied any claim, liability or obligation
which had a Material Adverse Effect on Bell;
(e) Sold, transferred or otherwise disposed of any of its assets
which had a Material Adverse Effect on Bell;
(f) Entered into any commitment or transaction which had a Material
Adverse Effect on Bell; or
(g) Agreed in writing, or otherwise, to take any action described in
this Section.
Section 9.14. Environmental Matters. To Bell's Knowledge, Bell is in
compliance in all material respects with all Environmental Laws, including but
not limited to any pertaining to Hazardous Wastes. To the extent that any
violation of such Environmental Laws by Bell may exist, such violation does not
and will not have a Material Adverse Effect on Bell.
Section 9.15. Bell Stockholder Approval. No consent or approval of the
stockholders of Bell other than the Bell Stockholder Approval is required for
approval and adoption of this Agreement and the Transactions.
Section 9.16. Insurance. The Bell Disclosure Letter sets forth all
material insurance policies, including property, casualty, liability and other
insurance maintained with respect to
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the assets or businesses of Bell. To the Knowledge of Bell, all such policies
and bonds are legal, valid and enforceable and in full force and effect and Bell
is not in breach or default in any material respect (including with respect to
the payment of premiums or the giving of notices) and no event has occurred
which, with notice or the lapse of time, would constitute such a material breach
or default, or permit termination, modification or acceleration under the
policy by the insurer.
Section 9.17. Proxy Statement and Registration Statement. The information
with respect to Bell, its officers, directors and affiliates in the definitive
information statement to be furnished to the stockholders of Bell (for purposes
of this Article, the "Proxy Statement") that will form a part of the
Registration Statement or in the Registration Statement will not, in the case of
the Proxy Statement, on the date the Proxy Statement is first mailed to
stockholders of Bell or on the effective date of the Bell Stockholder Approval,
or, in the case of the Registration Statement, at the time it becomes effective
and at the Effective Time, as such Proxy Statement or Registration Statement is
then amended or supplemented, contain any untrue statement of a material fact,
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
Section 9.18. Full Disclosure. (a) No representation or warranty of Bell
contained in this Agreement (including the exhibits and schedules hereto)
pursuant to the terms hereof contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained
herein, in light of the circumstances under which they were made, not
misleading.
(b) From time to time prior to the Effective Time, Bell shall promptly
supplement or amend the schedules under this Article IX with respect to any
matter that, if existing or known as of the date of this Agreement, would be
required to be set forth in such schedules. Any such supplement or amendment
shall not be deemed to modify or affect the provisions of Section 11.02(b)
hereof.
ARTICLE X
COVENANTS AND AGREEMENTS
Section 10.01. Cooperation. Each of GFP, Tube Turns, Bell and Group Tech,
as applicable, shall proceed expeditiously and cooperate fully in making
application for all necessary regulatory approvals, in the procurement of any
other consents and approvals, and in the taking of any other action and the
satisfaction of all other requirements prescribed by law or otherwise, necessary
for
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<PAGE>
consummation of the transactions on the terms provided herein. Each of GFP, Tube
Turns, Bell and Group Tech, as applicable, shall use all best efforts (i) to
take, or cause to be taken, all actions necessary to comply promptly with all
legal requirements which may be imposed on such party to consummate the
transactions contemplated by this Agreement, and (ii) to obtain (and to
cooperate with the other parties to obtain) any consent, authorization, order or
approval of, or any exemption by, any governmental entity or any other public or
private third party which is required to be obtained or made by such party in
connection with the transactions contemplated by this Agreement.
Section 10.02. Conduct of Business. Except as set forth on the GFP
Disclosure Letter, the Group Tech Disclosure Letter, the Tube Turns Disclosure
Letter or the Bell Disclosure Letter, as applicable, from the date hereof to the
Effective Time, each of GFP, Tube Turns, Bell and Group Tech will, except as
required in connection with the transactions contemplated by this Agreement:
(a) Carry on its business in the ordinary course in substantially the same
manner as heretofore conducted and not engage in any new line of business or
enter into any agreement, transaction or activity or make any commitment except
those in the ordinary course of business and not otherwise prohibited under this
Section 10.02;
(b) Neither change nor amend its articles of incorporation or bylaws,
which change or amendment would have a Material Adverse Effect on the Person
effecting the change;
(c) Not issue, sell or grant options, warrants or rights to purchase or
subscribe to, or enter into any arrangement or contract with respect to the
issuance or sale of any of its capital stock or rights or obligations
convertible into or exchangeable for any shares of its capital stock and, except
as contemplated herein, not alter the terms of any presently outstanding options
or make any changes (by split-up, combination, reorganization or otherwise) in
its capital structure;
(d) Not declare or pay any dividend or other distribution of assets
(whether in cash, stock or property) with respect to its capital stock and GFP
shall not cause funds to be advanced to it under or pursuant to the Bank One
Facility;
(e) Not acquire or enter into an agreement to acquire, by merger,
consolidation or purchase of stock or assets, any business or entity;
(f) Use its reasonable efforts to preserve intact its corporate existence,
goodwill and business organization, to keep its officers and employees available
and to preserve its relationships with customers, suppliers and others with
which it has business relations on the date hereof;
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<PAGE>
(g) Not (i) create, incur or assume any long-term debt (including
obligations in respect of capital leases which individually involve annual
payments in excess of $250,000 or, except in the ordinary course of business
under existing lines of credit, create, incur or assume any short-term debt for
borrowed money, (ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other Person, except in the ordinary course of business and consistent with
industry practice, (iii) make any loans or advances to any other Person, except
in the ordinary course of business and consistent with industry practice, (iv)
make any capital contributions to, or investments in, any Person, except in the
ordinary course of business and consistent with industry practices with respect
to investments, or (v) make any capital expenditure involving in excess of
$1,000,000 (in the case of Tube Turns), $500,000 (in the case of Bell) or
$2,000,000 (in the case of Group Tech) in the case of any single expenditure or
$2,000,000 (in the case of Tube Turns), $2,500,000 (in the case of Bell) or
$5,000,000 (in the case of Group Tech) in the case of all capital expenditures;
(h) Not enter into, modify or extend in any manner the terms of any
employment, severance or similar agreements with officers and directors nor
grant any increase in the compensation of officers, directors or employees,
whether now or hereafter payable, including any such increase pursuant to any
option, bonus, stock purchase, pension, profit-sharing, deferred compensation,
retirement or other plan, arrangement, contract or commitment other than
increases in the ordinary course of business or consistent with industry
practices;
(i) Perform in all material respects all of its obligations under all of
each of their respective Business Contracts (except those being contested in
good faith) and not enter into, assume or amend any contract or commitment that
would be a Business Contract other than contracts to provide products or
services entered into in the ordinary course of business;
(j) Use its reasonable efforts to maintain in full force and effect and in
the same amounts policies of insurance comparable in amount and scope of
coverage to that maintained on the date hereof;
(k) Use its reasonable efforts to continue to collect its accounts
receivable in the ordinary course of business and consistent with past
practices;
Section 10.03. Inspection and Access to Information. (a) Between the date
of this Agreement and the Effective Time, each party hereto will provide each
other party and its accountants, counsel and other authorized representatives
full access, during reasonable business hours and under reasonable circumstances
to any
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<PAGE>
and all of its premises, properties, contracts, commitments, books, records and
other information (including tax returns filed and those in preparation) and
will cause their respective officers to furnish to the other parties and their
authorized representatives any and all financial, technical and operating data
and other information pertaining to its business, as each other party shall from
time to time reasonably request.
(b) All non-public information obtained by any of the parties hereto or
any of their representatives pursuant to this Agreement or in connection with
the matters contemplated hereby concerning the business, operations or affairs
of the other will be kept confidential and will not be used for any purpose
other than the consummation of the transactions contemplated hereby, or be
disclosed to any other Person, except for such disclosure to its employees,
agents and representatives who have a need to know the same and who have been
advised of the confidential nature of such information and who agree to abide by
the terms hereof and except for such disclosure as may be required by applicable
law, court order or governmental agency request. In the event this Agreement is
terminated in accordance with its terms, any non-public information furnished by
any party to any other party hereto will be promptly returned.
Section 10.04. Proxy Statement and Registration Statement. Group Tech shall
prepare and file with the SEC as soon as is reasonably practicable the
Registration Statement and shall use all reasonable efforts to have the
Registration Statement declared effective by the SEC as promptly as practicable.
Group Tech also shall take any action required to be taken under applicable Blue
Sky Laws in connection with the issuance of Group Tech Common Stock in
connection with the Merger, the Tube Turns Merger and the Bell Merger. Each of
the parties hereto will furnish each other with all information concerning
themselves, their subsidiaries, directors, officers and stockholders and such
other matters as may be necessary or advisable for the Registration Statement,
the Proxy Statement, the Stock Market Additional Shares Notification
(hereinafter defined), filings under applicable Blue Sky Laws, and any other
statement or application made by or on behalf of any of the parties hereto to
any governmental body in connection with the transactions contemplated by this
Agreement.
Section 10.05. Stock Market Additional Shares Notification. Group Tech
will file an additional shares notification with Nasdaq to approve for listing,
subject to official notice of its issuance, the shares of Group Tech Common
Stock to be issued in connection with the Merger, the Tube Turns Merger and the
Bell Merger (the "Stock Market Additional Shares Notification"). Group Tech
shall exercise reasonable good faith efforts to cause the shares of Group Tech
Common Stock to be issued in the Merger, the Tube Turns Merger and the Bell
Merger to be approved for listing on
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<PAGE>
the applicable stock exchange, subject to official notice of issuance, prior to
the Effective Time.
Section 10.06. Affiliates. Each of GFP, Tube Turns and Bell shall deliver
to Group Tech a letter identifying all Persons who are, at the time the Merger,
the Tube Turns Merger and the Bell Merger, as applicable, is submitted to the
stockholders of GFP, Tube Turns or Bell, as applicable, for approval,
"affiliates" of each of GFP, Tube Turns and Bell for purposes of Rule 145 under
the Securities Act (the "Affiliates"). Each of GFP, Tube Turns and Bell shall
cause each Person who is identified as an Affiliate in such letter to deliver to
Group Tech on or prior to the Effective Time a written statement, in form
satisfactory to the parties hereto, that such Person will not offer to sell,
transfer or otherwise dispose of any of the shares of Group Tech Common Stock
issued to such Person pursuant to the Merger, the Tube Turns Merger, or the Bell
Merger, as applicable, except in accordance with the applicable provisions of
the Securities Laws. Group Tech shall be entitled to place legends on any
certificates of Group Tech Common Stock issued to such Affiliates to restrict
transfer of such shares as set forth above; provided, however, such legends
shall be removed at the request of an Affiliate not earlier than two (2) years
after the Closing Date.
Section 10.07. Public Announcements. The timing and content of all
announcements regarding any aspect of this Agreement to the financial community,
government agencies, employees or the general public shall be mutually agreed
upon in advance (unless the parties disagreeing to said announcement are advised
by counsel that any such announcement or other disclosure not mutually agreed
upon in advance is required to be made by law or applicable rule of Nasdaq and
then only after making a reasonable attempt to comply with the provisions of
this Section 10.07).
Section 10.08. Rule 144 Information. Group Tech shall comply with the
public information requirements set forth in Rule 144(c) under the Securities
Act for a period of two (2) years following the Closing Date.
Section 10.09. Tax Treatment. Neither GFP, Tube Turns, Bell nor Group Tech
shall intentionally take or cause to be taken any action, whether before or
after the Effective Time, that would disqualify the Merger, the Tube Turns
Merger and the Bell Merger as a "reorganization" within the meaning of Section
368 of the Code.
Section 10.10. Order of Transactions. The parties hereto hereby agree the
transactions contemplated hereby shall be consummated in the following order:
(a) The Spin Off.
(b) The Merger.
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(c) The Tube Turns Merger and the Bell Merger.
(d) The Group Tech Contribution.
Section 10.11. Financial Statements and SEC Reports. Prior to the Effective
Time, each of GFP and Group Tech shall deliver to the other, as soon as
available but in no event later than 45 days after the end of each fiscal
quarter, a consolidated balance sheet as of the last day of such fiscal period
and the consolidated statements of income, stockholders' equity and cash flows
of such party and its subsidiaries for the fiscal period then ended prepared in
accordance with generally accepted accounting principles with such exceptions as
are noted on such financial statements, and in the case of Group Tech, the
requirements of Form 10-Q (or Form 10-K as the case may be) under the Exchange
Act. Prior to the Effective Time, Group Tech shall deliver to GFP as soon as
available all forms, reports and other documents filed by Group Tech with the
SEC.
ARTICLE XI
CONDITIONS
Section 11.01. Conditions to Each Party's Obligations. The respective
obligations of each party to effect the transactions contemplated hereby shall
be subject to the fulfillment at or prior to the Closing of each of the
following conditions:
(a) Injunction. There shall be no effective injunction, writ or
preliminary restraining order or any order of any nature issued by a court or
governmental agency of competent jurisdiction to the effect that the Spin Off,
the Merger, the Tube Turns Merger or the Bell Merger may not be consummated as
herein provided, no proceeding or lawsuit shall have been commenced and be
continuing by any governmental or regulatory agency for the purpose of obtaining
any such injunction, writ or preliminary restraining order and no written notice
shall have been received from any such agency indicating an intent to restrain,
prevent, materially delay or restructure the transactions contemplated by this
Agreement.
(b) Tax Opinion. GFP, Tube Turns, Bell and Group Tech shall each have
received a written opinion of counsel, which counsel shall be reasonably
acceptable to GFP, Tube Turns, Bell and Group Tech, concerning certain federal
income tax consequences of the Merger, the Tube Turns Merger, the Bell Merger
and the Group Tech Contribution, substantially in the form attached hereto as
Exhibit D.
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(c) HSR Act. The applicable waiting periods shall have expired, been
terminated, or been determined to be inapplicable, under the HSR Act.
(d) Registration Statement. The Registration Statement shall be effective
under the Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall be in effect and no proceedings for such purpose,
or under the proxy rules of the SEC pursuant to the applicable Securities Laws
and with respect to the transactions contemplated hereby, shall be pending
before or threatened by the SEC. All applicable Blue Sky Laws shall have been
complied with in connection with the issuance of Group Tech Common Stock to be
issued in connection with the Merger, the Tube Turns Merger and the Bell Merger
and no stop order suspending the effectiveness of any qualification or
registration of such Group Tech Common Stock under such Blue Sky Laws shall have
been issued and pending or threatened by the authorities of any such state.
(e) Stockholder Approvals. The GFP Stockholder Approval, Group Tech
Stockholder Approval, Bell Stockholder Approval and Tube Turns Stockholder
Approval shall have been obtained.
(f) The Nasdaq National Market Additional Shares Notification. The Group
Tech Common Stock to be issued pursuant to this Agreement shall have been
approved for listing on the Nasdaq National Market, subject only to official
notice of issuance by Group Tech.
Section 11.02. Conditions to Group Tech's Obligations. The obligation of
Group Tech to consummate on the Closing Date the transactions contemplated by
this Agreement will be subject to the satisfaction of each of the following
conditions on or prior to the Closing Date, unless expressly waived in writing
by Group Tech:
(a) Opinion of Counsel for GFP, Tube Turns and Bell. Group Tech shall have
received the written opinion of counsel for GFP, Tube Turns and Bell, dated the
Closing Date, substantially in the forms attached as Exhibits E, F and G to this
Agreement.
(b) Representations and Warranties. The representations and warranties of
each of GFP, Tube Turns and Bell set forth in this Agreement shall be true and
correct in all respects as of the date of this Agreement and as of the Effective
Time with the same effect as though all such representations and warranties had
been made on and as of the Effective Time (i) except for any such
representations and warranties made as of a specified date, which shall be true
and correct in all respects as of such date and (ii) to the extent that the
aggregate effect of the inaccuracies in such representations and warranties as
of the applicable times (each considered without any exclusions for lack of
Material Adverse
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Effect set forth in the individual representation or warranty) does not
constitute a Material Adverse Effect on each of GFP, Tube Turns and/or Bell when
compared to the state of facts which would exist if all such representations and
warranties were true in all respects as of the applicable times.
(c) Performance of this Agreement. Each of the agreements and covenants to
be performed and complied with by each of GFP, Tube Turns and Bell pursuant to
this Agreement prior to the Effective Time shall have been duly performed and
complied with except to the extent that the aggregate effect of any non-perfor-
mance or noncompliance by GFP, Tube Turns and/or Bell (each considered without
any exclusions for lack of Material Adverse Effect set forth in the individual
covenant or agreement) does not constitute a Material Adverse Effect on GFP,
Tube Turns and/or Bell when compared to the state of facts which would exist if
all such agreements and covenants had been performed and complied with by each
of GFP, Tube Turns and Bell.
(d) Delivery of Certificates. Each of GFP, Tube Turns and Bell shall have
delivered to Group Tech a certificate dated the Closing Date and signed by the
chief executive officer of GFP, Tube Turns and Bell certifying as to the matters
set forth in Sections 11.02(b) and 11.02(c).
(e) Tax Representations of GFP, Tube Turns and Bell. Each of GFP, Tube
Turns and Bell shall have delivered to Group Tech a certificate dated the
Closing Date in substantially the form attached hereto as Exhibit H.
Section 11.03. Conditions to GFP's, Tube Turns' and Bell's Obligations. The
obligation of each of GFP, Tube Turns and Bell to consummate, on the Closing
Date, the transactions contemplated by this Agreement will be subject to the
satisfaction of each of the following conditions on or prior to the Closing
Date, unless expressly waived, in writing, by each of GFP, Tube Turns and Bell:
(a) Opinion of Counsel for Group Tech. Each of GFP, Tube Turns and Bell
shall have received the written opinion of counsel to Group Tech, dated the
Closing Date, substantially in the form attached as Exhibit I to this Agreement.
(b) Representations and Warranties. The representations and warranties of
Group Tech set forth in this Agreement shall be true and correct in all respects
as of the date of this Agreement and as of the Effective Time with the same
effect as though all such representations and warranties had been made on and as
of the Effective Time (i) except for any such representations and warranties
made as of a specified date, which shall be true and correct in all respects as
of such date and (ii) to the extent that the aggregate effect of the
inaccuracies in such representations
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and warranties as of the applicable times (each considered without any
exclusions for lack of Material Adverse Effect set forth in the individual
representation or warranty) does not constitute a Material Adverse Effect on
Group Tech when compared to the state of facts which would exist if all such
representations and warranties were true in all respects as of the applicable
times.
(c) Performance of this Agreement. Each of the agreements and covenants of
Group Tech to be performed and complied with by Group Tech pursuant to this
Agreement prior to the Effective Time shall have been duly performed and
complied with except to the extent that the aggregate effect of any non-perfor-
mance or noncompliance by Group Tech (each considered without any exclusions for
lack of Material Adverse Effect set forth in the individual covenant or
agreement) does not constitute a Material Adverse Effect on Group Tech when
compared to the state of facts which would exist if all such agreements and
covenants had been performed and complied with by Group Tech.
(d) Delivery of Certificate. Group Tech shall have delivered to each of
GFP, Tube Turns and Bell a certificate dated as of the Closing Date and signed
by the chief executive officer of Group Tech certifying as to the matters set
forth in Sections 11.03(b) and 11.03(c).
ARTICLE XII
NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties contained in this Agreement by any party
hereto or set forth in any certificate or other instrument delivered by or on
behalf of the parties pursuant to this Agreement shall expire at the Effective
Time.
ARTICLE XIII
TERMINATION
Section 13.01. Termination. (a) Anything contained in this Agreement to the
contrary notwithstanding, this Agreement may be terminated at any time prior to
the Closing Date:
(i) by the mutual written consent of GFP, Tube Turns, Bell and
Group Tech;
(ii) by GFP, Tube Turns, Bell or Group Tech if the Closing shall
not have occurred on or before March 15, 1998 unless such failure to close
shall be due to the failure of the party seeking such termination to
perform or observe in
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all material respects the covenants and agreements hereof to be performed
or observed by such party;
(iii) by Group Tech, if GFP, Tube Turns or Bell breaches any of
its respective representations, warranties or covenants set forth in this
Agreement which breach has a Material Adverse Effect on the breaching
party;
(iv) by GFP, Tube Turns or Bell, if Group Tech breaches any
representation, warranty or covenant of Group Tech contained in this
Agreement which breach has a Material Adverse Effect on Group Tech.
(b) In the event of a termination pursuant to Section 13.01(a)(iii) or
Section 13.01(a)(iv), the non-breaching party shall have the right to sue the
breaching party(ies) for any and all damages incurred as a result of the failure
of the breaching party(ies) to perform hereunder.
ARTICLE XIV
CLOSING
The Closing shall take place at 10:00 a.m. at the offices of Wyatt, Tarrant
& Combs, Louisville, Kentucky, within ten (10) business days after the date on
which the last of the conditions (excluding conditions that by their terms
cannot be satisfied until the Closing Date) set forth in Article XI hereof, or
at such other date, time and place as GFP, Tube Turns, Bell and Group Tech may
agree in writing.
ARTICLE XV
MISCELLANEOUS
Section 15.01. Confidentiality. (a) Prior to Closing. Unless and until the
Closing has occurred, and except as may be otherwise required by applicable law,
each party hereto shall, and shall cause its employees, agents, and
representatives to, maintain in confidence and not otherwise use information,
documents, and data furnished to it, or to any Person on its behalf, by any
other party in connection herewith.
(b) Failure to Close. If the Closing does not occur on the Closing Date,
each of GFP, Tube Turns, Bell and Group Tech shall return all written
information, documents, and data obtained pursuant to the terms hereof.
Notwithstanding anything else in this Agreement to the contrary, if the
transactions contemplated by this Agreement are not closed, the agreement of
each party to maintain in confidence all information received by it and not to
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use such information in competition with the other shall continue in perpetuity
and none of such information shall be used by any party, its employees, agents,
or representatives or affiliates thereof in the business operations of any such
Person, except to the extent that such information was: (i) possessed by such
party prior to the disclosure thereof by the other party; (ii) disclosed to such
party by an independent third party without a violation of any obligation of
confidentiality on the part of such third party; or (iii) ascertainable from
public or published information or trade sources.
Section 15.02. Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be mailed by
first class, registered, or certified mail, postage prepaid, or sent via
overnight reputable courier service, or delivered personally or via facsimile
with copy sent by mail as provided above:
<TABLE>
<CAPTION>
If to GFP, to: Copy to:
<S> <C>
Jeffrey T. Gill Wyatt, Tarrant & Combs
President and Chief Executive 2800 Citizens Plaza
Officer Louisville, Kentucky 40202
Group Financial Partners, Inc. Attn: Robert A. Heath
455 Fourth Avenue Facsimile No.: (502) 589-0309
Louisville, Kentucky 40202
Facsimile No.: (502) 585-1602
If to Tube Turns, to: Copy to:
John M. Kramer Wyatt, Tarrant & Combs
President and Chief Executive 2800 Citizens Plaza
Officer Louisville, Kentucky 40202
Tube Turns Technologies, Inc. Attn: Robert A. Heath
2900 West Broadway Facsimile No.: (502) 589-0309
Louisville, Kentucky 40232
Facsimile No.: (502) 774-6300
If to Bell, to: Copy to:
Robert E. Gill Wyatt, Tarrant & Combs
President and Chief Executive 2800 Citizens Plaza
Officer Louisville, Kentucky 40202
Bell Technologies, Inc. Attn: Robert A. Heath
6120 Hanging Moss Road Facsimile No.: (502) 589-0309
Orlando, Florida 32807
Facsimile No.: (407) 678-0578
</TABLE>
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<TABLE>
<CAPTION>
If to Group Tech, to: Copy to:
<S> <C>
Thomas W. Lovelock Fowler, White, Gillen, Boggs,
President Villareal and Banker, P.A.
Group Technologies Corporation Suite 1700
10901 Malcolm McKinley Drive 401 East Kennedy Boulevard
Tampa, Florida 33612 Tampa, Florida 33602
Facsimile No.: (813) 972-6978 Attn: David Shobe
Facsimile No.: (813) 228-9401
</TABLE>
or to such other address of which the addressee shall have notified the sender
in writing. Notices mailed in accordance with this section shall be deemed given
three (3) days after being mailed, and notices sent by overnight courier service
shall be deemed given one (1) day after placed in the hands of a representative
of such service and notice given by facsimile shall be deemed given on the date
of transmission subject to sender's receipt of a confirmation copy.
Section 15.03. Third Party Rights. It is the intention of the parties that
nothing in this Agreement shall be deemed to create any right with respect to
any Person not a party to this Agreement.
Section 15.04. Parties in Interest; Assignment. All covenants and
agreements contained in this Agreement by or on behalf of any of the parties to
this Agreement shall bind and inure to the benefit of their respective heirs,
executors, successors, and assigns, whether so expressed or not. No party to
this Agreement may assign its rights or delegate its obligations under this
Agreement to any other Person without the express prior written consent of the
other parties.
Section 15.05. Construction; Governing Law. The section headings contained
in this Agreement are inserted as a matter of convenience and shall not affect
in any way the construction of the terms of this Agreement. This Agreement shall
be governed by and interpreted in accordance with the laws of the Commonwealth
of Kentucky.
Section 15.06. Entire Agreement; Amendment and Waiver. This Agreement,
including the Exhibits and Schedules hereto and documents and instruments
executed and delivered at the Closing in connection herewith, constitute and
contain the entire Agreement among the parties hereto with respect to the
transactions contemplated hereby and supersede any prior writing by the
parties. The waiver of a breach of any term or condition of this Agreement must
be in writing signed by the party sought to be charged with such waiver and such
waiver shall not be deemed to constitute the waiver of any other breach of the
same or any other term or condition of
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this Agreement. This Agreement may not be changed orally, but only in a writing
signed by the parties hereto.
Section 15.07. Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
the remaining provisions.
Section 15.08. Counterparts. This Agreement may be executed in one or more
counterparts, any one of which need not contain the signatures of more than one
party but all of which taken together shall constitute one and the same
Agreement.
Section 15.09. Expenses. Except as otherwise specifically provided in this
Agreement, each party to this Agreement shall pay any and all fees and expenses
that such party may incur in connection with the negotiation, execution, or
closing of this Agreement and the other transactions contemplated by this
Agreement.
Section 15.10. Time of Essence. Time is of the essence to the performance
of the obligations set forth in this Agreement.
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IN WITNESS WHEREOF, GFP, Tube Turns, Bell and Group Tech have caused this
Second Amended and Restated Agreement and Plan of Reorganization to be executed
by their duly authorized officers as of the day and year first written above.
"GFP"
GROUP FINANCIAL PARTNERS, INC.
By:_________________________________
Title:______________________________
"Tube Turns"
TUBE TURNS TECHNOLOGIES, INC.
By:_________________________________
Title:______________________________
"Bell"
BELL TECHNOLOGIES, INC.
By:_________________________________
Title:______________________________
"Group Tech"
GROUP TECHNOLOGIES CORPORATION
By:_________________________________
Title:______________________________
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PLAN OF MERGER
--------------
THIS PLAN OF MERGER (the "Plan") is made and entered effective as of
the 25th day of November, 1997, by and between GROUP FINANCIAL PARTNERS, INC., a
Kentucky corporation ("GFP") and GROUP TECHNOLOGIES CORPORATION, a Florida
corporation ("Group Tech").
W I T N E S S E T H :
The respective Boards of Directors of GFP, Tube Turns Technologies,
Inc., a Kentucky corporation, Group Tech, and Bell Technologies, Inc., a Florida
corporation ("Bell") have determined that it is desirable to effect a Second
Amended and Restated Agreement and Plan of Reorganization (the "Agreement"), for
the general welfare and advantage of their respective shareholders, under which
plan, inter alia, GFP would be merged with and into Group Tech, in accordance
with the terms of the Agreement and this Plan.
The Boards of Directors of GFP and Group Tech have approved and
adopted this Plan and have authorized the execution hereof.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and undertakings herein contained, the parties hereby agree as
follows:
ARTICLE 1
---------
THE MERGER
----------
A. The Merger. Upon the terms and subject to the conditions set forth in
the Agreement and this Plan, and in accordance with the Kentucky Revised
Statutes, as amended ("KRS") and the Florida Business Corporation Act, as
amended ("FBCA") at the Effective Time (as hereinafter defined), GFP shall be
merged with and into Group Tech in accordance with the KRS and the FBCA (the
"Merger"), whereupon the separate existence of GFP shall cease and Group Tech
shall continue as the surviving corporation (sometimes referred to herein as the
"Surviving Corporation").
B. Articles of Merger. Upon the terms and conditions set forth in the
Agreement and this Plan, Articles of Merger (the "Articles of Merger") shall be
duly prepared and executed by GFP and Group Tech and thereafter delivered to the
Secretary of State of each of the Commonwealth of Kentucky and the State of
Florida for filing as provided in the KRS and the FBCA. The Merger shall become
effective upon filing with the Kentucky Secretary of State
<PAGE>
and the Florida Secretary of State or at such time and date thereafter as is
provided in the Articles of Merger (the "Effective Time"). The date on which
the Effective Time occurs shall be the "Effective Date".
C. Effect of Filing. At the Effective Time, the Merger shall have the
effects set forth in the applicable provisions of the KRS and the FBCA. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the properties, rights, privileges, powers, and franchises of GFP and
Group Tech, shall vest in the Surviving Corporation without further act or deed,
and all debts, liabilities and duties of GFP and Group Tech shall become the
debts, liabilities and duties of the Surviving Corporation.
ARTICLE 2
---------
CONVERSION OF SHARES
--------------------
A. Conversion of Shares; Adjustments. At the Effective Time, by virtue of
the Merger and without any action on the part of GFP or Group Tech or the
stockholders of either of the foregoing entities:
[1] each share of the outstanding common stock, no par value per
share, of GFP (the "GFP Common Stock"), issued and outstanding immediately
prior to the Effective Time, shall be cancelled and extinguished and
automatically converted into the right to receive such shares of common
stock, $.01 par value per share, of Group Tech ("Group Tech Common Stock")
as is equal to the GFP Conversion Ratio (as hereinafter defined);
[2] each share of Group Tech Common Stock issued and outstanding
immediately prior to the Effective Time which is held by GFP shall be
cancelled and retired and all rights in respect thereof shall cease to
exist, without any conversion thereof or payment of any consideration
therefor; and
[3] each share of Group Tech Common Stock issued and outstanding
immediately prior to the Effective Time and which is not held by GFP shall
be unchanged after the Effective Time.
B. Exchange of Certificates.
[1] On or prior to the Effective Time, Group Tech shall make
available to each record holder who, as of the Effective Time, was a holder
of an outstanding certificate or certificates which immediately prior to
the Effective Time represented shares of GFP Common Stock (for purposes of
this Article, the "Certificate" or "Certificates"), a form of
2
<PAGE>
letter of transmittal and instructions for use in effecting the surrender
of the Certificates for payment therefor and conversion thereof. Delivery
shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to Group Tech and the
form of letter of transmittal shall so reflect. Upon surrender to Group
Tech of a Certificate, together with such letter of transmittal duly
executed, the holder of such Certificate shall be entitled to receive in
exchange therefor one or more certificates as requested by the holder
(properly issued, executed and countersigned, as appropriate) representing
that number of whole shares of Group Tech Common Stock to which such holder
of GFP Common Stock shall have become entitled pursuant to the provisions
of Article 2 hereof, and the Certificate so surrendered shall forthwith be
cancelled. No interest will be paid or accrued on any cash payable upon
the surrender of the Certificates. If any portion of the consideration to
be received pursuant to Article 2 hereof, upon exchange of a Certificate,
is to be issued or paid to a Person (as hereinafter defined) other than the
Person in whose name the Certificate surrendered in exchange therefor is
registered, it shall be a condition of such issuance and payment that the
Certificate so surrendered shall be properly endorsed or otherwise be in
proper form for transfer. From the Effective Time until surrender in
accordance with the provisions of this Article 2, each Certificate shall
represent for all purposes only the right to receive the consideration
provided in Article 2 hereof. All payments in respect of shares of GFP
Common Stock that are made in accordance with the terms hereof shall be
deemed to have been made in full satisfaction of rights pertaining to such
securities.
[2] In the case of any lost, mislaid, stolen or destroyed
Certificate, the holder thereof may be required, as a condition precedent
to delivery to such holder of the consideration described in Article 2, to
deliver to Group Tech a lost stock certificate affidavit and satisfactory
indemnity agreement as Group Tech may direct as indemnity against any claim
that may be made against Group Tech with respect to the Certificate alleged
to have been lost, mislaid, stolen or destroyed.
[3] After the Effective Time, there shall be no transfers on the
stock transfer books of Group Tech of the shares of GFP Common Stock that
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to Group Tech for transfer, they
shall be cancelled and exchanged for the consideration described in Article
2 hereof.
C. Dissenting Shareholders. To the extent that appraisal rights are
available under the KRS, shares of GFP Common Stock that
3
<PAGE>
are issued and outstanding immediately prior to the Effective Time and that have
not been voted for adoption of the Merger and with respect to which appraisal
rights have been properly demanded in accordance with the KRS ("Dissenting
Shares") shall not be converted into the right to receive the consideration
provided for in Article 2 hereof at or after the Effective Time unless and until
the holder of such shares becomes ineligible for such appraisal. If a holder of
Dissenting Shares becomes ineligible for such appraisal, then, as of the
Effective Time or the occurrence of such event whichever later occurs, such
holder's Dissenting Shares shall cease to be Dissenting Shares and shall be
converted into and represent the right to receive the consideration provided for
in Article 2 hereof. If any holder of GFP Common Stock shall assert the right
to be paid the fair value of such GFP Common Stock as described above, GFP shall
give Group Tech notice thereof and Group Tech shall have the right to
participate in all negotiations and proceedings with respect to any such
demands. GFP shall not, except with the prior written consent of Group Tech,
voluntarily make any payment with respect to, or settle or offer to settle, any
such demand for payment. Payment for Dissenting Shares shall be made as
required by the KRS. To the extent that appraisal rights are available under
the FBCA, shares of Group Tech Common Stock that are issued and outstanding
immediately prior to the Effective Time and that have not been voted for
adoption of the Merger and with respect to which appraisal rights have been
properly demanded in accordance with the FBCA shall receive payment as required
by the FBCA.
D. Articles of Incorporation of Surviving Corporation. The Articles of
Incorporation of Group Tech, as in effect immediately prior to the Effective
Time, shall be the Articles of Incorporation of the Surviving Corporation until
thereafter amended as provided therein and in accordance with applicable law.
E. By-Laws of Surviving Corporation. The By-Laws of Group Tech in effect
at the Effective Time shall be the By-Laws of the Surviving Corporation and
thereafter may be amended or repealed in accordance with their terms or the
terms of the Articles of Incorporation of the Surviving Corporation and as
provided by applicable law.
F. Directors and Officers of Surviving Corporation. From and after the
Effective Time: (i) the directors of Group Tech immediately prior to the
Effective Time shall be the directors of the Surviving Corporation; and (ii) the
officers of Group Tech immediately prior to the Effective Time shall be the
officers of the Surviving Corporation, in each case, until their respective
successors are duly elected or appointed and qualify in the manner provided in
the Articles of Incorporation and By-Laws of the Surviving Corporation or as
otherwise provided by applicable law.
4
<PAGE>
G. GFP Conversion Ratio and Adjustment Event.
[1] The "GFP Conversion Ratio" shall be equal to such fraction
as is obtained by dividing the Group Tech Merger Shares (as hereinafter
defined) by the Total GFP Shares (as hereinafter defined). The "Group Tech
Merger Shares" shall be equal to such number of whole shares of Group Tech
Common Stock as is obtained by dividing the Aggregate GFP Consideration
(as hereinafter defined) by the Average Closing Price (hereinafter
defined). The "Total GFP Shares" shall be equal to 315,953. The
"Aggregate GFP Consideration" shall be equal to the sum of $51,833,066 plus
the amount of cash held by GFP as of the Effective Time and plus the
product of 15,064,625 multiplied by the Average Closing Price.
[2] In the event of any change in Group Tech Common Stock or GFP
Common Stock between the date of this Plan and the Effective Time by reason
of any stock dividend, stock split, subdivision, reclassification,
recapitalization, combination, exchange of shares or the like (an
"Adjustment Event"), the GFP Conversion Ratio shall be appropriately
adjusted so that each holder of GFP Common Stock will receive in the Merger
the same proportionate amount of Group Tech Common Stock such holder would
have been entitled to receive if the Effective Time had been immediately
prior to such Adjustment Event.
[3] For purposes of this Plan, the "Average Closing Price" shall
be the greater of (i) $2.50 per share of Group Tech Common Stock, or (ii)
the arithmetic average of the closing price per share of the Group Tech
Common Stock, as reported on The Nasdaq National Market, for each of the
ten (10) consecutive trading days ending with the trading day which occurs
immediately prior to the effective date of the approval of the transactions
contemplated by the Agreement by the holders of shares of Group Tech Common
Stock voted, in person or by proxy, at the stockholders meeting of Group
Tech held to approve such transactions; provided, however, in no event
shall the Average Closing Price exceed $4.50 per share of Group Tech Common
Stock.
H. Fractional Shares. No scrip or fractional shares of Group Tech Common
Stock shall be issued in the Merger. All fractional shares of Group Tech Common
Stock to which a holder of GFP Common Stock immediately prior to the Effective
Time would otherwise be entitled at the Effective Time shall be aggregated. If
a fractional share results from such aggregation, such stockholder shall be
entitled, after the later of (a) the Effective Time or (b) the surrender of such
stockholder's Certificate(s) that represent such shares of GFP Common Stock, to
receive from Group Tech an amount in cash in lieu of such fractional share,
based on the Average Closing Price.
5
<PAGE>
I. Person. For purposes of this Plan, "Person" means any individual,
corporation, general or limited partnership, limited liability company, firm,
joint venture, association, enterprise, joint stock company, trust,
unincorporated organization or other entity.
ARTICLE 3
---------
TERMINATION
-----------
Anything contained in this Plan notwithstanding, this Plan may be
terminated and the Merger abandoned as provided in the Agreement.
ARTICLE 4
---------
CONDITIONS PRECEDENT
--------------------
The obligations of the parties to effect the Merger as herein provided
shall be subject to satisfaction, unless duly waived, of the conditions set
forth in the Agreement.
ARTICLE 5
---------
GENERAL PROVISIONS
------------------
A. Law and Section Headings. This Plan shall be construed and interpreted
in accordance with the laws of the Commonwealth of Kentucky. Section headings
are used in this Plan for convenience only and are to be ignored in the
construction of the terms of this Plan.
B. Modifications. The parties hereto may amend, modify or supplement this
Plan in such manner as may be agreed by them in writing.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Plan to be
executed by their duly authorized officers as of the date first above written.
"GFP"
GROUP FINANCIAL PARTNERS, INC.
By:________________________________
Title:______________________________
"GROUP TECH"
GROUP TECHNOLOGIES CORPORATION
By:________________________________
Title:______________________________
7
<PAGE>
PLAN OF MERGER
--------------
THIS PLAN OF MERGER (the "Plan") is made and entered effective as of
the 25th day of November, 1997, by and between TUBE TURNS TECHNOLOGIES, INC., a
Kentucky corporation ("Tube Turns") and NEW TUBE TURNS TECHNOLOGIES, INC., a
Kentucky corporation ("New Tube Turns").
W I T N E S S E T H :
The respective Boards of Directors of Group Financial Partners, Inc.,
a Kentucky corporation ("GFP"), Tube Turns, Group Technologies Corporation
("Group Tech"), and Bell Technologies, Inc., a Florida corporation ("Bell") have
determined that it is desirable to effect a Second Amended and Restated
Agreement and Plan of Reorganization (the "Agreement"), for the general welfare
and advantage of their respective shareholders, under which plan, inter alia,
Tube Turns would be merged with and into New Tube Turns, in accordance with the
terms of the Agreement and this Plan.
New Tube Turns is a wholly owned subsidiary of Group Tech.
The Boards of Directors of Tube Turns and New Tube Turns have approved
and adopted this Plan and have authorized the execution hereof.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and undertakings herein contained, the parties hereby agree as
follows:
ARTICLE 1
---------
THE MERGER
----------
A. The Merger. Upon the terms and subject to the conditions set forth in
the Agreement and this Plan, and in accordance with the Kentucky Revised
Statutes, as amended ("KRS") at the Effective Time (as hereinafter defined),
Tube Turns shall be merged with and into New Tube Turns in accordance with the
KRS (the "Tube Turns Merger"), whereupon the separate existence of Tube Turns
shall cease and New Tube Turns shall continue as the surviving corporation
(sometimes referred to herein as the "Surviving Corporation").
B. Articles of Merger. Upon the terms and conditions set forth in the
Agreement and this Plan, Articles of Merger (the "Articles of Merger") shall be
duly prepared and executed by Tube Turns and New Tube Turns, and thereafter
delivered to the Secretary of State of the Commonwealth of Kentucky for filing
as provided in
<PAGE>
the KRS. The Tube Turns Merger shall become effective upon filing with the
Kentucky Secretary of State or at such time and date thereafter as is provided
in the Articles of Merger (the "Effective Time"). The date on which the
Effective Time occurs shall be the "Effective Date".
C. Effect of Filing. At the Effective Time, the Tube Turns Merger shall
have the effects set forth in the applicable provisions of the KRS. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the properties, rights, privileges, powers, and franchises of Tube
Turns and New Tube Turns, shall vest in the Surviving Corporation without
further act or deed, and all debts, liabilities and duties of Tube Turns and New
Tube Turns shall become the debts, liabilities and duties of the Surviving
Corporation.
ARTICLE 2
---------
CONVERSION OF SHARES
--------------------
A. Conversion of Shares; Adjustments. At the Effective Time, by virtue of
the Tube Turns Merger and without any action on the part of Tube Turns or New
Tube Turns or the stockholders of either of the foregoing entities:
[1] each share of the common stock of Tube Turns, no par value
per share (the "Tube Turns Common Stock"), issued and outstanding
immediately prior to the Effective Time, and held by a Person (as
hereinafter defined) other than Group Tech, shall be cancelled and
extinguished and automatically converted into the right to receive such
shares of common stock, $.01 par value, of Group Tech ("Group Tech Common
Stock") as is equal to the Tube Turns Conversion Ratio (as hereinafter
defined); and
[2] each share of Tube Turns Common Stock issued and outstanding
immediately prior to the Effective Time, and held by Group Tech, shall be
cancelled and extinguished.
B. Exchange of Certificates.
[1] On or prior to the Effective Time, Group Tech and New Tube
Turns shall make available to each record holder (other than Group Tech)
who, as of the Effective Time, was a holder of an outstanding certificate
or certificates which immediately prior to the Effective Time represented
shares of Tube Turns Common Stock (for purposes of this Article, the
"Certificate" or "Certificates"), a form of letter of transmittal and
instructions for use in effecting the surrender of the Certificates for
payment therefor and conversion thereof. Delivery shall be effected, and
risk of loss and title to the
2
<PAGE>
Certificates shall pass, only upon proper delivery of the Certificates to
Group Tech and the form of letter of transmittal shall so reflect. Upon
surrender to Group Tech of a Certificate, together with such letter of
transmittal duly executed, the holder of such Certificate shall be entitled
to receive in exchange therefor one or more certificates as requested by
the holder (properly issued, executed and countersigned, as appropriate)
representing that number of whole shares of Group Tech Common Stock to
which such holder of Tube Turns Common Stock shall have become entitled
pursuant to the provisions of Article 2 hereof, and the Certificate so
surrendered shall forthwith be cancelled. No interest will be paid or
accrued on any cash payable upon the surrender of the Certificates. If any
portion of the consideration to be received pursuant to Article 2 hereof,
upon exchange of a Certificate, is to be issued or paid to a Person other
than the Person in whose name the Certificate surrendered in exchange
therefor is registered, it shall be a condition of such issuance and
payment that the Certificate so surrendered shall be properly endorsed or
otherwise be in proper form for transfer. From the Effective Time until
surrender in accordance with the provisions of this Article 2, each
Certificate shall represent for all purposes only the right to receive the
consideration provided in Article 2 hereof. All payments in respect of
shares of Tube Turns Common Stock that are made in accordance with the
terms hereof shall be deemed to have been made in full satisfaction of
rights pertaining to such securities.
[2] In the case of any lost, mislaid, stolen or destroyed
Certificate, the holder thereof may be required, as a condition precedent
to delivery to such holder of the consideration described in Article 2, to
deliver to Group Tech and New Tube Turns a lost stock certificate affidavit
and satisfactory indemnity agreement as Group Tech and New Tube Turns may
direct as indemnity against any claim that may be made against Group Tech
and/or New Tube Turns with respect to the Certificate alleged to have been
lost, mislaid, stolen or destroyed.
[3] After the Effective Time, there shall be no transfers on the
stock transfer books of New Tube Turns of the shares of Tube Turns Common
Stock that were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to Group Tech for
transfer, they shall be cancelled and exchanged for the consideration
described in Article 2 hereof.
C. Dissenting Shareholders. To the extent that appraisal rights are
available under the KRS, shares of Tube Turns Common Stock that are issued and
outstanding immediately prior to the Effective Time and that have not been voted
for adoption of the
3
<PAGE>
Tube Turns Merger and with respect to which appraisal rights have been properly
demanded in accordance with the KRS ("Dissenting Shares") shall not be converted
into the right to receive the consideration provided for in Article 2 hereof at
or after the Effective Time unless and until the holder of such shares becomes
ineligible for such appraisal. If a holder of Dissenting Shares becomes
ineligible for such appraisal, then, as of the Effective Time or the occurrence
of such event whichever later occurs, such holder's Dissenting Shares shall
cease to be Dissenting Shares and shall be converted into and represent the
right to receive the consideration provided for in Article 2 hereof. If any
holder of Tube Turns Common Stock shall assert the right to be paid the fair
value of such Tube Turns Common Stock as described above, Tube Turns shall give
New Tube Turns and Group Tech notice thereof and New Tube Turns and Group Tech
shall have the right to participate in all negotiations and proceedings with
respect to any such demands. Tube Turns shall not, except with the prior
written consent of Group Tech and New Tube Turns, voluntarily make any payment
with respect to, or settle or offer to settle, any such demand for payment.
Payment for Dissenting Shares shall be made as required by the KRS.
D. Articles of Incorporation of Surviving Corporation. The Articles of
Incorporation of New Tube Turns, as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation, except that Article I of the Articles of Incorporation of New Tube
Turns shall be amended to read in its entirety as follows:
Article I
---------
Name
----
The name of the corporation is Tube Turns Technologies, Inc.
E. By-Laws of Surviving Corporation. The By-Laws of New Tube Turns in
effect at the Effective Time shall be the By-Laws of the Surviving Corporation
and thereafter may be amended or repealed in accordance with their terms or the
terms of the Articles of Incorporation of the Surviving Corporation and as
provided by applicable law.
F. Directors and Officers of Surviving Corporation. From and after the
Effective Time: (i) the directors of New Tube Turns immediately prior to the
Effective Time shall be the directors of the Surviving Corporation; and (ii) the
officers of New Tube Turns immediately prior to the Effective Time shall be the
officers of the Surviving Corporation, in each case, until their respective
successors are duly elected or appointed and qualify in the manner
4
<PAGE>
provided in the Articles of Incorporation and By-Laws of the Surviving
Corporation or as otherwise provided by applicable law.
G. Tube Turns Conversion Ratio and Adjustment Event.
[1] The "Tube Turns Conversion Ratio" shall be equal to such
fraction as is obtained by dividing the Group Tech Merger Shares (as
hereinafter defined) by the Total Tube Turns Shares (as hereinafter
defined). The "Group Tech Merger Shares" shall be equal to such number of
whole shares of Group Tech Common Stock as is obtained by dividing the
Aggregate Tube Turns Consideration (as hereinafter defined) by the Average
Closing Price. The "Total Tube Turns Shares" shall be equal to 88,625.
The "Aggregate Tube Turns Consideration" shall be equal to $1,772,500.
[2] In the event of any change in Group Tech Common Stock or
Tube Turns Common Stock between the date of this Plan and the Effective
Time by reason of any stock dividend, stock split, subdivision,
reclassification, recapitalization, combination, exchange of shares or the
like (an "Adjustment Event"), the Tube Turns Conversion Ratio shall be
appropriately adjusted so that each holder of Tube Turns Common Stock will
receive in the Tube Turns Merger the same proportionate amount of Group
Tech Common Stock such holder would have been entitled to receive if the
Effective Time had been immediately prior to such Adjustment Event.
[3] For purposes of this Plan, the "Average Closing Price" shall
be the greater of (i) $2.50 per share of Group Tech Common Stock, or (ii)
the arithmetic average of the closing price per share of the Group Tech
Common Stock, as reported on The Nasdaq National Market, for each of the
ten (10) consecutive trading days ending with the trading day which occurs
immediately prior to the effective date of the approval of the transactions
contemplated by the Agreement by the holders of shares of Group Tech Common
Stock voted, in person or by proxy, at the stockholders meeting of Group
Tech held to approve such transactions; provided, however, in no event
shall the Average Closing Price exceed $4.50 per share of Group Tech Common
Stock.
H. New Tube Turns Common Stock. The shares of common stock of New Tube
Turns issued and outstanding immediately prior to the Effective Time shall
remain issued and outstanding at the Effective Time and shall not be effected by
the Tube Turns Merger.
I. Fractional Shares. No scrip or fractional shares of Group Tech Common
Stock shall be issued in the Tube Turns Merger. All fractional shares of Group
Tech Common Stock to which a holder of Tube Turns Common Stock immediately prior
to the Effective Time
5
<PAGE>
would otherwise be entitled at the Effective Time shall be aggregated. If a
fractional share results from such aggregation, such stockholder shall be
entitled, after the later of (a) the Effective Time or (b) the surrender of such
stockholder's Certificate(s) that represent such shares of Tube Turns Common
Stock, to receive from Group Tech an amount in cash in lieu of such fractional
share, based on the Average Closing Price.
J. Person. For purposes of this Plan, "Person" means any individual,
corporation, general or limited partnership, limited liability company, firm,
joint venture, association, enterprise, joint stock company, trust,
unincorporated organization or other entity.
ARTICLE 3
---------
TERMINATION
-----------
Anything contained in this Plan notwithstanding, this Plan may be
terminated and the Tube Turns Merger abandoned as provided in the Agreement.
ARTICLE 4
---------
CONDITIONS PRECEDENT
--------------------
The obligations of the parties to effect the Tube Turns Merger as
herein provided shall be subject to satisfaction, unless duly waived, of the
conditions set forth in the Agreement.
ARTICLE 5
---------
GENERAL PROVISIONS
------------------
A. Law and Section Headings. This Plan shall be construed and interpreted
in accordance with the laws of the Commonwealth of Kentucky. Section headings
are used in this Plan for convenience only and are to be ignored in the
construction of the terms of this Plan.
B. Modifications. The parties hereto may amend, modify or supplement this
Plan in such manner as may be agreed by them in writing.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Plan to be
executed by their duly authorized officers as of the date first above written.
"TUBE TURNS"
TUBE TURNS TECHNOLOGIES, INC.
By:________________________________
Title:______________________________
"NEW TUBE TURNS"
NEW TUBE TURNS TECHNOLOGIES, INC.
By:________________________________
Title:______________________________
7
<PAGE>
PLAN OF MERGER
--------------
THIS PLAN OF MERGER (the "Plan") is made and entered effective as of
the 25th day of November, 1997, by and between BELL TECHNOLOGIES, INC., a
Florida corporation ("Bell") and BELL ACQUISITION CORPORATION, a Florida
corporation ("New Bell").
W I T N E S S E T H :
The respective Boards of Directors of Group Financial Partners, Inc.,
a Kentucky corporation ("GFP"), Tube Turns Technologies, Inc., a Kentucky
corporation, Group Technologies Corporation ("Group Tech"), and Bell have
determined that it is desirable to effect a Second Amended and Restated
Agreement and Plan of Reorganization (the "Agreement"), for the general welfare
and advantage of their respective shareholders, under which plan, inter alia,
Bell would be merged with and into New Bell, in accordance with the terms of
the Agreement and this Plan.
New Bell is a wholly owned subsidiary of Group Tech.
The Boards of Directors of Bell and New Bell have approved and adopted
this Plan and have authorized the execution hereof.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and undertakings herein contained, the parties hereby agree as
follows:
ARTICLE 1
---------
THE MERGER
----------
A. The Merger. Upon the terms and subject to the conditions set forth in
the Agreement and this Plan, and in accordance with the Florida Business
Corporation Act, as amended ("FBCA") at the Effective Time (as hereinafter
defined), Bell shall be merged with and into New Bell in accordance with the
FBCA (the "Bell Merger"), whereupon the separate existence of Bell shall cease
and New Bell shall continue as the surviving corporation (sometimes referred to
herein as the "Surviving Corporation").
B. Articles of Merger. Upon the terms and conditions set forth in the
Agreement and this Plan, Articles of Merger (the "Articles of Merger") shall be
duly prepared and executed by Bell and New Bell, and thereafter delivered to the
Secretary of State of the State of Florida for filing as provided in the FBCA.
The Bell Merger shall become effective upon filing with the Secretary of State
of the State of Florida or at such time and date thereafter
<PAGE>
as is provided in the Articles of Merger (the "Effective Time"). The date on
which the Effective Time occurs shall be the "Effective Date".
C. Effect of Filing. At the Effective Time, the Bell Merger shall have
the effects set forth in the applicable provisions of the FBCA. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the properties, rights, privileges, powers, and franchises of Bell
and New Bell, shall vest in the Surviving Corporation without further act or
deed, and all debts, liabilities and duties of Bell and New Bell shall become
the debts, liabilities and duties of the Surviving Corporation.
ARTICLE 2
---------
CONVERSION OF SHARES
--------------------
A. Conversion of Shares; Adjustments. At the Effective Time, by virtue of
the Bell Merger and without any action on the part of Bell or New Bell or the
stockholders of either of the foregoing entities:
[1] each share of the common stock of Bell, no par value per
share (the "Bell Common Stock"), issued and outstanding immediately prior
to the Effective Time, and held by a Person (as hereinafter defined) other
than Group Tech, shall be cancelled and extinguished and automatically
converted into the right to receive such shares of common stock, $.01 par
value, of Group Tech ("Group Tech Common Stock") as is equal to the Bell
Conversion Ratio (as hereinafter defined); and
[2] each share of Bell Common Stock issued and outstanding
immediately prior to the Effective Time, and held by Group Tech, shall be
cancelled and extinguished.
B. Exchange of Certificates.
[1] On or prior to the Effective Time, Group Tech and New Bell
shall make available to each record holder (other than Group Tech) who, as
of the Effective Time, was a holder of an outstanding certificate or
certificates which immediately prior to the Effective Time represented
shares of Bell Common Stock (for purposes of this Article, the
"Certificate" or "Certificates"), a form of letter of transmittal and
instructions for use in effecting the surrender of the Certificates for
payment therefor and conversion thereof. Delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon proper
delivery of the Certificates to Group Tech and the form of letter of
transmittal shall so reflect. Upon surrender to Group Tech of a
2
<PAGE>
Certificate, together with such letter of transmittal duly executed, the
holder of such Certificate shall be entitled to receive in exchange
therefor one or more certificates as requested by the holder (properly
issued, executed and countersigned, as appropriate) representing that
number of whole shares of Group Tech Common Stock to which such holder of
Bell Common Stock shall have become entitled pursuant to the provisions of
Article 2 hereof, and the Certificate so surrendered shall forthwith be
cancelled. No interest will be paid or accrued on any cash payable upon
the surrender of the Certificates. If any portion of the consideration to
be received pursuant to Article 2 hereof, upon exchange of a Certificate,
is to be issued or paid to a Person other than the Person in whose name the
Certificate surrendered in exchange therefor is registered, it shall be a
condition of such issuance and payment that the Certificate so surrendered
shall be properly endorsed or otherwise be in proper form for transfer.
From the Effective Time until surrender in accordance with the provisions
of this Article 2, each Certificate shall represent for all purposes only
the right to receive the consideration provided in Article 2 hereof. All
payments in respect of shares of Bell Common Stock that are made in
accordance with the terms hereof shall be deemed to have been made in full
satisfaction of rights pertaining to such securities.
[2] In the case of any lost, mislaid, stolen or destroyed
Certificate, the holder thereof may be required, as a condition precedent
to delivery to such holder of the consideration described in Article 2, to
deliver to Group Tech and New Bell a lost stock certificate affidavit and
satisfactory indemnity agreement as Group Tech and New Bell may direct as
indemnity against any claim that may be made against Group Tech and/or New
Bell with respect to the Certificate alleged to have been lost, mislaid,
stolen or destroyed.
[3] After the Effective Time, there shall be no transfers on the
stock transfer books of New Bell of the shares of Bell Common Stock that
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to Group Tech for transfer, they
shall be cancelled and exchanged for the consideration described in Article
2 hereof.
C. Dissenting Shareholders. To the extent that appraisal rights are
available under the FBCA, shares of Bell Common Stock that are issued and
outstanding immediately prior to the Effective Time and that have not been voted
for adoption of the Bell Merger and with respect to which appraisal rights have
been properly demanded in accordance with the FBCA ("Dissenting Shares") shall
not be converted into the right to receive the consideration provided for in
Article 2 hereof at or after the Effective Time
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unless and until the holder of such shares becomes ineligible for such
appraisal. If a holder of Dissenting Shares becomes ineligible for such
appraisal, then, as of the Effective Time or the occurrence of such event
whichever later occurs, such holder's Dissenting Shares shall cease to be
Dissenting Shares and shall be converted into and represent the right to receive
the consideration provided for in Article 2 hereof. If any holder of Bell
Common Stock shall assert the right to be paid the fair value of such Bell
Common Stock as described above, Bell shall give New Bell and Group Tech notice
thereof and New Bell and Group Tech shall have the right to participate in all
negotiations and proceedings with respect to any such demands. Bell shall not,
except with the prior written consent of Group Tech and New Bell, voluntarily
make any payment with respect to, or settle or offer to settle, any such demand
for payment. Payment for Dissenting Shares shall be made as required by the
FBCA.
D. Articles of Incorporation of Surviving Corporation. The Articles of
Incorporation of New Bell, as in effect immediately prior to the Effective Time,
shall be the Articles of Incorporation of the Surviving Corporation, except that
Article I of the Articles of Incorporation of New Bell shall be amended to read
in its entirety as follows:
Article I
---------
Name
----
The name of the corporation is Bell Technologies, Inc.
E. By-Laws of Surviving Corporation. The By-Laws of New Bell in effect at
the Effective Time shall be the By-Laws of the Surviving Corporation and
thereafter may be amended or repealed in accordance with their terms or the
terms of the Articles of Incorporation of the Surviving Corporation and as
provided by applicable law.
F. Directors and Officers of Surviving Corporation. From and after the
Effective Time: (i) the directors of New Bell immediately prior to the Effective
Time shall be the directors of the Surviving Corporation; and (ii) the officers
of New Bell immediately prior to the Effective Time shall be the officers of the
Surviving Corporation, in each case, until their respective successors are duly
elected or appointed and qualify in the manner provided in the Articles of
Incorporation and By-Laws of the Surviving Corporation or as otherwise provided
by applicable law.
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G. Bell Conversion Ratio and Adjustment Event.
[1] The "Bell Conversion Ratio" shall be equal to such fraction
as is obtained by dividing the Group Tech Merger Shares (as hereinafter
defined) by the Total Bell Shares (as hereinafter defined). The "Group
Tech Merger Shares" shall be equal to such number of whole shares of Group
Tech Common Stock as is obtained by dividing the Aggregate Bell
Consideration (as hereinafter defined) by the Average Closing Price (as
hereinafter defined). The "Total Bell Shares" shall be equal to 100,023.
The "Aggregate Bell Consideration" shall be equal to $4,401,012.
[2] In the event of any change in Group Tech Common Stock or
Bell Common Stock between the date of this Plan and the Effective Time by
reason of any stock dividend, stock split, subdivision, reclassification,
recapitalization, combination, exchange of shares or the like (an
"Adjustment Event"), the Bell Conversion Ratio shall be appropriately
adjusted so that each holder of Bell Common Stock will receive in the Bell
Merger the same proportionate amount of Group Tech Common Stock such holder
would have been entitled to receive if the Effective Time had been
immediately prior to such Adjustment Event.
[3] For purposes of this Plan, the "Average Closing Price" shall
be the greater of (i) $2.50 per share of Group Tech Common Stock, or (ii)
the arithmetic average of the closing price per share of the Group Tech
Common Stock, as reported on The Nasdaq National Market, for each of the
ten (10) consecutive trading days ending with the trading day which occurs
immediately prior to the effective date of the approval of the transactions
contemplated by the Agreement by the holders of shares of Group Tech Common
Stock voted, in person or by proxy, at the stockholders meeting of Group
Tech held to approve such transactions; provided, however, in no event
shall the Average Closing Price exceed $4.50 per share of Group Tech Common
Stock.
H. New Bell Common Stock. The shares of common stock of New Bell issued
and outstanding immediately prior to the Effective Time shall remain issued and
outstanding at the Effective Time and shall not be effected by the Bell Merger.
I. Fractional Shares. No scrip or fractional shares of Group Tech Common
Stock shall be issued in the Bell Merger. All fractional shares of Group Tech
Common Stock to which a holder of Bell Common Stock immediately prior to the
Effective Time would otherwise be entitled at the Effective Time shall be
aggregated. If a fractional share results from such aggregation, such
stockholder shall be entitled, after the later of (a) the Effective Time or (b)
the surrender of such stockholder's Certificate(s) that
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represent such shares of Bell Common Stock, to receive from Group Tech an amount
in cash in lieu of such fractional share, based on the Average Closing Price.
J. Person. For purposes of this Plan, "Person" means any individual,
corporation, general or limited partnership, limited liability company, firm,
joint venture, association, enterprise, joint stock company, trust,
unincorporated organization or other entity.
ARTICLE 3
---------
TERMINATION
-----------
Anything contained in this Plan notwithstanding, this Plan may be
terminated and the Bell Merger abandoned as provided in the Agreement.
ARTICLE 4
---------
CONDITIONS PRECEDENT
--------------------
The obligations of the parties to effect the Bell Merger as herein
provided shall be subject to satisfaction, unless duly waived, of the conditions
set forth in the Agreement.
ARTICLE 5
---------
GENERAL PROVISIONS
------------------
A. Law and Section Headings. This Plan shall be construed and interpreted
in accordance with the laws of the Commonwealth of Kentucky. Section headings
are used in this Plan for convenience only and are to be ignored in the
construction of the terms of this Plan.
B. Modifications. The parties hereto may amend, modify or supplement this
Plan in such manner as may be agreed by them in writing.
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IN WITNESS WHEREOF, the parties hereto have caused this Plan to be
executed by their duly authorized officers as of the date first above written.
"BELL"
BELL TECHNOLOGIES, INC.
By:_________________________________
Title:______________________________
"NEW BELL"
BELL ACQUISITION CORPORATION
By:_________________________________
Title:______________________________
7
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APPENDIX B
KENTUCKY REVISED STATUTES
SUBTITLE 13. DISSENTERS' RIGHTS
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
271B.13-010. DEFINITIONS. As used in this subtitle:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by merger
or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under KRS 271B.13-020 and who exercises that right when and in
the manner required by KRS 271B.13-200 to 271B.13-280.
(3) "Fair Value," with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate action
to which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable. In
any transaction subject to the requirements of KRS 271B.12-210 or exempted by
KRS 271B.12-220(2), "fair value" shall be at least an amount required to be paid
under KRS 271B.12-220(2) in order to be exempt from the requirements of KRS
271B.12-210.
(4) "Interest" means interest from the effective date of the
corporate action until the date of payment, at the average rate currently paid
by the corporation on its principal bank loans or, if none, at a rate that is
fair and equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the record
shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder. (Enact. Acts 1988, ch. 23, (S)123, effective January 1, 1989.)
271B.13-020. RIGHT TO DISSENT. (1) A shareholder shall be entitled to
dissent from, and obtain payment of the fair value of his shares in the event
of, any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party:
1. If shareholder approval is required for the merger by KRS 271B.11-030
or the articles of incorporation and the shareholder is entitled to vote on the
merger; or
2. If the corporation is a subsidiary that is merged with its parent
under KRS 271B.11-040;
(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for
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cash pursuant to a plan by which all or substantially all of the net proceeds of
the sale will be distributed to the shareholders within one (1) year after the
date of sale;
(d) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
1. Alters or abolishes a preferential right of the shares to a distribution
or in dissolution;
2. Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
3. Excludes or limits the right of the shares to vote on any matter other
than a limitation by dilution through issuance of shares or other securities
with similar voting rights; or
4. Reduces the number of shares owned by the shareholder to a fraction of a
share if the fractional share so created is to be acquired for cash under KRS
271B.6-040;
(e) Any transaction subject to the requirements of KRS 271B.12-
210 or exempted by KRS 271B.12-220(2); or
(f) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for his
shares under this chapter shall not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation. (Enact. Acts 1988, ch. 23, (S)124, effective
January 1, 1989.)
271B.13-030. DISSENT BY NOMINEE AND BENEFICIAL OWNERS. (1) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he shall dissent with respect to all shares
beneficially owned by any one (1) person and notify the corporation in writing
of the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection shall be
determined as if the shares as to which he dissents and his other shares were
registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to
shares held on his behalf only if:
(a) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
(b) He does so with respect to all shares of which he is the
beneficial shareholder or over which he has power to direct the vote. (Enact.
Acts 1988, ch. 23, (S)125, effective January 1, 1989.)
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
271B.13-200. NOTICE OF DISSENTERS' RIGHTS. (1) If proposed corporate
action creating dissenters' rights under KRS 271B.13-020 is submitted to a vote
at a shareholders' meeting, the meeting notice must state that shareholders are
or may be entitled to assert dissenters' rights under this subtitle and the
corporation shall undertake to provide a copy of this subtitle to any
shareholder entitled to vote at the shareholders' meeting upon request of that
shareholder.
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(2) If corporate action creating dissenters' rights under KRS 271B.13-
020 is taken without a vote of shareholders, the corporation shall notify in
writing all shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in KRS 271B.13-220.
(Enact. Acts 1988, ch. 23, (S)126, effective January 1, 1989.)
271B.13-210. NOTICE OF INTENT TO DEMAND PAYMENT. (1) If proposed
corporate action creating dissenters' rights under KRS 271B.13-020 is submitted
to a vote at a shareholders' meeting, a shareholder who wishes to assert
dissenters' rights:
(a) Shall deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed action is
effectuated; and
(b) Shall not vote his shares in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection
(1) of this section shall not be entitled to payment for his shares under this
chapter. (Enact. Acts 1988, ch. 23, (S)127, effective January 1, 1989.)
271B.13-220. DISSENTERS' NOTICE. (1) If proposed corporate action
creating dissenters' rights under KRS 271B.13-020 is authorized at a
shareholders' meeting, the corporation shall deliver a written dissenters'
notice to all shareholders who satisfied the requirements of KRS 271B.13-210.
(2) The dissenters' notice shall be sent no later than ten (10) days
after the date the proposed corporate action was authorized by the shareholders,
or, if no shareholder authorization was obtained, by the board of directors, and
shall:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of
the first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting dissenters'
rights certify whether or not he acquired beneficial ownership of the shares
before that date;
(d) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty (30), nor more than sixty (60)
days after the date the notice provided in subsection (1) of this section is
delivered; and
(e) Be accompanied by a copy of this subtitle. (Enact. Acts 1988,
ch. 23, (S)128, effective January 1, 1989.)
271B.13-230. DUTY TO DEMAND PAYMENT. (1) A shareholder who is sent a
dissenters' notice described in KRS 271B.13-220 shall demand payment, certify
whether he acquired beneficial ownership of the shares before the date required
to be set forth in the dissenters' notice pursuant to subsection (2)(c) of KRS
271B.13-220, and deposit his certificates in accordance with the terms of the
notice.
(2) The shareholder who demands payment and deposits his share
certificates under subsection (1) of this section shall retain all other rights
of a shareholder until these rights are canceled or modified by the taking of
the proposed corporate action.
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(3) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice,
shall not be entitled to payment for his shares under this subtitle. (Enact.
Acts 1988, ch. 23, (S)129, effective January 1, 1989.)
271B.13-240. SHARE RESTRICTIONS. (1) The corporation may restrict the
transfer of uncertificated shares from the date the demand for their payment is
received until the proposed corporate action is taken or the restrictions
released under KRS 271B.13-260.
(2) The person for whom dissenters' rights are asserted as to
uncertificated shares shall retain all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
(Enact. Acts 1988, ch. 23, (S)130, effective January 1, 1989.)
271B.13-250. PAYMENT. (1) Except as provided in KRS 271B.13-270, as
soon as the proposed corporate action is taken, or upon receipt of a payment
demand, the corporation shall pay each dissenter who complied with KRS 271B.13-
230 the amount the corporation estimates to be the fair value of his shares,
plus accrued interest.
(2) The payment shall be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen (16) months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for that
year, and the latest available interim financial statements, if any;
(b) A statement of the corporation's estimate of the fair value
of the shares;
(c) An explanation of how the interest was calculated; and
(d) A statement of the dissenter's right to demand payment under
KRS 271B.13-280. (Enact. Acts 1988, ch. 23, (S)131, effective January 1, 1989.)
271B.13-260. FAILURE TO TAKE ACTION. (1) If the corporation does not
take the proposed action within sixty (60) days after the date set for demanding
payment and depositing share certificates, the corporation shall return the
deposited certificates and release the transfer restrictions imposed on
uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it shall send a new
dissenters' notice under KRS 271B.13-220 and repeat the payment demand
procedure. (Enact. Acts 1988, ch. 23, (S)132, effective January 1, 1989.)
271B.13-270. AFTER-ACQUIRED SHARES. (1) A corporation may elect to
withhold payment required by KRS 271B.13-250 from a dissenter unless he was the
beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated, and a statement of the dissenter's right to demand payment under KRS
271B.13-280. (Enact. Acts 1988, ch. 23, (S)133, effective January 1, 1989.)
271B.13-280. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR
OFFER. (1) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand payment
of his estimate (less any payment under KRS 271B.13-250), or reject
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the corporation's offer under KRS 271B.13-270 and demand payment of the fair
value of his shares and interest due, if:
(a) The dissenter believes that the amount paid under KRS
271B.13-250 or offered under KRS 271B.13-270 is less than the fair value of his
shares or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under KRS 271B.13-250
within sixty (60) days after the date set for demanding payment; or
(c) The corporation, having failed to take the proposed action,
does not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty (60) days after the date set for
demanding payment.
(2) A dissenter waives his right to demand payment under this section
unless he shall notify the corporation of his demand in writing under subsection
(1) of this section within thirty (30) days after the corporation made or
offered payment for his shares. (Enact. Acts 1988, ch. 23, (S)134, effective
January 1, 1989.)
JUDICIAL APPRAISAL OF SHARES
271B.13-300 COURT ACTION. (1) If a demand for payment under KRS
271B.13-280 remains unsettled, the corporation shall commence a proceeding
within sixty (60) days after receiving the payment demand and petition the court
to determine the fair value of the shares and accrued interest. If the
corporation does not commence the proceeding within the sixty (60) day period,
it shall pay each dissenter whose demand remains unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the circuit court
of the county where a corporation's principal office (or, if none in this state,
its registered office) is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
(3) The corporation shall make all dissenters (whether or not
residents of this state) whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties shall be served
with a copy of the petition. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
(4) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section shall be plenary and exclusive. The court
may appoint one (1) or more persons as appraisers to receive evidence and
recommend decision on the question of fair value. The appraisers have the powers
described in the order appointing them, or in any amendment to it. The
dissenters shall be entitled to the same discovery rights as parties in other
civil proceedings.
(5) Each dissenter made a party to the proceeding shall be entitled to
judgment:
(a) For the amount, if any, by which the court finds the
fair value of his shares, plus interest, exceeds the amount paid by the
corporation; or
(b) For the fair value, plus accrued interest, of his after-
acquired shares for which the corporation elected to withhold payment under KRS
271B.13-270. (Enact. Acts 1988, ch. 23, (S)135, effective January 1, 1989.)
271B.13-310. COURT COSTS AND COUNSEL FEES. (1) The court in an
appraisal proceeding commenced under KRS 271B.13-300 shall determine all costs
of the proceeding, including the reasonable compensation and expenses of
appraisers appointed by the court. The court shall assess the costs against
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the corporation, except that the court may assess costs against all or some of
the dissenters, in amounts the court finds equitable, to the extent the court
finds the dissenters acted arbitrarily, vexatiously, or not in good faith in
demanding payment under KRS 271B.13-280.
(2) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters, if
the court finds the corporation did not substantially comply with the
requirements of KRS 271B.13-200 to 271B.13-280; or
(b) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this subtitle.
(3) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited. (Enact. Acts 1988, ch. 23, (S)136,
effective January 1, 1989.)
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APPENDIX C
FLORIDA BUSINESS CORPORATION ACT
607.1301 DISSENTERS' RIGHTS; DEFINITIONS. -- The following definitions
apply to ss. 607.1302 and 607.1320:
(1) "Corporation" means the issuer of the shares held by a dissenting
shareholder before the corporate action or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Fair value," with respect to a dissenter's shares, means the value of
the shares as of the close of business on the day prior to the shareholders'
authorization date, excluding any appreciation or depreciation in anticipation
of the corporate action unless exclusion would be inequitable.
(3) "Shareholders' authorization date" means the date on which the
shareholders' vote authorizing the proposed action was taken, the date on which
the corporation received written consents without a meeting from the requisite
number of shareholders in order to authorize the action, or, in the case of a
merger pursuant to s. 607.1104, the day prior to the date on which a copy of the
plan of merger was mailed to each shareholder of record of the subsidiary
corporation.
607.1302 RIGHT OF SHAREHOLDERS TO DISSENT.
(1) Any shareholder of a corporation has the right to dissent from, and
obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party:
1. If the shareholder is entitled to vote on the merger, or
2. If the corporation is a subsidiary that is merged with its parent
under s. 607.1104, and the shareholders would have been entitled to vote on
action taken, except for the applicability of s. 607.1104;
(b) Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation, other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange
pursuant to s. 607.1202, including a sale in dissolution but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to the
shareholders within 1 year after the date of sale;
(c) As provided in s. 607.0902(11), the approval of a control-share
acquisition;
(d) Consummation of a plan of share exchange to which the corporation is a
party as the corporation the shares of which will be acquired, if the
shareholder is entitled to vote on the plan;
(e) Any amendment of the articles of incorporation if the shareholder is
entitled to vote on the amendment and if such amendment would adversely affect
such shareholder by:
1. Altering or abolishing any preemptive rights attached to any of
his shares;
2. Altering or abolishing the voting rights pertaining to any of his
shares, except as such rights may be affected by the voting rights of new shares
then being authorized of any existing or new class or series of shares;
3. Effecting an exchange, cancellation, or reclassification of any
of his shares, when such exchange, cancellation, or reclassification would alter
or abolish his voting rights or alter his percentage
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of equity in the corporation, or effecting a reduction or cancellation of
accrued dividends or other arrearages in respect to such shares;
4. Reducing the stated redemption price of any of his redeemable
shares, altering or abolishing any provision relating to any sinking fund for
the redemption or purchase of any of his shares, or making any of his shares
subject to redemption when they are not otherwise redeemable;
5. Making noncumulative, in whole or in part, dividends of any of
his preferred shares which had theretofore been cumulative;
6. Reducing the stated dividend preference of any of his preferred
shares; or
7. Reducing any stated preferential amount payable on any of his
preferred shares upon voluntary or involuntary liquidation; or
(f) Any corporate action taken, to the extent the articles of incorporation
provide that a voting or nonvoting shareholder is entitled to dissent and obtain
payment for his shares.
(2) A shareholder dissenting from any amendment specified in paragraph
(l)(e) has the right to dissent only as to those of his shares which are
adversely affected by the amendment.
(3) A shareholder may dissent as to less than all the shares registered in
his name. In that event, his rights shall be determined as if the shares as to
which he has dissented and his other shares were registered in the names of
different shareholders.
(4) Unless the articles of incorporation otherwise provide, this section
does not apply with respect to a plan of merger or share exchange or a proposed
sale or exchange of property, to the holders of shares of any class or series
which, on the record date fixed to determine the shareholders entitled to vote
at the meeting of shareholders at which such action is to be acted upon or to
consent to any such action without a meeting, were either registered on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc., or held of record by not fewer than 2,000 shareholders.
(5) A shareholder entitled to dissent and obtain payment for his shares
under this section may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
607.1320 PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS.
(1) (a) If a proposed corporate action creating dissenters' rights under s.
607.1302 is submitted to a vote at a shareholders' meeting, the meeting notice
shall state that shareholders are or may be entitled to assert dissenters'
rights and be accompanied by a copy of ss. 607.1301, 607.1302, and 607.1320. A
shareholder who wishes to assert dissenters' rights shall:
1. Deliver to the corporation before the vote is taken written notice of
his intent to demand payment for his shares if the proposed action is
effectuated, and
2. Not vote his shares in favor of the proposed action. A proxy or vote
against the proposed action does not constitute such a notice of intent to
demand payment.
(b) If proposed corporate action creating dissenters' rights under s.
607.1302 is effectuated by written consent without a meeting, the corporation
shall deliver a copy of ss. 607.1301, 607.1302, and 607.1320 to each shareholder
simultaneously with any request for his written consent or, if such a request is
not made, within 10 days after the date the corporation received written
consents without a meeting from the requisite number of shareholders necessary
to authorize the action.
C-2
<PAGE>
(2) Within 10 days after the shareholders' authorization date, the
corporation shall give written notice of such authorization or consent or
adoption of the plan of merger, as the case may be, to each shareholder who
filed a notice of intent to demand payment for his shares pursuant to paragraph
(1)(a) or, in the case of action authorized by written consent, to each
shareholder, excepting any who voted for, or consented in writing to, the
proposed action.
(3) Within 20 days after the giving of notice to him, any shareholder who
elects to dissent shall file with the corporation a notice of such election,
stating his name and address, the number, classes, and series of shares as to
which he dissents, and a demand for payment of the fair value of his shares. Any
shareholder failing to file such election to dissent within the period set forth
shall be bound by the terms of the proposed corporate action. Any shareholder
filing an election to dissent shall deposit his certificates for certificated
shares with the corporation simultaneously with the filing of the election to
dissent. The corporation may restrict the transfer of uncertificated shares from
the date the shareholder's election to dissent is filed with the corporation.
(4) Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided in this section and shall not
be entitled to vote or to exercise any other rights of a shareholder. A notice
of election may be withdrawn in writing by the shareholder at any time before an
offer is made by the corporation, as provided in subsection (5), to pay for his
shares. After such offer, no such notice of election may be withdrawn unless the
corporation consents thereto. However, the right of such shareholder to be paid
the fair value of his shares shall cease, and he shall be reinstated to have all
his rights as a shareholder as of the filing of his notice of election,
including any intervening preemptive rights and the right to payment of any
intervening dividend or other distribution or, if any such rights have expired
or any such dividend or distribution other than in cash has been completed, in
lieu thereof, at the election of the corporation, the fair value thereof in cash
as determined by the board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceedings that may have been
taken in the interim, if:
(a) Such demand is withdrawn as provided in this section;
(b) The proposed corporate action is abandoned or rescinded or the
shareholders revoke the authority to effect such action;
(c) No demand or petition for the determination of fair value by a
court has been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such shareholder
is not entitled to the relief provided by this section.
(5) Within 10 days after the expiration of the period in which shareholders
may file their notices of election to dissent, or within 10 days after such
corporate action is effected, whichever is later (but in no case later than 90
days from the shareholders' authorization date), the corporation shall make a
written offer to each dissenting shareholder who has made demand as provided in
this section to pay an amount the corporation estimates to be the fair value for
such shares. If the corporate action has not been consummated before the
expiration of the 90-day period after the shareholders' authorization date, the
offer may be made conditional upon the consummation of such action. Such notice
and offer shall be accompanied by:
(a) A balance sheet of the corporation, the shares of which the
dissenting shareholder holds, as of the latest available date and not more than
12 months prior to the making of such offer; and
(b) A profit and loss statement of such corporation for the 12-month
period ended on the date of such balance sheet or, if the corporation was not in
existence throughout such 12-month period, for the portion thereof during which
it was in existence.
C-3
<PAGE>
(6) If within 30 days after the making of such offer any shareholder
accepts the same, payment for his shares shall be made within 90 days after the
making of such offer or the consummation of the proposed action, whichever is
later. Upon payment of the agreed value, the dissenting shareholder shall cease
to have any interest in such shares.
(7) If the corporation fails to make such offer within the period
specified therefor in subsection (5) or if it makes the offer and any dissenting
shareholder or shareholders fail to accept the same within the period of 30 days
thereafter, then the corporation, within 30 days after receipt of written demand
from any dissenting shareholder given within 60 days after the date on which
such corporate action was effected, shall, or at its election at any time within
such period of 60 days may, file an action in any court of competent
jurisdiction in the county in this state where the registered office of the
corporation is located requesting that the fair value of such shares be
determined. The court shall also determine whether each dissenting shareholder,
as to whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation fails to
institute the proceeding as herein provided, any dissenting shareholder may do
so in the name of the corporation. All dissenting shareholders (whether or not
residents of this state), other than shareholders who have agreed with the
corporation as to the value of their shares, shall be made parties to the
proceeding as an action against their shares. The corporation shall serve a copy
of the initial pleading in such proceeding upon each dissenting shareholder who
is a resident of this state in the manner provided by law for the service of a
summons and complaint and upon each nonresident dissenting shareholder either by
registered or certified mail and publication or in such other manner as is
permitted by law. The jurisdiction of the court is plenary and exclusive. All
shareholders who are proper parties to the proceeding are entitled to judgment
against the corporation for the amount of the fair value of their shares. The
court may, if it so elects, appoint one or more persons as appraisers to receive
evidence and recommend a decision on the question of fair value. The appraisers
shall have such power and authority as is specified in the order of their
appointment or an amendment thereof. The corporation shall pay each dissenting
shareholder the amount found to be due him within 10 days after final
determination of the proceedings. Upon payment of the judgment, the dissenting
shareholder shall cease to have any interest in such shares.
(8) The judgment may, at the discretion of the court, include a fair rate
of interest, to be determined by the court.
(9) The costs and expenses of any such proceeding shall be determined by
the court and shall be assessed against the corporation, but all or any part of
such costs and expenses may be apportioned and assessed as the court deems
equitable against any or all of the dissenting shareholders who are parties to
the proceeding, to whom the corporation has made an offer to pay for the shares,
if the court finds that the action of such shareholders in failing to accept
such offer was arbitrary, vexatious, or not in good faith. Such expenses shall
include reasonable compensation for, and reasonable expenses of, the appraisers,
but shall exclude the fees and expenses of counsel for, and experts employed by,
any party. If the fair value of the shares, as determined, materially exceeds
the amount which the corporation offered to pay therefor or if no offer was
made, the court in its discretion may award to any shareholder who is a party to
the proceeding such sum as the court determines to be reasonable compensation to
any attorney or expert employed by the shareholder in the proceeding.
(10) Shares acquired by a corporation pursuant to payment of the agreed
value thereof or pursuant to payment of the judgment entered therefor, as
provided in this section, may be held and disposed of by such corporation as
authorized but unissued shares of the corporation, except that, in the case of a
merger, they may be held and disposed of as the plan of merger otherwise
provides. The shares of the surviving corporation into which the shares of such
dissenting shareholders would have been converted had they assented to the
merger shall have the status of authorized but unissued shares of the surviving
corporation.
C-4
<PAGE>
APPENDIX D
FOURTH AMENDMENT TO
THE AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
GROUP TECHNOLOGIES CORPORATION
GROUP TECHNOLOGIES CORPORATION, a corporation organized and operating under
the laws of the State of Florida (the "Corporation"), hereby certifies as
follows:
Pursuant to a meeting of the Board of Directors of the Corporation, duly
and regularly held on September 12, 1997, and pursuant to the action taken by a
majority of the holders of the outstanding common stock of the Corporation at a
special shareholder's meeting duly held on _____________________, 1997, a fourth
amendment to the Amended and Restated Articles of Incorporation of the
Corporation was adopted which deletes Article IV in its entirety and substitutes
the following in lieu thereof:
"ARTICLE IV
Capital Stock
-------------
The total number of shares which are authorized to be issued by the
corporation is 60,000,000 shares of common stock having a $.01 par value
("Common Stock"), and 1,000,000 shares of preferred stock having $.01 par
value ("Preferred Stock").
A description of the foregoing class of stock of the corporation and a
statement of the voting powers, preferences and relative rights and the
qualifications, limitations or restrictions granted to or imposed upon the
shares of each class is as follows:
Paragraph I
-----------
Preferred Stock
---------------
A. Authority is hereby vested in the Board of Directors, by resolution, to
divide any or all of the authorized shares of Preferred Stock into series and,
within the limitations imposed by law and these Articles of Incorporation, to
fix and determine as to each such series.
(1) The voting rights and powers, if any, of the holders of shares of
such series;
(2) The number of shares and designation of such series;
(3) The annual dividend rate;
(4) The prices at, and the terms and conditions on which shares of
such series may be redeemed;
(5) The amounts payable on shares of such series in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the corporation;
(6) The terms, if any, upon which shares of such series may be
convertible into, or exchangeable for, shares of any other class or classes or
of any other series of the same or any other class or classes, including the
price or prices and the rate of conversion or exchange, any adjustments thereof,
and all other terms and conditions;
<PAGE>
(7) The sinking fund provisions, if any, for the redemption or
purchase of shares of such series; and
(8) Such other provisions as may be fixed by the Board of Directors
of the corporation pursuant to the Florida Business Corporation Act.
B. All shares of any one series of Preferred Stock shall be identical with
each other in all respects, except that shares of any one series issued at
different times may differ as to the dates from which dividends thereon shall be
cumulative.
C. The corporation may at any time permitted by the resolution adopted by
the Board of Directors providing for the issue of any series of Preferred Stock
and at the redemption price or prices and on the terms and conditions stated in
said resolution, redeem the whole or any part of the series of Preferred Stock
at the time outstanding.
D. Except when otherwise herein or by statute specifically provided, or
except as provided by the resolution adopted by the Board of Directors providing
for the issue of any series, the holders of shares of Preferred Stock shall not
be entitled to vote at the election of directors or on any question arising at
any meeting of shareholders of the corporation.
E. To the extent permitted by the Florida Business Corporation Act, the
shares of Preferred Stock shall be convertible into other shares of the capital
stock of this corporation upon such terms and conditions and at such rates of
conversion or exchange as may be provided by the resolution adopted by the Board
of Directors providing for the issue of any series.
Paragraph II
------------
Common Stock
------------
A. Subject to the preferential rights of Preferred Stock, such dividends
(either in cash, stock or otherwise) as may be determined by the Board of
Directors may be declared and paid on the Common Stock from time to time in
accordance with the Florida Business Corporation Act.
B. Except when otherwise by statute specifically provided, and except to
the extent qualified or limited by the preferential voting rights of any shares
of Preferred Stock, the holders of the Common Stock shall be entitled to one
vote for each share of Common Stock standing in their names on the books of the
corporation at the election of directors and on any question arising at any
meeting of shareholders of the corporation.
Paragraph III
-------------
General
-------
A. No holder of shares of the corporation of any class, as such, shall
have any preemptive right to subscribe to stock, obligations, warrants,
subscription rights or other securities of the corporation of any class,
regardless of when authorized.
B. For the purposes of this Article VI and of any resolution of the Board
of Directors providing for the issue of any series of Preferred Stock or of any
articles of amendment filed with the Department of State of the State of Florida
(unless otherwise expressly provided in any such resolution or articles) any
class or classes of stock of the corporation shall be deemed to rank junior to
any other class or classes if the rights of the holders thereof shall be subject
or subordinate to the
2.
<PAGE>
rights of the holders or shares of such other class or classes in respect of the
receipt of dividends or of amounts distributable upon liquidation, dissolution,
or winding up."
As required pursuant to Florida Statues (S)607.1006(1)(f), the undersigned
hereby attest that the number of votes cast for the amendment by the
shareholders was sufficient for approval.
WHEREUPON, at Tampa, Florida this ______th day of ______________, 1997, the
Corporation hereby certifies accordingly, under its corporate seal and the hands
of its President and Secretary, so that, on the filing hereof, the Amended and
Restated Articles of Incorporation shall be deemed amended accordingly.
GROUP TECHNOLOGIES
CORPORATION, a Florida Corporation
ATTEST:
By: By:
------------------------- ------------------------------
, Secretary , President
3.
<PAGE>
APPENDIX E
November 12, 1997
Special Committee of the Board of Directors
Group Technologies Corporation
10901 Malcolm McKinley Drive
Tampa, FL 33612
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of the outstanding Common Stock, par value $.01 per
share (the "Common Stock"), of Group Technologies Corporation (the "Company"),
other than Group Financial Partners, Inc. ("GFP") (such shareholders being
collectively referred to herein as the "Unaffiliated Shareholders"), of the
series of transactions, contemplated by the proposed Second Amended and Restated
Agreement and Plan of Reorganization (the "Agreement") by and among GFP; Bell
Technologies, Inc., a subsidiary of GFP ("Bell"); Tube Turns Technologies, Inc.,
a subsidiary of GFP ("Tube Turns"); and the Company. For purposes of this
opinion, we have assumed that the draft Agreement in the form previously
provided to us will not vary in any material respect from the Agreement to be
signed by the parties thereto.
The Agreement provides for, among other things, the merger of GFP with and
into the Company (the "GFP Merger"); the merger of Tube Turns with and into a
wholly-owned subsidiary of the Company (the "Tube Turns Merger"); and the merger
of Bell with and into a wholly-owned subsidiary of the Company (the "Bell
Merger"; the GFP Merger, the Tube Turns Merger, and the Bell Merger are
collectively referred to herein as the "Merger Transactions"). In the Merger
Transactions, the Company will issue shares of Common Stock to the shareholders
(other than the Company) of GFP, Tube Turns, and Bell. The terms and conditions
of the Merger Transactions are more fully set forth in the Agreement.
Capitalized terms used but not defined herein have the meanings ascribed to such
terms in the Agreement.
J. C. Bradford & Co., LLC, as part of its investment banking business,
engages in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of listed
and unlisted securities, private placements, and valuations for estate,
corporate, and other purposes. We have acted as financial advisor to the
Special Committee of the Board of Directors of the Company in connection with
the proposed Merger Transactions and will receive a fee from the Company for our
services. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of the rendering of this opinion.
In conducting our analyses and arriving at our opinion, we have considered
such financial and other information as we deemed appropriate including, among
other things, the following: (i) the proposed Agreement, draft dated
November 1997; (ii) the historical and current financial position and
results of operations of the Company as set forth in its periodic reports and
proxy
<PAGE>
materials filed with the Securities and Exchange Commission and the historical
and current financial position and results of operations of each of GFP, Tube
Turns, Bell and Datatape, Incorporated ("Datatape") as set forth in its audited
and unaudited financial statements, (iii) certain internal operating data and
financial analyses and forecasts of each of the Company, GFP, Bell, Tube Turns
and Datatape for the years beginning January 1, 1997 and ending December 31,
2001, prepared by its respective senior management; (iv) certain financial and
securities trading data of certain other companies, the securities of which are
publicly traded, that we believed to be comparable to the Company, Tube Turns,
and Bell or relevant to the transaction; (v) the financial terms of certain
other transactions that we believed to be relevant; (vi) reported price and
trading activity for the shares of Common Stock; and (vii) such other financial
studies, analyses, and investigations as we deemed appropriate for purposes of
our opinion. We also have held discussions with members of the senior management
of the Company, GFP, Bell, Tube Turns and Datatape regarding the past and
current business operations, financial condition, and future prospects of the
Company, GFP, Bell, Tube Turns and Datatape.
We have taken into account our assessment of general economic, market, and
financial and other conditions and our experience in other transactions, as well
as our experience in securities valuation and our knowledge of the industries in
which the Company, GFP, Bell, and Tube Turns operate generally. Our opinion is
necessarily based upon the information made available to us and conditions as
they exist and can be evaluated as of the date hereof.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us for purposes of our opinion and have not
assumed any responsibility for, nor undertaken an independent verification of,
such information. With respect to the internal operating data and financial
analyses and forecasts supplied to us, we have assumed that such data, analyses,
and forecasts were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the Company's, GFP's, Bell's, and Tube
Turns' respective senior management as to the recent and likely future
performance of their respective company. Accordingly, we express no opinion
with respect to such analyses or forecasts or the assumptions on which they are
based. In addition, we were not asked to consider and our opinion does not
address the relative merits of the proposed Merger Transactions as compared to
any other transactions in which the Company might engage. Furthermore, we have
not conducted a physical inspection of all of the properties and facilities of
GFP, Bell, or Tube Turns, and we have not made an independent evaluation or
appraisal of the assets and liabilities of the Company, GFP, Bell, or Tube Turns
or any of their respective subsidiaries or affiliates and have not been
furnished with any such evaluation or appraisal.
The Company is entitled to reproduce this opinion, in whole or in part, in
any proxy statement circulated in connection with the Group Tech Stockholder
Approval as required by applicable law or appropriate; provided, that any
excerpt from or reference to this opinion (including any summary thereof) in
such document must be approved by us in advance in writing. Notwithstanding the
foregoing, this opinion does not constitute a recommendation to any holder of
shares of Common Stock to vote in favor of the Merger Transactions. We were
engaged by the Special Committee of the Board of Directors of the Company to
render this opinion, upon the Special Committee's request, in connection with
the discharge of its fiduciary
E-2
<PAGE>
obligations. We have advised the Special Committee of the Board of Directors
that we do not believe that any person (including a stockholder of the Company)
other than the Special Committee of the Board of Directors has the legal right
to rely upon this opinion for any claim arising under state law and that, should
any such claim be brought against us, this assertion will be raised as a
defense. In the absence of governing authority, this assertion will be resolved
by the final adjudication of such issue by a court of competent jurisdiction.
Resolution of this matter under state law, however, will have no effect on the
rights and responsibilities of any person under the federal securities laws or
on the rights and responsibilities of the Company's Board of Directors under
applicable state law.
Based upon and subject to the foregoing, and based upon such other matters
as we consider relevant, it is our opinion that, as of the date hereof, the
Merger Transactions are fair to the Unaffiliated Shareholders from a financial
point of view.
Sincerely,
J.C. BRADFORD & CO., LLC
E-3
<PAGE>
APPENDIX F
FIFTH AMENDMENT TO
THE AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
GROUP TECHNOLOGIES CORPORATION
GROUP TECHNOLOGIES CORPORATION, a corporation organized and operating under
the laws of the State of Florida (the "Corporation"), hereby certifies as
follows:
Pursuant to a meeting of the Board of Directors of the Corporation, duly
and regularly held on September 12, 1997, and pursuant to the action taken by a
majority of the holders of the outstanding common stock of the Corporation at a
special shareholder's meeting duly held on ______________________, 1997, a fifth
amendment to the Amended and Restated Articles of Incorporation of the
Corporation was adopted which deletes Article IV in its entirety and substitutes
the following in lieu thereof:
"ARTICLE IV
Capital Stock
-------------
The total number of shares which are authorized to be issued by the
corporation is 15,000,000 shares of common stock having a $.01 par value
("Common Stock"), and 1,000,000 shares of preferred stock having $.01 par
value ("Preferred Stock").
A description of the foregoing class of stock of the corporation and a
statement of the voting powers, preferences and relative rights and the
qualifications, limitations or restrictions granted to or imposed upon the
shares of each class is as follows:
Paragraph I
-----------
Preferred Stock
---------------
A. Authority is hereby vested in the Board of Directors, by
resolution, to divide any or all of the authorized shares of Preferred
Stock into series and, within the limitations imposed by law and these
Articles of Incorporation, to fix and determine as to each such series.
(1) The voting rights and powers, if any, of the holders of
shares of such series;
(2) The number of shares and designation of such series;
(3) The annual dividend rate;
(4) The prices at, and the terms and conditions on which shares
of such series may be redeemed;
(5) The amounts payable on shares of such series in the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the corporation;
(6) The terms, if any, upon which shares of such series may be
convertible into, or exchangeable for, shares of any other class or classes
or of any other
<PAGE>
series of the same or any other class or classes, including the price or
prices and the rate of conversion or exchange, any adjustments thereof, and
all other terms and conditions;
(7) The sinking fund provisions, if any, for the redemption or
purchase of shares of such series; and
(8) Such other provisions as may be fixed by the Board of
Directors of the corporation pursuant to the Florida Business Corporation
Act.
B. All shares of any one series of Preferred Stock shall be
identical with each other in all respects, except that shares of any one
series issued at different times may differ as to the dates from which
dividends thereon shall be cumulative.
C. The corporation may at any time permitted by the resolution
adopted by the Board of Directors providing for the issue of any series of
Preferred Stock and at the redemption price or prices and on the terms and
conditions stated in said resolution, redeem the whole or any part of the
series of Preferred Stock at the time outstanding.
D. Except when otherwise herein or by statute specifically provided,
or except as provided by the resolution adopted by the Board of Directors
providing for the issue of any series, the holders of shares of Preferred
Stock shall not be entitled to vote at the election of directors or on any
question arising at any meeting of shareholders of the corporation.
E. To the extent permitted by the Florida Business Corporation Act,
the shares of Preferred Stock shall be convertible into other shares of the
capital stock of this corporation upon such terms and conditions and at
such rates of conversion or exchange as may be provided by the resolution
adopted by the Board of Directors providing for the issue of any series.
Paragraph II
------------
Common Stock
------------
A. Subject to the preferential rights of Preferred Stock, such
dividends (either in cash, stock or otherwise) as may be determined by the
Board of Directors may be declared and paid on the Common Stock from time
to time in accordance with the Florida Business Corporation Act.
B. Except when otherwise by statute specifically provided, and
except to the extent qualified or limited by the preferential voting rights
of any shares of Preferred Stock, the holders of the Common Stock shall be
entitled to one vote for each share of Common Stock standing in their names
on the books of the corporation at the election of directors and on any
question arising at any meeting of shareholders of the corporation.
Paragraph III
-------------
General
-------
A. No holder of shares of the corporation of any class, as such,
shall have any preemptive right to subscribe to stock, obligations,
warrants, subscription rights or other securities of the corporation of any
class, regardless of when authorized.
2.
<PAGE>
B. For the purposes of this Article VI and of any resolution of the
Board of Directors providing for the issue of any series of Preferred Stock
or of any articles of amendment filed with the Department of State of the
State of Florida (unless otherwise expressly provided in any such
resolution or articles) any class or classes of stock of the corporation
shall be deemed to rank junior to any other class or classes if the rights
of the holders thereof shall be subject or subordinate to the rights of the
holders or shares of such other class or classes in respect of the receipt
of dividends or of amounts distributable upon liquidation, dissolution, or
winding up.
C. Upon this Amendment to the Articles of Incorporation of Group
Technologies Corporation becoming effective pursuant to the Florida
Business Corporation Act, (the "Effective Time"), each outstanding share of
Common Stock, par value $0.01 per share ("Existing Stock"), shall thereupon
be reclassified and changed into one-fourth (1/4) of one share of Common
Stock, par value $0.01 per share ("New Stock"). Upon such Effective Time,
each holder of Existing Stock shall thereupon automatically be and become
the holder of one-fourth of one share of New Stock for every share of
Existing Stock then held by such holder. Upon such Effective Time, each
certificate formerly representing a stated number of shares of Existing
Stock shall thereupon be a certificate for and shall represent one-fourth
of the number of shares of New Stock as is stated in such certificate. As
soon as practicable after such Effective Time, shareholders as of the date
of the reclassification will be notified thereof, and, upon delivery of
their certificates for Existing Stock to the Corporation, will be sent
stock certificates representing their shares of New Stock, rounded up to
the nearest whole number. No fractional shares for Existing Stock will be
issued in connection with the stock split. In addition, appropriate entries
shall be made in the accounting records of the Corporation."
As required pursuant to Florida Statues (S)607.1006(1)(f), the undersigned
hereby attest that the number of votes cast for the amendment by the
shareholders was sufficient for approval. Further, the undersigned acknowledge
that the amendment provides for a reclassification of issued shares. As required
pursuant to Florida Statues (S)607.1025(7), the undersigned hereby attest that
this Amendment does not adversely affect the rights or preferences of the
holders of outstanding shares of any class or series and does not result in the
percentage of authorized shares that remain unissued after the combination
exceeding the percentage of authorized shares that were unissued before the
combination.
WHEREUPON, at Tampa, Florida this ______th day of ______________, 1997, the
Corporation hereby certifies accordingly, under its corporate seal and the hands
of its President and Secretary, so that, on the filing hereof, the Amended and
Restated Articles of Incorporation shall be deemed amended accordingly.
GROUP TECHNOLOGIES
CORPORATION, a Florida Corporation
ATTEST:
By: By:
--------------------------- ------------------------------
, Secretary , President
3.
<PAGE>
APPENDIX G
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Plan of Merger") made this 22nd day of
September, 1997 between GROUP TECHNOLOGIES CORPORATION, a Florida corporation
having an address of 10901 Malcolm McKinley Drive, Tampa, Florida 33612 ("GTC"),
and SYPRIS SOLUTIONS, INC., a Delaware corporation having an address of 455
South Fourth Street, Louisville, Kentucky 40202 ("Sypris").
WHEREAS, GTC has authorized capital stock consisting of 40,000,000 shares
of common stock, par value $.01 per share, which is proposed to be increased to
60,000,000 shares, and then proposed to be reduced by a 1 for 4 reverse stock
split (the "Reverse Stock Split") to 15,000,000 shares, of which 16,220,629
shares have been duly issued and are now outstanding; and 1,000,000 shares of
preferred stock, par value $.01 per share, of which 250,000 shares are issued
and outstanding and which will be converted into common stock, par value $.01
per share, of GTC prior to the effectiveness of this merger; and
WHEREAS, Sypris has an authorized capital stock consisting of 20,000,000
shares of common stock, par value $.01 per share, of which 1,000 shares have
been duly issued and are now outstanding and owned by GTC; 10,000,000 shares of
nonvoting common stock, par value $.01 per share, of which no shares are issued
and outstanding; and 1,000,000 shares of preferred stock, par value $.01 per
share, of which no shares are issued and outstanding; and
WHEREAS, the Board of Directors of GTC and Sypris, respectively, deem it
advisable and generally to the advantage and welfare of the two corporate
parties and their respective shareholders to effect this Plan of Merger, for the
general welfare and advantage of their respective shareholders, under which plan
GTC would be merged with and into Sypris, in accordance with the terms of this
Plan of Merger, and pursuant to the provisions of the Florida Business
Corporation Act (the "FBCA") and of the General Corporation Law of the State of
Delaware (the "GCL").
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained and of the mutual benefits hereby provided, it is
agreed by and between the parties hereto as follows:
1. THE MERGER. Upon the terms and conditions set forth in this Plan of
Merger, at the Effective Time, as hereinafter defined, GTC shall be merged with
and into Sypris (the "Merger") in accordance with the provisions of and with the
effect provided in the FBCA and the GCL. The terms of the Merger shall be as set
forth in this Plan.
2. EFFECTIVE TIME OF MERGER. Upon the terms and conditions set forth in
this Plan, Articles of Merger (the "Articles of Merger") shall be duly prepared
and executed by GTC and Sypris, and thereafter delivered to the Secretary of
State of the State of Florida and the Secretary of State of the State of
Delaware for filing. The Merger shall become effective upon the filing with the
<PAGE>
Florida Secretary of State and the Delaware Secretary of State (the "Effective
Time").
3. SURVIVING CORPORATION. Sypris (sometimes referred to herein as the
"Surviving Corporation") shall survive the Merger and shall continue to be
governed by the laws of the State of Delaware, but the separate corporate
existence of GTC shall cease forthwith upon the Effective Time.
4. SYPRIS CAPITAL STOCK. At the Effective Time, the common stock of
Sypris presently issued and outstanding shall be cancelled and extinguished.
5. CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of
Sypris, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation following the
Effective Time unless and until the same shall be amended or repealed in
accordance with the provisions thereof.
6. BYLAWS. The Bylaws of Sypris as they exist on the Effective Time shall
be the Bylaws of the Surviving Corporation following the Effective Time unless
and until the same shall be amended or repealed in accordance with the
provisions thereof.
7. BOARD OF DIRECTORS AND OFFICERS. The members of the Board of Directors
and the officers of the Surviving Corporation immediately after the Effective
Time of the Merger shall be those persons who were the members of the Board of
Directors and the officers, respectively, of Sypris immediately prior to the
Effective Time of the Merger, and such persons shall serve in such offices,
respectively, for the terms provided by law or in the Bylaws, or until their
respective successors are elected and qualified.
8. CONVERSION OF SHARES OF GTC. Each of the shares of GTC common stock
(the "Shares") issued and outstanding immediately prior to the Effective Time,
and assuming the prior effectiveness of the Reverse Stock Split, shall,
automatically, by virtue of the Merger and at the Effective Time, be exchanged
for and converted into, without any further notice to or on the part of the
holder thereof, one share of the common stock, $.01 par value per share, of
Sypris. At and after the Effective Time, the former holders of Shares shall be
entitled only to the consideration provided for in this Section 8. From and
after the Effective Time, certificates previously representing the Shares shall
represent shares of common stock, $.01 par value, of Sypris.
9. RIGHTS AND LIABILITIES OF SURVIVING CORPORATION. At and after the
Effective Time of the Merger, the Surviving Corporation shall succeed to and
possess, without further act or deed, all of the estate, rights, privileges,
powers, and franchises, both public and private and all of the property, real,
personal, and mixed of each of the parties hereto; all debts due to GTC on
whatever account shall be vested in the Surviving Corporation; all claims,
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<PAGE>
demands, property, rights, privileges, powers and franchises and every other
interest of either of the parties hereto shall be as effectively the property of
the Surviving Corporation as they were of the respective parties hereto; the
title to any real estate vested by deed or otherwise in the Surviving
Corporation shall not revert or be in any way impaired by reason of the Merger,
but shall be vested in the Surviving Corporation; all rights of creditors and
all liens upon any property of either of the parties hereto shall be preserved
unimpaired, limited in lien to the property affected by such lien at the
effective time of the Merger; and all debts, liabilities, and duties of the
respective parties hereto shall thenceforth attach to the Surviving Corporation
and may be enforced against it to the same extent as if such debts, liabilities,
and duties had been incurred or contracted by it.
10. LAW AND SECTION HEADINGS. This Plan of Merger shall be construed and
interpreted in accordance with the laws of the State of Delaware. Section
headings are used in this Plan of Merger for convenience only and are to be
ignored in the construction of the terms of this Plan of Merger.
11. TERMINATION. Anything contained in this Plan notwithstanding and
notwithstanding adoption hereof by the stockholders of GTC, this Plan may be
terminated and the Merger abandoned by mutual agreement of the parties.
12. MODIFICATIONS. The parties hereto may amend, modify or supplement this
Plan, before or after approval thereof by the stockholders of GTC, in such
manner as may be agreed by them in writing.
IN WITNESS WHEREOF each of the parties hereto, pursuant to authority duly
granted by the Board of Directors, has caused this Plan of Merger to be executed
by its authorized officer.
GROUP TECHNOLOGIES CORPORATION
By: /s/ Thomas W. Lovelock
--------------------------------------
Title: President and Chief Executive
-----------------------------------
Officer
-----------------------------------
SYPRIS SOLUTIONS, INC.
By: /s/ Jeffrey T. Gill
--------------------------------------
Title: President and Chief Executive
-----------------------------------
Officer
-----------------------------------
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<PAGE>
APPENDIX H
CERTIFICATE OF INCORPORATION
OF
SYPRIS SOLUTIONS, INC.
The undersigned Incorporator, for the purpose of forming a corporation
under the General Corporation Law of the State of Delaware, does hereby certify
as follows:
FIRST: Name. The name of the Corporation is Sypris Solutions, Inc.
SECOND: Registered Office and Registered Agent. The registered office of
the Corporation in the State of Delaware is 1209 Orange Street, New Castle
County, Wilmington, Delaware 19801. The Registered Agent at the same address is
The Corporation Trust Company.
THIRD: Purposes. The purposes of the Corporation are to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: Incorporator. The name and mailing address of the incorporator is
Dana M. Dembkowski, 1209 Orange Street, Wilmington, Delaware 19801.
FIFTH: Capital Stock.
I. Authorized Capital Stock. The total number of shares which are
authorized to be issued by the Corporation is 20,000,000 shares of common stock
having a $.01 par value per share ("Common Stock"), 10,000,000 shares of
nonvoting common stock having a $.01 par value per share ("Nonvoting Common
Stock"), and 1,000,000 shares of preferred stock having a $.01 par value per
share ("Preferred Stock").
A description of the foregoing classes of stock of the Corporation and
a statement of the voting powers, preferences and relative rights and the
qualifications, limitations or restrictions granted to or imposed upon the
shares of each class is as follows:
II. Preferred Stock
A. Authority is hereby vested in the Board of Directors, by
resolution, to divide any or all of the authorized shares of Preferred Stock
into series and, within the limitations imposed by law and this Certificate of
Incorporation, to fix and determine as to each such series:
[1] The voting rights and powers, if any, of the holders of
shares of such series;
<PAGE>
[2] The number of shares and designation of such series;
[3] The annual dividend rate;
[4] The prices at, and the terms and conditions on which, shares
of such series may be redeemed;
[5] The amounts payable on shares of such series in the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation;
[6] The terms, if any, upon which shares of such series may be
convertible into, or exchangeable for, shares of any other class or classes or
of any other series of the same or any other class or classes, including the
price or prices and the rate of conversion or exchange, any adjustments thereof,
and all other terms and conditions;
[7] The sinking fund provisions, if any, for the redemption or
purchase of shares of such series; and
[8] Such other provisions as may be fixed by the Board of
Directors of the Corporation pursuant to the Delaware General Corporation Law.
B. All shares of any one series of Preferred Stock shall be identical
with each other in all respects, except that shares of any one series issued at
different times may differ as to the dates from which dividends thereon shall be
cumulative.
C. The Corporation may at any time permitted by the resolution
adopted by the Board of Directors providing for the issue of any series of
Preferred Stock and at the redemption price or prices and on the terms and
conditions stated in said resolution, redeem the whole or any part of the
shares of any series of Preferred Stock at the time outstanding.
D. Except when otherwise herein or by statute specifically provided,
or except as provided by the resolution adopted by the Board of Directors
providing for the issue of any series, the holders of shares of Preferred Stock
shall not be entitled to vote at the election of directors or on any question
arising at any meeting of stockholders of the Corporation.
E. To the extent permitted by the Delaware General Corporation Law,
the shares of Preferred Stock shall be convertible into other shares of the
capital stock of this Corporation upon such terms and conditions and at such
rates of conversion or exchange as may be provided by the resolution adopted by
the Board of Directors providing for the issue of any series.
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<PAGE>
III. Common Stock and Nonvoting Common Stock. The Common Stock and
Nonvoting Common Stock are identical, in all respects, except as follows:
A. Each share of Common Stock entitles the holder thereof to one vote
on each matter submitted to a stockholders' vote, while no shares of Nonvoting
Common Stock shall have any voting rights, except for those voting rights
required by the Delaware General Corporation Law.
B. Subject to the limitations prescribed herein, holders of the Common
Stock and Nonvoting Common Stock shall participate equally in any dividends
(payable in cash, stock or property) and stock splits, when and as declared by
the Board of Directors, out of assets of the Corporation legally available
therefor; provided, however, that, in the event of a stock split, or a pro rata
stock dividend of like shares declared on outstanding shares, the holders of
Common Stock shall receive shares of Common Stock and the holders of Nonvoting
Common Stock shall receive shares of Nonvoting Common Stock.
C. In the event the Corporation is liquidated, dissolved or wound up,
whether voluntarily or involuntarily, the holders of the Common Stock and
Nonvoting Common Stock shall participate equally in any distribution. A merger
or consolidation of the Corporation with or into any other corporation or a sale
or conveyance of all or any part of the assets of the Corporation (which shall
not in fact result in the liquidation of the Corporation and the distribution
of assets to stockholders) shall not be deemed to be a voluntary or involuntary
liquidation or dissolution or winding up of the Corporation within the meaning
of this paragraph.
D. If at any time while there are shares of Common Stock and Nonvoting
Common Stock issued and outstanding, it shall be determined by the Board of
Directors, in its sole discretion, that legislation or regulations are enacted
or any judicial or administrative determination is made which would prohibit the
quotation, listing, or trading of the Corporation's Common Stock or Nonvoting
Common Stock on the New York Stock Exchange, the American Stock Exchange or the
National Association of Securities Dealers Automated Quotation System, or would
otherwise have a material adverse effect on the Corporation, in any such case
due to the Corporation having more than one class of common shares outstanding,
then the Board of Directors may by reversion convert all outstanding Nonvoting
Common Stock into Common Stock on a share-for-share basis. To the extent
practicable, notice of such conversion of Nonvoting Common Stock specifying the
date fixed for said conversion shall be mailed, postage prepaid, at least 10
days but not more than 30 days prior to said conversion date to the holders of
record of shares of Common Stock and Nonvoting Common Stock at their respective
addresses as the same shall appear on the
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<PAGE>
books of the Corporation; provided, however, that no failure or inability to
provide such notice shall limit the authority or ability of the Board of
Directors to convert all outstanding Nonvoting Common Stock into Common Stock.
Immediately prior to the close of business on said conversion date (or, if said
conversion date is not a business day, on the next succeeding business day) each
outstanding share of Nonvoting Common Stock shall thereupon automatically be
converted into a share of Common Stock and each certificate theretofore
representing shares of Nonvoting Common Stock shall thereupon and thereafter
represent a like number of shares of Common Stock.
IV. General.
A. No holder of shares of the Corporation of any class, as such, shall
have any preemptive right to subscribe for stock, obligations, warrants,
subscription rights or other securities of the Corporation of any class,
regardless of when authorized.
B. For the purposes of this Article FIFTH and of any resolution of the
Board of Directors providing for the issue of any series of Preferred Stock or
of any certificate of amendment filed with the Secretary of State of the State
of Delaware (unless otherwise expressly provided in any such resolution or
certificate), any class or classes of stock of the Corporation shall be deemed
to rank junior to any other class or classes if the rights of the holders
thereof shall be subject or subordinate to the rights of the holders of shares
of such other class or classes in respect of the receipt of dividends or of
amounts distributable upon liquidation, dissolution, or winding up.
SIXTH: Directors. The affairs of the Corporation are to be conducted by a
Board of Directors of not fewer than three (3) nor more than twelve (12)
members, the number to be set by the directors as provided in the bylaws. The
Board of Directors shall have the power to increase or decrease the number of
directors on the Board of Directors last approved by the stockholders pursuant
to and in accordance with the limitations provided by Delaware law; provided,
however, that at no time shall the number of directors be fewer than three (3)
nor more than twelve (12) without amendment of this Article. Any additional
director or directors elected to fill a vacancy shall be elected by the vote of
a majority of the directors then in office, although less than a quorum, and any
director so chosen shall hold office for a term that shall expire at the time of
the next annual meeting of stockholders at which directors are elected. In no
case will a decrease in the number of directors shorten the term of any
incumbent director.
SEVENTH: Stockholder Nomination of Director Candidates. Subject to the
rights of holders of any class or series of stock having a preference over the
Common Stock as to dividends or upon liquidation, nominations for the election
of directors may be made
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<PAGE>
by the Board of Directors or a committee appointed by the Board of Directors or
by any stockholder entitled to vote in the election of directors generally.
However, any stockholder entitled to vote in the election of directors generally
may nominate one or more persons for election as directors at a meeting only if
timely written notice of such nomination or nominations has been given to the
Secretary of the Corporation. To be timely, such notice shall be delivered to
or mailed and received at the principal executive offices of the Corporation not
later than the close of business on the 10th day following the day on which
notice of the date of the meeting was mailed or public disclosure of the date of
the meeting was made, whichever first occurs. Each such notice to the
Secretary shall set forth: (a) the name, age and address of the stockholder who
intends to make the nomination; (b) a representation that the stockholder is a
holder of record of stock of the Corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (c) the name, age, business and
residence addresses, and principal occupation or employment of each nominee; (d)
a description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; (e) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission, had the
nominee been nominated, or intended to be nominated by the Board of Directors;
and (f) the consent of each nominee to serve as a director of the Corporation if
so elected. The Corporation may require any proposed nominee to furnish such
other information as may reasonably be required by the Corporation to determine
the eligibility of such proposed nominee to serve as a director of the
Corporation. The presiding officer at the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing procedures.
EIGHTH: Call of Special Meetings of Stockholders. Special meetings of
stockholders of the Corporation may be called only by the Board of Directors
pursuant to a resolution adopted by a majority of the Directors in writing, or
by the holders of not less than fifty percent (50%) of all shares entitled to
cast votes at the meeting. Notice of a special meeting must include a
description of the purpose or purposes for which the meeting is called.
NINTH: Elimination of Director Liability. A director of the Corporation
shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for
H-5
<PAGE>
any transaction from which the director derived an improper personal benefit.
If the Delaware General Corporation Law is amended after the filing of the
Certificate of Incorporation of which this Article is a part to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
TENTH: Bylaws. The bylaws for the Corporation may be adopted, amended and
repealed by the Board of Directors, subject to repeal or change by action of the
stockholders.
ELEVENTH: Right to Indemnification.
A. Indemnification. The Corporation shall indemnify and hold
harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter be amended, any person who was or is made or is
threatened to be made a party, or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding"), by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director, officer, employee or agent of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another Corporation or of a partnership,
joint venture, trust, enterprise or non-profit entity, including service with
respect to employee benefit plans, against all liability and loss suffered and
expenses reasonably incurred by such person. The Corporation shall be required
to indemnify a person in connection with a proceeding initiated by such person
only if the proceeding was authorized by the Board of Directors of the
Corporation.
B. Prepayment of Expenses. The Corporation shall pay the expenses
of directors and executive officers of the Corporation, and may pay the
expenses of all other officers, employees or agents of the Corporation, incurred
in defending any proceeding, in advance of its final disposition, provided,
however, that the payment of expenses incurred by a director, officer, employee
or agent in advance of the final disposition of the proceeding shall be made
only upon receipt of an undertaking by the director, officer, employee or agent
to repay all amounts advanced if it should be ultimately determined that the
director, officer, employee or agent is not entitled to be indemnified under
this Article ELEVENTH or otherwise.
H-6
<PAGE>
C. Claims. If a claim for indemnification or payment of expenses
under this Article is not paid in full within sixty days after a written claim
therefor has been received by the Corporation, the claimant may file suit to
recover the unpaid amount of such claim and, if successful in whole or in part,
shall be entitled to be paid the expense of prosecuting such claim. In any such
action the Corporation shall have the burden of proving that the claimant was
not entitled to the requested indemnification or payment of expenses under
applicable law.
D. Non-Exclusivity of Rights. The rights conferred on any person by
this Article ELEVENTH shall not be exclusive of any other rights which such
person may have or hereafter acquire under any statute, provision of the
certificate of incorporation, bylaws, agreement, vote of stockholders or
disinterested directors or otherwise.
E. Other Indemnification. The Corporation's obligation, if any,
to indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or non-profit entity, shall be reduced by any amount such
person may collect as indemnification from such other corporation, partnership,
joint venture, trust, enterprise or non-profit enterprise.
F. Amendment or Repeal. Any repeal or modification of the
foregoing provisions of this Article ELEVENTH shall not adversely affect any
right or protection hereunder of any person in respect of any act or omission
occurring prior to the time of such repeal or modification.
TWELFTH: Election of Directors. Unless and except to the extent that the
bylaws of the Corporation shall so require, the election of directors of the
Corporation need not be by written ballot.
THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose
of forming a corporation under the laws of the State of Delaware, does make,
file and record this Certificate of Incorporation, hereby declaring and
certifying that this is my act and deed and the facts herein stated are true,
and accordingly have hereunto set my hand this ___ day of September, 1997.
By:
----------------------------------
E:\CMP\SYPRIS.ART
H-7
<PAGE>
APPENDIX I
BYLAWS OF
SYPRIS SOLUTIONS, INC.
ARTICLE I
---------
OFFICES
-------
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The principal office of the
corporation shall be located in Louisville, Kentucky. The corporation may have
such other offices as the business of the corporation may require from time to
time.
ARTICLE II
----------
STOCKHOLDERS
------------
SECTION 1. ANNUAL MEETING. The annual meeting of the stockholders shall be
held between January 1st and December 31st of each year, beginning with the year
1998, on such date and at such hour as may be specified in the Notice of Meeting
or in a duly executed Waiver of Notice thereof, for the purpose of electing
directors and for the transaction of such other business as may come before the
meeting. If the day fixed for the annual meeting shall be a legal holiday, such
meeting shall be held on the next business day which is not a legal holiday. If
the election of directors shall not be held on the day designated for any annual
meeting, or at any adjournment thereof, the Board of Directors shall cause the
election to be held at a special meeting of the stockholders to be held as soon
thereafter as may be convenient.
SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders of the
corporation may be called in accordance with the corporation's certificate of
incorporation.
SECTION 3. PLACE OF MEETING. The Board of Directors may designate any
place within or without the State of Delaware as the place of meeting for any
annual meeting, or any place either within or without the State of Delaware as
the place of meeting for any special meeting called by the Board of Directors.
If no designation is made, or if a special meeting be called by other than
the Board of Directors, the place of meeting shall be the principal office of
the corporation in the State of Kentucky, except as provided in Section 5 of
this Article.
SECTION 4. NOTICE OF MEETINGS. Written or printed notice stating the
place, day and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten (10) nor more than sixty (60) days before the date of the meeting,
either personally
<PAGE>
or by telegraph, teletype or other form of wire or wireless communication, or by
mail or private carrier, by or at the direction of the president, or the
secretary, or the officer or persons calling the meeting, to each stockholder of
record entitled to vote at such meeting, except when a longer period of time is
required by statute. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail in a sealed envelope addressed to the
stockholder at his address as it appears on the records of the corporation, with
first class postage thereon prepaid.
SECTION 5. MEETING OF ALL STOCKHOLDERS. If all of the stockholders shall
meet at any time and place, either within or without the State of Delaware, and
consent to the holding of a meeting, such meeting shall be valid without call or
notice, and at such meeting any corporate action may be taken.
SECTION 6. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. If no
record date is fixed for the determination of stockholders entitled to notice
of or to vote at a meeting of stockholders, or stockholders entitled to receive
payment of a dividend, the date on which notice of the meeting is mailed or the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of stockholders.
When a determination of stockholders entitled to vote at any meeting of
stockholders has been made as provided herein, such determination shall apply to
any adjournment thereof unless the meeting is adjourned to a date more than one
hundred twenty (120) days after the date fixed for the original meeting, in
which case the Board of Directors shall fix a new record date.
SECTION 7. VOTING LISTS AND SHARE LEDGER. The secretary shall prepare and
make, at least ten days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof and may be
inspected by any stockholder who is present. The stock ledger shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list of stockholders or the books of the corporation, or to vote in person
or by proxy at any meeting of stockholders.
SECTION 8. QUORUM. A majority of the outstanding shares entitled to vote,
represented in person or by proxy, shall
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<PAGE>
constitute a quorum at any meeting of stockholders. The stockholders present at
a duly organized meeting can continue to do business for the remainder of the
meeting and for any adjournment thereof until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum, unless a new
record date is or must be set for that adjourned meeting.
SECTION 9. PROXIES. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing by the stockholder or by his duly authorized
attorney-in-fact. Such proxy shall be filed with the secretary of the
corporation before or at the time of the meeting. A stockholder may revoke his
proxy at any time prior to the establishment of a quorum at any meeting of
stockholders. Such revocation shall be in writing and delivered to the
secretary of the corporation prior to the time the presence of a quorum has been
determined and declared.
SECTION 10. ACTION BY CONSENT OF STOCKHOLDERS. Any action required or
permitted to be taken at any annual or special meeting of the stockholders may
be taken without a meeting, without prior notice and without a vote, if one or
more consents in writing, setting forth the action so taken, shall be dated and
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Such written consent(s) shall be delivered to the corporation by delivery to its
principal office in Kentucky, its principal place of business, the corporate
secretary, or another officer or agent of the corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Prompt
notice must be given to those stockholders who have not consented in writing or
who are not entitled to vote on the action.
ARTICLE III
-----------
DIRECTORS
---------
SECTION 1. GENERAL POWERS. The business and affairs of the corporation
shall be managed under the direction of a Board of Directors.
SECTION 2. NUMBER AND TENURE. The number of directors of the corporation
shall be not less than three (3) nor more than twelve (12). The Board of
Directors may from time to time designate the number of directors which shall
constitute the whole Board. The number of directors shall initially be eight
(8). Each director elected by the stockholders shall hold office for the term
for which he is elected or until his successor shall have been elected and
qualifies for the office, whichever period is longer.
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<PAGE>
SECTION 3. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without notice other than this bylaw, immediately after, and at
the same place as, the annual meeting of stockholders. The Board of Directors
may provide, by resolution, the time and place, either within or without the
State of Delaware, for the holding of additional regular meetings without other
notice than such resolution.
SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the chairman of the board or a majority of
the directors. The person or persons authorized to call special meetings of the
Board of Directors may fix any place, either within or without the State of
Delaware, as the place for holding any special meeting of the Board of Directors
called by them.
SECTION 5. NOTICE. Notice of any special meeting shall be given at least
two (2) days prior thereto by telephone, by written notices delivered personally
or mailed to each director at his address on file with the corporation, or by
telegram or other form of electronic communication. If mailed, such notice shall
be deemed to be delivered when deposited in the United States mail in a sealed
envelope so addressed, with postage thereon prepaid. If notice be given by
telegram, such notice shall be deemed to be delivered when the telegram is
delivered to the telegraph company. Any director may waive notice of any
meeting. The attendance of a director at any meeting shall constitute a waiver
of notice of such meeting, unless the director at the beginning of the meeting
(or promptly upon his arrival) objects to the transaction of any business at the
meeting and does not thereafter vote for or assent to action taken at the
meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
SECTION 6. QUORUM. A majority of the Board of Directors shall constitute a
quorum for the transaction of business at any meeting of the Board of Directors,
provided that if less than a majority of the directors are present at said
meeting, a majority of the directors present may adjourn the meeting from time
to time without further notice.
SECTION 7. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors; provided, however, that the Board of Directors, by resolution
adopted by a majority of the full Board of Directors, may designate from among
its members an executive and one or more other committees, including, without
limitation, an audit committee and a compensation committee, each of which, to
the extent provided in such resolution, shall have and may exercise all the
authority of the Board of Directors to the extent permitted by the Delaware
General Corporation Law, but no
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such committee shall have the authority of the Board of Directors to [a] approve
or recommend to stockholders actions or proposals required by Delaware law to be
approved by the stockholders; [b] fill vacancies on the Board of Directors or on
any of its committees; [c] adopt, amend or repeal bylaws; [d] authorize or
approve reacquisition of shares unless pursuant to a general formula or method
specified by the Board of Directors; or [e] authorize or approve the issuance or
sale or contract for sale of shares or determine the designation and relative
rights, preferences and limitations of a voting group, except that the Board of
Directors may authorize a committee (or senior executive officer of the
corporation) to do so within limits specifically prescribed by the Board of
Directors.
SECTION 8. VACANCIES. Any vacancy occurring in the Board of Directors may
be filled by the affirmative vote of a majority of the remaining directors
though less than a quorum of the Board of Directors. A director elected to fill
a vacancy shall serve until the next stockholders' meeting at which directors
are elected.
SECTION 9. COMPENSATION. The Board of Directors shall have authority to
fix the compensation of directors.
SECTION 10. ACTION BY CONSENT OF DIRECTORS. Any action required or
permitted to be taken at a meeting of the Board of Directors or at a meeting of
a committee, may be taken without a meeting if a consent, in writing, setting
forth the action so taken shall be signed by all of the directors, or all of the
members of the committee, as the case may be, and included in minutes or filed
with the corporate records.
ARTICLE IV
----------
OFFICERS
--------
SECTION 1. DESIGNATION OF OFFICERS. The officers of the corporation shall
be a president, one or more vice presidents, a treasurer, a secretary, and such
other officers, including, without limitation, a chairman of the board, a chief
executive officer, one or more assistant treasurers and one or more assistant
secretaries, as may be provided by the Board of Directors and elected in
accordance with the provisions of this article.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the corporation
shall be elected annually by the Board of Directors at the first meeting of the
Board of Directors held after each annual meeting of stockholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as convenient. Vacancies may be filled or new offices
created and filled at any meeting of the Board of Directors. Each officer shall
hold office until his or her successor shall have been duly
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elected and shall have qualified or until his or her death or until he or she
shall resign or shall have been removed from office in the manner hereinafter
provided.
SECTION 3. REMOVAL. Any officer elected by the Board of Directors may be
removed by the Board of Directors, with or without cause, whenever in its
judgment the best interest of the corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Election or appointment of an officer or agent shall not of itself
create contract rights.
SECTION 4. CHAIRMAN OF THE BOARD. The Board of Directors shall appoint one
of its members to be chairman of the board to serve at the pleasure of the
Board. He shall preside at all meetings of the Board of Directors and at all
meetings of the stockholders. The chairman of the board shall supervise the
carrying out of the policies adopted or approved by the Board. He shall have
general executive powers, as well as the specific powers conferred by these
bylaws. He shall also have and may exercise such further powers and duties as
from time to time may be conferred upon, or assigned to him by the Board of
Directors.
SECTION 5. PRESIDENT. The Board of Directors shall appoint the president
of the corporation. The president may sign, with the secretary, or any other
proper officer of the corporation thereunto authorized by the Board of
Directors, certificates for shares of the corporation, any deeds, mortgages,
bonds, contracts, or other instruments which the Board of Directors has
authorized to be executed except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
bylaws to some other officer or agent of the corporation, or shall be required
by law to be otherwise signed or executed; he shall have authority to vote all
shares of stock in other corporations owned by the corporation, unless the Board
of Directors designates and appoints another person as proxy for the
corporation; and in general shall perform all duties incident to the office of
president and such other duties as may be prescribed by the Board of Directors
from time to time. In the event the Board does not appoint a chief executive
officer or in his absence or in the event of his inability or refusal to act,
the president shall perform the duties of chief executive officer. The Board in
its discretion may appoint the same member to the office of chairman of the
board and president. When the member of the Board holds the office of chairman
of the board and president, a vice chairman of the board shall be appointed to
preside at any meeting of the Board at which the chairman is not present.
SECTION 6. CHIEF EXECUTIVE OFFICER. The chief executive officer shall be
the principal executive officer of the corporation and shall in general
supervise and control all of the business affairs of the corporation and in
general shall perform all duties
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incident to the office of chief executive officer and such other duties as may
be prescribed by the Board of Directors from time to time. The Board in its
discretion may appoint the same member to the office of chief executive officer
and chairman of the board and/or president.
SECTION 7. VICE PRESIDENT. The Board shall appoint as many vice presidents
as it deems necessary and may designate one or more vice presidents as senior
vice president of the corporation. Such senior vice president (or in the event
no senior vice president is appointed, the vice president in the order
designated at the time of their election or, in the absence of any designation,
then in the order of their appointment) shall, in the absence of the president
and chief executive officer or in the event of his or their inability or refusal
to act, perform the duties of such office(s) and, when so acting, shall have all
the powers of and be subject to all the restrictions upon such office(s). Any
vice president may sign, with the secretary or an assistant secretary,
certificates for shares of the corporation and shall perform such other duties
as from time to time may be assigned to them by the president or by the Board of
Directors.
SECTION 8. TREASURER. If required by the Board of Directors, the treasurer
shall give a bond for the faithful discharge of his duties in such sum and with
such surety or sureties as the Board of Directors shall determine. He shall: [a]
have charge and custody of and be responsible for all funds and securities of
the corporation; receive and give receipts for moneys due and payable to the
corporation from any source whatsoever, and deposit all such moneys in the name
of the corporation in such banks, trust companies or other depositories as shall
be selected in accordance with the provisions of these bylaws; [b] in general,
perform all the duties incident to the office of treasurer and such other duties
as from time to time may be assigned to him by the president or the Board of
Directors.
SECTION 9. SECRETARY. The secretary shall: [a] keep the minutes of the
stockholders' and of the Board of Directors' meetings in one or more books
provided for that purpose; [b] see that all notices are duly given in accordance
with the provisions of these bylaws or as required by law; [c] be custodian of
the corporate records and of the seal of the corporation and see that the seal
of the corporation is affixed to all certificates for shares prior to the issue
thereof and to all documents, the execution of which on behalf of the
corporation under its seal is duly authorized in accordance with the provisions
of these bylaws; [d] keep a register of the post office address of each
stockholder which shall be furnished to the secretary by such stockholder; [e]
in general, perform all duties incident to the office of secretary and such
other duties as from time to time may be assigned to him by the president or by
the Board of Directors. The secretary may also be designated as registrar of the
corporation. Both the
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secretary and the registrar of the corporation shall have authority to sign with
the president, or vice president, certificates for shares of the corporation,
the issue of which shall have been authorized by resolution of the Board of
Directors, have general charge of the stock transfer books of the corporation
and take all actions necessary for transfer of shares on the books of the
corporation.
SECTION 10. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The assistant
treasurers shall respectively, if required by the Board of Directors, give bonds
for the faithful discharge of their duties in such sums and with such sureties
as the Board of Directors shall determine. The assistant secretaries, as and if
authorized by the Board of Directors, may sign with the president or vice
president certificates for shares of the corporation, the issue of which shall
have been authorized by a resolution of the Board of Directors. The assistant
treasurers and assistant secretaries in general shall perform such duties as
shall be assigned to them by the treasurer or the secretary, respectively, or by
the president or the Board of Directors.
ARTICLE V
---------
CONTRACTS, LOANS, CHECKS AND DEPOSITS
-------------------------------------
SECTION 1. CONTRACTS. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instruments in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
corporation, and no evidences of indebtedness shall be issued in its name unless
authorized in advance or by ratification, by a resolution of the Board of
Directors. Such authority may be general or confined to specific instances.
SECTION 3. CHECKS, DRAFTS, ORDERS, ETC. All checks, drafts, or other
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the corporation shall be signed by such officer or officers,
agent or agents, of the corporation and in such manner as shall from time to
time be determined by resolution of the Board of Directors.
SECTION 4. DEPOSITS. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies, or other depositories as the Board of Directors may
select.
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ARTICLE VI
----------
CERTIFICATES FOR SHARES AND THEIR TRANSFER
------------------------------------------
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
the corporation shall be in such form as may be determined by the Board of
Directors. Such certificates shall be signed by the president or vice president
and by the secretary or an assistant secretary (including by facsimile
signature) and may be sealed with the seal of the corporation or a facsimile
thereof. All certificates surrendered to the corporation for transfer shall be
cancelled, and no new certificate shall be issued until the former certificate
for a like number of shares shall have been surrendered and cancelled, except
that in case of a lost, destroyed or mutilated certificate, a new one may be
issued therefor upon such terms and indemnity to the corporation as the Board of
Directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of the corporation shall
be made only on the books of the corporation by the registered holder thereof or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the secretary of the corporation, and on surrender for cancellation
of the certificate for such shares. The person in whose name shares stand on the
books of the corporation shall be deemed the owner thereof for all purposes as
regards the corporation.
ARTICLE VII
-----------
FISCAL YEAR
-----------
The fiscal year of the corporation shall begin on the first day of January
and end on the last day of December of each calendar year.
ARTICLE VIII
------------
WAIVER OF NOTICE
----------------
Whenever any notice whatever is required to be given under the provisions
of these bylaws, or under the provisions of the Certificate of Incorporation, or
under the provisions of the corporation laws of the State of Delaware, waiver
thereof in writing, signed by the person, or persons, entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice.
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ARTICLE IX
----------
AMENDMENT OF BYLAWS
-------------------
The Board of Directors may alter, amend or rescind the bylaws, subject
to the rights of stockholders to replace or modify such actions.
ARTICLE X
---------
AUDITORS
--------
The corporation's books of account shall be examined annually by an
independent firm of public accountants whose selection shall be made by the
Board of Directors after recommendation by management. Upon completion of the
examination by the auditors, a report shall be prepared and submitted to the
Board of Directors.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
GTC
Article X of the Registrant's Amended and Restated Articles of
Incorporation limits the liability of directors of the Registrant pursuant to
the Florida Business Corporation Act (the "FBCA"). Under this Article, directors
generally will be personally liable to the Registrant or it shareholders for
monetary damages only for acts or omissions not in good faith or which involve
intentional misconduct or are known to the director to be a violation of the
law, for distributions made in violation of the FBCA, or for any transaction
from which a director derives an improper personal benefit.
Article XII of the Registrants Amended and Restated Articles of
Incorporation and the Bylaws of the Registrant require the Registrant to
indemnify each person against liability, and the reasonable cost or expense
incurred by such person in such persons capacity as a director, officer,
employee or agent of the Registrant, or in such persons like capacity with
another entity at the request of the Registrant; provided, however, that no such
person shall be indemnified against any such liability in connection with a
proceeding in which such person has been adjudged liable on the basis that
personal benefit was improperly received or if such indemnification would be
prohibited by law. The Amended and Restated Articles of Incorporation and Bylaws
of the Registrant further provide that the advancement of expenses incurred by
such person and reimbursable thereunder prior to the final disposition of a
proceeding may be made only upon delivery to the Registrant of an undertaking,
by or on behalf of such person, to repay all amounts advanced if it is
ultimately determined that such person is not entitled to indemnification.
If a claim is not paid in full by the Registrant within ninety days
after a written claim has been received, the person making the claim may bring
suit against the Registrant to recover any unpaid amount. If the officer or
director is successful, in whole or in part, he or she will be entitled to be
paid the expense of prosecuting such claim.
The circumstances under which Florida law requires or permits a
corporation to indemnify its directors, officers, employees and/or agents are
set forth at Section 607.0850 of the FBCA.
Generally, under Section 607.0850 of the FBCA, a corporation may
indemnify any person made a party to a proceeding because he or she is or was a
director, officer, employee or agent of the corporation, or is or was serving in
one of those capacities at another entity at the request of the Corporation,
against liability incurred in the proceeding if:
(a) He or she acted in good faith; and
(b) He or she reasonably believed that his or her conduct was in, or
not opposed to, the best interests of the corporation; and
(c) In the case of any criminal proceeding, he or she had no
reasonable cause to believe such conduct was unlawful.
<PAGE>
Indemnification or advancement of expenses shall not be made if a judgment
or other final adjudication establishes that his or her actions or omissions to
act were material to the cause of action and constitute:
(a) A violation of the criminal law, unless such person had reasonable
cause to believe his or her conduct was lawful or had no reasonable
cause to believe it was unlawful;
(b) A transaction from which such person derived an improper personal
benefit;
(c) In the case of a director, a director's approval of an unlawful
distribution; or
(d) Willful misconduct or a conscious disregard for the best interests of
the corporation in a proceeding by or in the right of the corporation
to procure a judgment in its favor or in a proceeding by or in the
right of a shareholder.
Florida law requires corporations to indemnify officers, directors,
employees or agents to the extent they are successful on the merits or otherwise
in defense of any proceeding brought against such officer, director, employee or
agent by reason of the fact that such person is or was an officer, director,
employee or agent.
In addition, the Registrant maintains directors' and officers' liability
insurance covering certain liabilities which may be incurred by the directors
and officers of the Registrant in connection with the performance of their
duties.
Sypris
Pursuant to Article Ninth of the Delaware Certificate ("Article IX"), a
director shall not be personally liable to Sypris or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to Sypris or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL, or (iv) for any transaction from which the director derived an
improper personal benefit. If the DGCL is hereafter amended to permit further
elimination or limitation of the personal liability of directors, then the
liability of a director of Sypris shall be eliminated or limited to the fullest
extent permitted by the DGCL, as so amended. Any repeal or modification of
Article IX shall not adversely affect any right or protection of a director of
Sypris existing at the time of such repeal or modification.
Under Article Eleventh of the Delaware Certificate ("Article XI"), each
person who was or is made a party or is threatened to be made a party to or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that such person, or a person for whom such person is the legal
representative, is or was a director, officer, employee or agent of Sypris or is
or was serving at the request of Sypris as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, shall be
indemnified and held harmless by Sypris to the fullest extent authorized by the
DGCL, as the same exists or may hereafter be amended, against all liability and
loss suffered and expenses reasonably incurred by such person.
Expenses incurred by a director or executive officer of Sypris in defending
any proceeding shall be paid by Sypris in advance of the final disposition of
such proceeding (and in the case of all other officers, employees or agents of
Sypris, Sypris may advance such expenses) only upon receipt of an undertaking by
or on behalf of the director, officer, employee or agent to repay all amounts so
advanced in the event that it shall ultimately be determined that such director,
officer, employee or agent is not entitled to be indemnified by the employee or
agent as authorized in Article XI or otherwise.
<PAGE>
If a claim under Article XI is not paid in full by Sypris within 60 days
after a written claim has been received by Sypris, the claimant may file suit to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid the expense of prosecuting such claim.
Sypris shall have the burden of proving that the claimant was not entitled to
the requested indemnification or payment of expenses under applicable law.
The indemnification and advancement of expenses provided by Article XI
shall not be deemed exclusive of any other rights to which a claimant may be
entitled under any statute, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Generally, under Section 145(a) of the DGCL, a corporation may indemnify
any person made a party to a proceeding (other than an action by or in the right
of the corporation ) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was serving in
one of those capacities at another entity at the request of the corporation,
against expenses reasonably incurred if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, such person had no reasonable cause to believe such person's conduct
was unlawful. Under Section 145(b) of the DGCL, a corporation may indemnify any
person made a party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor by reason of
the fact that such person is or was a director, officer, employee or agent of
the corporation, or is or was serving in one of those capacities at another
entity at the request of the corporation, against expenses reasonably incurred
in connection with the defense or settlement of such action if such person acted
in good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation, and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all circumstances, such person is
fairly and reasonably entitled to indemnification deemed proper by the court.
To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits of any proceeding referred to in
subsection (a) and (b) of Section 145 of the DGCL, or in defense of any claim,
issue or matter therein, such person shall be indemnified against expenses
actually and reasonably incurred in connection therewith.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Note Description
- ------- ---- -----------
<S> <C> <C>
2 Second Amended and Restated Agreement and Plan of
Reorganization (attached as Appendix A to the Joint Proxy
Statement/Prospectus forming a part of the Registration
Statement).
2.1 (1) Purchase and Sale Agreement among Honeywell Inc., Defense
Communications Products Corporation (prior name of
Registrant), and Group Financial Partners, Inc. dated May 21,
1989.
2.2 (1) Purchase and Sale Agreement among Alliant Techsystems Inc.,
MAC Acquisition I, Inc. and the Registrant dated December 31,
1992.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
2.3 (1) Purchase and Sale Agreement among Philips
Electronic North America Corporation and the
Registrant dated June 25, 1993.
2.4 (4) Purchase Agreement among IBM-Brasil-
Industria, Maquinas e Servicos, Ltda. and
Group Technologies Suporte de Informatica
Industria e Comercio Ltda. dated April 28,
1995.
2.4.1 (5) Amendment dated July 18, 1995 to the
Purchase Agreement among IBM-Brasil-
Industria, Maquinas e Servicos, Ltda. and
Group Technologies Suporte de Informatica
Industria e Comercio Ltda. dated April 28,
1995.
2.5 (4) Purchase and Sale Agreement among Metrum,
Inc. and MountainGate Data Systems, Inc.
dated May 3, 1995.
2.6 (4) Purchase and Sale Agreement among Metrum,
Inc. and Sienna Imaging, Inc. dated June 6,
1995.
2.7 (6) Asset Purchase Agreement among Metrum, Inc.,
Registrant and F.W. Bell, Inc. dated
February 9, 1996.
2.8 (7) Asset Purchase Agreement among Registrant,
Teklogix Enterprises, Inc. and Teklogix
International, Inc. dated March 22, 1996.
2.10 (14) Stock and Asset Purchase and Sale Agreement
among Registrant, Group Technologies Mexican
Holding Company, SCI Systems, Inc., SCI
Systems de Mexico S.A. de C.V. and SCI
Holdings, Inc. dated June 30, 1997.
3.1 (1) Amended and Restated Articles of
Incorporation of the Registrant.
3.2 (1) Amended and Restated Bylaws of the
Registrant.
3.3 (1) Articles of Amendment to the Amended and
Restated Articles of Incorporation of the
Registrant.
3.4 (1) Second Amendment to the Amended and Restated
Articles of Incorporation of the Registrant.
3.5 (11) Third Amendment to the Amended and Restated
Articles of Incorporation of the Registrant.
5 (15) Opinion of Fowler, White, Gillen, Boggs,
Villareal and Banker, P.A. regarding
legality.
8 (15) Opinion of Wyatt, Tarrant & Combs
10.1 (2) Revolving Credit and Security Agreement
between the Registrant and First Union
Credit Corporation dated November 22, 1994.
10.2 (3) First Amendment to Revolving Credit and
Security Agreement between Registrant and
First Union Commercial Corporation dated
March 29, 1995.
10.3 (5) Forbearance Agreement between the Registrant
and First Union Commercial Corporation dated
November 7, 1995.
10.4 (7) Amended and Restated Credit and Security
Agreement between the Registrant and First
Union Commercial Corporation dated March 29,
1996.
10.4.1 (9) First Amendment to Amended and Restated
Credit and Security Agreement, dated May 13,
1996.
10.4.2 (9) Second Amendment to Amended and Restated
Credit and Security Agreement, dated
September 5, 1996.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10.4.3 (9) Letter Agreement dated November 7, 1996 Pertaining to Amended
and Restated Credit and Security Agreement.
10.4.4 (11) Third Amendment to Amended and Restated Credit and Security
Agreement, dated March 28, 1997.
10.4.5 1997A Amended and Restated Loan Agreement between Bank One,
Kentucky, NA, BT Holdings, Inc., Bell Technologies, Inc., Tube
Turns Technologies, Inc., Group Technologies Corporation,
Metrum-D, Inc. and Group Financial Partners, Inc. dated
November 1, 1997 and effective November 14, 1997.
10.5 (1) Form of U.S. Government Award/Contract.
10.6 (1) Preferred Supplier Purchase Agreement for Circuit Card
Assembly between the Registrant and Honeywell, Inc. dated
July 1, 1990.
10.7 (1) Purchase Order between the Registrant and Martin Marietta.
10.8 (1) Standard OEM Purchase Agreement between Kulicke and Soffa
Industries, Inc. and Registrant dated March 16, 1993.
10.9 (1) Purchase/Supply Agreement between Philips Circuit Assemblies
and International Game Technology dated July 31, 1992.
10.10 (5) Purchase Order between the Registrant and Lockheed Martin
Corporation dated September 21, 1995.
10.11 (11) OEM Purchase Agreement between Instruments SA, Inc. and
Registrant dated December 11, 1996.
10.12 (1) Cooperation and Licensing Agreement between Dauphin Technology
Incorporated and the Registrant dated August 11, 1993.
10.13 (1) Master Lease Agreement between General Electric Capital
Corporation and the Registrant dated April 1, 1993.
10.14 (1) Lease between Copelco Leasing Corporation and the Registrant
dated April 20, 1993.
10.15 (1) Master Rental Agreement and related documents between Hewlett-
Packard Company and the Registrant.
10.16 (1) Master Equipment Lease Agreement between Ellco Leasing
Corporation and the Registrant dated November 9, 1990.
10.17 (1) Master Lease Agreement between General Electric Capital
Corporation and the Registrant dated March 9, 1993.
10.18 (1) Lease between John Hancock Mutual Life Insurance Company and
Honeywell, Inc. dated April 27, 1979; related Notice of
Assignment from John Hancock Mutual Life Insurance Company to
Sweetwell Industrial Associates, L.P., dated July 10, 1986;
related Assignment and Assumption of Lease between Honeywell,
Inc. and Defense Communications Products Corporation (prior
name of Registrant) dated May 21, 1989; and related Amendment
I to Lease Agreement between Sweetwell Industries Associates,
L.P. and the Registrant dated October 25, 1991, regarding
Tampa Industrial park property.
10.19 (1) Lease between the Registrant and TMC Properties, Inc. dated
August 24, 1994, regarding North 46th Street Property.
10.19.1 (4) Amendment No.1 to Lease between Registrant and TMC Properties,
Inc. dated August 24, 1994 regarding North 46th Street
Property.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10.20 (1) Agreements between the Registrant and
International Brotherhood of Teamsters,
Chauffeurs, Warehousemen, and Helpers of America
Local Union No. 930 dated September 25, 1993.
10.21 (1) Agreements between the Registrant and
International Brotherhood of Teamsters,
Chauffeurs, Warehousemen, and Helpers of America
Local Union No. 930 dated November 22, 1994.
10.22 (1) Group Technologies Corporation Stock Option Plan,
as amended.
10.22.1 (10) Group Technologies Corporation Stock Option Plan,
Restated effective June 28, 1996, dated January
22, 1990.
10.22.2 (11) Group Technologies Corporation Stock Option Plan,
Restated effective December 17, 1996.
10.23 (1) Group Technologies Corporation Executive Staff
Incentive Compensation Plan, as amended.
10.24 (4) Group Technologies Corporate Management Deferred
Compensation Plan Restated effective January 1,
1994 dated May 5, 1995.
10.25 (5) Group Technologies Corporate Management Deferred
Compensation Plan Restated effective October 1,
1995 dated August 29, 1995.
10.26 (4) Group Technologies Corporation Independent
Directors' Stock Option Plan dated October 27,
1994, as approved and ratified at Annual
Shareholder Meeting dated April 21, 1995.
10.26.1 (8) Group Technologies Corporation Independent
Directors' Stock Option Plan Restated effective
February 21, 1996, dated October 27, 1994.
10.26.2 (9) Group Technologies Corporation Independent
Directors' Stock Option Plan Restated effective
October 29, 1996, dated October 27, 1994.
10.26.3 (13) Group Technologies Corporation Independent
Directors' Stock Option Plan Restated effective
June 25, 1997, dated October 27, 1994.
10.27 (4) Group Technologies Corporation 1994 Stock Option
Plan for Key Employees dated October 27, 1994, as
approved and ratified at annual shareholder
meeting dated April 21, 1995.
10.27.1 (8) Group Technologies Corporation 1994 Stock Option
Plan for Key Employees Restated effective on
February 21, 1996, dated October 27, 1994.
10.27.2 (9) Group Technologies Corporation 1994 Stock Option
Plan for Key Employees Restated effective on
October 29, 1996, dated October 27, 1994.
10.27.3 (11) Group Technologies Corporation 1994 Stock Option
Plan for Key Employees Restated effective December
17, 1996, dated October 27, 1994.
10.27.4 (13) Group Technologies Corporation 1994 Stock Option
Plan for Key Employees Restated effective June 25,
1997, dated October 27, 1994.
10.28 (8) Group Technologies Corporation Independent
Directors' Compensation Program Restated effective
February 21, 1996, dated September 1, 1995.
10.28.1 (13) Group Technologies Corporation Independent
Directors Compensation Program Restated effective
June 25, 1997, dated September 1, 1995.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10.29 (8) Group Technologies Corporation 1996 Special Recovery
Bonus Plan for Vice Presidents effective as of January
2, 1996.
10.30 (8) Sublease between Group Technologies Supr. Informatica
Ind. e Com. Ltda. and Ceccato S/A Comercio de
Utilidades Domesticas dated March 20, 1996 regarding
the Campinas, Brazil property.
10.31 (15) Separation letter agreement dated December 10, 1996
between the Registrant and Carl P. McCormick.
10.32 (11) Stock Purchase Agreement and Registration Rights
Agreement between Registrant and Group Financial
Partners, Inc. dated March 28, 1997.
10.33 (12) Stock Purchase Right Agreement dated April 7, 1997
between the Registrant and Thomas W. Lovelock.
10.34 (13) Employment Agreement by and between the Registrant and
Thomas W. Lovelock dated June 23, 1997.
10.35 (13) Employment Agreement by and between the Registrant and
James G. Cocke dated June 23, 1997.
10.36 (13) Special Bonus Agreement by and between the Registrant and David D.
Johnson dated June 25, 1997.
18 (3) Letter from Ernst & Young LLP, regarding change in
accounting principles.
21 (15) Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, independent auditors for
the Registrant.
23.2 Consent of Ernst & Young L.L.P., independent auditors
for Group Financial Partners.
23.3 (15) Consent of Fowler, White, Gillen, Boggs, Villareal and
Banker, P.A. (included in Exhibit 5)
23.4 (15) Consent of Wyatt, Tarrant & Combs (included in Exhibit
8)
23.5 Consent of J.C. Bradford & Co., LLC
23.6 Consent of Coopers & Lybrand L.L.P., independent
auditors for Datatape.
</TABLE>
- ------------------
(1) Incorporated by reference to the Registrant's Registration Statement
on Form S-1 filed May 18, 1994 (Registration No. 33-76326).
(2) Incorporated by reference to the Registrant's Form 10-K for fiscal
year ended December 31, 1994 filed on March 31, 1995.
(3) Incorporated by reference to the Registrant's Form 10-Q for the
Quarterly Period ended April 2, 1995 filed on May 17, 1995.
(4) Incorporated by reference to the Registrant's Form 10-Q for the
Quarterly Period ended July 2, 1995 filed on August 16, 1995.
(5) Incorporated by reference to the Registrant's Form 10-Q for the
Quarterly Period ended October 2, 1995 filed on November 15, 1995.
(6) Incorporated by reference to the Registrant's Form 8-K filed on
February 23, 1996.
(7) Incorporated by reference to the Registrant's Form 10-K for the fiscal
year ended December 31, 1995 filed on April 1, 1996.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(8) Incorporated by reference to the Registrant's Form 10-Q
for the Quarterly Period ended March 31, 1996 filed on
May 14, 1996.
(9) Incorporated by reference to the Registrant's Form 10-Q
for the Quarterly Period ended September 29, 1996 filed
on November 13, 1996.
(10) Incorporated by reference to the Registrant's
Registration Statement on Form S-8 filed on June 28,
1996 (Registration No. 333-07111).
(11) Incorporated by reference to the Registrant's Form 10-K
for the fiscal year ended December 31, 1996 filed on
March 31, 1997.
(12) Incorporated by referenced to the Registrant's Form 10-
Q for the Quarterly Period ended March 30, 1997 filed
on May 14, 1997.
(13) Incorporated by reference to the Registrant's Form 10-Q
for the Quarterly Period ended June 29, 1997 filed on
August 13, 1997.
(14) Incorporated by reference to the Registrant's Form 8-K
filed on July 15, 1997.
(15) Previously filed with Registrant's Form S-4 (No. 333-
20299) filed on January 24, 1997, as amended September
24, 1997.
</TABLE>
<PAGE>
(b) Financial Statement Schedules:
Schedule II (a) Valuation and Qualifying Accounts; Group Technologies
Corporation
Schedule II (b) Valuation and Qualifying Accounts; Group Financial
Partners, Inc. and Subsidiaries
All other consolidated financial statement schedules have been omitted
because the required information is shown in the consolidated
financial statements or notes thereto or they are not applicable.
(c) The opinions of J.C. Bradford, advisor to the Special Committee to the
GTC Board, are appendices to the prospectus included in this
registration statement.
Item 22. Undertakings
(a) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(d) The Registrant undertakes that every prospectus (i) that is filed pursuant
to paragraph (c) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Proxy Statement-
Prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within
<PAGE>
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
(g) If the securities are registered pursuant to Rule 415 under the Securities
Act of 1933, the undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Tampa, State of Florida, on December 4, 1997.
GROUP TECHNOLOGIES CORPORATION
By: /s/ Thomas W. Lovelock
-----------------------
Thomas W. Lovelock
Title: President and Chief Executive Officer
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Jeffrey T. Gill December 4, 1997
- ------------------- ----------------------------
Jeffrey T. Gill Chairman and Director
/s/ Thomas W. Lovelock December 4, 1997
- ---------------------- ----------------------------
Thomas W. Lovelock President, Chief Executive
Officer and Director
/s/ David D. Johnson December 4, 1997
- ---------------------- ----------------------------
David D. Johnson Vice President of Finance,
Chief Financial Officer and
Principal Accounting
Officer
* December 4, 1997
- ---------------------- ----------------------------
Robert E. Gill Director
* December 4, 1997
- ---------------------- ----------------------------
Henry F. Frigon Director
* December 4, 1997
- ---------------------- ----------------------------
Sidney R. Petersen Director
* December 4, 1997
- ---------------------- ----------------------------
Roger W. Johnson Director
</TABLE>
* By /s/ Jeffrey T. Gill
-------------------
Jeffrey T. Gill,
Attorney-In-Fact
<PAGE>
SCHEDULE II (a)
VALUATION AND QUALIFYING ACCOUNTS
GROUP TECHNOLOGIES CORPORATION
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Deductions Period
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996.......... $ 783,000 $ 961,000 $ 498,000/(1)/ $1,246,000
========== ========== ========== ==========
Year ended December 31, 1995.......... $ 538,000 $1,293,000 $1,048,000/(1)/ $ 783,000
========== ========== ========== ==========
Year ended December 31, 1994.......... $1,144,000 $ 571,000 $1,177,000/(1)/ $ 538,000
========== ========== ========== ==========
Reserve for inactive, obsolete and
unsalable inventories:
Year ended December 31, 1996.......... $8,606,000 $3,567,000 $7,285,000/(2)/ $4,888,000
========== ========== ========== ==========
Year ended December 31, 1995.......... $2,230,000 $6,939,000 $ 563,000/(2)/ $8,606,000
========== ========== ========== ==========
Year ended December 31, 1994.......... $2,139,000 $ 540,000 $ 449,000/(2)/ $2,230,000
========== ========== ========== ==========
</TABLE>
- ---------------------
(1) Uncollectible accounts written off, net of reserves.
(2) Inactive, obsolete and unsalable inventories written off.
<PAGE>
SCHEDULE II (b)
VALUATION AND QUALIFYING ACCOUNTS
GROUP FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Additions
--------------------
Balance at Charged to Charged Balance at
Beginning Costs and to Other End of
of Period Expenses Accounts Deductions Period
---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996............................... $1,090,000 $1,208,000 $ - $ 287,000 (1) $2,011,000
========== ========== ======== ========== ==========
Year ended December 31, 1995............................... $ 697,000 $1,523,000 $ - $1,130,000 (1) $1,090,000
========== ========== ======== ========== ==========
Year ended December 31, 1994............................... $1,262,000 $ 650,000 $ - $1,215,000 (1) $ 697,000
========== ========== ======== ========== ==========
Reserve for inactive, obsolete and unsalable inventories:
Year ended December 31, 1996............................... $8,563,000 $4,106,000 $ - $6,138,000 (1) $6,531,000
========== ========== ======== ========== ==========
Year ended December 31, 1995............................... $2,473,000 $6,990,000 $ - $ 900,000 (2) $8,563,000
========== ========== ======== ========== ==========
Year ended December 31, 1994............................... $2,221,000 $ 573,000 $ - $ 321,000 (2) $2,473,000
========== ========== ======== ========== ==========
</TABLE>
- -----------------
(1) Uncollectible accounts written off, net of reserves.
(2) Inactive, obsolete and unsalable inventories written off.
<PAGE>
===============================================================================
1997A AMENDED AND RESTATED LOAN AGREEMENT
By and between
BT HOLDINGS, INC.,
BELL TECHNOLOGIES, INC.,
TUBE TURNS TECHNOLOGIES, INC.,
GROUP TECHNOLOGIES CORPORATION,
METRUM-D, INC.,
as Borrowers
GROUP FINANCIAL PARTNERS, INC.,
as Guarantor
and
BANK ONE, KENTUCKY, NA
as Agent Bank
and
BANK ONE, KENTUCKY, NA
as a Bank
dated as of November 1, 1997
===============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1 - DEFINITIONS AND CROSS REFERENCE........................................... 2
SECTION 2 - REVOLVING CREDIT FACILITY................................................. 20
2.1 Revolving Loan Commitments, Revolving Credit Loans........................... 20
2.2 Interest on the Revolving Credit Loans....................................... 24
2.3 Fees......................................................................... 28
2.4 Prepayments and Payments; Reductions in Revolving Loan Commitments........... 30
2.5 Use of Proceeds.............................................................. 32
2.6 Swing Line Credit Subfacility................................................ 32
2.7 Letters of Credit............................................................ 35
SECTION 3 - TERM LOANS................................................................ 43
3.1 Principal of the Term Loans.................................................. 43
3.2 Interest on the Term Loans................................................... 44
3.3 Prepayments and Payments; Reductions in Term Loans Commitments............... 48
3.4 Use of Proceeds.............................................................. 49
SECTION 4 - SPECIAL PROVISIONS GOVERNING LIBOR LOANS................................... 50
4.1 Determination of LIBOR....................................................... 50
4.2 Inability to Determine LIBOR................................................. 50
4.3 Illegality or Impracticability of LIBOR Loans................................ 50
4.4 Compensation For Breakage or Non-Commencement of Interest Periods............ 51
4.5 Booking of LIBOR Loans....................................................... 52
4.6 Assumptions Concerning Funding of LIBOR Loans................................ 52
4.7 LIBOR Loans After Event of Default........................................... 52
SECTION 5 - CLOSING CONDITIONS......................................................... 53
5.1 Initial Closing Conditions................................................... 53
5.2 Conditions to All Revolving Credit Loans, Letters of Credit
and Swing Line Loans......................................................... 56
SECTION 6 - REPRESENTATIONS AND WARRANTIES............................................. 58
6.1 Organization, Standing, etc, of Group Financial and the Borrowers............ 58
6.2 Qualification................................................................ 58
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
6.3 Use of Proceeds.............................................................. 58
6.4 Intellectual Property........................................................ 58
6.5 Disclosure; Solvency......................................................... 59
6.6 Tax Returns and Payments..................................................... 59
6.7 Funded Debt, etc............................................................. 59
6.8 Title to Properties; Liens; Leases........................................... 60
6.9 Litigation, etc.............................................................. 60
6.10 Authorization; Compliance With Other Instruments, etc........................ 60
6.11 Enforceability............................................................... 61
6.12 Governmental Consent......................................................... 61
6.13 Environmental Matters........................................................ 61
SECTION 7 - AFFIRMATIVE COVENANTS..................................................... 63
7.1 Corporate Existence and Good Standing........................................ 63
7.2 Money Obligations, Payment of Taxes, ERISA, etc.............................. 63
7.3 Financial Statements and Reports............................................. 64
7.4 Financial Records; Inspection................................................ 67
7.5 Maintenance of Properties, etc............................................... 68
7.6 Permits, Certificates, Leases, Licenses...................................... 68
7.7 Notice....................................................................... 68
7.8 Payment of Obligations....................................................... 68
7.9 Environmental Matters........................................................ 69
7.10 Accounts..................................................................... 69
7.11 Insurance.................................................................... 69
7.12 Environmental Compliance..................................................... 71
7.13 Material Change in Management................................................ 72
SECTION 8 - NEGATIVE COVENANTS........................................................ 72
8.1 Mergers, Acquisitions and Other Extraordinary Events......................... 72
8.2 Indebtedness, Guaranties, etc................................................ 73
8.3 Use of Assets................................................................ 74
8.4 Mortgages, Liens, Encumbrances, Security Interests, Assignments, etc......... 74
8.5 Nature of Businesses......................................................... 75
8.6 Fixed Charge Coverage Ratio.................................................. 75
8.7 Ratio of Funded Debt to EBITDA............................................... 75
8.8 Funded Debt to Capitalization Ratio.......................................... 76
8.9 Minimum Tangible Net Worth................................................... 76
8.10 Payment of Dividends......................................................... 76
8.11 Capital Expenditures......................................................... 77
8.12 Transactions with Subsidiaries and Affiliates................................ 77
8.13 Interest Rate Agreements..................................................... 77
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 9- EVENTS OF DEFAULT; ACCELERATION.............................. 78
9.1 Events of Default............................................ 78
SECTION 10- REMEDIES UPON DEFAULT, ETC................................... 81
10.1 Defaults..................................................... 81
10.2 Offset....................................................... 81
10.3 Rights Cumulative............................................ 81
10.4 Payment of Costs and Expenses................................ 81
SECTION 11- THE AGENT BANK............................................... 82
11.1 Appointment.................................................. 82
11.2 Delegation of Duties......................................... 82
11.3 Nature of Duties; Independent Credit Investigation........... 82
11.4 Actions in Discretion of the Agent Bank: Instructions
from the Banks............................................... 83
11.5 Reimbursement and Indemnification of the Agent Bank and
the Banks by the Borrowers................................... 83
11.6 Exculpatory Provisions....................................... 84
11.7 Reimbursement and Indemnification of the Agent Bank by
the Banks.................................................... 84
11.8 Reliance by the Agent Bank................................... 85
11.9 Notice of Default............................................ 85
11.10 The Banks in Their Individual Capacities..................... 85
11.11 Holders of Revolving Credit Notes and Term Notes............. 85
11.12 Equalization of the Banks.................................... 85
11.13 Successor Agent Bank......................................... 86
11.14 Calculations................................................. 86
11.15 Withholding Tax.............................................. 87
11.16 Beneficiaries................................................ 88
SECTION 12- ASSIGNMENTS AND PARTICIPATIONS............................... 88
SECTION 13- INDEMNITY.................................................... 90
SECTION 14- INCREASED COSTS; TAXES; CAPITAL ADEQUACY..................... 90
14.1 Compensation for Increased Costs and Taxes................... 90
14.2 Withholding of Taxes......................................... 91
14.3 Capital Adequacy Adjustment.................................. 92
14.4 Banks' Obligation to Mitigate................................ 93
SECTION 15- NOTICES...................................................... 94
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 16- MISCELLANEOUS................................................ 95
16.1 Joint and Several Liability of Borrowers..................... 95
16.2 Ratable Sharing.............................................. 95
16.3 Waiver....................................................... 96
16.4 Survival of Representations and Warranties................... 96
16.5 Invalidity................................................... 97
16.6 Assignment................................................... 97
16.7 Governing Law................................................ 97
16.8 Section Headings............................................. 97
16.9 Entire Agreement............................................. 97
16.10 Time of the Essence.......................................... 97
16.11 Modifications................................................ 97
16.12 Submission to Jurisdiction, Etc.............................. 98
16.13 Waiver of Jury Trial......................................... 99
LIST OF SCHEDULES:
Schedule 2.1 Revolving Loan Commitments and Revolving Credit
Facility Pro Rata Shares
Schedule 2.3A Schedule of Closing Fees
Schedule 3.1 Term Loan Pro Rata Shares
Schedule 6.2 Information on Borrowers
Schedule 6.7 Schedule of Indebtedness
LIST OF EXHIBITS
Exhibit A-1: Revolving Credit Note
Exhibit B-1: Term Note
Exhibit C: Application and Agreement for Letter of Credit
Exhibit D: Notice of Conversion/Continuation
Exhibit E: Request For Revolving Credit Loan
Exhibit F: Request for Swing Line Loan
Exhibit G: Compliance Certificate
Exhibit H: Stock Pledge Agreement
Exhibit I: Form of Security Agreement
Exhibit J: UCC-1
Exhibit K: Form of Borrower Counsel Opinion
Exhibit L: Form of Borrowing Base Certificate
Exhibit M: Group Financial Partners Inc. - X
Collateral Values Consolidated
</TABLE>
<PAGE>
1997A AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------------
THIS 1997A AMENDED AND RESTATED LOAN AGREEMENT (this "Loan Agreement"),
is made and entered into as of the 1st day of November, 1997, by and among (i)
BANK ONE, KENTUCKY, NA, a national banking association with principal office and
place of business in Louisville, Kentucky ("the Agent Bank"), (Bank One may
hereinafter be referred to as the "Banks", and also referred to as a "Bank");
(ii) BANK ONE, KENTUCKY, NA, in its capacity as the Agent Bank hereunder (in
such capacity the "Agent Bank"); (iii) BT HOLDINGS, INC., a Kentucky corporation
with principal office and place of business and registered office in Louisville,
Jefferson County, Kentucky ("BT"); (iv) BELL TECHNOLOGIES, INC., a Florida
corporation with principal office and place of business in Orlando, Orange
County, Florida ("Bell"); (v) TUBE TURNS TECHNOLOGIES, INC., a Kentucky
corporation with principal office and place of business and registered office in
Louisville, Jefferson County, Kentucky ("TT"), (vi) GROUP TECHNOLOGIES
CORPORATION, a Florida corporation with principal office and place of business
in Tampa, Hillsborough County, Florida ("GTC"), (vii) METRUM-D, INC., a Delaware
corporation with principal office and place of business in Louisville, Kentucky
("MD") (BT, Bell, TT, GTC, and MD each, a "Borrower," and all of the foregoing
collectively, the "Borrowers"), and (viii) GROUP FINANCIAL PARTNERS, INC., a
Kentucky corporation with principal office and place of business in Louisville,
Kentucky, solely in its capacity as guarantor (the "Guarantor").
P R E L I M I N A R Y S T A T E M E N T:
--------------------- -----------------
A. BT, Bell and TT entered into a Loan Agreement dated as of March 21,
1997 with the Agent Bank and the Bank (the "Original Loan Agreement"), whereby
the Agent Bank has extended in favor of BT, Bell and TT a revolving line of
credit in the amount of $20,000,000, a term loan in the amount of $10,000,000
and a swing line of credit in the amount of $3,000,000.
B. BT, Bell and TT wish to amend and restate the Original Loan Agreement
to provide for a revolving line of credit in the amount of $30,000,000, a term
loan in the amount of $15,000,000 and a swing line of credit in the amount of
$3,000,000, and to add GTC and MD as new borrowers and to make certain changes
to financial covenants and interest rates and other provisions of the Original
Loan Agreement.
C. The Banks desire to amend and restate the Original Loan Agreement and
to thereby establish the Revolving Credit Facility (defined herein), the Letter
of Credit Subfacility (defined herein) and the Term Loans (defined herein) in
favor of the Borrowers, and the Agent Bank desires to establish the Swing Line
Credit Subfacility (defined herein) in favor of the Borrowers, in each case upon
the terms and conditions set forth herein, and to effect other changes to
financial covenants, interest rate provisions and other provisions, as set forth
herein.
D. The Borrowers will benefit from the extension of the Revolving Credit
Facility, the Letter of Credit Subfacility, the Swing Line Credit Subfacility
and the Term Loans because such extensions of credit will enable the Borrowers
to have available and to draw from time to time credit that would not otherwise
be available to the Borrowers.
<PAGE>
E. Group Financial Partners, Inc. ("Group Financial") owns a controlling
interest in each of the Borrowers and the financial results of the Borrowers are
reported with the financial results of Group Financial on a consolidated basis.
The Banks have requested that Group Financial pledge its stock in the Borrowers
to the Banks as collateral for the Loans, and have required the pledge of such
stock as a condition to the extensions of credit hereunder. Group Financial
desires and agrees to pledge its stock in the Borrowers to the Banks as
collateral for the Loans because the extensions of the Loans to the Borrowers
will benefit the Borrowers and Group Financial.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein and for other good and valuable consideration,
the mutuality, receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
SECTION 1
DEFINITIONS AND CROSS REFERENCE
-------------------------------
Certain terms used in this Loan Agreement are defined in this Section 1;
other terms are defined elsewhere in this Loan Agreement.
1.1 "Accounts Receivable" means all (a) rights to payment for any goods
sold or services performed, whether such right to payment exists on the date of
this Loan Agreement or is created thereafter, and whenever and wherever
acquired, whether or not such right to payment has been earned by performance,
and whether or not such right to payment is evidenced by any document,
instrument or chattel paper, and all claims against common carriers for goods
and Inventory lost in transit; and (b) the proceeds or products of any of the
foregoing. The term "Accounts Receivable" includes the term "account" as
defined in KRS 355.9-106. The amount of an Account Receivable shall be the
amount of the receivable net of all discounts.
1.2 "Advance" means with respect to any Borrower, each and every advance
of proceeds under the Term Loans, the Revolving Credit Facility, the Letter of
Credit Subfacility, or the Swing Line Credit Subfacility, directly or
indirectly, to such Borrower, regardless of whether such advance is accounted
for under GAAP as an extension of credit, a contribution of capital or
otherwise.
1.3 "Affiliate" means, as applied to any Person, (i) any other Person
directly or indirectly controlling, controlled by, or under common control with,
that Person, (ii) any other Person that, directly or indirectly, owns or
controls, whether beneficially or as a trustee, guardian or other fiduciary, 10%
or more of the stock having ordinary voting power in the election of directors
of such Person, or (iii) each of such Person's directors and officers appointed
by the board of directors of such Person. For the purposes of this definition,
"control" (including with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as applied to any Person,
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of that Person, whether through the
ownership of voting securities or by contract or otherwise.
-2-
<PAGE>
1.4 "Agent Bank" has the meaning assigned to that term in the introduction
to this Loan Agreement.
1.5 "Amendment to Security Agreement" means any Amendment to Security
Agreement entered into between the Agent Bank and a Borrower.
1.6 "And/or" means one or the other or both, or any one or more or all, of
the things or persons or parties in connection with which the conjunction is
used.
1.7 "Applicable LIBOR Margin" means the applicable per annum percentage
set forth in the tables appearing in Section 2.2A and Section 3.2A hereof, with
respect to LIBOR Loans.
1.8 "Applicable Letter of Credit Percentages" means the applicable per
annum percentage set forth in the table appearing in Section 2.7F of the Loan
Agreement.
1.9 "Applicable Commitment Fee Percentages" means the applicable per annum
percentage set forth in the table appearing in Section 2.3A hereof, with respect
to the calculation of Revolving Credit Facility Commitment Fees.
1.10 "Application and Agreement for Letter of Credit" means the document
substantially in the form of Exhibit C annexed hereto, with appropriate
insertions and deletions, with respect to the proposed issuance or amendment of
a Letter of Credit.
1.11 "Assignment Agreement" means an Assignment Agreement between a
Borrower and the Agent Bank, substantially in the form of Exhibit O hereto.
1.12 "Assignment of Claims Act" means the Federal Assignment of Claims
Act, 31 U.S.C. (S) 3727.
1.13 "Authorized Officer" means the President, the Financial Officer and
any other officer of BT, for itself and as agent for the other Borrowers, who,
by the Articles of Incorporation, Bylaws or Resolutions of the Board of
Directors of such Borrower, is authorized to execute and deliver this Loan
Agreement and the other Loan Documents on behalf of such Borrower.
1.14 "Banks" has the meaning assigned to that term in the introduction to
this Loan Agreement.
1.15 "Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy" as now and hereafter in effect, or any successor statute.
1.16 "Base Rate" means at any time the variable interest rate per annum
that is the higher of (i) the Agent Bank's Reference Rate as announced publicly
and changing from time to time when such Reference Rate changes or (ii) the
Federal Funds Effective Rate plus 1/2%.
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1.17 "Base Rate Loan" means Loans bearing interest at rates determined
with reference to the Base Rate, as the same may change from time to time, as
provided in Section 2.2A with respect to Revolving Credit Loans that are Base
Rate Loans, and as provided in Section 3.2A with respect to Term Loans that are
Base Rate Loans.
1.18 "Bell Mortgage" means the mortgage dated as of the date hereof
entered into between the Agent Bank and Bell, for the benefit of the Banks, with
respect to Bell's fee simple interest in the Bell Real Property, as the same may
be hereafter amended, modified, renewed, replaced, and/or restated from time to
time, whether entered into as of the Closing Date or subsequent thereto.
1.19 "Bell Real Property" means the real property and improvements owned
by Bell and located in Orlando, Florida.
1.20 "Borrowers" means each and any of the Persons identified as
"Borrowers" in the Introduction to this Loan Agreement and any new Subsidiaries
thereof hereafter acquired or created, with the consent of the Banks, pursuant
to the provisions of Section 8.1 hereof.
1.21 "Borrowers' Loan Accounts" means the accounts respectively on the
books of the Banks in which will be recorded Loans made by the Banks to the
Borrowers, payments made on such Loans and other appropriate debits and credits
as provided by this Loan Agreement.
1.22 "Borrowing Base" means the sum of: (i) eighty percent (80%) of
Eligible Accounts Receivable; (ii) fifty percent (50%) of Eligible Government
Progress Billings; (iii) fifty percent (50%) of Eligible Inventory except for
the Eligible Inventory of MD; and (iv) thirty five percent (35%) of the Eligible
Inventory of MD; provided, however, that whenever the Borrowing Base limitation
is in effect, no Accounts Receivable on a contract with the United States
Government or agency and no Eligible Government Progress Billings on a contract
with the United States Government or agency shall be considered in determining
the Borrowing Base unless: (a) such contract has been assigned to the Agent Bank
on behalf of the Banks, (b) such contract does not by its terms prohibit
assignment, (c) a Notice of Assignment has been filed with the contracting
official or the head of the contracting agency, the surety on any bond on the
contract and any disbursing official for the contracts, pursuant to the
Assignment of Claims Act, and (d) a copy of the filed Notice of Assignment has
been provided to the Agent Bank. The Borrowing Base limitation shall be
applicable to the extent required by Section 7.3A hereof.
1.23 "Borrowing Base Certificate" means the Borrowing Base Certificate,
substantially in the form of Exhibit L hereto, required to be delivered to the
Banks pursuant to Section 7.3A hereof.
1.24 "Business Combination" means any acquisition or merger, whether
accounted for under GAAP as a purchase or pooling of interests and regardless of
whether the value of the consideration paid or received is comprised of cash,
assets, common stock, preferred stock, partnership interests, limited liability
company or limited liability partnership interests.
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1.25 "Business Day" means any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of the Commonwealth of Kentucky or is a
day on which banking institutions located in the Commonwealth of Kentucky are
authorized or required by law or other governmental action to close.
1.26 "Capitalization" means the sum of shareholders' equity in the
Borrowers, determined on a Combined basis, plus Funded Debt of the Borrowers,
determined on a Combined basis.
1.27 "Change in Control" means the acquisition by any Person or "group"
(as defined in Section 13 (d) (3) of the Securities Exchange Act of 1934, as
amended) of more than 50% of the Voting Stock of Group Financial or any of the
Borrowers (or such entity as ultimately becomes the successor to Group Financial
or any of the Borrowers as a result of the Proposed Merger) by a Person or
"group" other than the shareholders of Group Financial and the Borrowers in
existence as of the Closing Date, including any such acquisition by merger or
consolidation.
1.28 "Closing Date" means November 12, 1997.
1.29 "Combined" means the sum of the respective financial statement
amounts of BT, Bell, TT, GTC, and MD with eliminating entries prepared as if the
combined financial statements were consolidated financial statements or, in lieu
thereof, actual consolidated financial statements.
1.30 "Companies" means the Borrowers.
1.31 "Compliance Certificate" means a certificate substantially in the
form of Exhibit G annexed hereto delivered by the Borrowers to the Agent Bank
pursuant to Section 7.3F hereof.
1.32 "Contingent Obligations" means, with respect to the Borrowers, any
direct or indirect liability, contingent or otherwise (excluding all
transactions which, on a Combined basis under GAAP, should be eliminated) of the
Borrowers, (i) with respect to any indebtedness, lease, dividend, letter of
credit or other obligation of another if the primary purpose or intent thereof
by the Borrowers is to provide assurance to the obligee of such obligation of
another that such obligation of another will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holder of such
obligation will be protected (in whole or in part) against loss in respect
thereof, or (ii) under any letter of credit issued for the account of the
Borrowers or for which the Borrowers are otherwise liable for reimbursement
thereof, or (iii) under interest rate swap agreements, interest rate collar
agreements or other similar arrangements providing interest rate protection.
Contingent Obligations shall include, without limitation, (a) the direct or
indirect guaranty, endorsement (otherwise than for collection or deposit in the
ordinary course of business), co-making, discounting with recourse or sale with
recourse by the Borrowers of the obligation of another, and (b) any liability of
the Borrowers for the obligations of another through any agreement (contingent
or otherwise) (1) to purchase, repurchase, or otherwise acquire such obligation
or any security therefor, or to provide funds for the payment or discharge of
such obligation (whether in the form of loans, advances, stock purchases,
capital contributions or otherwise), (2) to maintain the solvency of any balance
sheet item, level of income or financial condition of another, or (3) to make
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take-or-pay or similar payments if required regardless of non-performance by any
other party or parties to an agreement, in the case of any agreement described
under subclauses (1), (2) or (3) of this sentence if the primary purpose or
intent thereof is as described in clause (i) of the preceding sentence. The
amount of any Contingent Obligation, as at any time of determination, shall be
equal to the amount of the obligation so guaranteed or otherwise supported at
such time of determination which amount shall be deemed to be the amount of such
obligation guaranteed, as reasonably estimated by the Borrowers, if such amount
cannot be specifically determined at the time of determination.
1.33 "Covered Tax" means any Tax that is not an Excluded Tax.
1.34 "Current Maturities of Long Term Debt" means the current principal
maturities of all indebtedness for borrowed money (including but not limited to
amortization of capitalized lease obligations) having an original term of one
year or more.
1.35 "Date of Determination" means, for purposes of determining the
applicable Pricing Level on any Pricing Level Calculation Date, the last day of
the most recently ended calendar month.
1.36 "Default Rate" means, for any Loan, the Base Rate plus two percent
(2.00%).
1.37 "Designated Interest Rate Agreement" has the meaning set forth in
Section 8.13 hereof.
1.38 "Dollars" or "$" means lawful currency of the United States of
America.
1.39 "EBIT" means, for the period in question, the sum of the amounts for
such period of the Borrowers' (i) Net Income, (ii) Interest Expense, and (iii)
provisions for taxes based on income.
1.40 "EBITDA" means, as of the end of any Fiscal Quarter, the sum of the
Borrowers' (i) Net Income, (ii) Interest Expense, (iii) provisions for taxes
based on income, (iv) depreciation, and (v) amortization for the previous four
Fiscal Quarters, determined on a Combined basis in accordance with GAAP. The
calculation of EBITDA shall exclude the following: (i) gains or losses on
dispositions of noncurrent assets, (ii) losses on writedowns of noncurrent
assets or lease obligation, (iii) the cumulative effect of change in accounting
principles and (iv) certain non-routine compensation paid to shareholders and/or
employees of Group Financial in the fourth Fiscal Quarter of 1996 and the first
Fiscal Quarter of 1997 and, for purposes of calculating the ratio of Funded Debt
to EBITDA, losses of the Mexican and Brazilian operations of GTC which were sold
June 30, 1997.
1.41 "EBITDARP" means, as of the end of any Fiscal Quarter, the sum of
the Borrowers' (i) Net Income, (ii) Interest Expense, (iii) provisions of taxes
based on income (iv) depreciation, (v) amortization, (vi) rent expense and
(vii) defined benefit pension expense for the previous four Fiscal Quarters,
determined on a Combined basis in accordance with GAAP. The calculation of
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EBITDARP shall exclude the following: (i) gains or losses on dispositions of
noncurrent assets or lease obligations, (ii) losses on writedowns of noncurrent
assets or lease obligations, (iii) the cumulative effect of changes in
accounting principles, (iv) certain non-routine compensation paid to
shareholders and/or employees of Group Financial in the fourth Fiscal Quarter of
1996 and the first Fiscal Quarter of 1997 and (v) losses of the Mexican and
Brazilian operations of GTC which were sold June 30, 1997.
1.42 "Eligible Accounts Receivable" means all of the Accounts Receivable
of the Borrower except (i) those rights to payment which are ninety (90) days
past the first date on which the invoice for such Accounts Receivable first
became due provided such due date is not more than thirty (30) days after the
date of the invoice or its issuance, whichever is earlier; (ii) those Accounts
Receivable from or against a debtor which has instituted bankruptcy, insolvency,
reorganization, liquidation, or receivership proceedings, or against which a
petition for any such proceeding has been filed and not contested within thirty
(30) days thereafter; (iii) those Accounts Receivable due from the United States
Government (or any agency or instrumentality thereof) which must be created
and/or perfected pursuant to the Assignment of Claims Act, to the extent that
the Borrowing Base is then in effect and the Borrowers have failed to comply
with the conditions set forth in the definition of "Borrowing Base" or if the
Agent Bank has requested that the Borrowers comply with such Act and Borrowers
have failed to do so; (iv) any Accounts Receivable which under applicable
federal, state and/or local law (a) may not be assigned to the Agent Bank, or
(b) whose assignment to the Agent Bank is restricted or limited in any way, or
(c) the Agent Bank may not assert or recover against its account debtor; (v) any
Account Receivable evidenced by a note or other instrument which has not been
endorsed and delivered to the Agent Bank under the Security Agreement; (vi)
Accounts Receivable originating in or subject to the laws of any jurisdiction
other than the United States of America, the fifty States of the United States
of America and the District of Columbia; (vii) Accounts Receivable payable in
any medium or currency other than U.S. Dollars; (viii) Accounts Receivable
payable by any Affiliate of the Borrowers; (ix) Accounts Receivable which do not
comply with all applicable laws, with respect to which the Agent Bank's security
interest is not perfected to the Agent Bank's satisfaction, which are subject to
defenses, set-offs or counterclaims, or are subject to liens, charges, interests
or encumbrances other than those in favor of the Agent Bank, (x) any Accounts
Receivable which the Agent Bank reasonably deems ineligible and (xi) the portion
of an Account Receivable due from the United States Government for which a
Borrower has submitted a progress billing.
1.43 "Eligible Inventory" means all Inventory of the Borrower, which is
not obsolete, spoiled, or otherwise unsalable in the ordinary course of its
business, and with respect to which where required by the Agent Bank, landlord's
lien waivers will be obtained, to the extent possible, on a best efforts basis,
if the Inventory is kept at any location which is not owned in fee by the
Borrowers.
1.44 "Eligible Equipment" means all Equipment of Borrower except fixtures
and leasehold improvements.
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1.45 "Eligible Government Progress Billings" means progress billings on
contracts with the United States Government.
1.46 "Environmental Audit" has the meaning set forth in Section 5.1Q
hereof.
1.47 "Environmental Complaint" means any complaint, order, directive,
claim, citation or notice by any governmental authority or any other Person
described in Section 6.13E hereof.
1.48 "Equipment" means, when used with respect to any Person, all of the
following, whether owned or held on the date of this Agreement or acquired
thereafter: the equipment, machinery, furniture and leasehold improvements,
owned by such Person, used or intended for use by such Person in the conduct of
such Person's business, but excluding all motor vehicles with respect to which
any jurisdiction has issued a certificate of title. Some of the Equipment in
existence on the date of this Agreement may be more particularly described on
any UCC-1 financing statement executed in favor of the Agent Bank in connection
with this Agreement or one of the other Loan Documents, and in one or more
Exhibits referenced in one or more Schedules to this Agreement or one of the
other Loan Documents.
1.49 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute.
1.50 "Events of Default" means the occurrence or happening of any of the
matters set forth in Section 9 hereof.
1.51 "Excluded Tax" means any of the following taxes, levies, imposts,
duties, deductions, withholdings or charges, and all liabilities with respect
thereto: (i) Taxes imposed on the net income of any Bank or a Tax Transferee
(including without limitation branch profits taxes, minimum taxes and taxes
computed under alternative methods, at least one of which is based on net
income) (collectively referred to as "net income taxes") by (A) the United
States of America, (B) the jurisdiction under the laws of which such Bank or Tax
Transferee is organized or any political subdivision thereof, or (C) the
jurisdiction of such Bank's or Tax Transferee's applicable lending office or any
political subdivision thereof, or (D) any jurisdiction in which such Bank or Tax
Transferee is doing business, (ii) any Taxes to the extent that they are in
effect and would apply to a payment to any Bank as of the Closing Date, or as of
the date such Person becomes a Bank, in the case of any assignee pursuant to
Section 12 hereof, (iii) any Taxes that are in effect and would apply to a
payment to a Tax Transferee as of the date of acquisition of any portion of the
Revolving Credit Loans by such Tax Transferee or the date of the change of
lending office of such Tax Transferee, as the case may be (provided however that
a Person shall not be considered a Tax Transferee for purposes of this clause
(iii) as a result of a change of its lending office or the taking of any other
steps pursuant to Section 14.4 hereof), (iv) any Taxes to the extent of any
credit or other Tax benefit available to any Bank or Tax Transferee, as
applicable, as a result thereof, or (v) any Taxes that would not have been
imposed but for the failure by any Bank or Tax Transferee, as applicable, to
provide and keep current any certification or other documentation required to
qualify for an exemption from or reduced rate of any Tax.
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1.52 "Existing Studies" has the meaning set forth in Section 5.1Q.
1.53 "Federal Funds Effective Rate" for any day means the rate per annum
(based on a year of 360 days and actual days elapsed and rounded upward to the
nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or any
successor) on such day as being the weighted average of the rates on overnight
Federal funds transactions arranged by Federal funds brokers on the previous
trading day, as computed and announced by such Federal Reserve Bank (or any
successor) in substantially the same manner as such Federal Reserve Bank
computes and announces the weighted average it refers to as the "Federal Funds
Effective Rate" as of the date of this Agreement; provided, if such Federal
Reserve Bank (or its successor) does not announce such rate on any day, the
"Federal Funds Effective Rate" for such day shall be the Federal Funds Effective
Rate for the last day on which such rate was announced.
1.54 "Financial Officer" means the chief financial officer of BT or other
officer who is the highest ranking officer with responsibility for the financial
affairs of BT.
1.55 "Fiscal Quarter" means a fiscal quarter of the Borrowers. The Fiscal
Quarters of the Borrowers will be reported as of on the last day of each March,
June, September and December of each calendar year.
1.56 "Fiscal Year" means a fiscal year of the Borrowers. The Borrowers'
current Fiscal Year ends on the last day of December of each calendar year.
1.57 "Fixed Charge Coverage Ratio" means, as of any Date of Determination
thereof, the ratio of (i) the sum of the Borrowers' EBITDARP to (ii) the sum of
the Borrowers' Interest Expense, Current Maturities of Long Term Debt, income
taxes, rent and defined benefit pension contribution.
1.58 "Funded Debt" means, with respect to the Borrowers on a Combined
basis in accordance with GAAP, (i) all indebtedness for borrowed money,
including, without limitation, all Revolving Credit Loans, all Swing Line Loans,
all reimbursement obligations in respect of all letters of credit, including the
Letters of Credit and the Term Loans, (ii) mandatorily redeemable preferred
stock of a Borrower (except any mandatorily preferred stock owned by another
Borrower or the Guarantor), (iii) that portion of obligations with respect to
capital leases which is properly classified as a liability on a balance sheet in
conformity with GAAP, (iv) notes payable and drafts accepted representing
extensions of credit whether or not representing obligations for borrowed money,
(v) any obligation owed for all or any part of the deferred purchase price of
property or services which purchase price is (y) due more than six months from
the date of the incurring of the obligation in respect thereof, or (z) evidenced
by a note or similar written instrument, but excluding trade payables incurred
in the ordinary course of business, (vi) all indebtedness secured by any lien on
any property or asset owned by the Borrowers regardless of whether the
indebtedness secured thereby shall have been assumed by the Borrowers or is non-
recourse to the credit of the Borrowers but only to the extent of the fair
market value of any such property or assets, and (vii) all other Contingent
Obligations of the Borrowers not otherwise included in clauses (i) through (vi)
of this Section. For purposes of calculating Funded Debt to be used in
financial ratios in this Agreement,
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the Borrowers, at their option, may reduce Funded Debt on a dollar-for-dollar
basis by an amount equal to cash then on deposit with the Agent Bank in excess
of $2,000,000.
1.59 "Funding Date" means the date of the funding of a Revolving Credit
Loan.
1.60 "GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and the statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession, which are applicable to the circumstances as of the
date of determination, as applied in accordance with Sections 1.139 and 7.3
hereof.
1.61 "General Intangibles" means all intangible personal property
(including things in action) other than goods, accounts, chattel paper,
documents and instruments (all as defined in the Uniform Commercial Code),
whether such personal property is owned on the date of this Loan Agreement, or
is acquired thereafter, and shall include, but is not limited to, all existing
and future royalties, rights, claims, benefits and proceeds in, under or to any
franchise agreements, insurance policies, customer lists, choses in action,
books, records, patents and patents applications, copyrights, trademarks, trade
names, trade secrets, sales contracts, licenses, certificates of need, permits,
tax and any other types of refunds, returned and unearned insurance premiums,
claims, product designs, drawings, technical data, computer programs, computer
tapes and software, catalogs, blue prints, contract rights, and all rights as an
unpaid vendor or lienor, including stoppage in transit, replevin or reclamation.
The term "General Intangible" includes "general intangible" as defined in KRS
355.9-106.
1.62 "Group Financial" has the meaning assigned that term in the
introduction to this Loan Agreement.
1.63 "Guaranty Agreement" means the Guaranty Agreement between Group
Financial and the Agent Bank, whereby Group Financial has guaranteed the
Borrowers' payment of the Loans.
1.64 "Hazardous Discharge" means any event described in Section 6.13D
hereof.
1.65 "Hazardous Materials" means any and all substances, chemicals or
wastes (including, without limitation, asbestos, polychlorinated biphenyls
("PCBs") and petroleum) that are designated or defined (either by inclusion in a
list of materials or by reference to exhibited characteristics) as hazardous,
toxic or dangerous, or as a pollutant or contaminant in any of the Relevant
Environmental Laws.
1.66 "Interest Expense" means, for the period in question, total interest
expense (including that attributable to capital leases in conformity with GAAP)
of the Borrowers with respect to all outstanding Funded Debt of the Borrowers,
including, without limitation, all capitalized interest, all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing and net costs and benefits under interest rate
agreements, whether
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payable in cash or accrued (including amortization of discount), net of any
interest income all as determined on a Combined basis in accordance with GAAP.
1.67 "Interest Payment Date" means, (i) with respect to each Base Rate
Loan, the last day of each calendar quarter during which such Base Rate Loan is
outstanding in whole or in part, (ii) with respect to each LIBOR Loan, the
ninetieth (90th) day of the Interest Period applicable to such LIBOR Loan,
and/or the last day of the Interest Period applicable to such LIBOR Loan,
whichever is earlier , (iii) with respect to each Swing Line Loan, the last day
of each calendar quarter during which such Swing Line Loan is outstanding in
whole or in part, and (iv) with respect to all Revolving Credit Loans, and Swing
Line Loans, and the Term Loans, the date of maturity thereof.
1.68 "Interest Period" means any interest period applicable to a LIBOR
Loan, as determined pursuant to Section 2.2B hereof with respect to the
Revolving Credit Loans that are LIBOR Loans and as determined pursuant to
Section 3.2B hereof with respect to the Term Loans that are LIBOR Loans.
1.69 "Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other similar
agreement.
1.70 "Interest Rate Determination Date" means each date for calculating
the LIBOR for purposes of determining the interest rate in respect of an
Interest Period. The Interest Rate Determination Date shall be the date which is
two (2) Business Days prior to the related Interest Period for a LIBOR Loan.
1.71 "Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter.
1.72 "Inventory" means all of the following, whether owned or held on the
date of this Agreement or acquired thereafter: All goods held for sale or lease;
all goods to be furnished under contracts of service, and after so furnishing
them; all raw materials, work in process or materials used or consumed in
business, and all goods returned to or repossessed by their seller.
1.73 "Letters of Credit" means all standby letters of credit or similar
instruments issued by the Agent Bank for the account of the Borrowers pursuant
to Section 2.7 of the Loan Agreement for the purpose of securing the
performance, payment, deposit or surety obligations of a Borrower or a
Subsidiary of a Borrower.
1.74 "Letter of Credit Subfacility" means the commitment of the Agent
Bank, to issue Letters of Credit for the account of a Borrower or a Subsidiary
of a Borrower up to an aggregate amount at any one time outstanding of Five
Million Dollars ($5,000,000). The Letter of Credit Subfacility is a sublimit of
the Revolving Credit Facility.
1.75 "Letter of Credit Fee" has the meaning assigned to that term in
Section 2.7F(i) hereof.
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1.76 "Letter of Credit Fronting Fee" has the meaning assigned to that term
in Section 2.7F(v) hereof.
1.77 "Letter of Credit Usage" means, as at any date, the sum of (i) the
maximum aggregate amount which is or at any time thereafter may become available
for drawing under all Letters of Credit then outstanding, plus (ii) the
aggregate amount of all drawings under all Letters of Credit honored by the
Agent Bank and not theretofore reimbursed by the Borrowers to the Agent Bank,
whether by virtue of the Banks making a Revolving Credit Loan to the Borrowers
to enable the Borrowers to reimburse the Agent Bank for such drawing or
otherwise.
1.78 "LIBOR Loan" means any advance or any part of the principal of any
Revolving Credit Loan or Term Loan for which the Borrower has properly selected
an Interest Period and which is to bear interest at LIBOR plus the Applicable
LIBOR Margin.
1.79 "LIBOR" means, for a particular LIBOR Loan for a particular Interest
Period, the annual rate of interest determined by the Agent Bank in accordance
with its usual procedures (which determination shall be conclusive absent
manifest error) (rounded, if necessary, to the nearest 1/16 of 1%) to be the
"offered" Eurodollar rate as of 11:00 a.m. London time two Business Days
preceding the first day of the Interest Period for such LIBOR Loan for deposits
in immediately available funds in United States dollars for delivery on the
first day of such Interest Period for an amount substantially equal to the
principal amount of that LIBOR Loan and for a period approximately equal to such
Interest Period, as shown on the TeleRate Service or as published by a
comparable interest rate reporting service selected by the Agent Bank.
1.80 "Loan" means a Revolving Credit Loan, a Swing Line Loan, or the Term
Loans.
1.81 "Loan Agreement" means this Loan Agreement as further amended,
supplemented or otherwise modified from time to time.
1.82 "Loan Documents" means this Loan Agreement, the Revolving Credit
Notes, the Term Notes, each Application and Agreement for Letter of Credit, the
Stock Pledge Agreement, the Security Agreements, the Mortgages, any Interest
Rate Agreement and all other agreements, documents and instruments now or
hereafter evidencing and/or pertaining to this Loan Agreement and/or the other
Obligations, and as may be further amended, supplemented or otherwise modified
from time to time.
1.83 "Mortgaged Properties" means all the real property, personal property
and fixtures encumbered by the Mortgages.
1.84 "Mortgages" means the Bell Mortgage and the TT Mortgage.
1.85 "Mortgage Modification" means any amendment to a Mortgage entered
into between the Agent Bank as mortgagee and a Borrower as mortgagor.
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1.86 "Net Worth" means the sum of the Borrowers' retained earnings, profit
after tax and amount for capital stock, determined on a Combined basis in
accordance with GAAP.
1.87 "Net Income" means, for the period in question, the net income (or
loss) of the Borrowers for such period taken as a single accounting period,
determined on a Combined basis in accordance with GAAP and excluding any
extraordinary items.
1.88 "Notice of Assignment" means a notice of assignment of contract filed
with a United States Government contracting official or head of contracting
agency, the surety on a bond for the contract and any disbursing official on the
contract, pursuant to the Assignment of Claims Act. The form for the Notice of
Assignment is set forth in Exhibit N hereto.
1.89 "Notice of Conversion/Continuation" means the Notice in the form of
Exhibit D annexed hereto with respect to the conversion and/or continuation of
the interest rate(s) applicable to the Revolving Credit Loans, as set forth in
Section 2.2B hereof, and with respect to the conversion and/or continuation of
the interest rate applicable to the Term Loans, as set forth in Section 3.2B
hereof.
1.90 "Obligations" means, collectively, (i) the entire unpaid principal
balance of and all interest now accrued or hereafter to accrue on the Revolving
Credit Notes, (ii) the entire unpaid principal balance of and all interest now
accrued or hereafter to accrue on the Swing Line Credit Subfacility, (iii) the
entire unpaid principal balance of and all interest now accrued or hereafter to
accrue on the Term Notes, (iv) the obligation of the Borrowers to reimburse the
Agent Bank for all drafts honored by the Agent Bank under Letters of Credit
together with accrued interest thereon, (v) the performance of all of the
covenants, agreements and obligations of the Borrowers hereunder and under the
other Loan Documents, and (vi) all other liabilities, obligations, covenants and
duties owing by the Borrowers to any Bank arising under or pursuant to this Loan
Agreement or the other Loan Documents of any kind or nature, present or future,
and whether or not evidenced by any note, guaranty or other instrument. The term
"Obligations" includes, without limitation, all interest, charges, expenses,
reasonable attorneys' fees and any other sums chargeable to the Borrowers under
this Loan Agreement and/or any other Loan Document.
1.91 "Operating Lease/Rental Expense" means that portion of obligations
with respect to non-capital leases.
1.92 "Permitted Acquisition" means an acquisition proposed to be made by
one of the Borrowers that has been consented to by the Banks, pursuant to
Section 8.1 hereof.
1.93 "Person" means any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
other entity or group, institution, party or government, whether federal, state,
county, city, municipal or other, or any agency or division thereof.
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1.94 "Potential Default" means the occurrence of any act or event which,
with the giving of notice and/or the passage of time, or both, would become an
Event of Default.
1.95 "Pricing Level" means, for any Pricing Period, Pricing Level I,
Pricing Level II, Pricing Level III, Pricing Level IV, or Pricing Level V,
Pricing Level VI, Pricing Level VII, or Pricing Level VIII, as may be in effect
for such Pricing Period; provided that, the Default Rate shall be in effect upon
the occurrence and during the continuation of any Event of Default.
1.96 "Pricing Level I" means the Pricing Level that will be in effect for
the applicable Pricing Period if, as at the relevant Date of Determination, the
ratio of the Borrowers' Funded Debt as measured on such Date of Determination,
to the Borrowers' EBITDA as measured on such Date of Determination, is equal to
or greater than 0 to 1.00 but is less than or equal to .99 to 1.00.
1.97 "Pricing Level II" means the Pricing Level that will be in effect for
the applicable Pricing Period if, as at the relevant Date of Determination, the
ratio of the Borrowers' Funded Debt as measured on such Date of Determination,
to the Borrowers' EBITDA as measured on such Date of Determination, is equal to
or greater than 1.00 to 1.00 but is less than or equal to 1.49 to 1.00.
1.98 "Pricing Level III" means the Pricing Level that will be in effect
for the applicable Pricing Period if, as at the relevant Date of Determination,
the ratio of the Borrowers' Funded Debt as measured on such Date of
Determination, to the Borrowers' EBITDA as measured on such Date of
Determination, is equal to or greater than 1.50 to 1.00 but is less than or
equal to 1.74 to 1.00.
1.99 "Pricing Level IV" means the Pricing Level that will be in effect for
the applicable Pricing Period if, as of the relevant Date of Determination, the
ratio of the Borrowers' Funded Debt as measured on such Date of Determination,
to the Borrowers' EBITDA as measured on such Date of Determination, is equal to
or greater than 1.75 to 1.00 but is less than or equal to 1.99 to 1.00.
1.100 "Pricing Level V" means the Pricing Level that will be in effect for
the applicable Pricing Period if, as of the relevant Date of Determination, the
ratio of the Borrowers' Funded Debt as measured on such Date of Determination,
to the Borrowers' EBITDA as measured on such Date of Determination, is equal to
or greater than 2.00 to 1.00 but is less than or equal to 2.24 to 1.0.
1.101 "Pricing Level VI" means the Pricing Level that will be in effect
for the applicable Pricing Period if, as of the relevant Date of Determination,
the ratio of the Borrowers' Funded Debt as measured on such Date of
Determination, to the Borrowers' EBITDA as measured on such Date of
Determination, is equal to or greater than 2.25 to 1.00 but is less than or
equal to 2.49 to 1.00.
1.102 "Pricing Level VII" means the Pricing Level that will be in effect
for the applicable Pricing Period if, as of the relevant Date of Determination,
the ratio of the Borrowers' Funded Debt as measured on such Date of
Determination, to the Borrowers' EBITDA as measured on such Date of
Determination, is equal to or greater than 2.50 to 1.00 but is less than or
equal to 2.99 to 1.00.
1.103 "Pricing Level Calculation Date" means the date of the delivery to
the Banks of a Compliance Certificate in the form of Exhibit G hereto
demonstrating the appropriate Pricing Level,
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which delivery can occur on any date from the prior Date of Determination to the
date of delivery of the Borrowers' financial statements for the particular month
then ended as required by Section 7.3B hereof.
1.104 "Pricing Period" means, with respect to any Date of Determination,
the period commencing on the day immediately after such Date of Determination
and ending on the next Date of Determination.
1.105 "Proposed Merger" means a proposed series of transactions, whereby
(i) Group Financial will convert the preferred shares of GTC held by it and
merge into GTC, with GTC being the surviving entity and BT, Bell and TT becoming
subsidiaries of GTC; (ii) the creation of a new corporation known as "Bell
Acquisition Corporation" ("New Bell"), and the merger of the existing Bell into
New Bell, with New Bell being the surviving entity and changing its name to
"Bell Technologies, Inc."; (iii) the creation of a new corporation known as "New
Tube Turns Technologies, Inc." ("New TT"), and the merger of existing TT into
New TT, with New TT being the surviving entity and changing its name to "Tube
Turns Technologies, Inc."; (iv) the reincorporation of GTC in the state of
Delaware; (v) the creation of a new subsidiary of GTC to be known as "GTC
Acquisition Corporation" ("New GTC") and transfer of assets and liabilities of
the old GTC into the new GTC; (vi) a reverse stock split involving GTC; and
(vii) after all transactions have been completed, old GTC will be the parent
corporation, which shall own 100% of BT, New GTC, New Bell and New TT.
1.106 "Real Property" means, collectively, the Bell Real Property and the
TT real Property.
1.107 "Relevant Environment Laws" means any and all federal, state and
local laws, codes, ordinances, rules, regulations, reported and publicly
available orders, reported judicial determinations, and reported and publicly
available decisions of an executive body or any governmental and quasi-
governmental entity, whether in the past, the present or the future, pertaining
to health, safety or the environment in effect in any and all jurisdictions in
which the Borrower is or at any time may be doing business, or where the Real
Property is located. The Relevant Environmental Laws shall include, but shall
not be limited to, the following: (1) the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. Sections 9601, et seq.; the Superfund
Amendments and Reauthorization Act, Public Law 99-949, 100 Stat. 1613; the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq.; the
National Environmental Policy Act, 42 U.S.C. Section 4321; the Safe Drinking
Water Act, 42 U.S.C. Sections 300F, et seq.; the Toxic Substances Control act,
15 U.S.C. Section 2601; the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801; the Federal Water Pollution Control Act, 33 U.S.C. Sections 1251,
et seq.; the Clean Air Act, 42 U.S.C. Section 7401, et seq.; and the regulations
promulgated in connection therewith; (2) EPA regulations pertaining to asbestos
(including 29 C.F.R. Sections 1910.1001 and 1926.58); and any state and local
laws and regulations pertaining to Hazardous Materials and/or asbestos.
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1.108 "Request for Revolving Credit Loan" means the Request in the form of
Exhibit E annexed hereto with respect to a proposed Revolving Credit Loan to be
delivered by the Borrowers to the Agent Bank pursuant to Section 2.lC hereof.
1.109 "Request for Swing Line Loan" means the Request in the form of
Exhibit F annexed hereto with respect to a proposed Swing Line Loan to be
delivered by the Borrowers to the Agent Bank pursuant to Section 2.6A hereof.
1.110 "Revolving Credit Facility" means the revolving line of credit
established by the Banks in favor of the Borrowers in the principal amount of
Thirty Million Dollars ($30,000,000) pursuant to which the Borrowers may obtain
Revolving Credit Loans from the Banks and/or Letters of Credit from the Agent
Bank during the term of the Revolving Credit Facility upon the terms and
conditions set forth in this Loan Agreement. The Revolving Credit Facility
includes as a sublimit the Letter of Credit Subfacility and the Swing Line
Credit Subfacility. All references to the "aggregate principal balance of the
Revolving Credit Loans outstanding" or similar phrases in this Loan Agreement or
in the Revolving Credit Notes shall mean, as of the date of determination
thereof, the sum of (i) the entire aggregate outstanding principal balance of
all Revolving Credit Loans made by the Banks pursuant to this Loan Agreement,
(ii) the then existing Letter of Credit Usage and (iii) the then existing Swing
Line Usage.
1.111 "Revolving Credit Facility Commitment Fees" has the meaning set
forth in Section 2.3C hereof.
1.112 "Revolving Credit Facility Pro Rata Shares" means, with respect to
each Revolving Loan Commitment of each Bank, the percentage set forth opposite
that Bank's name on Schedule 2.1 annexed hereto; provided that Schedule 2.1
shall be amended and each Bank's Revolving Credit Facility Pro Rata Share shall
be adjusted from time to time to give effect to the addition or removal of any
Bank as provided herein or by assignment pursuant to Section 12 hereof.
1.113 "Revolving Credit Loans" means advances of principal of the
Revolving Credit Facility made pursuant to Section 2 hereof by the Banks to the
Borrowers from time to time pursuant to, and subject to the terms and conditions
set forth in, this Loan Agreement to support the working capital needs of the
Borrowers and for the other purposes described in Section 2.5A hereof.
1.114 "Revolving Credit Note" means that certain Amended and Restated
Revolving Credit Promissory Note dated of even date with this Loan Agreement,
made by the Borrowers, payable to the order of Bank One, and in the face
principal amount of Thirty Million Dollars ($30,000,000), a form of which is
annexed to this Loan Agreement as Exhibit A-1, as the same may hereafter be
amended, modified, renewed, replaced and/or restated from time to time and each
future Revolving Credit Promissory Note, if any, made by the Borrowers pursuant
to the Revolving Credit Facility.
1.115 "Revolving Loan Commitments" means each Bank's commitment to
maintain or make Revolving Credit Loans and Swing Line Loans and/or to issue
Letters of Credit as set forth in Section 2.1 hereof.
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1.116 "Revolving Loan Commitment Termination Date" means the Revolving
Loan Commitment Termination Date then in effect, which shall be the earliest of
(i) September 30, 2002, (ii) the date as of which the Obligations shall have
become immediately due and payable pursuant to Section 9 of the Loan Agreement
and (iii) the date on which all of the Obligations are paid in full (including,
without limitation, the repayment, expiration, termination or cash
collateralization of Letters of Credit pursuant to this Loan Agreement) and the
Revolving Loan Commitments are reduced to zero.
1.117 "S-4" means the S-4 of GTC, describing the Proposed Merger.
1.118 "Security Agreement" means any of the Security Agreements dated as
of March 21, 1997 or as of the date hereof entered into between the Agent Bank
and the Borrowers, for the benefit of the Banks, as the same may hereafter be
amended, modified, renewed, replaced and/or restated from time to time, whether
entered into as of the Closing Date, or subsequent thereto, substantially in the
form of Exhibit I annexed hereto, as well as any of the Amendments to the
Security Agreements.
1.119 "Senior Funded Debt" means, as at any date on which the amount
thereof shall be determined, all obligations and indebtedness of the Borrowers
owed to the Banks, all as determined on a Combined basis in accordance with
GAAP.
1.120 "Stock Pledge Agreement" means that certain Stock Pledge Agreement
in the form of Exhibit H hereto, dated as of the date of this Agreement, between
Group Financial and the Agent Bank, for the benefit of the Banks.
1.121 "Subsidiary" means (i) any corporation of which more than 50% of the
outstanding Voting Stock is at the time owned by a Borrower or by one or more of
its Subsidiaries, and (ii) any Person controlled by a Borrower or by one or more
of its Subsidiaries, whether by virtue of voting interest, other beneficial
interest or by voting agreement, contract, proxy or otherwise.
1.122 "Swing Line Commitment Period" means the period from the Closing
Date through the Swing Line Commitment Termination Date.
1.123 "Swing Line Credit Subfacility" means the sums advanced or to be
advanced by the Agent Bank as described in Section 2.6 hereof.
1.124 "Swing Line Loan" means advances of principal of the Swing Line
Credit Subfacility made by the Agent Bank to the Borrowers from time to time
pursuant to, and subject to the terms and conditions set forth in, this Loan
Agreement for the other purposes described in Section 2.6 hereof.
1.125 "Swing Line Commitment Termination Date" means the same date as the
Revolving Loan Commitment Termination Date.
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1.126 "Swing Line Usage" means, as at any date of determination thereof,
the sum of the maximum aggregate principal amount of all outstanding Swing Line
Loans, which amount shall never exceed Three Million Dollars ($3,000,000).
1.127 "Tangible Net Worth" means, as at any date on which the amount
thereof shall be determined, the Net Worth of the Borrowers as determined in
accordance with GAAP, minus the value of any intangible assets, including,
without limitation, organization expenses, patents, trademarks, copyrights,
goodwill, research and development, training cost and unamortized debt discount.
1.128 "Tax" or "Taxes" means any present or future tax, levy, impost,
duty, charge, governmental fee, deduction or withholding of any nature and
whatever called, by whomsoever, on whomsoever and wherever imposed, levied,
collected, withheld or assessed; provided that "Tax on the overall net income"
of a Person shall be construed as a reference to a tax imposed by the
jurisdiction in which that Person's principal office (and/or, in the case of any
Bank, its lending office) is located on all or part of the net income, profits
or gains of that Person (whether worldwide, or only insofar as such income,
profits or gains are considered to arise in or to relate to a particular
jurisdiction, or otherwise).
1.129 "Tax Transferee" means any Person who acquires any interest in the
Revolving Credit Loans (whether or not by operation of law) or the office to
which any Bank has transferred its Revolving Credit Loans for purposes of
determining where such Bank's Revolving Credit Loans are made, accounted for or
booked.
1.130 "Term Loan Maturity Date" means September 30, 2002.
1.131 "Term Loan Pro Rata Shares" means, with respect to each Bank's share
of the Term Loans, the percentage set forth opposite that Bank's name on
Schedule 3.1 annexed hereto; provided that Schedule 3.1 shall be amended and
each Bank's Term Loan Pro Rata Share shall be adjusted from time to time to give
effect to the addition or removal of any Bank as provided herein or by
assignment pursuant to Section 12 hereof.
1.132 "Term Loans" means the term loans in the principal amount of up to
Fifteen Million Dollars ($15,000,000.00) made by the Banks to the Borrowers
pursuant to this Loan Agreement.
1.133 "Term Notes" means, collectively, that certain Amended and Restated
Term Promissory Note of even date herewith, made by the Borrower, payable to the
order of Bank One, and in the face principal amount of Fifteen Million Dollars
($15,000,000.00), a form of which is annexed hereto as Exhibit B-1, as the same
may hereafter be amended, modified, renewed, replaced and/or restated from time
to time and any other term promissory note executed by the Borrowers in
connection with this Loan Agreement.
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1.134 "Total Utilization of Revolving Loan Commitments" means, as at any
date of determination thereof, the sum of (i) the aggregate principal amount of
all outstanding Revolving Credit Loans, (ii) the Letter of Credit Usage and
(iii) the Swing Line Usage.
1.135 "TT Mortgage" means the Mortgage dated as of the date hereof entered
into between the Agent Bank and TT, for the benefit of the Banks, with respect
to TT's fee simple interest in the TT Real Property, as the same may be
hereafter amended, modified, renewed, replaced, and/or restated from time to
time, whether entered into as of the Closing Date, or subsequent thereto.
1.136 "TT Real Property" means the real property and improvements owned by
TT and located in Louisville, Kentucky.
1.137 "Uniform Commercial Code" means the Uniform Commercial Code in
effect in the Commonwealth of Kentucky, currently codified as KRS 355.101 et
seq.
1.138 "Voting Stock" means the shares of capital stock or other securities
of the Borrowers entitled to vote generally in the election of the directors of
the Borrowers.
1.139 Accounting Terms and Financial Information.
A. Accounting Terms. For purposes of this Loan Agreement, all
accounting terms not otherwise defined herein shall have the meanings assigned
to them in conformity with GAAP and all financial statements and certificates
and reports as to financial matters required to be delivered to the Agent Bank
hereunder shall (unless otherwise disclosed to the Agent Bank in writing at the
time of delivery thereof in the manner described in paragraph B of this Section)
be prepared in accordance with GAAP applied on a basis consistent with GAAP as
applied in the preparation of the latest financial statements furnished to the
Agent Bank hereunder.
B. Accounting Variances. Group Financial, for itself and the other
Borrowers, shall deliver to the Agent Bank at the same time as the delivery of
any annual or quarterly financial statement under Section 7.3 hereof, (i) a
description in reasonable detail of any variation between the application of
accounting principles employed in the preparation of such statement and the
application of accounting principles employed in the preparation of the next
preceding annual or quarterly financial statements (which variation materially
affects the presentation of the financial position or results of operations of
the Borrowers on a Combined basis in accordance with GAAP) and (ii) reasonable
estimates of the difference between such statements arising as a consequence
thereof.
1.140 Other Definitional Provisions. Any reference in this Loan Agreement
(i) to a Section, an Annex, a Schedule or an Exhibit is a reference to a section
hereof, an annex hereto, a schedule hereto or an exhibit hereto, respectively;
and (ii) to a subsection or a clause is, unless otherwise stated, a reference to
a subsection or a clause of the Section or subsection in which the reference
appears. In this Loan Agreement the singular includes the plural and the plural
the singular; "hereof," "herein," "hereto," "hereunder" and the like mean and
refer to this Loan
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Agreement as a whole and not merely to the specific section, paragraph or clause
in which the respective word appears; words importing any gender include the
other genders; references to statutes are to be construed as including all
statutory provisions consolidating, amending or replacing the statute referred
to; references to "writing" include printing, typing, lithography and other
means of reproducing words in a tangible visible form; the words "including",
"includes" and "include" shall be deemed to be followed by the words "without
limitation"; references to agreements and other contractual instruments shall be
deemed to include all subsequent amendments, supplements, assignments and other
modifications thereto, but only to the extent such modifications are not
prohibited by the terms of this Loan Agree ment, and references to Persons
include their respective permitted successors and assigns or, in the case of
governmental Persons, Persons succeeding to the relevant functions of such
Persons.
SECTION 2
REVOLVING CREDIT FACILITY
-------------------------
Subject to the terms and conditions of this Loan Agreement, the Banks
hereby establish the Revolving Credit Facility in favor of the Borrowers in the
principal amount of Thirty Million Dollars ($30,000,000). Pursuant to the
Revolving Credit Facility, the Borrowers may obtain Revolving Credit Loans
and/or Letters of Credit pursuant to, and subject to the terms and conditions
set forth in, this Loan Agreement for the purposes set forth in Sections 2.5A
and 2.7 hereof. The Revolving Credit Facility is subject to the following terms
and conditions:
2.1 Revolving Loan Commitments, Revolving Credit Loans.
A. Revolving Loan Commitments. Each Bank severally agrees, subject
to the limitations set forth below with respect to the maximum amount of
Revolving Credit Loans permitted to be outstanding from time to time, to lend to
the Borrowers from time to time during the period from the Closing Date to but
excluding the Revolving Loan Commitment Termination Date an aggregate amount not
exceeding its Revolving Credit Facility Pro Rata Share of the aggregate
Revolving Loan Commitments. The amount of each Bank's Revolving Loan Commitment
is set forth opposite its name on Schedule 2.1 annexed to this Loan Agreement
and the aggregate amount of the Revolving Loan Commitments is Thirty Million
Dollars ($30,000,000); provided, the amount of the Revolving Loan Commitments
shall be reduced from time to time by the amount of any voluntary reductions
that are allowed to be made pursuant to Section 2.4D hereof (it being understood
that all references to the Revolving Loan Commitments of the Banks set forth in
this Loan Agreement shall mean the initial Revolving Loan Commitments of the
Banks set forth on Schedule 2.1 annexed to this Loan Agreement, as reduced by
any voluntary reductions of the Revolving Loan Commitments effected by the
Borrowers pursuant to Section 2.4D of the Loan Agreement). Each Bank's Revolving
Loan Commitment shall expire on the Revolving Loan Commitment Termination Date
and all Revolving Credit Loans shall be paid in full no later than that date.
Amounts borrowed under this Section 2.lA may be repaid and reborrowed to but
excluding the Revolving Loan Commitment Termination Date, subject to the
provisions of Section 2.4C hereof.
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Anything contained in this Loan Agreement to the contrary notwithstanding,
the Revolving Credit Loans and the Revolving Loan Commitments shall be subject
to the following limitations:
(i) The Letter of Credit Subfacility is a sublimit under the
Revolving Credit Facility. The amount otherwise available for borrowing under
the Revolving Loan Commitments as of the time of determination thereof (other
than to reimburse the Agent Bank for the amount of any drawings under any
Letters of Credit honored by the Agent Bank and not theretofore reimbursed by
the Borrowers) shall be reduced by an amount equal to the Letter of Credit Usage
as of such time of determination;
(ii) The Swing Line Credit Subfacility is a sublimit under the
Revolving Credit Facility. The amount otherwise available for borrowing under
the Revolving Loan Commitments as of the time of determination thereof shall be
reduced by an amount equal to the Swing Line Usage; and
(iii) The Total Utilization of Revolving Loan Commitments shall
not exceed the then-applicable aggregate Revolving Loan Commitments; and
(iv) The Borrowers shall not be entitled to obtain any
Revolving Credit Loan to the extent that the making of the Revolving Credit Loan
would cause the Total Utilization of Revolving Loan Commitments to exceed the
Borrowing Base during such periods to which the Borrowing Base applies pursuant
to Section 7.3A of this Agreement.
B. Term of Revolving Loan Commitments. The Revolving Loan
Commitments shall become effective immediately as of the Closing Date, and as of
the Closing Date, the Borrowers may obtain Revolving Credit Loans Credit subject
to the terms and conditions contained herein. The Revolving Loan Commitments
shall continue in effect until the Revolving Loan Commitment Termination Date,
unless sooner terminated (i) by the Banks upon the occurrence and during the
continuation of an Event of Default, or (ii) by the Borrowers upon a voluntary
reduction in all of the Revolving Loan Commitments, pursuant to Section 2.4D
hereof. The Revolving Loan Commitment Termination Date may only be extended by
the unanimous written consent of all of the Banks in their sole and absolute
discretion. If any Bank elects not to extend the Revolving Loan Commitment
Termination Date, such Bank shall notify the Borrowers and the other Banks
thereof. In the event any Bank elects not to extend the Revolving Loan
Commitment Termination Date, the Revolving Loan Commitments shall terminate, and
the entire unpaid principal balance of and all accrued and unpaid interest on
the Revolving Credit Loans, the Swing Line Loans and the Letters of Credit shall
be respectively due and payable in full to the Banks on the Revolving Loan
Commitment Termination Date, subject at all times to the Banks' absolute right
to terminate the Revolving Loan Commitments upon the occurrence and during the
continuation of an Event of Default. Upon termination of the Revolving Loan
Commitments by the Banks upon the occurrence and during the continuation of an
Event of Default, or by the Borrowers at any time in their sole and absolute
discretion, the entire unpaid principal balance of and all accrued and unpaid
interest on the Revolving Credit Loans the Swing Line Loans and the Letters of
Credit shall be respectively due and payable in full to the Banks. The
termination of the Revolving Loan Commitments, for
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whatever reason, shall not in any way release or relieve the Borrowers from
their obligations incurred hereunder or in connection herewith or under the
Revolving Credit Notes, the Applications and Agreements For Letters of Credit,
the Term Notes or the other Loan Documents and the provisions hereof and of the
Revolving Credit Notes, the Applications and Agreements For Letters of Credit,
the Term Notes and the other Loan Documents shall continue in full force and
effect until the Revolving Credit Notes, the Applications and Agreements For
Letters of Credit, the Term Notes, and all other Obligations have been
respectively paid in full to the Banks. In the event the Borrowers terminate the
Revolving Loan Commitments, pursuant to Section 2.4C hereof, the Borrowers shall
be obligated to pay the Revolving Credit Notes, the Applications and Agreements
For Letters of Credit, the Term Notes and all other Obligations in full to the
Banks, respectively.
C. Borrowing Mechanics For Revolving Credit Loans Made to the
Borrowers. Revolving Credit Loans (excluding Swing Line Loans under the Swing
Line Credit Subfacility discussed in Section 2.6 hereof) made to the Borrowers
on any Funding Date shall be in an aggregate minimum amount of (i) Five Hundred
Thousand Dollars ($500,000) and integral multiples of One Hundred Thousand
Dollars ($100,000) in excess of that amount in the case of Base Rate Loans, and
(ii) One Million Dollars ($1,000,000) and integral multiples of One Hundred
Thousand Dollars ($100,000) in excess of that amount in the case of LIBOR Loans.
Whenever the Borrowers desire that the Banks make a Revolving Credit Loan to the
Borrowers, BT, acting as agent for all of the Borrowers, shall deliver to the
Agent Bank a Request For Revolving Credit Loan no later than 12:00 noon
(Louisville, Kentucky time) at least three (3) Business Days in advance of the
proposed Funding Date in the case of a LIBOR Loan and on the proposed Funding
Date in the case of a Base Rate Loan. The Request For Revolving Credit Loan
shall be in the form of Exhibit E annexed hereto and shall specify (i) the
proposed Funding Date, (ii) the amount of the Revolving Credit Loan, (iii)
whether the Revolving Credit Loan shall be a Base Rate Loan or a LIBOR Loan,
(iv) in the case of any Revolving Credit Loan requested to be made as a LIBOR
Loan, the initial Interest Period applicable thereto, and (v) that the amount of
the proposed Revolving Credit Loan will not (a) cause the Total Utilization of
Revolving Loan Commitments to exceed the aggregate Revolving Loan Commitments.
Revolving Credit Loans made to the Borrowers may be continued as or converted
into Base Rate Loans or LIBOR Loans in the manner provided in Section 2.2D
hereof. In lieu of delivering the above described Request For Revolving Credit
Loan, BT, acting as agent for all of the Borrowers, may give the Agent Bank
telephonic notice by the required time of the requested Revolving Credit Loan
under this Section 2.lC; provided that such notice shall be promptly confirmed
in writing by delivery of a Request For Revolving Credit Loan to the Agent Bank
on or before the applicable Funding Date.
No Bank shall incur any liability to the Borrowers in acting upon any
telephonic notice referred to above which the Agent Bank believes in good faith
to have been given by a duly Authorized Officer or other Person authorized to
borrow on behalf of the Borrowers or for otherwise acting in good faith under
this Section 2.lC and, upon funding of any Revolving Credit Loan by the Banks in
accordance with this Loan Agreement pursuant to any telephonic notice, the
Borrowers shall have effected such Revolving Credit Loan hereunder. The
Borrowers agree that the Agent Bank and the Banks are entitled to rely upon any
Request for Revolving Credit Loan submitted to the Agent Bank by BT, the same as
if the Request for Revolving Credit Loan had been executed by
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each of the other Borrowers, unless and until the other Borrowers have notified
the Agent Bank and the Banks in writing pursuant to Section 15 hereof that BT is
no longer authorized to act as agent for and behalf of the other Borrowers.
Except as provided in Sections 4.2, 4.3 and 4.7 hereof, a Request For
Revolving Credit Loan for a LIBOR Loan (or telephonic notice in lieu thereof)
shall be irrevocable on and after the related Interest Rate Determination Date,
and the Borrowers shall be bound to obtain the LIBOR Loan in accordance
therewith.
D. Disbursement of Revolving Credit Loans to the Borrowers. All
Revolving Credit Loans made to the Borrowers under this Loan Agreement shall be
made by the Banks simultaneously and proportionately in accordance with their
respective Revolving Credit Facility Pro Rata Shares, it being understood that
no Bank shall be responsible for any default by the other Bank in funding its
Revolving Credit Facility Pro Rata Share of a Revolving Credit Loan requested
hereunder by the Borrowers, nor shall the Revolving Loan Commitment of any Bank
be increased or decreased as a result of the default by the other Bank in
funding its Revolving Credit Facility Pro Rata Share of a Revolving Credit Loan
requested hereunder by the Borrowers. Each Bank shall make its Revolving Credit
Facility Pro Rata Share of each Revolving Credit Loan to be made to the
Borrowers available to the Agent Bank, in same day funds, at the office of the
Agent Bank located at 416 West Jefferson Street, Louisville, Kentucky not later
than 1:00 P.M. (Louisville, Kentucky time) on the Funding Date. Except with
respect to the reimbursement to the Agent Bank for a drawing under a Letter of
Credit issued by the Agent Bank as provided in Section 2.7 hereof, upon
satisfaction or waiver of the conditions precedent specified in Section 5.1 in
the case of the initial Revolving Credit Loan on the initial Funding Date and
Section 5.2 in the case of a Revolving Credit Loan on any subsequent Funding
Date, the Agent Bank shall make the proceeds of each Revolving Credit Loan
requested by BT, acting as agent for all of the Borrowers, available to the
Borrowers on the Funding Date by causing an amount of same day funds equal to
the proceeds of the Banks' respective Revolving Credit Facility Pro Rata Shares
of such Revolving Credit Loan received by the Agent Bank at its office located
at the address set forth in the preceding sentence to be credited to the
Borrowers' Loan Account maintained at such office of the Agent Bank or wired to
an account designated by BT, acting as agent for all of the Borrowers. All
Revolving Credit Loans shall be respectively paid in full to the Banks on the
Revolving Loan Commitment Termination Date.
Nothing in this Section 2.1D shall be deemed to relieve any Bank from its
obligation to fulfill its Revolving Loan Commitment hereunder or to prejudice
any rights that the Borrowers may have against any Bank as a result of any
default by such Bank hereunder.
E. Records. Each Bank shall record the Revolving Credit Loans made
to the Borrowers from time to time and each repayment or prepayment in respect
of the principal amount of such Revolving Credit Loans in the Bank's electronic
records. Any such recordation in accordance with the terms of this Loan
Agreement shall be conclusive and binding on the Borrowers absent manifest
error; provided, the failure to make any such recordation, or any error in such
recordation, shall not affect the Borrowers' obligation to repay all Revolving
Credit Loans to the Banks in accordance with this Loan Agreement and the
Revolving Credit Notes.
-23-
<PAGE>
F. Borrowers' Loan Accounts.
(i) Each Bank shall enter all Revolving Credit Loans made to
the Borrowers as debits in the Borrowers' Loan Account maintained with such
Bank. Each Bank shall also record in the Borrowers' Loan Account maintained with
such Bank in accordance with customary accounting practice all other charges,
expenses and other items properly chargeable to the Borrowers; all payments made
by the Borrowers on account of the Revolving Credit Loans made by such Bank; and
other appropriate debits and credits. The debit balance of the Borrowers' Loan
Account maintained with such Bank shall reflect the unpaid principal balance of
the Revolving Credit Loans from time to time maintained with such Bank. At least
once each month the Agent Bank shall render a statement of account for the
Borrowers' Loan Account maintained with the Agent Bank and the other Banks,
which statement shall be considered correct and accepted by the Borrowers and
conclusively binding upon the Borrowers in the absence of manifest error unless
the Borrowers notify the Agent Bank to the contrary within thirty (30) days from
the receipt of said statement by the Borrowers.
(ii) Any and all principal, interest, charges and expenses,
attorneys' fees and taxes now or hereafter due and owing under the Revolving
Credit Notes and any of the other Loan Documents may be charged to any deposit
account of the Borrowers with a Bank or to the Borrowers' Loan Account
maintained with such Bank.
2.2 Interest on the Revolving Credit Loans.
A. Rates of Interest. Subject to the provisions of Section 2.2E,
Section 4 and Section 14 hereof, each Revolving Credit Loan shall bear interest
on the unpaid principal amount thereof from the date made through maturity
(whether by acceleration or otherwise) at the (i) Base Rate or (ii) the LIBOR
plus the Applicable LIBOR Margin, as the case may be. The applicable interest
rate mode with respect to Revolving Credit Loans shall be selected by the
Borrowers initially at the time a Request For Revolving Credit Loan is delivered
to the Agent Bank pursuant to Section 2.1C hereof. The interest rate with
respect to any Revolving Credit Loan may be changed by the Borrowers from time
to time pursuant to Section 2.2D hereof. If on any day a Revolving Credit Loan
is outstanding with respect to which notice has not been delivered to the Agent
Bank or the Banks in accordance with the terms of this Loan Agreement specifying
the applicable interest rate, then, for that day, that Revolving Credit Loan
shall bear interest at the Base Rate.
Subject to the provisions of Section 2.2E, Section 4 and Section 14 hereof,
Revolving Credit Loans shall bear interest through maturity as follows:
(i) if a Base Rate Loan, at a rate equal to the Base Rate.
(ii) if a LIBOR Loan, (a) from the Closing Date through and
until the first Business Day of the month that follows the month in which the
Agent Bank has received Borrowers' financial statements for the period ending
March 31, 1998, at a rate per annum equal to the sum of
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<PAGE>
the LIBOR plus 1.50%, and (b) thereafter at a rate per annum equal to the sum of
the LIBOR plus the Applicable LIBOR Margin; provided that, on each Date of
Determination, commencing with the first Date of Determination to occur after
the Closing Date, the Applicable LIBOR Margin in effect for the Pricing Period
commencing on such Date of Determination and continuing for the term of the
Pricing Period that begins on such Date of Determination shall be the Applicable
LIBOR Margin corresponding to the Pricing Level in effect for such Pricing
Period, as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Funded Debt Applicable
Pricing Level to EBITDA LIBOR Margin
------------- --------- ------------
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Pricing Level I Greater or equal 0.00, but Less than or equal .99 0.625%
- -------------------------------------------------------------------------------------------------
Pricing Level II Greater or equal 1.00, but Less than or equal 1.49 0.75
- -------------------------------------------------------------------------------------------------
Pricing Level III Greater or equal 1.50, but Less than or equal 1.74 1.00
- -------------------------------------------------------------------------------------------------
Pricing Level IV Greater or equal 1.75, but Less than or equal 1.99 1.25
- -------------------------------------------------------------------------------------------------
Pricing Level V Greater or equal 2.00, but Less than or equal 2.24 1.50
- -------------------------------------------------------------------------------------------------
Pricing Level VI Greater or equal 2.25, but Less than or equal 2.49 1.75
- -------------------------------------------------------------------------------------------------
Pricing Level VII Greater or equal 2.50, but Less than or equal 2.99 2.25
- -------------------------------------------------------------------------------------------------
</TABLE>
Notwithstanding anything in the foregoing to the contrary, if any
Compliance Certificate (the form of which is included as Exhibit G)
delivered by the Borrowers demonstrating the appropriate Pricing Level
shall prove to be incorrect (as determined by reference to a subsequent
Compliance Certificate, then such Compliance Certificate shall no longer be
in effect. In such event, the Agent Bank shall calculate the difference
between the amount of interest actually paid by the Borrowers on LIBOR
Loans on the basis of such incorrect Compliance Certificate and the amount
of interest which would have been due on such LIBOR Loans had such
incorrect Compliance Certificate not been delivered, and shall forward to
the Borrowers a statement setting forth the amount of the difference and
the method of calculation of such amount (which calculation, in the absence
of demonstrable error, shall be deemed correct) and the Borrowers shall pay
such amount to the Agent Bank for the benefit of the Banks within three (3)
Business Days of such notice.
B. Interest Periods for LIBOR Loans. In connection with each
LIBOR Loan, the Borrowers may, pursuant to the applicable Request For
Revolving Credit Loan, select the Interest Period to be applicable to such
LIBOR Loan, which Interest Period shall be at the Borrowers' option either
a one, two, three or six month period. The following provisions are
applicable to Interest Periods generally:
(i) the initial Interest Period for any LIBOR Loan shall commence
on the Funding Date of such LIBOR Loan, in the case of a Revolving Credit
Loan initially made as a LIBOR Loan, or on the date specified in the
applicable Notice of Conversion/Continuation, in the case of a Revolving
Credit Loan converted to a LIBOR Loan;
-25-
<PAGE>
(ii) in the case of immediately successive Interest Periods
applicable to a LIBOR Loan continued as such pursuant to Notice of
Conversion/Continuation, each successive Interest Period shall commence on
the day on which the next preceding Interest Period expires;
(iii) if an Interest Period would otherwise expire on a day that
is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; provided that, if any Interest Period would
otherwise expire on a day that is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
(iv) any Interest Period of a LIBOR Loan that begins on the last
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (iii) of this Section 2.2B, end
on the last Business Day of a calendar month;
(v) in the event the Borrowers fail to specify an Interest Period
with respect to a LIBOR Loan in the applicable Request For Revolving Credit
Loan or Notice of Conversion/Continuation, the Borrowers shall be deemed to
have selected an Interest Period of one month; and
(vi) no Interest Period shall extend beyond the Revolving Loan
Commitment Termination Date.
C. Interest Payments. Subject to the provisions of Section 2.2E
hereof, interest shall be payable on the Revolving Credit Loans as follows:
(i) interest on each Base Rate Loan shall be payable in arrears
on and to the last day of each calendar quarter, and at maturity (including
final maturity); and
(ii) interest on each LIBOR Loan shall be payable in arrears on
and to the ninetieth (90th) day during each Interest Period applicable to
that LIBOR Loan, the last day of each Interest Period applicable to that
LIBOR Loan, and upon any prepayment or repayment of that LIBOR Loan (to the
extent accrued on the amount being prepaid or repaid) and at maturity
(including final maturity).
D. Conversion or Continuation of Interest Rate Modes. Subject to
the provisions of Section 2.4 hereof, the Borrowers shall have the option
(i) at any time to convert all or any part of outstanding Revolving Credit
Loans bearing
-26-
<PAGE>
interest as Base Rate Loans to Revolving Credit Loans bearing interest as
LIBOR Loans; and (ii) upon the expiration of any Interest Period applicable
to a Revolving Credit Loan bearing interest as a LIBOR Loan, (a) to
continue all or any portion of such Loan as a LIBOR Loan, with the
succeeding Interest Period of such continued LIBOR Loan to commence on the
most recent Interest Payment Date thereof or (b) to convert all or any part
of such Loan to a Base Rate Loan.
BT, acting as agent for all of the Borrowers, shall deliver a Notice
of Conversion/Continuation to the Agent Bank no later than 12:00 noon
(Louisville, Kentucky time) at least three (3) Business Days in advance of
the proposed conversion/continuation date. A Notice of Conversion/
Continuation shall specify (i) the proposed conversion/continuation date
(which shall be a Business Day), (ii) the amount of the Revolving Credit
Loan to be converted/continued, (iii) the nature of the proposed
conversion/continuation, (iv) in the case of a conversion to, or
continuation of, a LIBOR Loan, the requested Interest Period, and (v) in
the case of a conversion to, or a continuation of, a LIBOR Loan or a Base
Rate Loan, that no Event of Default has occurred and is continuing. In lieu
of delivering the above-described Notice of Conversion/Continuation, BT,
acting as agent for the Borrowers, may give the Agent Bank telephonic
notice by the required time of any proposed conversion/continuation under
this section 2.2D; provided that such notice shall be promptly confirmed in
writing by delivery of a Notice of Conversion/Continuation to the Agent
Bank on or before the proposed conversion/continuation date.
The Banks shall not incur any liability to the Borrowers in acting
upon any telephonic notice referred to above that the Agent Bank believes
in good faith to have been given by a duly Authorized Officer or other
Person authorized to act on behalf of the Borrowers or for otherwise acting
in good faith under this Section 2.2D, and upon conversion or continuation
of the applicable basis for determining the interest rate with respect to
any Revolving Credit Loans in accordance with this Loan Agreement pursuant
to any such telephonic notice, the Borrowers shall have effected a
conversion or continuation, as the case may be, hereunder. The Borrowers
agree that the Agent Bank and the Banks are entitled to rely upon any
Notice of Conversion/Continuation submitted to the Agent Bank by BT, the
same as if the Notice of Conversion/Continuation had been executed by each
of the other Borrowers, unless and until the other Borrowers have notified
the Agent Bank and the Banks in writing pursuant to Section 15 hereof that
BT is no longer authorized to act as agent for and behalf of the other
Borrowers.
Except as otherwise provided in Sections 4.2, 4.3 and 4.7 hereof, a
Notice of Conversion/Continuation for conversion to, or continuation of, a
LIBOR Loan (or telephonic notice in lieu thereof) shall be irrevocable on
and after the related Interest Rate Determination Date and the Borrowers
shall be bound to effect a conversion or continuation in accordance
therewith.
-27-
<PAGE>
E. Post-Maturity Interest. Any principal payments on the
Revolving Credit Loans not paid when due and, to the extent permitted by
applicable law, any interest payments on the Revolving Credit Loans or any
fees or other amounts owed by the Borrowers hereunder not paid when due, in
each case whether at stated maturity, by notice of prepayment, by
acceleration or otherwise, shall thereafter bear interest (including post-
petition interest in any proceeding under the Bankruptcy Code or other
applicable bankruptcy laws) payable on demand at a rate equal to the
Default Rate. Payment or acceptance of the increased rates of interest
provided for in this Section 2.2E is not a permitted alternative to timely
payment and shall not constitute a waiver of any Event of Default or
otherwise prejudice or limit any rights or remedies of the Banks.
F. Computation of Interest. Interest on Revolving Credit Loans
bearing interest as LIBOR Loans shall be computed on the basis of a 360-day
year, and interest on Revolving Credit Loans bearing interest as Base Rate
Loans shall be computed on the basis of an actual 365 or 366-day year, as
applicable, in each case for the actual number of days elapsed in the
period during which it accrues. In computing interest on any Revolving
Credit Loan, the date of the making of such Revolving Credit Loan or the
first day of an Interest Period applicable to such Revolving Credit Loan,
as the case may be, shall be included, and the date of payment of such
Revolving Credit Loan or the expiration date of an Interest Period
applicable to such Revolving Credit Loan or, with respect to a Revolving
Credit Loan being converted to a LIBOR Loan or a Base Rate Loan, the date
of conversion of such Revolving Credit Loan to such LIBOR Loan or a Base
Rate Loan shall be excluded; provided that if a Revolving Credit Loan is
repaid on the same day on which it is made, one day's interest shall be
paid on that Revolving Credit Loan.
G. Limitation on LIBOR Loan Tranches. At no time shall the
number of Revolving Credit Loans bearing interest as LIBOR Loans
outstanding at any time outstanding exceed ten (10) in the aggregate.
2.3 Fees.
----
A. Commitment Fees.
---------------
(i) The Borrowers agree to pay to the Agent Bank, for the
benefit of the Banks in proportion to their respective Revolving Credit
Facility Pro Rata Shares, commitment fees (the "Revolving Credit Facility
Commitment Fees") for the period from and including the Closing Date to and
excluding the Revolving Loan Commitment Termination Date, equal to the
average of the daily excess of the Revolving Loan Commitments (as they may
be reduced pursuant to Sections 2.4C hereof) over the aggregate outstanding
principal amount of Revolving Credit Loans, Swing Line Loans and the Letter
of Credit Usage multiplied by the Applicable Commitment Fee Percentage set
forth below; provided that, on each Date of
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<PAGE>
Determination, commencing with the first Date of Determination to occur
after the Closing Date, the Applicable Commitment Fee Percentage in effect
for the Pricing Period commencing on such Date of Determination and
continuing for the term of the Pricing Period that begins on such Date of
Determination shall be the Applicable Commitment Fee Percentage
corresponding to the Pricing Level in effect for such Pricing Period, as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Applicable
Funded Debt Commitment Fee
Pricing Level to EBITDA Percentage
------------- --------- ------------
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Pricing Level I Greater or equal 0.00, but Less than or equal .99 0.15%
- -------------------------------------------------------------------------------------------------
Pricing Level II Greater or equal 1.00, but Less than or equal 1.49 0.20
- -------------------------------------------------------------------------------------------------
Pricing Level III Greater or equal 1.50, but Less than or equal 1.74 0.225
- -------------------------------------------------------------------------------------------------
Pricing Level IV Greater or equal 1.75, but Less than or equal 1.99 0.25
- -------------------------------------------------------------------------------------------------
Pricing Level V Greater or equal 2.00, but Less than or equal 2.24 0.30
- -------------------------------------------------------------------------------------------------
Pricing Level VI Greater or equal 2.25, but Less than or equal 2.49 0.30
- -------------------------------------------------------------------------------------------------
Pricing Level VII Greater or equal 2.50, but Less than or equal 2.99 0.35
- -------------------------------------------------------------------------------------------------
</TABLE>
The Revolving Credit Facility Commitment Fees shall be calculated on the
basis of a 360-day year and the actual number of days elapsed and shall be
payable quarterly in arrears on the last day of each Fiscal Quarter,
commencing on the first such date to occur after the Closing Date, and on
the Revolving Loan Commitment Termination Date. The Borrowers shall have
no liability to any Bank for any Revolving Credit Facility Commitment Fees
paid to the Agent Bank which the Agent Bank does not properly remit to such
Bank, and such Bank's sole remedy in respect thereof shall be against the
Agent Bank.
(ii) Notwithstanding anything in the foregoing to the contrary,
if any Compliance Certificate (the form of which is attached hereto as
Exhibit G) delivered by the Borrowers demonstrating the appropriate
Pricing Level shall prove to be incorrect (as determined by reference to a
subsequent Compliance Certificate), such Compliance Certificate shall no
longer be in effect, and the Agent Bank shall notify the Borrowers of such
incorrectness and shall calculate the difference between the amount of the
Revolving Credit Facility Commitment Fees actually paid by the Borrowers on
the basis of such incorrect Compliance Certificate and the amount of
Revolving Credit Facility Commitment Fees which would have been due had
such incorrect Compliance Certificate not been delivered. The Agent Bank
shall notify the Borrowers of the amount of such difference, if any, in a
statement setting forth the method of calculation of such amount (which
calculation, in the absence of demonstrable error, shall be deemed correct)
and the Borrowers shall pay such amount to the Agent Bank for the benefit
of the Banks within three (3) Business Days of such notice.
-29-
<PAGE>
B. Other Fees and Expenses. The Borrowers agree to pay to the
Agent Bank such fees for serving as the Agent Bank hereunder in the amounts
and at the times agreed to in writing between the Borrowers and the Agent
Bank, as well as any other fees agreed to in writing between the Borrowers
and the Agent Bank. The Borrowers also agree to pay to the Agent Bank on
the Closing Date the reasonable fees and expenses of the Agent Bank's
counsel in negotiating, drafting and closing this Loan Agreement, the Loan
Documents and related documents.
2.4 Prepayments and Payments; Reductions in Revolving Loan
------------------------------------------------------
Commitments.
-----------
A. Voluntary Prepayments. The Borrowers may, upon not less
than one (1) Business Day prior written or telephonic notice confirmed in
writing to the Agent Bank, at any time and from time to time, prepay any
Revolving Credit Loans (other than Swing Line Loans, which are discussed in
Section 2.6 hereof) in whole or in part in an aggregate minimum amount of
One Hundred Thousand Dollars ($100,000) and integral multiples of Twenty
Five Thousand Dollars ($25,000) in excess of that amount; provided however
that in the event that the Borrowers prepay a LIBOR Loan pursuant to this
Section 2.4A on a date that is other than the expiration date of the
Interest Period applicable thereto, the Borrowers shall compensate the
Banks in accordance with the provisions of Section 4.4 hereof. If the
Borrowers have given notice of prepayment as aforesaid, the principal
amount of the Revolving Credit Loans specified in such notice shall become
due and payable on the prepayment date specified therein. All prepayments
of principal of the Revolving Credit Loans shall be accompanied by the
payment of accrued interest on the principal amount being prepaid and shall
be applied to the payment of interest before application to principal. All
prepayments of the Revolving Credit Loans shall be applied first to Base
Rate Loans to the full extent thereof and then shall be applied to LIBOR
Loans, in each case in a manner which minimizes the amount of any payments
required to be made by the Borrowers pursuant to Section 4.4 hereof.
-30-
<PAGE>
B. Mandatory Prepayments. To the extent that the Borrowers
have engaged in a sale of assets which results in the requirement of a
mandatory prepayment pursuant to Section 8.1 hereof, with the result that
all of the then outstanding principal balance of the Term Loans has been
reduced to $0 pursuant to Section 3.3B hereof, 75% of the balance (if any)
remaining from the proceeds of sale of assets after reduction of the
principal balance of the Term Loans to $0 shall be applied to reduce the
outstanding principal balance of the Revolving Credit Loans. Any such
mandatory prepayment of the Revolving Credit Loans shall not reduce the
Revolving Loan Commitments.
C. General Provisions Regarding Payments.
-------------------------------------
(i) Manner and Time of Payment. All payments of principal,
interest and fees hereunder and under the Revolving Credit Notes by the
Borrowers shall be made without defense, setoff and counterclaim and in
same day funds and delivered to the Agent Bank not later than 12:00 noon
(Louisville, Kentucky time) on the date due at its office located in
Louisville, Kentucky; funds received by the Agent Bank after that time
shall be deemed to have been paid by the Borrowers on the next succeeding
Business Day.
(ii) Payments on Business Days. Whenever any payment to be made
hereunder or under the Revolving Credit Notes shall be stated to be due on
a day that is not a Business Day, such payment shall be made on the next
succeeding Business Day (unless no further Business Day occurs in such
month, in which case payment shall be made on the next preceding Business
Day) and such extension or reduction of time shall be included in the
computation of the payment of interest hereunder or under the Revolving
Credit Notes or of the Revolving Credit Facility Commitment Fees, as the
case may be.
D. Voluntary Reduction of Revolving Loan Commitments. The
Borrowers shall have the right, at any time and from time to time, to
terminate in whole or permanently reduce in part, without premium or
penalty, the Revolving Loan Commitments. The Borrowers shall give not less
than five (5) Business Days' prior written notice to the Agent Bank
designating the date (which shall be a Business Day) of such termination or
reduction and the amount of any partial reduction of the Revolving Loan
Commitments. Such termination or partial reduction of the Revolving Loan
Commitments shall be effective on the date specified in the Borrowers'
notice and shall reduce the Revolving Loan Commitment of each Bank in
proportion to its Revolving Credit Facility Pro Rata Share. Any such
partial reduction of the Revolving Loan Commitments shall be in a minimum
amount of One Million Dollars ($1,000,000) and integral multiples of One
Hundred Thousand Dollars ($100,000) in excess of that amount.
-31-
<PAGE>
2.5 Use of Proceeds.
---------------
A. Revolving Credit Loans. The proceeds of the Revolving
Credit Loans shall be used by the Borrowers to purchase the assets of the
Government Services Division of Datatape, Inc., to finance working capital
requirements and to finance general corporate purposes of the Borrowers.
B. Margin Regulations. No portion of the proceeds of any
Revolving Credit Loans under this Loan Agreement shall be used by the
Borrowers in any manner which might cause the making of the Revolving
Credit Loans or the application of the proceeds thereof to violate
Regulation G, Regulation U, Regulation T, or Regulation X of the Board of
Governors of the Federal Reserve System or any other regulation of such
Board or to violate the securities and Exchange Act of 1934, in each case
as in effect on the date or dates of the making of any such Revolving
Credit Loan and such use of the proceeds thereof. If requested by the
Banks, the Borrowers shall execute and deliver to the Banks a completed
Federal Reserve Form U-1.
2.6 Swing Line Credit Subfacility. Subject to the terms and
conditions of this Loan Agreement, the Agent Bank hereby agrees to make
Swing Line Loans to the Borrowers under the Swing Line Credit Subfacility.
A. Swing Line Credit Subfacility. From the date hereof
throughout the Swing Line Commitment Period, and subject to the terms,
conditions and other provisions of this Agreement, the Agent Bank agrees to
make Swing Line Loans to the Borrowers from time to time in a total amount
not exceeding Three Million Dollars ($3,000,000) in amounts of One Hundred
Thousand Dollars ($100,000) and integral multiples of Five Thousand Dollars
($5,000) in excess thereof. The Swing Line Credit Subfacility is
established for the administrative convenience of the Borrowers, the Agent
Bank and the Banks. During the Swing Line Commitment Period the Borrowers
may borrow and repay advances under the Swing Line Credit Subfacility in
whole or in part, and reborrow all in accordance with the terms, conditions
and other provisions of this Agreement. The making of each Swing Line
Loan shall be subject to the further provisions of this Section 2.6, and
shall be subject to all of the conditions of lending stated in Section 5.2
being fulfilled at the time of each Swing Line Loan, and provided further
that each Swing Line Loan shall be on the terms and subject to the
conditions hereinafter stated.
(i) Interest. Swing Line Loans shall bear interest (calculated
on the basis that an entire year's interest is earned in 365 or 366 days as
the case may be) from the date of each such Swing Line Loan until repaid at
an annual rate equal to the Base Rate. After maturity, whether by
acceleration or scheduled maturity, until paid in full, or when and so long
as there shall exist any uncured Event of Default, Swing Line Loans shall
bear interest at the applicable
-32-
<PAGE>
Default Rate. Interest shall be due and payable to the Agent Bank at the
end of each calendar quarter following receipt of a statement from the
Agent Bank and on the Swing Line Commitment Termination Date.
(ii) Principal. The Borrowers shall pay all principal of all then
outstanding Swing Line Loans in excess of $500,000 before the end of each
Friday of each week. To the extent that the Borrowers fail to repay such
amount by such date, the Agent Bank shall convert the outstanding principal
balance of such Swing Line Loans in excess of $500,000 to a Revolving
Credit Loan, to be payable on the dates and in the manner set forth in
Article II hereof and to bear interest as follows: (i) if the aggregate
outstanding balance of the Swing Line Loans being converted to a Revolving
Credit Loan is greater than $500,000 but less than $1,000,000, such
Revolving Credit Loan shall bear interest as a Base Rate Loan and (ii) if
the aggregate outstanding balance of the Swing Line Loans being converted
to a Revolving Credit Loan is greater than $1,000,000, such Revolving
Credit Loan shall bear interest as a Base Rate Loan or, at the Borrower's
option, as a LIBOR Loan. The Borrowers shall pay the Agent Bank the
outstanding principal balance of all Swing Line Loans on the Swing Line
Commitment Termination Date.
(iii) Conditions for Swing Line Loans. So long as no Event of
Default shall have occurred and be continuing, during the Swing Line
Commitment Period, the Borrowers may borrow, repay and reborrow under the
Swing Line Credit Subfacility on any Business Day, subject to the terms,
conditions and other provisions of this Agreement. The making of Swing Line
Loans will be conditioned upon receipt by the Agent Bank from the BT, as
agent for the Borrowers, of a Request for Swing Line Loan by 12:00 noon
Louisville, Kentucky, time on the Business Day of the requested Swing Line
Loan. Notwithstanding the foregoing, the Agent Bank may, in its sole
discretion, accept an oral or written request made on behalf of the
Borrowers by an Authorized Officer by telephone, telex, facsimile or some
other form of written electronic communication, in which case the Agent
Bank shall be entitled to rely on any such oral or written request received
by the Agent Bank in good faith from anyone reasonably believed by the
Agent Bank to be an Authorized Officer. BT, as agent for the Borrowers,
shall promptly confirm any such communication by delivery of a Request for
Swing Line Loan upon request of the Agent Bank. Disbursements of, and
payments of principal, with respect to Swing Line Loans may be evidenced by
notations of the Agent Bank in its electronic data processing equipment.
The aggregate amount of all disbursements of Swing Line Loans made and
shown on the Agent Bank's electronic data processing equipment, over all of
the payments of principal made by the Borrowers and recorded on the Agent
Bank's electronic data processing equipment shall be prima facie evidence
of the outstanding principal balance due under the Swing Line Credit
Subfacility.
-33-
<PAGE>
The Borrowers agree that the Agent Bank and the Banks are entitled to
rely upon any Request for Swing Line Loan submitted to the Agent Bank by
BT, the same as if the Request for Swing Line Loan had been executed by
each of the other Borrowers, unless and until the other Borrowers have
notified the Agent Bank and the Banks in writing pursuant to Section 15
hereof that BT is no longer authorized to act as agent for and behalf of
the other Borrowers.
(v) General Provisions Regarding Payments.
-------------------------------------
(a) Manner and Time of Payment. All payments of principal,
interest and fees hereunder and under the Swing Line Credit Subfacility by
the Borrowers shall be made without defense, setoff and counterclaim and in
same day funds and delivered to the Agent Bank not later than 12:00 noon
(Louisville, Kentucky time) on the due date therefor at its office located
in Louisville, Kentucky; funds received by the Agent Bank after that time
shall be deemed to have been paid by the Borrowers on the next succeeding
Business Day.
(b) Payments on Business Days. Whenever any payment to be made
hereunder or under the Swing Line Credit Subfacility shall be stated to be
due on a day that is not a Business Day, such payment shall be made on the
next succeeding Business Day (unless no further Business Day occurs in such
month, in which case payment shall be made on the next preceding Business
Day) and such extension or reduction of time shall be included in the
computation of the payment of interest hereunder or under the Swing Line
Credit Subfacility.
(vi) Voluntary Reduction of Swing Line Loan Commitment. The
Borrowers shall have the right, at any time and from time to time, to
terminate in whole or permanently reduce in part, without premium or
penalty, the Swing Line Loan Commitment. BT, on behalf of the Borrowers,
shall give not less than five (5) Business Days' prior written notice to
the Agent Bank designating the date (which shall be a Business Day) of such
termination or reduction and the amount of any partial reduction of the
Swing Line Loan Commitment. Such termination or partial reduction of the
Swing Line Loan Commitment shall be effective on the date specified in the
Borrowers' notice. Any such partial reduction of the Swing Line Loan
Commitment shall be in a minimum amount of One Hundred Thousand Dollars
($100,000).
(vii) Other Banks. Swing Line Loans will be made by the Agent
Bank, in its individual capacity. Upon a request to reduce the principal
amount outstanding Swing Line Loans from the Agent Bank, the Banks shall
make advances based on their Revolving Credit Facility Pro Rata Shares in
amounts sufficient to effect the requested reduction in Swing Line Loans.
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<PAGE>
(viii) Limitation. The Borrowers may not request that the Agent
Bank make any Swing Line Loan if, after making such Swing Line Loan, (x)
the total aggregate principal amount of outstanding Swing Line Loans would
exceed Three Million Dollars ($3,000,000), or (y) the Total Utilization of
Revolving Loan Commitments would exceed the Revolving Loan Commitments, as
the amount available under such Revolving Loan Commitments may be reduced
from time to time pursuant to Sections 2.4C or (z) the Total Utilization of
Revolving Loan Commitments would exceed the Borrowing Base to the extent
then applicable in accordance with Section 7.3A of this Loan Agreement.
B. Use of Proceeds.
---------------
(i) Swing Line Loans. The principal of the Swing Line Loans
shall be used by Borrowers for any lawful corporate purposes.
(ii) Margin Regulations. No portion of the principal of the
Swing Line Loans shall be used by the Borrowers in any manner which might
cause the making of the Swing Line Loan or the application of the proceeds
thereof to violate Regulation G, Regulation U, Regulation T, or Regulation
X of the Board of Governors of the Federal Reserve System or any other
regulation of such Board or to violate the Securities and Exchange Act of
1934, in each case as in effect on the date or dates of each Swing Line
Loan. If requested by the Agent Bank, the Borrowers shall execute and
deliver to the Agent Bank a completed Federal Reserve Form U-1.
2.7 Letters of Credit.
-----------------
A. Letters of Credit. Subject to the terms and conditions of
this Loan Agreement and in reliance upon the representations and warranties
of the Borrowers set forth herein, the Borrowers may request, in accordance
with the provisions of this Section 2.7A, that on and after the Closing
Date, the Agent Bank issue Letters of Credit for the account of the
Borrowers denominated in Dollars. Issuances of Letters of Credit shall be
subject to the following limitations:
(i) The Borrowers may not request that the Agent Bank issue any
Letter of Credit if, after giving effect to such issuance, (x) the total
Letter of Credit Usage would exceed Five Million Dollars ($5,000,000), or
(y) the Total Utilization of Revolving Loan Commitments would exceed the
Revolving Loan Commitments, as the amount available under such Revolving
Loan Commitments may be reduced from time to time pursuant to Sections
2.4C, or (z) the Total Utilization of Revolving Loan Commitments would
exceed the Borrowing Base to the extent then applicable in accordance with
the provisions of Section 7.3A of this Loan Agreement.
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<PAGE>
(ii) In no event shall the Agent Bank issue, reissue, amend or
permit the extension of: (y) any Letter of Credit having an expiration date
later than the Revolving Loan Commitment Termination Date in effect at the
time of issuance, reissuance, amendment or extension (automatic or
otherwise) thereof; or (z) subject to the foregoing clause (y), any Letter
of Credit having an expiration date more than one year after its date of
issuance; provided that subject to the foregoing clause (y), this clause
(z) shall not prevent the Agent Bank from agreeing that a Letter of Credit
will automatically be extended annually for one or more periods each not to
exceed one year if the Agent Bank does not cancel such extension, subject
to the Banks extending the Revolving Loan Commitment Termination Date.
It shall be a condition precedent to the issuance of any Letter of
Credit in accordance with the provisions of this Section 2.7 that each
condition set forth in Sections 5.1 and 5.2A and 5.2B of this Loan
Agreement shall have been satisfied.
Immediately upon the issuance of each Letter of Credit, each Bank
shall be deemed to, and hereby agrees to, have irrevocably purchased from
the Agent Bank a participation in such Letter of Credit and drawings
thereunder in an amount equal to such Bank's Revolving Credit Facility Pro
Rata Share of the maximum amount which is or at any time may become
available to be drawn thereunder.
Each Letter of Credit shall provide that it shall be subject to the
Uniform Customs and Practice of Documentary Credits (1993 Revision),
International Chamber of Commerce Brochure No. 500, or any successor
thereto. Each Letter of Credit may provide that the Agent Bank may (but
shall not be required to) pay the beneficiary thereof upon the occurrence
of an Event of Default and the acceleration of the maturity of the
Revolving Credit Loans or, if payment is not then due to the beneficiary,
provide for the deposit of funds in an account to secure payment to the
beneficiary and that any funds so deposited shall be paid to the
beneficiary of the Letter of Credit if conditions to such payment are
satisfied or returned to the Agent Bank for distribution to the Banks (or,
if all Obligations shall have been indefeasibly paid in full, to the
Borrowers) if no payment to the beneficiary has been made and thirty (30)
days after the final date available for drawings under the Letter of Credit
has passed. Each payment or deposit of funds by the Agent Bank as provided
in this paragraph shall be treated for all purposes of this Loan Agreement
as a drawing duly honored by the Agent Bank under the related Letter of
Credit.
B. Notice of Issuance. Whenever a Borrower desires the
issuance of a Letter of Credit, BT, on behalf of the Borrowers, shall
deliver to the Agent Bank an Application and Agreement for Letter of Credit
in the form of Exhibit C annexed hereto no later than 12:00 noon
(Louisville, Kentucky time) at least ten (10) Business Days, or in each
case such shorter period as may be agreed to by the Agent Bank in any
particular instance, in advance of the proposed date of issuance. The
Application and Agreement for Letter of Credit shall specify (i) the
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proposed date of issuance (which shall be a Business Day under the laws of
the Commonwealth of Kentucky), (ii) the face amount of the Letter of
Credit, (iii) the expiration date of the Letter of Credit, (iv) the name
and address of the beneficiary of the Letter of Credit, and (v) a summary
of the purpose and contemplated terms of the Letter of Credit. Prior to the
date of issuance of any Letter of Credit, the Borrowers shall specify a
precise description of the documents and the proposed text of any
certificate to be presented by the beneficiary under such Letter of Credit
which, if presented by the beneficiary prior to the expiration date of the
Letter of Credit, would require the Agent Bank to make payment under the
Letter of Credit; provided that the Agent Bank, in its sole reasonable
judgment, may require changes in any such documents and certificates;
provided further that no Letter of Credit shall require payment against a
conforming draft to be made thereunder on the same Business Day (under the
laws of the Commonwealth of Kentucky) that such draft is presented if such
presentation is made after 12:00 noon (Louisville, Kentucky time) on such
Business Day. In determining whether to pay under any Letter of Credit,
the Agent Bank shall be responsible only to determine that the documents
and certificates required to be delivered under that Letter of Credit have
been delivered and that they comply on their face with the requirements of
that Letter of Credit; provided, further, nothing contained in this Section
2.7B shall be deemed to prejudice the right of the Borrowers to recover
from the Agent Bank in respect of any amounts paid by the Agent Bank under
any Letter of Credit in the event that it is determined by a court of
competent jurisdiction that the payment with respect to such Letter of
Credit by the Agent Bank constituted gross negligence or willful misconduct
on the part of the Agent Bank.
C. Delivery of Copies of Letters of Credit and Letter of Credit
Amendments. The Agent Bank shall, promptly after the issuance of each
Letter of Credit, or any amendment or cancellation thereto, furnish to the
Banks a copy of such Letter of Credit or of such amendment or cancellation,
as the case may be, together with, in the case of the issuance of any
Letter of Credit, the amount of its risk participation therein, which shall
be such Bank's Revolving Credit Facility Pro Rata Share of the stated
amount of such Letter of Credit.
D. Payment of Amounts Drawn Under Letters of Credit. In the
event of any drawing under any Letter of Credit by the beneficiary thereof,
the Agent Bank shall promptly notify the Borrowers and the Banks of such
drawing, and the Borrowers shall reimburse the Agent Bank on the date on
which such drawing is honored in an amount in same day funds equal to the
amount of such drawing. The Borrowers shall have the right to obtain a
Revolving Credit Loan (subject to the limitations set forth in Section 2.lA
hereof and in the absence of any Event of Default hereunder) in an amount
sufficient to repay in full any such drawing honored by the Agent Bank
under a Letter of Credit.
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<PAGE>
E. Payment by Banks with Respect to Letters of Credit. In the
event that the Borrowers shall fail to reimburse the Agent Bank as provided
in Section 2.7D hereof in an amount equal to the amount of any drawing
honored by the Agent Bank under a Letter of Credit issued by the Agent
Bank, the Agent Bank shall promptly notify each of the other Banks of the
unreimbursed amount of such drawing and of each Bank's participation
therein, which participation shall be equal to such Bank's Revolving Credit
Facility Pro Rata Share of the unreimbursed amount of such drawing. Each
Bank shall make available to the Agent Bank an amount equal to its
participation in same day funds, at the offices of the Agent Bank located
at 416 West Jefferson Street, Louisville, Kentucky not later than 1:00 P.M.
(Louisville, Kentucky time) on the Business Day (under the laws of
Commonwealth of Kentucky) after the date notified by the Agent Bank, and
each such amount so made available by each Bank will be deemed a Revolving
Credit Loan made by such Bank to the Borrowers under this Loan Agreement as
of the date such amount is so made available to the Agent Bank. In the
event that any Bank fails to make available to the Agent Bank the amount of
such Bank's participation in such Letter of Credit as provided in this
Section 2.7E, the Agent Bank shall be entitled to recover such amount on
demand from such Bank together with interest at the customary rate set by
the Agent Bank for the correction of errors among banks for three (3)
Business Days and thereafter at the Federal Funds Effective Rate. Nothing
in this Section 2.7 shall be deemed to prejudice the right of any Bank to
recover from the Agent Bank any amounts made available by such Bank to the
Agent Bank pursuant to this Section 2.7E in the event that it is determined
by a court of competent jurisdiction that the payment made by the Agent
Bank with respect to a Letter of Credit in respect of which reimbursement
was made by such Bank constituted gross negligence or willful misconduct on
the part of the Agent Bank. The Agent Bank shall distribute to each other
Bank, to the extent that it has paid all amounts payable by it under this
Section 2.7E with respect to any Letter of Credit issued by the Agent Bank,
such Bank's Revolving Credit Facility Pro Rata Share of all payments
received by the Agent Bank from the Borrowers in reimbursement of drawings
honored by the Agent Bank under such Letter of Credit, as the case may be,
when such payments are received. Notwithstanding anything to the contrary
herein, each Bank shall have a direct right to reimbursement of such
amounts from the Borrowers, subject to the procedures for reimbursing such
Bank set forth in this Section 2.7.
F. Compensation. The Borrowers agree to pay, without
duplication, the following amounts to the Agent Bank with respect to each
such Letter of Credit issued by the Agent Bank for the account of the
Borrowers:
(i) With respect to each Letter of Credit, a letter of credit fee
(the "Letter of Credit Fee") payable to the Agent Bank for the account of
the Banks (and to be shared by the Banks pro rata in accordance with their
respective Revolving Credit Facility Pro Rata Shares) equal to the
Applicable Letter of Credit
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<PAGE>
Percentage multiplied by the maximum amount available from time to time to
be drawn under such Letter of Credit; provided that, on each Date of
Determination, commencing with the first Date of Determination to occur
after the Closing Date, the applicable Letter of Credit Percentage in
effect for the Pricing Period commencing on such Date of Determination and
continuing for the term of the Pricing Period that begins on such Date of
Determination shall be the Applicable Letter of Credit Percentage
corresponding to the Pricing Level in effect for such Pricing Period, as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Funded Debt Applicable
Pricing Level to EBITDA LIBOR Margin
------------- --------- ------------
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Pricing Level I Greater or equal 0.00, but Less than or equal .99 0.625%
- -------------------------------------------------------------------------------------------------
Pricing Level II Greater or equal 1.00, but Less than or equal 1.49 0.75
- -------------------------------------------------------------------------------------------------
Pricing Level III Greater or equal 1.50, but Less than or equal 1.74 1.00
- -------------------------------------------------------------------------------------------------
Pricing Level IV Greater or equal 1.75, but Less than or equal 1.99 1.25
- -------------------------------------------------------------------------------------------------
Pricing Level V Greater or equal 2.00, but Less than or equal 2.24 1.50
- -------------------------------------------------------------------------------------------------
Pricing Level VI Greater or equal 2.25, but Less than or equal 2.49 1.75
- -------------------------------------------------------------------------------------------------
Pricing Level VII Greater or equal 2.50, but Less than or equal 2.99 2.25
- -------------------------------------------------------------------------------------------------
</TABLE>
The Letter of Credit Fee, as based on the Applicable Letter of Credit
Percentage, shall be payable quarterly in advance beginning on the date of
issuance of such Letter of Credit and quarterly in advance beginning on the
date, if such should occur, of each renewal or extension of such Letter of
Credit;
(ii) with respect to drawings made under any Letter of Credit,
interest, payable in immediately available funds to the Agent Bank on
demand, on the amount paid by the Agent Bank in respect of each such
drawing from the date of the drawing through the date such amount is
reimbursed by the Borrowers at a variable rate equal to the Base Rate;
(iii) with respect to the issuance, amendment or transfer of
each Letter of Credit and each drawing made thereunder, documentary and
processing charges payable to the Agent Bank in accordance with the Agent
Bank's standard schedule for such charges in effect at the time of such
issuance, amendment, transfer or drawing, as the case may be;
(iv) promptly upon receipt by the Agent Bank of the amount
described in subdivisions (ii) and (iii) of this Section 2.7F, the Agent
Bank shall distribute to each Bank its Revolving Credit Facility Pro Rata
Share of such amount.
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<PAGE>
(v) With respect to each Letter of Credit, a letter of credit
fronting fee (the "Letter of Credit Fronting Fee") payable to the Agent
Bank for its own account, in the amount of one eighth of one percent
(0.125%) per annum multiplied by the aggregate face amount of Letters of
Credit outstanding during a Fiscal Quarter, plus other customary charges,
if any, payable quarterly in advance.
G. Obligations Absolute; Indemnification, Nature of the Agent
Bank's Duties. Subject to the right of the Borrowers and the Banks to seek
damages in the event that a court of competent jurisdiction determines that
the Agent Bank acted in bad faith and/or committed gross negligence or
willful misconduct in honoring any draft presented under any Letter of
Credit issued by the Agent Bank, the obligation of the Borrowers to
reimburse the Agent Bank for drawings made under such Letter of Credit and
the obligation of the Banks under Section 2.7E hereof to reimburse the
Agent Bank in accordance with their Revolving Credit Facility Pro Rata
Shares for drawings made under such Letter of Credit shall be unconditional
and irrevocable and shall be paid strictly in accordance with the terms of
this Loan Agreement under all circumstances including, without limitation,
the following circumstances:
(i) any lack of validity or enforceability of such Letter of
Credit;
(ii) the existence of any claim, set-off, defense or other right
which the Borrowers may have at any time against a beneficiary or any
transferee of such Letter of Credit (or any Persons for whom any such
transferee may be acting), the Agent Bank, any Bank or any other Person,
whether in connection with this Loan Agreement, the transactions
contemplated herein or any unrelated transaction (including any underlying
transaction between the Borrowers and the beneficiary for which such Letter
of Credit was procured);
(iii) any draft, demand, certificate or any other document
presented under such Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect;
(iv) payment by the Agent Bank under such Letter of Credit
against presentation of a demand, draft or certificate or other document
which does not comply with the terms of such Letter of Credit;
(v) any other circumstance or happening whatsoever, which is
similar to any of the foregoing; or
(vi) the fact that an Event of Default or a Potential Event of
Default under this Loan Agreement shall have occurred and be continuing.
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<PAGE>
In addition to amounts payable as elsewhere provided in this Section
2, the Borrower hereby agrees to protect, indemnify, pay and save the Agent
Bank harmless from and against any all claims, demands, liabilities,
damages, losses, costs, charges and expenses (including reasonable
attorneys' fees), which the Agent Bank may incur or be subject to as a
consequence, direct or indirect, of (i) the issuance of the Letters of
Credit, other than as a result of bad faith, gross negligence or wilful
misconduct of the Agent Bank as determined by a court of competent
jurisdiction, or (ii) the failure of the Agent Bank to honor a drawing
under any Letter of Credit as a result of any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto
government or governmental authority.
As between the Borrower and the Agent Bank, the Borrower assumes all
risks of the acts and omissions of, or misuse of the Letters of Credit
issued by the Agent Bank for the account of the Borrowers by, the
respective beneficiaries of such Letters of Credit. In furtherance and not
in limitation of the foregoing, the Agent Bank shall not be responsible:
(i) for the form, validity, sufficiency, accuracy, genuineness or legal
effect of any document submitted by any party in connection with the
application for and issuance of the Letters of Credit, even if it should in
fact prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged; (ii) for the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign
any Letter of Credit or the rights or benefits thereunder or proceeds
thereof, in whole or in part, which may prove to be invalid or ineffective
for any reason; (iii) for failure of the beneficiary of any such Letter of
Credit to comply fully with conditions required in order to draw upon such
Letter of Credit; (iv) for errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph, telex
or otherwise, whether or not they be in cipher; (v) for errors in
interpretation of technical terms; (vi) for any loss or delay in the
transmission or otherwise of any document required in order to make a
drawing under any such Letter of Credit or of the proceeds thereof; (vii)
for the misapplication by the beneficiary of any such Letter of Credit of
the proceeds of any drawing under such Letter of Credit; and (viii) for any
consequences arising from causes beyond the control of the Agent Bank,
including, without limitation, any act or omission, whether rightful or
wrongful, of any present or future government agency or authority. None of
the above shall affect, impair, or prevent the vesting of any of the Agent
Bank's rights or powers hereunder; provided however, that the Agent Bank
shall be responsible for any payment the Agent Bank makes under any Letter
of Credit against presentation of a demand, draft or certificate or other
document which does not comply with the terms of such Letter of Credit in
the event such payment constitutes bad faith, gross negligence or willful
misconduct of the Agent Bank as determined by a court of competent
jurisdiction.
In furtherance and extension and not in limitation of the specific
provisions hereinabove set forth, any action taken or omitted by the Agent
Bank under or in connection with the Letters of Credit issued by it or the
related certificates, if taken
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<PAGE>
or omitted in good faith and without bad faith, gross negligence or willful
misconduct, shall not put the Agent Bank under any resulting liability to
the Borrowers or the Banks.
Notwithstanding anything to the contrary contained in this Section
2.7, the Borrowers shall have no obligation to indemnify the Agent Bank in
respect of any liability incurred by the Agent Bank arising out of the bad
faith, gross negligence or willful misconduct of the Agent Bank, as
determined by a court of competent jurisdiction, or out of the wrongful
dishonor by the Agent Bank of proper demand for payment made under the
Letters of Credit issued by it.
H. Computation of Interest. Interest payable pursuant to this
Section 2.7 shall be computed on the basis of a 360-day year and the actual
number of days elapsed in the period during which it accrues.
I. Amendments. The Borrowers may request that the Agent Bank
enter into one or more amendments of any Letter of Credit issued by the
Agent Bank for the account of the Borrowers by delivering to the Agent Bank
an Application and Agreement For Letter of Credit specifying (i) the
proposed date of the amendment, and (ii) the requested amendment. The Agent
Bank shall be entitled to enter into amendments with respect to the Letters
of Credit issued by it; provided however that any such amendment extending
the expiry date, changing the Letter of Credit Fee, or increasing the
stated amount of any Letter of Credit shall only be permitted if the Agent
Bank would be permitted to issue a new Letter of Credit having such an
expiry date, different Letter of Credit Fee, or stated amount under this
Section 2.7 on the date of the amendment.
J. Additional Payments. If by reason of (i) any change in
applicable law, regulation, rule, decree or regulatory requirement or any
change in the interpretation or application by any judicial or regulatory
authority of any law, regulation, rule, decree or regulatory requirement or
(ii) compliance by the Agent Bank with any direction, request or
requirement (whether or not having the force of law) of any governmental or
monetary authority including, without limitation, Regulation D:
(a) any reserve, deposit or similar requirement is or shall be
applicable, imposed or modified in respect of any Letter of Credit issued
by the Agent Bank; or
(b) there shall be imposed on the Agent Bank any other condition
regarding this Section 2.7 or any Letter of Credit;
and the result of the foregoing is to directly or indirectly increase the
cost to the Agent Bank of issuing, making or maintaining any Letter of
Credit, or to reduce the
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<PAGE>
amount receivable in respect thereof by the Agent Bank (other than an
increase in cost or reduction in amounts receivable as consequence of any
Tax, which shall be governed by the provisions of Section 4 hereof), then
and in any such case the Agent Bank may, at any time within a reasonable
period after the additional cost is incurred or the amount received is
reduced, notify the Borrowers, and the Borrowers shall pay on demand such
amounts as the Agent Bank may specify to be necessary to compensate the
Agent Bank for such additional cost or reduced receipt, together with
interest on such amount from ten (10) days after the date of such demand
until payment in full thereof at a rate equal at all times to the Base
Rate. The determination by the Agent Bank of any amount due pursuant to
this Section 2.7J as set forth in a certificate setting forth the
calculation thereof in reasonable detail, shall, in the absence of manifest
or demonstrable error, be final and conclusive and binding on the
Borrowers.
SECTION 3
TERM LOANS
----------
Subject to the terms and conditions of this Loan Agreement, the Banks
hereby agree to make the Term Loans to the Borrowers in the principal
amount of up to Fifteen Million Dollars ($15,000,000.00).
3.1 Principal of the Term Loans.
---------------------------
A. Disbursement of Principal; Term Loan Pro Rata Shares. The
principal of the Term Loans shall be disbursed by the Agent Bank to the
Borrowers on the Closing Date. The respective Term Loan Pro Rata Shares of
each Bank are set forth in Schedule 3.1 hereof.
B. Repayment. The entire unpaid principal balance of the Term
Loans shall be paid as follows: $500,000 principal and accrued interest on
December 31, 1997, and $750,000 principal and accrued interest on the last
day of each Fiscal Quarter thereafter through and including June 30, 2002,
and $1,000,000 principal and accrued interest on September 30, 2002. All
unpaid principal and interest shall be due and payable on September 30,
2002, which is the Term Loan Maturity Date. The obligation of the Borrowers
to repay the Term Loans together with accrued interest thereon is evidenced
by the Term Notes.
C. Records. Each Bank shall record its Term Loan Pro Rata Share
of the Term Loans and each repayment or prepayment in respect of the
principal amount of the Term Loans in such Bank's electronic records. Any
such recordation in accordance with the terms of this Loan Agreement shall
be conclusive and binding on the Borrowers absent manifest error; provided,
the failure to make any such recordation, or any error in such recordation,
shall not affect the Borrowers'
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<PAGE>
obligation to repay the Term Loans to the Banks in accordance with this
Loan Agreement and the Term Notes.
3.2 Interest on the Term Loans.
--------------------------
A. Rates of Interest. Subject to the provisions of Section 3.2E,
Section 4 and Section 14 hereof, each Term Loan shall bear interest on the
unpaid principal amount thereof from the date made through maturity
(whether by acceleration or otherwise) at the (i) Base Rate or (ii) the
LIBOR plus the Applicable LIBOR Margin, as the case may be. The initial
applicable mode of interest rate with respect to Term Loans shall be
selected by the Borrowers on the Closing Date. The interest rate with
respect to any Term Loan may be changed by the Borrowers thereafter from
time to time pursuant to Section 3.2D hereof. If on any day a Term Loan is
outstanding with respect to which notice has not been delivered to the
Agent Bank or the Banks in accordance with the terms of this Loan Agreement
specifying the applicable interest rate, then, for that day, that Term Loan
shall bear interest at the Base Rate.
Subject to the provisions of Section 3.2E, Section 4 and Section 14
hereof, Term Loans shall bear interest through maturity as follows:
(i) if a Base Rate Loan, at a rate equal to the Base Rate; and
(ii) if a LIBOR Loan, (a) from the Closing Date through and
until the first Business Day of the month that follows the month in which
the Agent Bank has received Borrowers' financial statements for the period
ending March 31, 1998, at a rate per annum equal to the sum of the LIBOR
plus 1.50%, and (b) thereafter at a rate per annum equal to the sum of the
LIBOR plus the Applicable LIBOR Margin; provided that, on each Date of
Determination, commencing with the first Date of Determination to occur
after the Closing Date, the Applicable LIBOR Margin in effect for the
Pricing Period commencing on such Date of Determination and continuing for
the term of the Pricing Period that begins on such Date of Determination
shall be the Applicable LIBOR Margin corresponding to the Pricing Level in
effect for such Pricing Period, as follows:
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<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Funded Debt Applicable
Pricing Level to EBITDA LIBOR Margin
------------- --------- ------------
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Pricing Level I Greater or equal 0.00, but Less than or equal .99 0.625%
- -------------------------------------------------------------------------------------------------
Pricing Level II Greater or equal 1.00, but Less than or equal 1.49 0.75
- -------------------------------------------------------------------------------------------------
Pricing Level III Greater or equal 1.50, but Less than or equal 1.74 1.00
- -------------------------------------------------------------------------------------------------
Pricing Level IV Greater or equal 1.75, but Less than or equal 1.99 1.25
- -------------------------------------------------------------------------------------------------
Pricing Level V Greater or equal 2.00, but Less than or equal 2.24 1.50
- -------------------------------------------------------------------------------------------------
Pricing Level VI Greater or equal 2.25, but Less than or equal 2.49 1.75
- -------------------------------------------------------------------------------------------------
Pricing Level VII Greater or equal 2.50, but Less than or equal 2.99 2.25
- -------------------------------------------------------------------------------------------------
</TABLE>
Notwithstanding anything in the foregoing to the contrary, if any
Compliance Certificate (the form of which is included as Exhibit G)
delivered by the Borrowers demonstrating the appropriate Pricing Level
shall prove to be incorrect (as determined by reference to a subsequent
Compliance Certificate or subsequent publicly filed financial statements of
the Borrowers or otherwise), then such Compliance Certificate shall no
longer be in effect. In such event, the Agent Bank shall calculate the
difference between the amount of interest actually paid by the Borrowers on
LIBOR Loans on the basis of such incorrect Compliance Certificate and the
amount of interest which would have been due on such LIBOR Loans had such
incorrect Compliance Certificate not been delivered, and shall forward to
the Borrowers a statement setting forth the amount of the difference and
the method of calculation of such amount (which calculation, in the absence
of demonstrable error, shall be deemed correct) and the Borrowers shall pay
such amount to the Agent Bank for the benefit of the Banks within three (3)
Business Days of such notice.
B. Interest Periods for LIBOR Loans. In connection with each
Tranche of a Term Loan that is to be a LIBOR Loan, the Borrowers may,
pursuant to the applicable Notice of Conversion/Continuation, select the
Interest Period to be applicable to such LIBOR Loan, which Interest Period
shall be at the Borrowers' option either a one (1), two (2), three (3) or
six (6) month period. The following provisions are applicable to Interest
Periods generally:
(i) the initial Interest Period for any LIBOR Loan shall commence
on the Funding Date of such LIBOR Loan, in the case of a Term Loan
initially made as a LIBOR Loan, or on the date specified in the applicable
Notice of Conversion/Continuation, in the case of a Term Loan converted to
a LIBOR Loan;
(ii) in the case of immediately successive Interest Periods
applicable to a LIBOR Loan continued as such pursuant to Notice of
Conversion/Continuation, each successive Interest Period shall commence on
the day on which the next preceding Interest Period expires;
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<PAGE>
(iii) if an Interest Period would otherwise expire on a day that
is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; provided that, if any Interest Period would
otherwise expire on a day that is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day; provided
further that such extension or reduction of time shall be included in the
computation of the payment of interest hereunder or under the Term Notes;
(iv) any Interest Period of a LIBOR Loan that begins on the last
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (iii) of this Section 3.2B, end
on the last Business Day of a calendar month;
(v) in the event the Borrowers fail to specify an Interest Period
with respect to a LIBOR Loan in the applicable Notice of
Conversion/Continuation, the Borrowers shall be deemed to have selected an
Interest Period of one month; and
(vi) no Interest Period shall extend beyond the Term Loan
Maturity Date.
C. Interest Payments. Subject to the provisions of Section 3.2E
hereof, (i) to the extent a Term Loan bears interest at the Base Rate,
interest shall be payable on such Term Loan in arrears on and to the last
day of each calendar quarter and at maturity, and (ii) to the extent a Term
Loan bears interest at LIBOR plus the Applicable LIBOR Margin, interest
shall be payable on such Term Loan in arrears on and to the ninetieth
(90th) day of the Interest Period applicable to such Term Loan and/or on
the last day of such Interest Period applicable to such Term Loan.
D. Conversion or Continuation. Subject to the provisions of
Section 3.3 hereof, the Borrowers shall have the option (i) to convert at
any time all or any part of outstanding Term Loans bearing interest as Base
Rate Loans to Term Loans bearing interest as LIBOR Loans, and (ii) upon the
expiration of any Interest Period applicable to a LIBOR Loan, (a) to
continue all or any portion of such Loan as a LIBOR Loan, with the
succeeding Interest Period of such continued LIBOR Loan to commence on the
most recent Interest Payment Date thereof or (b) to convert all or part of
such Loan to a Term Loan bearing interest as a Base Rate Loan.
BT, as agent for the Borrowers, shall deliver a Notice of
Conversion/Continuation to the Agent Bank no later than 12:00 noon
(Louisville, Kentucky time) at least three (3) Business Days in advance of
the proposed conversion/continuation date. A Notice of Conversion/
Continuation shall specify
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(i) the proposed conversion/continuation date (which shall be a Business
Day), (ii) the amount of the Term Loan to be converted/continued, (iii) the
nature of the proposed conversion/continuation, (iv) in the case of a
conversion to, or continuation of, a LIBOR Loan, the requested Interest
Period, and (v) in the case of a conversion to, or a continuation of, a
LIBOR Loan or a Base Rate Loan, that no Event of Default has occurred and
is continuing. In lieu of delivering the above-described Notice of
Conversion/Continuation, BT, as agent for the Borrowers, may give the Agent
Bank telephonic notice by the required time of any proposed
conversion/continuation under this section 3.2D; provided that such notice
shall be promptly confirmed in writing by delivery of a Notice of
Conversion/Continuation to the Agent Bank on or before the proposed
conversion/continuation date.
The Banks shall not incur any liability to the Borrowers in acting
upon any telephonic notice referred to above that the Agent Bank believes
in good faith to have been given by a duly Authorized Officer or other
Person authorized to act on behalf of the Borrowers or for otherwise acting
in good faith under this Section 3.2D, and upon conversion or continuation
of the applicable basis for determining the interest rate with respect to
any Term Loans in accordance with this Loan Agreement pursuant to any such
telephonic notice, the Borrowers shall have effected a conversion or
continuation, as the case may be, hereunder. The Borrowers agree that the
Agent Bank and the Banks are entitled to rely upon any Notice of
Conversion/Continuation submitted to the Agent Bank by BT, the same as if
the Notice of Conversion/Continuation had been executed by each of the
other Borrowers, unless and until the other Borrowers have notified the
Agent Bank and the Banks in writing pursuant to Section 15 hereof that BT
is no longer authorized to act as agent for and behalf of the other
Borrowers.
Except as otherwise provided in Sections 4.2, 4.3 and 4.7 hereof, a
Notice of Conversion/Continuation for conversion to, or continuation of, a
LIBOR Loan (or telephonic notice in lieu thereof) shall be irrevocable on
and after the related Interest Rate Determination Date and the Borrowers
shall be bound to effect a conversion or continuation in accordance
therewith.
E. Post-Maturity Interest. Any principal of the Term Loans not
paid when due and, to the extent permitted by applicable law, any accrued
interest on the Term Loans or any fees or other amounts owed by the
Borrowers hereunder not paid when due, in each case whether at stated
maturity, by notice of prepayment, by acceleration or otherwise, shall
thereafter bear interest (including post-petition interest in any
proceeding under the Bankruptcy Code or other applicable bankruptcy laws)
payable on demand at a rate equal to the Default Rate. Payment or
acceptance of the increased rates of interest provided for in this Section
3.2E is not a permitted alternative to timely payment and shall not
constitute a waiver of any Event of Default or otherwise prejudice or limit
any rights or remedies of the Banks.
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F. Computation of Interest. Interest on Term Loans bearing
interest as LIBOR Loans shall be computed on the basis of a 360-day year,
and interest on Term Loans bearing interest as Base Rate Loans shall be
computed on the basis of an actual 365 or 366-day year, as applicable, in
each case for the actual number of days elapsed in the period during which
it accrues. In computing interest on any Term Loan, the date of the making
of such Term Loan or the first day of an Interest Period applicable to such
Term Loan, as the case may be, shall be included, and the date of payment
of such Term Loan or the expiration date of an Interest Period applicable
to such Term Loan or, with respect to a Term Loan being converted to a
LIBOR Loan or a Base Rate Loan, the date of conversion of such Term Loan to
such LIBOR Loan or a Base Rate Loan shall be excluded; provided that if a
Term Loan is repaid on the same day on which it is made, one day's interest
shall be paid on that Term Loan.
G. Limitation on LIBOR Loan Tranches. At no time shall the
number of Term Loans bearing interest as LIBOR Loans outstanding at any
time outstanding exceed two (2).
3.3 Prepayments and Payments; Reductions in Term Loans
--------------------------------------------------
Commitments.
-----------
A. Voluntary Prepayments. The Borrowers may, upon not less than
one (1) Business Day prior written or telephonic notice confirmed in
writing to the Agent Bank, at any time and from time to time, prepay any
Term Loans in whole or in part in an aggregate minimum amount of One
Hundred Thousand Dollars ($100,000) and integral multiples of Twenty Five
Thousand Dollars ($25,000) in excess of that amount; provided however that
in the event that the Borrowers prepay a LIBOR Loan pursuant to this
Section 3.3A on a date that is other than the expiration date of the
Interest Period applicable thereto, the Borrowers shall compensate the
Banks in accordance with the provisions of Section 4.4 hereof. If the
Borrowers have given notice of prepayment as aforesaid, the principal
amount of the Term Loans specified in such notice shall become due and
payable on the prepayment date specified therein. All prepayments of
principal of the Term Loans shall be accompanied by the payment of accrued
interest on the principal amount being prepaid and shall be applied to the
payment of interest before application to principal. All prepayments of the
Term Loans shall be applied first to Base Rate Loans to the full extent
thereof and then shall be applied to LIBOR Loans, in each case in a manner
which minimizes the amount of any payments required to be made by the
Borrowers pursuant to Section 4.4 hereof.
B. Mandatory Prepayments. To the extent that the Borrowers have
engaged in a sale of assets which causes a mandatory prepayment to be
required pursuant to Section 8.1, the Borrowers shall cause 75% of the net
proceeds of the sale of such assets to be applied to permanently reduce the
outstanding
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principal balance of the Term Loans. Each mandatory prepayment of the Term
Loans shall be applied to principal installments in inverse order of
maturity as and when such proceeds are received. To the extent that net
sale proceeds still remain after reduction of the outstanding principal
balance of the Term loans to $0, such net sale proceeds shall be applied as
described in Section 2.4B hereof.
C. General Provisions Regarding Payments.
-------------------------------------
(i) Manner and Time of Payment. All payments of principal,
interest and fees hereunder and under the Term Notes by the Borrowers shall
be made without defense, setoff and counterclaim and in same day funds and
delivered to the Agent Bank not later than 12:00 noon (Louisville, Kentucky
time) on the date due at its office located in Louisville, Kentucky; funds
received by the Agent Bank after that time shall be deemed to have been
paid by the Borrowers on the next succeeding Business Day.
(ii) Payments on Business Days. Whenever any payment to be made
hereunder or under the Term Notes shall be stated to be due on a day that
is not a Business Day, such payment shall be made on the next succeeding
Business Day (unless no further Business Day occurs in such month, in which
case payment shall be made on the next preceding Business Day) and such
extension or reduction of time shall be included in the computation of the
payment of interest hereunder or under the Term Notes.
3.4 Use of Proceeds.
---------------
A. Term Loans. The principal of the Term Loans shall be used to
purchase the assets of the Government Services Division of DATATAPE, Inc.,
to finance working capital requirements and to finance general corporate
purposes of the Borrowers.
B. Margin Regulations. No portion of the principal of the Term
Loans shall be used by the Borrowers in any manner which might cause the
making of the Term Loans or the application of the proceeds thereof to
violate Regulation G, Regulation U, Regulation T, or Regulation X of the
Board of Governors of the Federal Reserve System or any other regulation of
such Board or to violate the Securities and Exchange Act of 1934, in each
case as in effect on the date or dates of each Term Loan. If requested by
the Banks, the Borrowers shall execute and deliver to the Banks a completed
Federal Reserve Form U-1.
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SECTION 4
SPECIAL PROVISIONS GOVERNING LIBOR LOANS
----------------------------------------
Notwithstanding any other provision of this Loan Agreement to the
contrary, the following provisions shall govern with respect to LIBOR Loans
as to the matters covered:
4.1 Determination of LIBOR. As soon as practicable after 12:00
noon Louisville, Kentucky time on each Interest Rate Determination Date
applicable to the particular LIBOR Loan, the Agent Bank shall furnish to
the Borrowers a quote of the LIBOR to apply to the particular LIBOR Loan.
The Agent Bank will in addition confirm to the Borrowers in writing the
actual LIBOR prior to the funding of the particular LIBOR Loan, and the
determination of each LIBOR by the Agent Bank, provided that the Agent Bank
shall have determined the LIBOR in good faith, shall be final, conclusive
and binding upon both the Borrowers and the Banks in the absence of
manifest or demonstrable error and shall apply to the particular LIBOR Loan
for the applicable Interest Period.
4.2 Inability to Determine LIBOR. In the event that the Agent
Bank shall have determined in good faith (which determination shall be
final and conclusive and binding upon the Borrowers), on any Interest Rate
Determination Date or Funding Date with respect to any LIBOR Loans, that by
reason of circumstances occurring after the date of this Loan Agreement
affecting the London interbank market, adequate and fair means do not exist
for ascertaining the interest rate applicable to such LIBOR Loans on the
basis provided for in the definition of LIBOR, the Agent Bank shall on such
date give notice (by telecopy or by telephone confirmed in writing) to the
Borrowers and the Banks of such determination, whereupon (i) no Revolving
Credit Loans or Term Loans may be made as, or converted to, LIBOR Loans
until such time as the Agent Bank notifies the Borrowers and the Banks that
the circumstances giving rise to such notice no longer exist; and (ii) any
Request for Revolving Credit Loan or Notice of Conversion/ Continuation
given by the Borrowers with respect to the Revolving Credit Loans or Term
Loans in respect of which such determination was made shall be deemed to be
rescinded by the Borrowers, and any Request for Revolving Credit Loan or
Notice of Conversion/Continuation given by the Borrowers with respect to
the Revolving Credit Loans or Term Loans in respect of which such
determination was made shall be deemed to be a request to make Base Rate
Loans.
4.3 Illegality or Impracticability of LIBOR Loans. In the event
that on any date any Bank shall have determined in good faith (which
determination shall be final and conclusive and binding upon the parties
hereto but shall be made only after consultation with the Borrowers) that
the making, maintaining or continuation of its LIBOR Loans (i) has become
unlawful as a result of compliance by such Bank in good faith with any law,
treaty, governmental rule, regulation, guideline or order
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(or would conflict with any such treaty, governmental rule, regulation,
guideline or order not having the force of law even though the failure to
comply therewith would not be unlawful) or (ii) has become impracticable,
or would cause such Bank material hardship, as a result of contingencies
occurring after the date of this Loan Agreement which materially and
adversely affect the London interbank market or the position of such Bank
in that market, then such Bank shall on that day give notice (by telecopy
or by telephone confirmed in writing) to the Borrowers and the other Banks
of such determination. Thereafter, (a) the obligation of the Banks to make
Revolving Credit Loans and Term Loans as, or to convert Revolving Credit
Loans or Term Loans to, LIBOR Loans shall be suspended until such notice
shall be withdrawn by the particular Bank, (b) to the extent such
determination by the particular Bank relates to a LIBOR Loan then being
requested by the Borrowers pursuant to a Request for Revolving Credit Loan
or Notice of Conversion/Continuation, the Banks shall make such LIBOR Loan
as (or convert such LIBOR Loan to, as the case may be) a Base Rate Loan,
and (c) the Banks' obligation to maintain their outstanding LIBOR Loans, as
the case may be (the "Affected Loans"), shall be terminated at the earlier
to occur of the expiration of the Interest Periods then in effect with
respect to the Affected Loans or when required by law, and the Affected
Loans shall automatically convert into Base Rate Loans on the date of such
termination.
4.4 Compensation For Breakage or Non-Commencement of Interest
Periods. The Borrowers shall compensate the Banks, upon written request by
the Banks (which request shall set forth the basis for requesting such
amounts), for all reasonable losses, expenses and liabilities (including,
without limitation, any interest paid by the Banks to lenders of funds
borrowed by them to make or carry the LIBOR Loans and any reasonable loss,
expense or liability sustained by the Banks in connection with the
liquidation or re-employment of such funds) which the Banks may sustain:
(i) if for any reason (other than a default by the Banks or the conversion
of the Borrowers' Request for Revolving Credit Loan or Notice of
Conversion/Continuation with respect to Revolving Credit Loans or Term
Loans from a request to make LIBOR Loans into a request to make Base Rate
Loans pursuant to Sections 4.2 or 4.3 hereof) a borrowing of any LIBOR Loan
does not occur on a date specified therefor in a Request for Revolving
Credit Loan or Notice of Conversion/Continuation with respect to Revolving
Credit Loans or Term Loans or a telephonic request for borrowing, or a
conversion to or continuation of any LIBOR Loan does not occur on a date
specified therefor in a Request for Revolving Credit Loan or Notice of
Conversion/Continuation or a telephonic request for conversion or
continuation, (ii) if any prepayment or conversion of any of the LIBOR
Loans occurs on a date that is not the last day of the Interest Period
applicable to that LIBOR Loan, (iii) if any prepayment of any of the LIBOR
Loans is not made on any date specified in a notice of prepayment given by
the Borrowers, or (iv) as a consequence of any other default by the
Borrowers to repay the LIBOR Loans when required by the terms of this Loan
Agreement. The Banks shall deliver
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to the Borrowers a certificate setting forth the calculation of the
compensation claimed to be due to the Banks within thirty (30) days after
the occurrence of the event giving rise to such claim for compensation,
which calculations shall be binding upon the Borrowers in the absence of
manifest or demonstrable error.
4.5 Booking of LIBOR Loans. Each Bank may make, carry or
transfer its Revolving Credit Facility Pro Rata Share and Term Loan Pro
Rata Share of LIBOR Loans at, to, or for the account of any of its branch
offices or the office of an Affiliate of such Bank; provided however that
if any transfer of a Bank's Revolving Credit Pro Rata Share or Term Loan
Pro Rata Share of LIBOR Loans from the office where such Bank's Revolving
Credit Facility Pro Rata Share and Term Loan Pro Rata Share of LIBOR Loans
originated shall increase the cost to the Borrowers of such LIBOR Loans,
such transfer may occur only if required (i) by the introduction of or any
change (including, without limitation, any change by way of imposition or
increase of reserve requirements) in or in the interpretation of any law or
regulation, or (ii) to comply with any guideline or request from any
central bank or other governmental authority or quasi-governmental
authority exercising control over banks or financial institutions generally
(whether or not such guideline or request shall have the force of law).
4.6 Assumptions Concerning Funding of LIBOR Loans. The
calculation of all amounts payable to the Banks under this Section 4 and
under Section 14.1 hereof shall be made as though each Bank had actually
funded each LIBOR Loan through the purchase of a deposit bearing interest
at the rate obtained pursuant to the definition of LIBOR in an amount equal
to such Bank's Revolving Credit Facility Pro Rata Share (or Term Loan Pro
Rata Share in the case of Term Loans bearing interest as LIBOR Loans) of
the amount of such LIBOR Loan and having a maturity comparable to the
relevant Interest Period and through the transfer of such deposit from an
offshore office of such Bank to a domestic office of such Bank in the
United States of America; provided however that each Bank may fund its
Revolving Credit Facility Pro Rata Share or Term Loan Pro Rata Share of the
LIBOR Loans in any manner it sees fit and the foregoing assumptions shall
be utilized only for the purposes of calculating amounts payable under this
Section 4 and under Section 14.1 hereof.
4.7 LIBOR Loans After Event of Default. After the occurrence and
during the continuation of an Event of Default, (i) the Borrowers may not
elect to have Revolving Credit Loans or Term Loans made or maintained as,
or converted to, LIBOR Loans after the expiration of any Interest Period
then in effect for such Loans, (ii) any Request for Revolving Credit Loan
or Notice of Conversion/Continuation given by the Borrowers with respect to
a requested borrowing or conversion/ continuation, as applicable, that has
not yet occurred shall be deemed to be rescinded by the Borrowers, and
(iii) all LIBOR Loans shall thereupon bear interest at the Default Rate
until the Event of Default is cured or the Revolving
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Credit Loans and Term Loans are paid in full to the Banks and the Revolving
Loan Commitments have expired or have been terminated by the Borrowers or
the Banks.
SECTION 5
CLOSING CONDITIONS
------------------
The establishment of the Revolving Credit Facility by the Banks
in favor of the Borrowers, the obtaining of Revolving Credit Loans, Swing
Line Loans and/or Letters of Credit by the Borrowers thereunder, and the
obtaining of the Term Loans by the Borrowers are subject to the
satisfaction of all of the following conditions:
5.1 Initial Closing Conditions. The obligation of the Banks to
make the initial Revolving Credit Loans, the Swing Line Loans and the Term
Loans to the Borrowers are subject to the condition that, in addition to
the satisfaction of the conditions precedent specified in Section 5.2
hereof and, with respect to the Swing Line Loans, the conditions precedent
specified in Section 2.6A(iii) hereof, as of the Closing Date, the Banks
shall have received the following from the Borrowers, dated the Closing
Date or such other date as shall be acceptable to the Banks:
A. Loan Agreement. This Loan Agreement, duly executed and
delivered by the Borrowers.
B. Revolving Credit Note. The Revolving Credit Note, duly
executed and delivered by the Borrowers.
C. Term Note. The Term Note, duly executed and delivered by the
Borrowers.
D. Security Agreements. The Security Agreements, duly and
respectively executed and delivered by each of the Borrowers, granting to
the Banks a security interest in all of the business assets of the
Borrowers.
E. UCC-1 Financing Statements. UCC-1 financing statements, duly
and respectively executed and delivered by each of the Borrowers, which,
upon filing in the proper UCC filing offices, will perfect the Banks'
security interest in all of the business assets of the Borrowers which can
be perfected through filing of a UCC-1 statement.
F. Guaranty Agreement. The Guaranty Agreement, duly executed
and delivered by Group Financial, guarantying the Borrower's payment of the
Loans.
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G. Stock Pledge Agreement. The Stock Pledge Agreement, duly
executed and delivered by Group Financial, together with the stock
certificates evidencing all of the issued and outstanding shares of common
stock of the Borrowers owned by Group Financial and executed blank stock
powers appended thereto. The Borrowers have requested that the Agent Bank
agree to temporarily release the pledged stock certificates for Old GTC,
Old Bell and Old TT in trust to the Borrowers to enable the Borrowers to
consummate the Proposed Merger and to redeliver to the Agent Bank stock
certificates of successor corporations that are to survive the Proposed
Merger (e.g. New GTC, New Bell, New TT). The Borrowers have represented
that the released stock certificates will be held in trust for the benefit
of the Agent Bank and that the Agent Bank's security interest will continue
to remain perfected in such stock certificates and in the replacement stock
certificates issued in the Proposed Merger. Based on these agreements and
representations, the Agent Bank has agreed to temporarily release the
described stock certificates for the purposes described above even if, at
the time of the Proposed Merger, an Event of Default exists under this
Agreement.
H. Mortgages. The Mortgages, duly and respectively executed and
delivered by the appropriate Borrowers, granting to the Banks a mortgage on
the real property, personal property and fixtures described therein.
I. Opinion of Counsel. A written opinion of counsel on behalf
of Group Financial and the Borrowers, in form and substance satisfactory to
the Banks.
J. Certificate of Secretary of Group Financial. A Certificate
of the Secretary or Assistant Secretary of Group Financial (i) certifying
as to the authenticity, completeness and accuracy of, and attaching copies
of, (a) the Articles of Incorporation and By-Laws of Group Financial, and
(b) Resolutions of the Board of Directors of Group Financial authorizing
Group Financial's execution, delivery and performance of the Loan Documents
to which Group Financial is a party, and (ii) certifying the names and true
signatures of the officers of Group Financial authorized to execute and
deliver the Loan Documents to which Group Financial is party, on behalf of
Group Financial.
K. Certificate of Secretary of Each Borrower. A Certificate of
the Secretary or Assistant Secretary of each Borrower (i) certifying as to
the authenticity, completeness and accuracy of, and attaching copies of,
(a) the Articles of Incorporation and By-Laws of such Borrower, and (b)
Resolutions of the Board of Directors of such Borrower authorizing the
execution, delivery and performance of the Loan Documents to which the
Borrower is a party by such Borrower, and (ii) certifying the names and
true signatures of the officers of such Borrower authorized to execute and
deliver the Loan Documents to which such Borrower is a party on behalf of
such Borrower.
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L. Compliance Certificate. A Compliance Certificate in the form
of Exhibit G hereto, completed by BT, on behalf of itself and the
Borrowers, and executed by the President or Chief Financial Officer of BT,
for itself and as agent for the Borrowers, certifying as to the accuracy of
the representations and warranties of BT and the Borrowers set forth in
this Loan Agreement as of the date hereof.
M. Insurance Certificates. The certificates of insurance
required by Section 7.11 of this Agreement.
N. Title Insurance Policies. Title insurance policies with
respect to each of the Bell Real Property and the TT Real Property, in
standard ATLA form, in favor of the Agent Bank as mortgagee, issued by
title insurance companies acceptable to the Agent Bank. Each policy of
title insurance shall (i) be in an amount not less than the appraised value
of the real property and improvements which the respective Mortgage
secures, and (ii) insure that the Mortgage on such property is valid and
(iii) insure that such property is free from all liens and encumbrances,
other than liens and encumbrances acceptable to the Agent Bank.
O. Surveys. Surveys with respect to each of the Bell Real
Property and the TT Real Property, prepared by a registered land surveyor,
showing the perimeter boundaries of such property, including any
improvements thereon, any easements, building limits or other encumbrances
of record related to such property, all as satisfactory to the Agent Bank.
The surveys must each bear the land surveyor's original signature seal,
registration number and bear a statement indicating whether any of the
property is located in a flood hazard area as designated by HUD. If
improvements are located in a flood hazard area, the Borrowers shall
provide a flood insurance policy in an amount equal to the appraised value
of the property.
P. Appraisals. Appraisals with respect to each of the Bell Real
Property and the TT Real Property, dated no earlier than June 30, 1996, in
form satisfactory to the Agent Bank.
Q. Environmental Audits. Copies of any and all environmental
reports, studies, audits and similar documentation with respect to the
condition of the Mortgaged Properties which is in the possession or the
constructive possession of the Borrowers (the "Existing Studies"). The
Agent Bank shall have an opportunity to review the Existing Studies, and if
in the Agent Bank's discretion it is in any manner unsatisfied with the
form or content of the Existing Studies, the Agent Bank shall have the
right to require an environmental site assessment(s) and/or audit(s)
(singularly or collectively, as appropriate, the "Environmental Audit") of
the Mortgaged Property or properties in question. With respect to the
Environmental Audit, the Borrowers shall select an appropriate
environmental professional from the Agent Bank's approved list (the
"Auditor") to perform the Environmental Audit. The
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Borrowers shall be responsible for arranging the Environmental Audit with
the Auditor, and the Environmental Audit shall be performed at the sole
cost and expense of the Borrowers.
R. Other Documents. Such other documents as the Banks may
reasonably request.
5.2 Conditions to All Revolving Credit Loans, Letters of Credit
and Swing Line Loans. The obligation of the Banks to make each Revolving
Credit Loan on each Funding Date and to issue, through the Agent Bank, each
Letter of Credit, and the obligation of the Agent Bank to make each Swing
Line Loan pursuant to the Swing Line Credit Subfacility, is in each case
subject to the following additional conditions precedent:
A. Request for Revolving Credit Loan. The Agent Bank shall have
received with respect to each Revolving Credit Loan, in accordance with the
provisions of Section 2.lC of this Loan Agreement, an originally executed
Request For Revolving Credit Loan, in the form of Exhibit E hereto, in each
case signed by an Authorized Officer of BT, as agent for the Borrowers.
B. Letters of Credit. The Agent Bank shall have received with
respect to each Letter of Credit, in accordance with the provisions of
Section 2.7B of this Loan Agreement, an originally executed Application and
Agreement For Letter of Credit relating to such Letter of Credit, in each
case signed by an Authorized Officer of BT, as agent for the Borrowers.
C. Request for Swing Line Loan. The Agent Bank shall have
received with respect to each Swing Line Loan, in accordance with the
provisions of Section 2.6A(iii) of this Loan Agreement, an originally
executed Request For Swing Line Loan, in each case signed by an Authorized
Officer of BT, as agent for the Borrowers.
D. General Conditions. As of the Funding Date of any Revolving
Credit Loan, the date of issuance or extension of the stated expiration
date of any Letter of Credit, or the date of any Swing Line Loan:
(i) The representations and warranties contained herein
shall be true and correct in all material respects on and as of that date
to the same extent as though made on and as of that date;
(ii) No event shall have occurred and be continuing or
would result from the funding of the Revolving Credit Loan contemplated by
such Request For Revolving Credit Loan, the issuance or extension of the
stated expiration date of such Letter of Credit contemplated by such
Application and
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Agreement For Letter of Credit, or the funding of the Swing Line Loan
contemplated by such Request for Swing Line Loan which would constitute an
Event of Default;
(iii) The Borrowers shall have performed in all material
respects all agreements and satisfied all conditions which this Loan
Agreement and the other Loan Documents provide shall be performed by them
on or before such date;
(iv) No order, judgment or decree of any court, arbitrator or
governmental authority shall purport to enjoin or restrain the Banks from
making that Revolving Credit Loan or issuing, through the Agent Bank, that
Letter of Credit or the Agent Bank from making such Swing Line Loan; and
(v) There shall not be pending or, to the knowledge of the
Borrowers threatened, any action, suit, proceeding or arbitration or, to
the knowledge of the Borrowers, any governmental investigation pending or
threatened, against or affecting the Borrowers or any property of the
Borrowers seeking damages in excess of $1,000,000, which has not been
disclosed by the Borrowers pursuant to Section 6.9 hereof or which prior to
(a) the making of the last preceding Revolving Credit Loan (or, in the case
of the initial Revolving Credit Loan made hereunder, prior to the execution
of this Loan Agreement), (b) the issuing of the most recent Letter of
Credit (or in the case of the initial Letter of Credit issued hereunder,
prior to the execution of this Loan Agreement) or the most recent extension
of the stated maturity date of any Letter of Credit, or (c) the making of
the last Swing Line Loan (or in the case of the initial Swing Line Loan
hereunder, prior to the execution of this Loan Agreement) if determined
adversely, would have a material adverse effect. Further, there shall have
occurred no development not so disclosed in any such action, suit,
proceeding, governmental investigation or arbitration so disclosed, which,
in either event, in the opinion of the Banks, could reasonably be expected
to have a material adverse effect on the financial condition of the
Borrowers. No injunction or other restraining order shall have been issued
and no hearing to cause an injunction or other restraining order to be
issued shall be pending or noticed with respect to any action, suit or
proceeding seeking to enjoin or otherwise prevent the consummation of this
Loan Agreement or the making of the Revolving Credit Loans, the making of
the Term Loans, the issuing or extension of the respective stated
expiration dates of the Letters of Credit, and/or the making of the Swing
Line Loans hereunder.
E. General Conditions. As of the Funding Date of any Revolving
Credit Loan, the date of issuance or extension of the stated expiration
date of any Letter of Credit, or the date of any Swing Line Loan, the Agent
Bank shall have received such other documentation as it may reasonably
request.
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SECTION 6
REPRESENTATIONS AND WARRANTIES
------------------------------
The Borrowers represent and warrant to the Banks as follows, which
representations and warranties shall be deemed to be continuing
representations and warranties until the Revolving Credit Notes, the Term
Notes and the other obligations have been respectively paid in full to the
Banks, and which representations and warranties shall survive the execution
and delivery of this Loan Agreement:
6.1 Organization, Standing, etc, of Group Financial and the
Borrowers. Group Financial is a corporation duly organized and validly
existing under the laws of the Commonwealth of Kentucky. BT is a
corporation duly organized and validly existing under the laws of the
Commonwealth of Kentucky. Bell is a corporation duly organized and validly
existing under the laws of the State of Florida. TT is a corporation duly
organized and validly existing under the laws of the Commonwealth of
Kentucky. Each of the Borrowers has all requisite power and authority to
own and operate its properties, to carry on its businesses as now conducted
and proposed to be conducted, and to execute and deliver this Loan
Agreement and the other Loan Documents to which it is a party and to carry
out the terms hereof and thereof. The Borrowers have delivered to the
Agent Bank a true and complete copy of their Articles of Incorporation and
Certificates of Incorporation (as applicable) and By-Laws as in effect on
the date hereof.
6.2 Qualification. Schedule 6.2 hereto sets forth a list of the
Borrowers and locations in which they are qualified to do business. No
Borrower is presently required to be qualified to transact business as a
foreign corporation in any jurisdiction other than the states identified in
Schedule 6.2 hereto, and except where failure to so qualify would not have
a material adverse effect upon the business or operations of such Borrower.
6.3 Use of Proceeds. The Borrowers' uses of the proceeds of the
Term Loans, the Revolving Credit Loans, the Swing Line Loans and the uses
of the Letters of Credit are and will continue to be legal and proper
corporate uses duly authorized by the Board of Directors of each of the
Borrowers, and such uses are consistent with all applicable laws and
statutes as in effect as of the date hereof.
6.4 Intellectual Property. To the best of the Borrowers'
knowledge, the Borrowers own or possess adequate assets, licenses, patents,
patent applications, copyrights, trademarks, trademark applications, trade
names, franchises, consents, authorizations and service marks and rights
with respect to the foregoing necessary for the conduct of their businesses
as presently conducted and as proposed to be conducted, without any known
conflict with the rights of others.
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6.5 Disclosure; Solvency. Neither this Loan Agreement nor any
other document furnished to the Banks by or on behalf of the Borrowers in
connection with the Term Loans, the Revolving Credit Facility and/or the
Swing Line Loans and/or the other Obligations taken as a whole contains any
statement of any material fact which is untrue or omits to state a material
fact necessary in order to make the statements contained herein or therein
not misleading. There is no fact known to the Borrowers which materially
adversely affects or in the future will (so far as the Borrowers can now
foresee) materially adversely affect the business, operations, affairs or
condition of the Borrowers or any of their properties which has not been
set forth in this Loan Agreement or in the other documents furnished to the
Banks by or on behalf of the Borrowers in connection with the Term Loans,
the Revolving Credit Facility, the Swing Line Loans and the other
Obligations. The Borrower, on a Combined basis in accordance with GAAP,
are currently solvent; and neither the issuance and delivery of the Term
Notes and the Revolving Credit Notes to the Banks, nor the obtaining of the
Letters of Credit, nor the performance of the transactions contemplated
hereunder or thereunder, will render the Borrowers, on a Combined basis in
accordance with GAAP, insolvent, inadequately capitalized to undertake the
transactions contemplated hereunder or to undertake the businesses in which
they are presently engaged or about to engage or render any of the
Borrowers unable to pay their debts as they become due; the Borrowers are
not contemplating either the filing of a petition by them or the
commencement of a case by them under any state or federal bankruptcy or
insolvency laws or the liquidation of all or a major portion of their
property; and the Borrowers have no knowledge of any Person contemplating
the filing of any such petition or commencement of any such case against
the Borrowers.
6.6 Tax Returns and Payments. To the best of the Borrowers'
knowledge after due inquiry, the Borrowers have filed all tax returns
required by law to be filed by them and have paid all taxes, assessments
and other governmental charges levied upon their properties, assets, income
and franchises, other than those not yet delinquent and those, not
substantial in aggregate amount, being or about to be contested as provided
in Section 6.6 hereof. The charges, accruals and reserves on the books of
the Borrowers in respect of their taxes are adequate in the opinion of the
Borrowers. The Borrowers know of no material unpaid assessment for
additional taxes or of any basis therefor.
6.7 Funded Debt, etc. As of the date of this Loan Agreement, and
without regard to the transactions contemplated hereunder, there is no
outstanding Funded Debt of the Borrowers in respect of borrowed money,
capital leases or the deferred purchase price of property, existing
guaranties issued by the Borrowers or existing liens and security interests
encumbering the assets of the Borrowers other than as disclosed in the most
recent annual and monthly financial statements of the Borrowers delivered
to the Banks or on Schedule 6.7 attached hereto and made a part hereof.
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6.8 Title to Properties; Liens; Leases. The Borrowers have good and
marketable title to all of their properties and assets and none of such
properties or assets is subject to any mortgage, pledge, or security
interest, or any material lien, charge or encumbrance other than as
described in Section 8.4 hereof and other than statutory landlord liens.
The Borrowers enjoy quiet possession under all leases to which they are
party as lessee, and all of such leases are to the best knowledge of the
Borrowers, after due inquiry, validly existing and in full force and
effect, and, to the best knowledge of the Borrowers, after due inquiry,
neither the lessor nor the Borrowers as lessee is in default under any of
such leases.
6.9 Litigation, etc. Except as previously disclosed to the Agent
Bank, there is no action, proceeding or investigation pending or, to the
best knowledge of the Borrowers, threatened (or any basis therefor known to
the Borrowers) (i) which questions the validity of this Loan Agreement, the
Revolving Credit Notes, the Term Notes, the Mortgages, the Stock Pledge
Agreement or the other Loan Documents or any action taken or to be taken
pursuant hereto or thereto, (ii) which is not fully covered by insurance
other than any applicable deductible, or (iii) which might result, either
in any case or in the aggregate, in any material adverse change in the
businesses, operations, affairs or condition of the Borrowers or in any of
their material properties or assets or in any material liability on the
part of the Borrowers. The Borrowers have provided the Agent Bank with a
list of all pending actions, proceedings and investigations involving (y)
claims against the Borrowers seeking damages in excess of $1,000,000 in any
individual case or in excess of $2,500,000 in the aggregate which is not
fully covered by insurance other than any applicable deductible, and (z)
claims of the Borrowers for payment, reimbursement or under contracts in
excess of $1,000,000 or in excess of $2,500,000 in the aggregate.
6.10 Authorization; Compliance With Other Instruments, etc. The
execution, delivery and performance of this Loan Agreement, the Revolving
Credit Notes, the Mortgages and the other Loan Documents to which the
Borrowers are party have been duly authorized by all necessary corporate
action on the part of the Borrowers, will not result in any violation of or
be in conflict with or constitute a default under any term of the Articles
of Incorporation or Certificate of Incorporation, as applicable, or By-Laws
of the Borrowers or of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to the Borrowers, or
result in the creation of any mortgage, lien, charge or encumbrance upon
any of the properties or assets of the Borrowers pursuant to any such term,
except as provided in the Loan Documents. The Borrowers are not in
violation of any term of their Articles of Incorporation or Certificate of
Incorporation, as applicable, or By-Laws, or of any material term of any
agreement or instrument to which they are party, or, to the Borrowers' best
knowledge, of any judgment, decree, order, statute, rule or governmental
regulation applicable to the Borrowers. Without limiting the generality of
the foregoing, to the best knowledge of the Borrowers, the Borrowers are in
compliance in all material respects with all
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federal and state laws and all rules, regulations and administrative orders
of all state and local commissions or authorities which are applicable to
the Borrowers or to the operation of their businesses.
6.11 Enforceability. This Loan Agreement, the Revolving Credit
Notes, the Term Notes, the Mortgages, the Stock Pledge Agreement, and the
other Loan Documents to which the Borrowers are party constitute legal,
valid and binding obligations of the Borrowers, enforceable against the
Borrowers in accordance with their respective terms, except to the extent
the enforceability hereof and thereof may be limited by applicable laws
affecting creditors, rights generally and by equitable principles.
6.12 Governmental Consent. To the best knowledge of the
Borrowers, the Borrowers are not required to obtain any order, consent,
approval or authorization of, and are not required to make any declaration
or filing with, any governmental authority in connection with the execution
and delivery of this Loan Agreement, the Revolving Credit Notes, the Term
Notes, the Mortgages, the Stock Pledge Agreement, or the other Loan
Documents to which the Borrowers are party.
6.13 Environmental Matters. Except as disclosed in the Existing
Studies delivered to the Agent Bank:
A. The Borrowers have duly complied in all material respects
with, and their businesses, operations, assets, equipment, leaseholds and
facilities, including, without limitation, the Real Property, are in
material compliance with, the provisions of all federal, state and local
environmental, health and safety laws, codes and ordinances, and all rules
and regulations promulgated thereunder, including, without limitation, all
the Relevant Environmental Laws and all other laws and regulations with
respect to reporting releases of Hazardous Materials and the registration
and maintenance of underground storage tanks.
B. The Borrowers have been issued, and will maintain, all
required federal, state and local permits, licenses, certificates and
approvals relating to (1) air emissions; (2) discharges to surface water or
ground water; (3) noise emissions; (4) solid or liquid waste disposal; (5)
the use, generation, storage, transportation or disposal of Hazardous
Materials; and (6) other environmental, health or safety matters.
C. The Borrowers have not received notice of violations of any
federal, state or local environmental, health or safety laws, codes or
ordinances, or any rules or regulations promulgated thereunder, including,
without limitation, any of the Relevant Environmental Laws, which relate to
the use, ownership or occupancy of any of the Real Property and the
Borrowers are not in violation in any
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material respect of any covenants, conditions, easements, rights of way or
restrictions affecting any of the Real Property or any rights appurtenant
thereto.
D. Except in accordance with a valid governmental permit,
license, certificate or approval, to our knowledge there has been no
emission, spill, release, discharge or threatened release into or upon (1)
the air; (2) the soils or any improvements located thereon; (3) the surface
water or ground water; or (4) the sewer, septic system or waste treatment,
storage or disposal system servicing any of the Real Property, of any
Hazardous Material at, upon, under, in or from any of the Real Property
(any of which is hereafter referred to as a "Hazardous Discharge").
E. There has been no complaint, order, directive, claim,
citation or notice by any governmental authority or any other Person
concerning any violation of Relevant Environmental Laws with respect to (1)
air emissions; (2) spills, releases or discharges to soils or any
improvements located thereon, surface water, ground water or the sewer,
septic system or waste treatment, storage or disposal systems servicing the
Real Property; (3) noise emissions; (4) solid or liquid waste disposal; (5)
the use, generation, storage, transportation or disposal of Hazardous
Materials; or (6) other environmental, health or safety matters, affecting
any of the Borrowers, any of the Real Property, any improvements located
thereon or the business conducted thereon (any of which is hereafter
referred to as an "Environmental Complaint").
F. Hazardous Materials disposed of, treated or stored on or off-
site of any Real Property owned, leased or operated at any time by the
Borrowers have been disposed of, treated and stored in compliance in all
material respects with all applicable laws, codes and ordinances and all
rules and regulations promulgated thereunder, including, without
limitation, all Relevant Environmental Laws.
G. Except as set forth in the Existing Studies and for supplies
that are to be used or sold in the ordinary course of the Borrowers'
respective businesses and in full compliance with all applicable laws,
codes and ordinances, to our knowledge all of the Real Property are free of
all (1) Hazardous Materials; (2) underground storage tanks; and (3)
underground pipelines. Except for materials used in the ordinary course of
business, the Borrowers have not stored, treated or disposed of any
Hazardous Materials on, in or under any of the Real Property, or any part
thereof, nor permitted the Real Property, or any part thereof, to be used
for the storage, treatment or disposal of Hazardous Materials. Except for
the material used in the ordinary course of business, to our knowledge
there has been no storage, treatment, disposal or release of Hazardous
Materials on, in or under the Real Property at any time by any Person.
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H. Except in accordance with a valid required governmental
permit, license, certificate or approval, the Borrowers have not
transported or accepted for transport any Hazardous Materials.
I. To their knowledge, the Borrowers have provided the Agent
Bank with true, accurate and complete information pertaining to the
environmental history of all of the Real Property. The Borrowers shall
furnish promptly to the Agent Bank true, accurate and complete copies of
all sampling and test results obtained from all environmental and/or health
samples and tests taken at and around any of the Real Property.
J. The Borrowers are not aware of any claims or litigation, and
none of them have received any communication from any Person (including,
without limitation, any governmental authority), concerning the presence of
Hazardous Materials or concerning any violation or alleged violation of the
Relevant Environmental Laws. The Borrowers agree promptly to notify the
Agent Bank of any such claims and to furnish the Agent Bank of any such
claims and to furnish the Agent Bank with a copy of any such communications
received after the date hereof.
SECTION 7
AFFIRMATIVE COVENANTS
---------------------
The Borrowers hereby covenant and agree that until the Revolving
Credit Notes, the Term Notes and the other Obligations have been
respectively paid in full to the Banks, the Swing Line Credit Subfacility
and the Letter of Credit Subfacility have been terminated, the Borrowers
will perform and observe all of the following provisions:
7.1 Corporate Existence and Good Standing. Each Company shall
preserve its corporate existence in good standing and shall be and remain
qualified to do business and in good standing in all states and countries
in which it is required to be so qualified and where the failure to be so
qualified would have a material adverse effect upon the business of such
entity.
7.2 Money Obligations, Payment of Taxes, ERISA, etc.
A. Governmental Obligations. The Borrowers will pay promptly as
they become due and payable all taxes, assessments and other governmental
charges levied upon them or their income or upon any of their properties or
assets or in respect of their franchises, businesses, income or profits, or
upon any part thereof, as well as all lawful claims of any kind (including
claims for labor, materials and supplies) which, if unpaid, might by law
become a lien or a charge upon their property before any of the same become
delinquent; provided that no such tax,
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assessment or charge need be paid if being contested in good faith and by
appropriate proceedings promptly initiated and diligently conducted by the
Borrowers and if such reserve or other appropriate provision, if any, as
shall be required by GAAP shall have been made therefor. The Borrowers will
satisfy or cause to be satisfied the minimum annual funding standard within
the meaning of ERISA for any employee benefit plan established or
maintained by the Borrowers which is subject to ERISA, and the Borrowers
will not permit any tax or penalty to be incurred by it as a result of any
failure to satisfy any such minimum funding requirement or as a result of
any violation of the provisions of Section 4975 of the Code, or of any
regulation issued thereunder.
B. Other Obligations. The Borrowers will pay in full all their
other debts, obligations and liabilities allowed hereunder before the same
become delinquent, unless the same are being contested in good faith by the
Borrowers, the Borrowers have established adequate reserves for the payment
of the same in accordance with GAAP, and the contesting thereof does not
involve the risk of forfeiture or loss of any of the Borrowers' assets.
7.3 Financial Statements and Reports. The Borrowers will furnish to
the Agent Bank the information required below at the times set forth below:
A. Borrowing Base. There will be no Borrowing Base in effect
from the Closing Date through and until March 31, 1998. Beginning on April
1, 1998 and thereafter, if (i) the ratio of Funded Debt to EBITDA (measured
on a rolling four Fiscal Quarter basis) as of the end of a Fiscal Quarter
exceeds 2.50 to 1.0 or (ii) accumulated losses at GTC following the Closing
Date exceed $3,650,000 (or an amount equivalent to the actual depreciation
and amortization recorded in the fourth Fiscal Quarter of 1997 and all of
1998 with respect to GTC) as determined on a stand-alone basis with respect
to GTC for income tax purposes, then the Borrowing Base shall be in effect.
The events described in section (ii) of the preceding sentence shall
permanently cease to be a trigger for the Borrowing Base if accumulated
losses at GTC following the Closing Date have not exceeded $3,650,000 (or
an amount equivalent to the actual depreciation and amortization recorded
in the fourth Fiscal Quarter of 1997 and all of 1998 with respect to GTC)
as determined on a stand-alone basis with respect to GTC for income tax
purposes by December 31, 1998. Alternatively, if accumulated losses at GTC
following the Closing Date have exceeded $3,650,000 (or an amount
equivalent to the actual depreciation and amortization recorded in the
fourth Fiscal Quarter of 1997 and all of 1998 with respect to GTC) as
determined on a stand-alone basis with respect to GTC for income tax
purposes, by December 31, 1998, with the result that the Borrowing Base has
taken effect, then accumulated losses at GTC following the Closing Date
shall permanently cease to be a trigger for the Borrowing Base if
accumulated losses at
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GTC following the Closing Date subsequently decline below $3,650,000 (or an
amount equivalent to the actual depreciation and amortization recorded in
the fourth Fiscal Quarter of 1997 and all of 1998 with respect to GTC) as
determined on a stand-alone basis with respect to GTC for income tax
purposes, for four consecutive Fiscal Quarters.
If the Borrowing Base has come into effect because the ratio of
Funded Debt to EBITDA (measured on a rolling four Fiscal Quarter basis) as
of the end of a Fiscal Quarter has exceeded 2.50 to 1.0, the Borrowing Base
shall cease to be in effect as soon as the ratio of Funded Debt to EBITDA
(measured on a rolling four Fiscal Quarter basis) as of the end of two
consecutive Fiscal Quarters has been equal to or less than 2.50 to 1.0.
Whenever the Borrowing Base is in effect BT, for itself and as agent
for the other Borrowers, shall furnish to the Agent Bank within ten (10)
days after the end of each month, a Borrowing Base Certificate,
substantially in the form of Exhibit L hereto, with all blanks completed
showing end-of-month balances of all components of the Borrowing Base,
prepared internally and certified as true, accurate and complete by the
President or Chief Financial Officer of BT;
B. Quarterly Statements. BT, for itself and as agent for the
other Borrowers, shall furnish to the Agent Bank, as soon as available, and
within forty five (45) days after the end of each Fiscal Quarter, an
unaudited Combined balance sheet of the Borrowers as at the end of such
month or quarter, and related unaudited divisional and Combined statements
of income, retained earnings and cash flows of the Borrowers on a Combined
basis in accordance with GAAP for such month or Fiscal Quarter, compared to
budget, all in reasonable detail, prepared in accordance with GAAP
consistently applied and certified to be true, accurate and complete in all
material respects by the President or Chief Financial Officer of BT, for
itself and as agent for the other Borrowers. In the event the ratio of the
Borrowers' Funded Debt to EBITDA (measured on a rolling four Fiscal
Quarter basis) is equal to or falls below 2.50 to 1.00 as of the end of a
Fiscal Quarter, then the monthly reporting requirement shall no longer be
applicable.
C. Annual Statements. BT, for itself and as agent for the other
Borrowers, shall furnish to the Agent Bank, as soon as available, and in
any event within ninety (90) days after the end of each Fiscal Year of
Group Financial and the Borrowers, a copy of the annual audited financial
statements for the immediately preceding Fiscal Year accompanied with the
Auditor's Management Letter in addition to any other financial statements
and reports that the Banks may, in their sole discretion, reasonably
request from time to time.
D. 10-Q. BT, for itself and as agent for the other Borrowers,
shall furnish to the Agent Bank, as soon as available, and in any event
within forty-
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five (45) days after the end of each Fiscal Quarter of GTC, a copy of GTC's
Form 10-Q.
E. 10-K. BT, for itself and as agent for the other Borrowers,
shall furnish to the Agent Bank, as soon as available, and in any event
within ninety (90) days after the end of the Fiscal Year of GTC, a copy of
GTC's Form 10-K.
F. Compliance Certificate. Together with the delivery to the
Agent Bank of the financial statements referred to in subparts (B), (C) and
(D) above, BT, for itself and as agent for the other Borrowers, shall
deliver to the Agent Bank a Compliance Certificate in substantially the
form of Exhibit G hereto with all blanks completed and (x) stating that the
Authorized Officer of BT, for itself and as agent for the Borrowers,
signing the Compliance Certificate has reviewed the relevant terms of this
Loan Agreement, the Revolving Credit Notes, the Term Notes, the Mortgages,
the Stock Pledge Agreement and the other Loan Documents to which the
Borrowers are party, and such Authorized Officer has no actual knowledge
(after making such inquiry as is consistent with the scope of his or her
duties) of any event or condition which constitutes an Event of Default
hereunder, or, if any such condition or event existed or exists, specifying
the nature and period of existence thereof and what action the Borrowers
have taken or are taking or propose to take with respect thereto, and (y)
demonstrating in reasonable detail compliance at the end of such accounting
period with Sections 8.6 through 8.10 of this Loan Agreement to the extent
applicable to such period.
G. Events of Default. Forthwith upon any Authorized Officer of
BT obtaining knowledge of, or receiving notice of any claim of or action
taken with respect to, any condition or event which constitutes a Potential
Default or an Event of Default hereunder, BT, for itself and as agent for
the other Borrowers, shall furnish to the Agent Bank a certificate
specifying the nature and period of existence thereof and what action the
Borrowers have taken or are taking or propose to take with respect thereto.
H. Reports to CPAs. Promptly upon receipt thereof, BT, for
itself and as agent for the other Borrowers, shall furnish to the Agent
Bank copies of any reports (including management letters, if any)
submitted to the Borrowers by independent certified public accountants in
connection with the examination of the financial statements of the
Borrowers made by such accountants.
I. Other Information. With reasonable promptness, the Borrowers
shall furnish to the Agent Bank such other information and data with
respect to the Borrowers as from time to time may be reasonably requested
by the Banks.
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J. Use of Financial Results of Datatape in Calculating Financial
Ratios of Borrowers. The financial results of Datatape prior to the
acquisition of Datatape assets by the Borrowers shall be excluded from the
calculation of financial ratios. As of March 31, 1998, the financial
results of the Datatape division of MD from its acquisition date for the
Fiscal Quarters ending December 31, 1997 and March 31, 1998 shall be
annualized for covenant and pricing calculations. As of June 30, 1998, the
financial results of the Datatape division of MD for the Fiscal Quarters
ending December 31, 1997, March 31, 1998 and June 30, 1998 shall be
annualized for covenant and pricing calculations. As of September 30, 1998
and thereafter, the historical financial results of the Datatape division
of MD shall be used for covenant and pricing calculations.
The Banks shall keep confidential all of the financial statements and
other information furnished to the Banks pursuant to this Loan Agreement,
except that each Bank shall have the right to furnish copies of such
financial statements and other information furnished to such Bank to
financial institutions which purchase interests in the Revolving Credit
Facility pursuant to Section 12 hereof and governmental agencies having
jurisdiction over such Bank and which request copies of such financial
statements and/or other information. Such Bank will promptly inform the
Borrowers each time such Bank is obligated or required to deliver any such
financial statements and other information to any such governmental agency
having jurisdiction over such Bank.
7.4 Financial Records; Inspection.
A. System of Accountants. The Borrowers will maintain a
standard, modern system of accounting established and administered in
accordance with GAAP consistently applied, in which full, true and correct
entries shall be made of all dealings and transactions in relation to the
Borrowers' businesses and affairs, and will set aside on their books all
such proper reserves as shall be required by GAAP. The Banks acknowledge
disclosure of and consent to the matters set forth on Schedule 7.4.
B. Access to Books and Records. The Borrowers will permit any
authorized representative designated by any Bank to inspect any of the
properties of the Borrowers, including their books of account (and to make
copies thereof and to take extracts therefrom), and to discuss their
affairs, finances and accounts with their officers and with their
independent accountants, all at such reasonable times and as often as may
be reasonably requested. Discussions with independent accountants shall be
requested in writing. Such inspection shall be for the information and
benefit of the Banks and, unless otherwise publicly available, any
information obtained thereby or otherwise pursuant thereto shall not be
divulged to others except in connection with the enforcement of the rights
of the Banks upon the occurrence
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of an Event of Default hereunder or to financial institutions which
purchase interests in the Revolving Credit Facility pursuant to Section 12
hereof and except as may be required by law or by any governmental agency
having jurisdiction over any Bank. Each Bank will promptly inform the
Borrowers each time such Bank is obligated or required to deliver any such
information to any governmental agency having jurisdiction over such Bank.
7.5 Maintenance of Properties, etc. The Borrowers will, insofar as
they are not prevented by causes beyond their control, maintain or cause to
be maintained in good repair, working order and condition, ordinary wear
and tear excepted, all properties used or useful in the businesses of the
Borrowers. The Borrowers will maintain or cause to be maintained, with
financially sound and reputable insurers, insurance with respect to their
properties and businesses against loss or damage of the kinds customarily
insured against by corporations of established reputation engaged in the
same or a similar business and similarly situated, in such types and
amounts as are customarily carried under similar circumstances by such
other corporations. The Banks have no basis to conclude that the Borrowers'
current insurance, including their current worker compensation insurance,
is deficient in any material respect.
7.6 Permits, Certificates, Leases, Licenses. The Borrowers will
obtain, maintain and comply at all times, in all material respects, with
all permits, certificates, licenses, approvals, authorizations, leases and
other instruments necessary or appropriate for the conduct of their
businesses as presently conducted or as contemplated to be conducted in the
future.
7.7 Notice. The Borrowers will notify the Banks in writing, within
no more than ten (10) calendar days (and without the benefit of any grace
period afforded in any provision of this Loan Agreement or the other Loan
Documents) after any Authorized Officer of the Borrowers learns of any of
the following: (i) the existence or occurrence of any Event of Default
under this Loan Agreement, (ii) that any representation or warranty made
herein or in any other Loan Document shall, for any reason, not be or shall
cease in any material respect to be true and complete and not misleading,
(iii) the institution of, or adverse determination in, any material
arbitration proceeding, including, without limitation, an audit or
examination by the Internal Revenue Service, involving the Borrowers and
describing the nature and result thereof, and what steps are being taken by
the Borrowers with respect thereto, or (iv) the institution of, or adverse
determination in, any litigation involving a claim against the Borrowers in
excess of the sum of Five Hundred Thousand Dollars ($500,000) not covered
by applicable insurance, describing the nature and result thereof, and what
steps are being taken by the Borrowers with respect thereto.
7.8 Payment of Obligations. The Borrowers will pay the Revolving
Credit Notes, the Term Notes and the other Obligations timely in
accordance with
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their respective terms in legal tender of the United States of America. All
payments on the Revolving Credit Notes, the Term Notes and the other
Obligations shall be made to the Banks, respectively, in "good and
collected funds," at the principal office of the Agent Bank not later than
12:00 noon (Louisville, Kentucky time) on the date due; funds received by
the Agent Bank after that hour shall be deemed to have been received on the
next following Business Day.
7.9 Environmental Matters. The Borrowers hereby warrant that, to the
best of their knowledge, the Borrowers' assets are now and so long as the
Revolving Credit Facility, the Swing Line Loans, the Term Loans and the
Letters of Credit continue in effect will remain materially free of
contamination by hazardous, dangerous, contaminating, noxious or unsafe
materials except as such materials are stored, handled, used and disposed
of in the ordinary course and in compliance with the Relevant Laws. Subject
to the right of the Borrowers to contest any alleged violation of any
environmental law, regulation and requirement in good faith and with due
diligence, and provided that no such contesting will result in the loss or
forfeiture of any assets of the Borrowers or otherwise have a material
adverse effect on the financial condition of the Borrowers, the Borrowers
further covenant to comply in all material respects with all applicable
environmental laws, regulations and requirements, and the Borrowers
covenant and agree to remedy any violation of any environmental law,
regulation and requirement, promptly upon the Borrowers' learning of such
violation. The Borrowers further hereby agree to indemnify and hold the
Banks harmless from any expense, loss, claim, suit or fee arising out of
any such contamination or noncompliance or the Borrowers' breach of the
provisions of this Section 7.9.
7.10 Accounts. In order to further secure the Borrowers'
obligations to the Agent Bank and the Banks, the Borrowers will maintain
their primary depository account and their primary cash management account
with the Agent Bank. Further, in order to further secure their obligations
to the Agent Bank and the Banks, MD and GTC shall maintain lockbox accounts
with the Agent Bank into which all Accounts Receivables of such Borrowers
shall be deposited. MD and GTC shall each enter into a lockbox agreement
with the Agent Bank.
7.11 Insurance. The Borrowers shall maintain insurance as follows:
A. Liability Insurance. The Borrowers at their own cost and
expense, shall procure, maintain and carry in full force and effect general
liability, public liability, workers' compensation liability and property
damage insurance with respect to the actions and operations of the
Borrowers to such extent, in such amounts and with such deductibles as are
carried by prudent businesses similarly situated, but in any event not less
than the amounts of coverage per person and per occurrence, and with the
deductibles, as are provided in the Borrowers' insurance in effect on the
date of this Agreement. Without limiting the foregoing, such insurance
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shall insure against any liability for loss, injury, damage or claims
caused by or arising out of or in connection with the operation of the
Borrowers' respective businesses including injury to or death of any of the
Borrowers' employees, agents or any other persons and damage to or
destruction of public or private property.
B. Physical Damage Insurance. The Borrowers at their own cost
and expense, shall insure all of their insurable properties to such extent,
against such hazards (excluding, without limitation, environmental
hazards), in the amount of coverage and with such deductibles as are
carried by prudent businesses similarly situated, but in any event insuring
against such hazards and with such coverages and deductibles as are
provided in the Borrowers' insurance in effect on the date of this
Agreement, and in any event in amounts of coverage not less than the
insurable value of the property insured. Without limiting the foregoing,
such insurance shall name the Agent Bank as an additional insured and
shall provide for payment of the proceeds thereof to the Borrowers and to
the Agent Bank as their interests may appear.
C. General Insurance Requirements.
(1) All insurance which the Borrowers are required to
maintain shall be satisfactory to the Agent Bank in form, amount and
insurer. Such insurance shall provide that any loss thereunder shall be
payable notwithstanding any action, inaction, breach of warranty or
condition, breach of declarations, misrepresentation or negligence of the
Borrowers. Each policy shall contain an agreement by the insurer that,
notwithstanding lapse of a policy for any reason, or right of cancellation
by the insurer or any cancellation by the Borrowers, such policy shall
continue in full force for the benefit of the Agent Bank for at least
thirty (30) days after written notice thereof to the Agent Bank and the
Borrowers, and no alteration in any such policy shall be made except upon
thirty (30) days written notice of such proposed alteration to the Agent
Bank and the Borrowers and written approval by the Agent Bank. At or before
the making of the first Loan, the Borrowers shall provide the Agent Bank
with certificates evidencing their due compliance with the requirements of
this section.
(2) Prior to the expiration date of any policy of insurance
maintained pursuant to this Agreement, the Borrowers shall provide the
Agent Bank with a certificate of insurance evidencing the acquisition of a
new policy, or an extension or renewal of an existing policy, evidencing
the Borrowers' due compliance with this section.
(3) If the Borrowers fail to acquire any policy of insurance
required to be maintained pursuant to this section, or fail to renew or
replace any such policy at least ten (10) days prior to the expiration
thereof, or fail to keep any such policy in full force and effect, the
Agent Bank shall have the option (but not
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the obligation) to pay the premiums on any such policy of insurance or to
take out new insurance in amount, type, coverage and terms satisfactory to
the Agent Bank, after first notifying the Borrowers of the Agent Bank's
intent to pay it. Any amounts paid therefor by the Agent Bank shall be
immediately due and payable to the Agent Bank by the Borrowers upon demand.
No exercise by the Agent Bank of such option shall in any way affect the
provisions of this Agreement, including the provision that failure by the
Borrowers to maintain the prescribed insurance shall constitute an Event of
Default.
(4) In the event that the Agent Bank receives any insurance
proceeds if there exists no Event of Default and no event which with notice
or the passing of time shall become an Event of Default, the Agent Bank
agrees to return the insurance proceeds to the Borrowers.
7.12 Environmental Compliance.
A. Any Borrower shall, notify the Agent Bank promptly and in
reasonable detail in the event that such Borrower becomes aware of the
presence of Hazardous Materials (other than as used in ordinary course of
business) or a violation of the Relevant Environmental Laws resulting from
or in connection, directly or indirectly, with the business or operations
of a Borrower.
B. Each Borrower shall ensure that its business and operations
comply and continue to comply in all material respects with the Relevant
Environmental Laws.
C. Should a Borrower conduct any business or operations in such
a way as to subject any of the Borrowers or the Agent Bank to a claim or
violation of the Relevant Environmental Laws (unless contested in good
faith), such Borrower shall prudently and appropriately remedy and fully
cure any conditions arising therefrom, at its own cost and expense.
D. At their sole cost and expense, the Borrowers shall
(1) Pay or cause to be paid immediately when due the cost of
compliance with the Relevant Environmental Laws; and
(2) Keep the Borrowers's business, assets and operations
free of any lien imposed pursuant to the Relevant Environmental Laws.
E. The Agent Bank shall not be liable for, and the Borrowers
shall immediately pay to the Agent Bank when incurred and shall indemnify,
defend and hold the Agent Bank harmless from and against, all loss, cost,
liability, damage and expense (including, without limitation, reasonable
attorneys' fees and costs
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incurred in the investigation, defense and settlement of claims) that the
Agent Bank may suffer or incur as mortgagee (as holder of or assignee in
possession or as successor in interest to the Borrowers as owner of a
lease, by virtue of exercising the Agent Bank's right pursuant to a
security interest thereof) as a result of or in connection in any way with
any of the Relevant Environmental Laws (including, without limitation, the
assertion that any lien existing pursuant to the Relevant Environmental
Laws takes priority over the lien or security interest of the Agent
Bank's), or any environmental assessment or study from time to time
reasonably undertaken or requested by Agent Bank or breach of any covenant
or undertaking by the Borrowers concerning Relevant Environmental Laws.
F. There shall not occur any unpermitted Hazardous Discharge or
material Environmental Complaint.
7.13 Material Change in Management. Each Company shall notify the
Agent Bank of any material change in its management from that existing on
the date of this Agreement.
SECTION 8
NEGATIVE COVENANTS
------------------
The Borrowers hereby covenant and agree that until the Revolving
Credit Notes, the Term Notes, and the other Obligations have been
respectively paid in full to the Banks, and the Swing Line Credit
Subfacility and Letter of Credit Subfacility have been terminated, the
Borrowers will perform and observe all of the following provisions:
8.1 Mergers, Acquisitions and Other Extraordinary Events. Without
the prior written consent of the Agent Bank which shall not be unreasonably
withheld or delayed, and except for the Proposed Merger, the Borrowers
shall not:
(i) Be a party to any consolidation, reorganization (including
without limitation those types referred to in Section 368 of the United
States Internal Revenue Code of 1986, as amended), recapitalization,
"stock-swap" or merger;
(ii) Sell or otherwise transfer any material part of their
assets;
(iii) Purchase all or a substantial part of the capital stock or
assets of any corporation or other business enterprise;
(iv) Allow a Change in Control to occur with respect to Group
Financial; or
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(v) Liquidate or dissolve or take any action with a view toward
liquidation or dissolution.
An acquisition that has been consented to in writing by the Banks pursuant
to this Section 8.1 shall be known as a "Permitted Acquisition."
To the extent that any Borrower receives proceeds from a sale of
assets in excess of Three Hundred Thousand Dollars ($300,000) that is not
prohibited by this Section 8.1 or that has been consented to by the Banks
in writing, 75% of all such proceeds shall be used (i) first to pay down
the principal amount of the Term Loans pursuant to Section 3.3B hereof and
(ii) second, to pay down the principal amount of Revolving Credit Loans
pursuant to Section 2.4B hereof.
8.2 Indebtedness, Guaranties, etc. The Borrowers will not, without
the prior written consent of the Agent Bank, directly or indirectly,
create, incur, assume, guarantee, agree to purchase or repurchase or
provide funds in respect of, or otherwise become liable with respect to any
Funded Debt other than:
A. The Revolving Credit Facility;
B. The Swing Line Credit Subfacility;
C. The Letter of Credit Subfacility;
D. The Term Loans;
E. Funded Debt in an aggregate amount not exceeding Nine Hundred
Million Four Hundred Thousand Dollars ($9,400,000) that falls into one of
the following two categories:
(i) Purchase money indebtedness incurred or assumed by the
Borrowers in connection with acquisition of tangible and intangible
personal and real property, to the extent such tangible and intangible
personal and real property are to be used by the Borrowers in businesses
permitted under Section 8.4 hereof;
(ii) Capital lease obligations;
F. Any guaranty by a Borrower of Funded Debt incurred by
another Borrower or Subsidiary of a Borrower that is allowable under and
included within Section 8.2E;
G. Funded Debt incurred in connection with a Permitted
Acquisition; and
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<PAGE>
H. Inter-Borrower Notes.
8.3 Use of Assets. The Borrowers will not use, or cause or permit
the use of, any of their assets in any manner prohibited by law,
governmental regulations or applicable insurance policies.
8.4 Mortgages, Liens, Encumbrances, Security Interests, Assignments,
etc. The Borrowers will not, without the prior written consent of the Agent
Bank, directly or indirectly create, incur, assume or permit to continue in
existence any mortgage, lien, charge or encumbrance on, or security
interest in, or pledge or deposit of, or conditional sale or other title
retention agreement (including any lease which in accordance with GAAP
would constitute Funded Debt), or assignment of, with respect to, any
property or asset now owned or hereafter acquired by the Borrowers,
provided that the restrictions in this Section 8.4 shall not prohibit:
(i) Liens and security interests granted to the Banks pursuant to
the Security Agreements and Mortgages;
(ii) Liens for taxes, assessments or governmental charges not yet
due and payable or the payment of which is not at the time required for the
reasons set forth by the proviso to the first sentence of Section 7.2A;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with worker's compensation, unemployment insurance
and other types of social security or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, performance
and return of money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money) for sums not yet due or
being contested in good faith and by appropriate proceedings promptly
initiated and diligently conducted, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made
therefor;
(iv) Liens and security interests in an amount not to exceed Nine
Million Four Hundred Thousand Dollars ($9,400,000) granted in connection
with capital leases and purchase money obligations;
(v) The liens and encumbrances listed on the title insurance
policies delivered to the Agent Bank and determined by the Agent Bank to be
acceptable to it, pursuant to Section 5.10 hereof; and
(vi) Assignment to the Agent Bank on behalf of the Banks of
contract rights with respect to contracts with the United States Government
and agencies and instrumentalities thereof, pursuant to an Assignment
Agreement.
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8.5 Nature of Businesses. The Borrowers will not, without the prior
written consent of the Agent Bank in every specified instance, engage in
any businesses other than the businesses conducted as of the Closing Date
and all businesses incidental thereto.
8.6 Fixed Charge Coverage Ratio. The Borrowers, on a Combined basis,
shall not permit the Fixed Charge Coverage Ratio for any period of four
consecutive Fiscal Quarters, to fall below the following applicable ratio,
calculated as of the end of each Fiscal Quarter:
<TABLE>
<CAPTION>
------------------------------------
Fiscal Quarters
Ending Before
Or on: Ratio
------ -----
------------------------------------
<S> <C>
3/31/98 1.15 to 1.00
------------------------------------
9/30/98 1.25 to 1.00
------------------------------------
9/30/99 1.35 to 1.00
------------------------------------
9/30/2000 1.35 to 1.00
------------------------------------
9/30/2001 1.50 to 1.00
------------------------------------
9/30/2002 1.50 to 1.00
------------------------------------
</TABLE>
8.7 Ratio of Funded Debt to EBITDA. The Borrowers, on a Combined
basis, shall not permit the ratio of Funded Debt to EBITDA for any period
of four consecutive Fiscal Quarters, to exceed the following applicable
ratio, calculated as of the end of each Fiscal Quarter:
<TABLE>
<CAPTION>
------------------------------------
Fiscal Quarters
Ending Before
Or on: Ratio
------ -----
------------------------------------
<S> <C>
9/30/1998 3.00 to 1.00
------------------------------------
9/30/1999 2.50 to 1.00
------------------------------------
9/30/2000 2.00 to 1.00
------------------------------------
9/30/2001 2.00 to 1.00
------------------------------------
9/30/2002 2.00 to 1.00
------------------------------------
</TABLE>
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<PAGE>
8.8 Funded Debt to Capitalization Ratio. The Borrowers, on a
Combined basis, shall not permit the ratio of Funded Debt to Capitalization
for any period of four consecutive Fiscal Quarters, to exceed the following
applicable ratio, calculated as of the end of each Fiscal Quarter:
<TABLE>
<CAPTION>
------------------------------------
Fiscal Quarters
Ending Before
Or on: Ratio
------ -----
------------------------------------
<S> <C>
9/30/1998 0.75 to 1.00
------------------------------------
9/30/1999 0.65 to 1.00
------------------------------------
9/30/2000 0.55 to 1.00
------------------------------------
9/30/2001 0.50 to 1.00
------------------------------------
9/30/2002 0.50 to 1.00
------------------------------------
</TABLE>
8.9 Minimum Tangible Net Worth. The Borrowers, on a Combined basis,
shall not permit their Tangible Net Worth for any period of four
consecutive Fiscal Quarters, calculated as of the end of each Fiscal
Quarter during the term of this Agreement, to be less than the sum of (i)
95% of the minimum tangible net worth amount on the consolidated financial
statements of Group Financial Partners, Inc. as of October 31, 1997, plus
(ii) the amounts recorded to reflect the merger transactions contemplated
by the S-4, net of any non-routine distributions made in connection
therewith, plus (iii) the tangible net worth of the Government Services
Division of Datatape, Inc. following its acquisition, plus (iv) 75% of Net
Income earned in each Fiscal Quarter ended subsequent to the Closing Date,
plus (v) 100% of equity raised or contributed, less (in the event the
merger transactions contemplated by the S-4 do not occur) any decreases to
Tangible Net Worth arising from the redemption of common stock from the
employee shareholders of the Borrowers pursuant to the respective Stock
Purchase Plans, Stock Option Plans and Stock Restriction Agreements. For
purposes of calculating Tangible Net Worth under this Section 8.9, any net
losses hereafter incurred by the Borrowers as of the end of a Fiscal
Quarter will be treated as $0 earnings for purposes of calculating the
Minimum Tangible Net Worth requirement.
8.10 Payment of Dividends. Without the Agent Bank's prior written
consent, the Borrowers shall not declare or pay cash or stock dividends
upon any class of the Borrowers' capital stock or make any distributions of
any of the Borrowers' property or assets.
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<PAGE>
8.11 Capital Expenditures. Without the Agent Bank's prior written
consent, the Borrowers shall not make any expenditures for fixed or capital
assets (including without limitation capital lease obligations) which would
cause the aggregate of all such expenditures to exceed any of the following
limits for all Borrowers in the aggregate for any period of four
consecutive Fiscal Quarters, calculated as of the end of each Fiscal
Quarter:
<TABLE>
<CAPTION>
---------------------------------------
Fiscal Quarters Capital
Ending Before Expenditure
Or On: Limit
------ -----
---------------------------------------
<S> <C>
9/30/1998 $11,400,000
---------------------------------------
9/30/1999 13,700,000
---------------------------------------
9/30/2000 15,000,000
---------------------------------------
9/30/2001 15,000,000
---------------------------------------
9/30/2002 15,000,000
---------------------------------------
</TABLE>
8.12 Transactions with Subsidiaries and Affiliates. The Borrowers
shall not enter into, or be a party to, any transaction with any of
Borrowers' Subsidiaries, Affiliates or stockholders (including, without
limitation, transactions involving the purchase, sale or exchange of
property, the rendering of services or the sale of stock) except in the
ordinary course of business pursuant to the reasonable requirements of
Borrowers and upon fair and reasonable terms which are fully disclosed to
the Agent Bank and which are no less favorable to Borrowers than Borrowers
would obtain in a comparable arms-length transaction with a legal entity
not a Subsidiary, Affiliate or stockholder of the Borrowers.
Notwithstanding the foregoing, BT shall be permitted to pay the
ordinary monthly operating expenses of Group Financial. Each of Bell, TT,
GTC and MD are parties to certain Consolidated Tax Sharing Agreements with
Group Financial and BT shall establish a similar agreement with Group
Financial. These Tax Sharing Agreements shall be permitted to continue to
operate.
8.13 Interest Rate Agreements. The Borrowers will not enter into
any Interest Rate Agreement unless (i) such Interest Rate Agreement is
intended to fix or establish a maximum interest rate in respect of
Indebtedness with a notional amount not in excess of the Revolving Loan
Commitments and is embodied in a standard ISDA form of agreement which is
acceptable to the Banks with respect to any intercreditor issues, (ii) the
counterparty is the Agent Bank, a Bank or an affiliate of the Agent Bank or
a Bank, and (iii) the Borrowers promptly provide a
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<PAGE>
true and complete copy of such Interest Rate Agreement to the Agent Bank,
on behalf of itself and the Banks. At or following the effective date of
any such Interest Rate Agreement, the Agent Bank may, upon written
notification to the Borrowers and the Banks and such counterparty,
designate (which designations shall be made only upon the instructions or
with the consent of the Majority Banks) the credit exposure of such
counterparty under such Interest Rate Agreement as an obligation entitled
to share, pari passu with the Obligations, in respect to the benefits
provided by the collateral under the Loan Documents, in accordance with the
applicable provisions of the Loan Documents, and if the Agent Bank so
designates such credit exposure, the applicable Interest Rate Agreement of
such counterparty shall be considered a "Designated Interest Rate
Agreement".
SECTION 9
EVENTS OF DEFAULT; ACCELERATION
-------------------------------
9.1 Events of Default. The following events shall constitute Events
of Default under this Loan Agreement:
(i) The failure by the Borrowers to pay any principal of any
Revolving Credit Note or the Term Notes when the same becomes due and
payable or the failure of the Borrowers to pay any interest thereon within
five (5) days of the date when the same becomes due and payable; or
(ii) The failure by the Borrowers to reimburse the Agent Bank
upon demand for any draft honored by the Agent Bank under any Letter of
Credit now or hereafter issued by the Agent Bank for the account of the
Borrowers; or
(iii) The failure by the Borrowers to perform or observe any of
the provisions of Sections 8.1, 8.6, 8.7, 8.8, 8.9, 8.10, 8.11 or 8.13; or
(iv) The failure by the Borrowers to perform or observe any of
the provisions of Sections 7.11, 8.2, 8.3, 8.4, 8.5, or 8.12 hereof, and
such default continues for twenty (20) days after a Financial Officer has
knowledge of such failure; or
(v) The Borrowers shall default in the performance of or
compliance with any covenant, obligation or provision contained in this
Loan Agreement (other than those referred to above in this Section 9.1(i)),
and any such default shall not have been remedied within thirty (30) days
after written notice of such default shall have been delivered to the
Borrowers; or
(vi) If any material representation or warranty made in writing
by or on behalf of the Borrowers herein or pursuant hereto or otherwise in
connection
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with the Revolving Credit Facility, the Swing Line Credit Subfacility, the
Letter of Credit Subfacility and/or the Term Loans shall have been
materially false or misleading or incorrect when made and the Authorized
Officer on behalf of the Borrowers knew or should have known of the
falsity, misleading nature of or incorrectness of such representation or
warranty when it was made; or
(vii) The failure of the Borrowers to pay any of their other
Funded Debt, not otherwise referred to in this Section 9, which in the
aggregate exceeds Three Million Dollars ($3,000,000), when due or within
any grace period afforded the Borrowers for paying the same, or the
acceleration of the maturity of any such Funded Debt by the holder thereof,
other than any such Funded Debt with respect to which the Borrowers are
contesting in good faith the validity, amount and/or the Borrowers'
liability therefor and for which adequate reserves have been established on
the books of the Borrowers in accordance with GAAP; or
(viii) If any of the Borrowers shall (1) file a petition for an
order of relief under the federal bankruptcy laws (as in effect on the date
of this Agreement or as they may be amended from time to time); (2) admit
its inability to pay its debts generally as they become due; (3) become
insolvent in that its total assets are in the aggregate worth less than all
of its liabilities or it is unable to pay its debts generally as they
become due; (4) make a general assignment for the benefit of creditors; (5)
file a petition, or admit (by answer, default or otherwise) the material
allegations of any petition filed against it, in bankruptcy under the
federal bankruptcy laws (as in effect on the date of this Agreement or as
they may be amended from time to time), or under any other law for the
relief of debtors, or for the discharge, arrangement or compromise of its
debts; or (6) consent to the appointment of a receiver, conservator,
trustee or liquidator of all or part of its assets; or
(ix) If a petition shall have been filed against any Borrower in
proceedings under the federal bankruptcy laws (as in effect on the date of
this Agreement, or as they may be amended from time to time), or under any
other laws for the relief of debtors, or for the discharge, arrangement or
compromise of its debts, or an order shall be entered by any court of
competent jurisdiction appointing a receiver, conservator, trustee or
liquidator of all or part of the Borrower's assets, and such petition or
order is not dismissed or stayed within sixty (60) consecutive days after
entry thereof; or
(x) If a final uninsured judgment or judgments shall be rendered
against any of the Borrowers in an aggregate amount exceeding One Million
Dollars ($1,000,000) and (i) if, prior to the availability of any
execution thereon, such judgment(s) shall not have been discharged or
execution thereof shall not have been stayed pending appeal, or if, after
the expiration of any such stay, such judgment(s) shall not have been
discharged, or (ii) the Borrowers shall not have established
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adequate reserves on their books in respect of such final uninsurable
judgment or judgments; or
(xi) In the event Group Financial experiences a Change in Control
without the prior written consent of the Banks; or
(xii) If the Borrowers shall fail to deliver within 60 days
after the Closing Date, the Collateral Assignments of Patents, Trademarks
and Copyrights duly and respectively executed by each of the Borrowers
granting to the Banks a security interest in all of the patents, trademarks
and copyrights of the Borrowers; or
(xiii) If the Borrowers shall fail to make best efforts to
deliver to the Banks within 90 days of the Closing Date written waivers of
claims and/or liens, in form and substance satisfactory to the Banks, from
each landlord at any facility at which the Borrowers keep, maintain, or
store any Eligible Inventory at a location which is not owned in fee by the
Borrowers, if any, or to deliver to the Banks information, in such form and
with such detail as is satisfactory to the Banks, regarding the type,
nature and value of Inventory located at such sites with respect to which
no landlord's lien waiver is provided; or
(xiv) The occurrence of any event of default or default under
any of the Loan Documents; or
(xv) The occurrence of any event of default or default under any
note, loan agreement, security agreement, mortgage or instrument (other
than the Loan Documents) evidencing or securing indebtedness of the
Borrowers which in the aggregate exceeds Three Million Dollars
($3,000,000).
Upon the occurrence of any Event of Default described in clauses (viii) or
(ix) of this Section 9 with respect to the Borrowers, the unpaid principal
balance of each of the Revolving Credit Notes, the Term Notes, and the
other Obligations, together with all accrued interest thereon, shall
automatically become immediately due and payable, without presentment,
demand, protest or other requirements of any kind, all of which are hereby
expressly waived by the Borrowers. Upon the occurrence of any other Event
of Default referred to in this Section 9, the Agent Bank, on behalf of the
Banks, may at any time at its option, by written notice to the Borrowers,
declare the unpaid principal balance of and all accrued and unpaid interest
on each of the Revolving Credit Notes, the Term Notes and the other
Obligations to be immediately due and payable in full to the Banks, as
applicable, without presentment, demand, protest or other requirements of
any kind, all of which are hereby waived by the Borrowers.
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SECTION 10
REMEDIES UPON DEFAULT, ETC.
--------------------------
10.1 Defaults. Upon the occurrence and during the continuation of
any Event of Default, the Banks may proceed to protect and enforce their
rights by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or
in the Revolving Credit Notes or the Term Notes or for an injunction
against a violation of any of the terms hereof or thereof, or in aid of the
exercise of any right, power or remedy granted hereby or thereby or by law
or pursuant to the other Loan Documents. In case of a default in the
payment of any principal of or interest on the Revolving Credit Notes, the
Term Notes and/or the other obligations, or upon acceleration thereof, the
Borrowers will pay to the Banks such further amount as shall be sufficient
to cover the reasonable costs and expenses of collection thereof, including
(to the extent permitted by law), without limitation, reasonable attorneys'
fees, expenses and disbursements.
10.2 Offset. If any Event of Default shall occur and be continuing
and regardless of whether or not the Banks have accelerated the maturity
date of the Revolving Credit Notes, the Term Notes, and/or the other
Obligations, each Bank shall have the right then, or at any time
thereafter, to set off against any and all deposit balances and other sums
and Funded Debt and other property then held or owned by such Bank to or
for the credit or account of the Borrowers, all without notice to or demand
upon the Borrowers or any other Person, all such notices and demands being
hereby expressly waived by the Borrowers.
10.3 Rights Cumulative. All of the rights and remedies of the Banks
upon the occurrence of an Event of Default hereunder shall be cumulative to
the greatest extent permitted by law, and shall be in addition to all those
rights and remedies afforded the Banks at law or in equity.
10.4 Payment of Costs and Expenses. All of the reasonable costs,
expenses, damages and liabilities, including, without limitation, all
reasonable attorneys' fees, incurred by and imposed upon any Bank with
respect to, in connection with the enforcement of this Loan Agreement or
any other Loan Document or collection of amounts due hereunder or
thereunder or the proof and allowability of any claim arising under this
Loan Agreement or any other Loan Document, whether in bankruptcy or
receivership proceedings or otherwise, and in any workout or restructuring
or in connection with the protection, preservation, exercise or enforcement
of any of the terms hereof or of any rights hereunder or under any other
Loan Document or in connection with any foreclosure, collection or
bankruptcy proceedings, in connection with or as a result of any action
taken or omitted to be taken pursuant to this Loan Agreement, the Revolving
Credit Notes, the Term Notes, or the other Loan Documents shall be paid by,
and shall be the sole responsibility of, the Borrowers.
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SECTION 11
THE AGENT BANK
--------------
11.1 Appointment. Each Bank hereby irrevocably designates, appoints
and authorizes the Agent Bank to act as the Agent Bank under this Loan
Agreement and to execute and deliver or accept on behalf of each of the
Banks the other Loan Documents. Each Bank hereby irrevocably authorizes,
and each holder of any Revolving Credit Note and/or Term Note by the
acceptance of such Revolving Credit Note or Term Note shall be deemed
irrevocably to authorize, the Agent Bank to take such action on behalf of
such Bank and such holder under the provisions of this Loan Agreement and
the other Loan Documents and any other instruments and agreements referred
to herein, and to exercise such powers and to perform such duties hereunder
as are specifically delegated to or required of the Agent Bank by the terms
hereof, together with such powers as are reasonably incidental thereto. The
Agent Bank agrees to act as the Agent Bank to the extent provided in this
Loan Agreement.
11.2 Delegation of Duties. The Agent Bank may perform any of its
duties hereunder by or through agents or employees (provided such
delegation is exercised with reasonable care and does not constitute a
relinquishment of its duties as Agent Bank) and, subject to Sections 11.5,
11.6 and 11.7 hereof, shall be entitled to engage and pay for the advice or
services of any attorneys, accountants or other experts concerning all
matters pertaining to its duties hereunder and to rely upon any advice so
obtained, provided reasonable care is used in the selection of the
foregoing experts.
11.3 Nature of Duties; Independent Credit Investigation. The Agent
Bank shall have no duties or responsibilities except those expressly set
forth in this Loan Agreement and the other Loan Documents and no implied
covenants, functions, responsibilities, duties, obligations or liabilities
shall be read into this Loan Agreement or shall otherwise exist. The duties
of the Agent Bank shall be mechanical and administrative in nature and
shall include the duty to provide to each Bank an executed original of such
Bank's Revolving Credit Note and an executed original of this Loan
Agreement and a copy of the other Loan Documents; the Agent Bank shall not
have by reason of this Loan Agreement a fiduciary or trust relationship in
respect of any Bank; and nothing in this Loan Agreement, expressed or
implied, is intended to or shall be so construed as to impose upon the
Agent Bank any obligations in respect of this Loan Agreement except as
expressly set forth herein. Each Bank expressly acknowledges (i) that the
Agent Bank has not made any representations or warranties to it and that no
act which the Agent Bank hereafter takes, including any review of the
affairs of the Borrowers, shall be deemed to constitute any representation
or warranty by the Agent Bank to any Bank; (ii) that it has made and will
continue to make, without reliance upon the Agent Bank, its
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own independent investigation of the financial condition and affairs and
its own appraisal of the creditworthiness of the Borrowers in connection
with this Loan Agreement and the making and continuance of the Loans
hereunder; and (iii) except as expressly provided herein, that the Agent
Bank shall have no duty or responsibility, either initially or on a
continuing basis, to provide any Bank with any credit or other information
with respect thereto, whether coming into its possession before the making
of any Loan or at any time or times thereafter.
11.4 Actions in Discretion of the Agent Bank: Instructions from the
Banks. The Agent Bank agrees, upon the written request of the Banks, to
take or refrain from taking any action of the type specified as being
within the Agent Bank's rights, powers or discretion herein; provided that
the Agent Bank shall not be required to take any action which exposes the
Agent Bank to legal liability or which is contrary to this Loan Agreement
or any other Loan Document or applicable law. In the absence of a request
by the Banks, the Agent Bank shall have authority, in its sole discretion,
to take or not to take any such action, unless this Loan Agreement
specifically requires the consent of the Banks. Any action taken or failure
to act pursuant to such instructions or discretion shall be binding on the
Banks, subject to the provisions of Section 11.6 hereof. Subject to the
provisions of Section 11.6 hereof, no Bank shall have any right of action
whatsoever against the Agent Bank as a result of the Agent Bank acting or
refraining from acting hereunder in accordance with the instructions of the
Banks or, in the absence of such instructions, in the absolute discretion
of the Agent Bank.
11.5 Reimbursement and Indemnification of the Agent Bank and the
Banks by the Borrowers. The Borrowers unconditionally agree to pay or
reimburse the Agent Bank and hold the Agent Bank harmless against liability
for the payment of all reasonable and necessary out-of-pocket costs,
expenses and disbursements for which reimbursement is customarily obtained,
including reasonable fees and expenses of counsel and consultants incurred
by the Agent Bank (a) in connection with the preparation, negotiation,
printing, execution, administration, interpretation and performance of this
Loan Agreement and the other Loan Documents and (b) relating to any
requested amendments, waivers or consents pursuant to the provisions
hereof. The Borrowers unconditionally agree to pay or reimburse the Agent
Bank and hold each Bank harmless against all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on,
incurred by or asserted against the Agent Bank and/or any Bank, in its
capacity as such, in any way relating to or arising out of this Loan
Agreement or any other Loan Document or any action taken or omitted by the
Agent Bank and/or any Bank hereunder or thereunder; provided that the
Borrowers shall not be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements (A) if the same results from the bad faith, gross
negligence or willful misconduct of the Agent Bank or any Bank, or (B) if
the Borrowers were not given
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notice of the subject claim and the opportunity to participate in the
defense thereof, at its expense, or (C) if the same results from a
compromise or settlement agreement entered into without the consent of the
Borrowers, which consent shall not be unreasonably withheld.
11.6 Exculpatory Provisions. Neither the Agent Bank nor any of its
directors, officers, employees, agents or affiliates shall (i) be liable to
any Bank for any action taken or omitted to be taken by it or them
hereunder, or in connection herewith including pursuant to any other Loan
Documents, unless caused by its or their own gross negligence or willful
misconduct, (ii) be responsible in any manner to any of the Banks for the
effectiveness, enforceability, genuineness, validity or the due execution
of this Loan Agreement or any other Loan Document or for any recital,
representation, warranty, document, certificate, report or statement herein
or made or furnished under or in connection with this Loan Agreement or any
other Loan Document, or (iii) be under any obligation to any of the Banks
to ascertain or to inquire as to the performance or observance of any of
the terms, covenants or conditions hereof or thereof on the part of the
Borrowers, or the financial condition of the Borrowers, or the existence or
possible existence of any Event of Default or Potential Default under the
Loan Documents. Neither the Agent Bank nor any Bank nor any of their
respective directors, officers, employees, agents, attorneys or affiliates
shall be liable to the Borrowers or any other Person for consequential
damages resulting from any breach of contract, tort or other wrong in
connection with the negotiation, documentation or administration of the
Loan Documents or the collection of the obligations.
11.7 Reimbursement and Indemnification of the Agent Bank by the
Banks. Each Bank agrees to reimburse and indemnify the Agent Bank (to the
extent not reimbursed by the Borrowers and without limiting the obligation
of the Borrowers to do so) in proportion to its Revolving Credit Facility
Pro Rata Share from and against all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on,
incurred by or asserted against the Agent Bank, in its capacity as such, in
any way relating to or arising out of this Loan Agreement or any other Loan
Document or any action taken or omitted by the Agent Bank hereunder or
thereunder, provided that no such reimbursement shall be required with
respect to expenses incurred by the Agent Bank during the time period
through the Closing Date and no Bank shall be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements (i) if the same relates
to or arises out of the Agent Bank's gross negligence or willful
misconduct, or (ii) if such Bank was not given notice of the subject claim
and the opportunity to participate in the defense thereof, at its expense,
or (iii) if the same results from a compromise and settlement agreement
entered into without the consent of the Bank, which consent shall not be
unreasonably withheld.
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11.8 Reliance by the Agent Bank. The Agent Bank shall be entitled
to rely upon any writing, telegram, telex or teletype message, facsimile,
resolution, notice, consent, certificate, letter, cablegram, statement,
order or other document or conversation by telephone or otherwise believed
by it to be genuine and correct and to have been signed, sent or made by
the proper Person or Persons, and upon the advice and opinions of counsel
and other professional advisers selected by the Agent Bank. The Agent Bank
shall be fully justified in failing or refusing to take any action
hereunder unless it shall first be indemnified to its satisfaction by the
Banks in accordance with their respective Revolving Credit Facility Pro
Rata Shares against any and all liability and expense which may be incurred
by it by reason of taking or continuing to take any such action.
11.9 Notice of Default. The Agent Bank shall not be deemed to have
knowledge or notice of the occurrence of any Potential Default or Event of
Default unless the Agent Bank has received written notice from a Bank or
the Borrowers referring to this Loan Agreement, specifically describing
such Potential Default or Event of Default and stating that such notice is
a "notice of default."
11.10 The Banks in Their Individual Capacities. With respect to its
Revolving Loan Commitment and its Term Loan Pro Rata Share, the Agent
Bank shall have the same rights and powers hereunder as any other Bank and
may exercise the same as though it were not the Agent Bank, and the term
"Banks" shall, unless the context otherwise indicates, include the Agent
Bank in its individual capacity. Each Bank and its Affiliates may, without
liability to account, except as prohibited herein, make loans to, accept
deposits from, discount drafts for, act as trustee under indentures of, and
generally engage in any kind of banking or trust business with, BT and its
Affiliates, in the case of the Agent Bank, as though it were not acting as
Agent Bank hereunder and in the case of each Bank, as though such Bank were
not a Bank hereunder.
11.11 Holders of Revolving Credit Notes and Term Notes. The Agent
Bank may deem and treat any payee of any Revolving Credit Note or Term Note
as the owner thereof for all purposes hereof unless and until written
notice of the assignment or transfer thereof shall have been filed with the
Agent Bank. Any request, authority or consent of any Person who at the time
of making such request or giving such authority or consent is the holder of
any Revolving Credit Note or Term Note shall be conclusive and binding on
any subsequent holder, transferee or assignee of such Revolving Credit Note
or Term Note or of any Revolving Credit Note or Term Note issued in
exchange therefor.
11.12 Equalization of the Banks. The Banks and the holders of any
participations in any Revolving Credit Notes agree among themselves that,
with respect to all amounts received by any Bank or any such holder for
application to any Revolving Credit Note or Term Note or under any such
participation, whether
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received by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or by any
other non-pro rata source, equitable adjustment will be made in the manner
stated in the following sentence so that, in effect, all such excess
amounts will be shared ratably among the Banks and such holders in
proportion to their interests in payments under the Revolving Credit Notes
and the Term Notes. The Banks or any such holder receiving any such amount
shall purchase for cash from each of the other Banks an interest in such
Bank's Revolving Credit Loans and Term Loans in such amount as shall result
in a ratable participation by the Banks and each holder in the aggregate
unpaid amount under the Revolving Credit Notes and the Term Notes, provided
that if all or any portion of such excess amount is thereafter recovered
from the Bank or the holder making such purchase, such purchase shall be
rescinded and the purchase price restored to the extent of such recovery,
together with interest or other amounts, if any, required by law (including
court order) to be paid by the Bank or the holder making such purchase.
11.13 Successor Agent Bank. The Agent Bank, with the consent of the
Borrowers which shall not be unreasonably withheld, may resign as Agent
Bank upon not less than thirty (30) days prior written notice given to the
Borrowers and the other Bank(s). If the Agent Bank shall resign under this
Loan Agreement, then either (i) the Banks shall appoint a successor Agent
Bank, subject to the consent to such successor Agent Bank by the Borrowers,
such consent not to be unreasonably withheld, or (ii) if a successor Agent
Bank shall not be so appointed and approved within the thirty (30) day
period following the Agent Bank's notice to the Banks of its resignation,
then the Agent Bank shall appoint, with the consent of the Borrowers, such
consent not to be unreasonably withheld, a successor Agent Bank who shall
serve as Agent Bank until such time as the Banks appoint, and the Borrowers
consent, which consent shall not be unreasonably withheld, to the
appointment of a successor Agent Bank. Upon its appointment pursuant to
either clause (i) or (ii) above, such successor Agent Bank shall succeed to
the rights, powers and duties of the Agent Bank and the term "Agent Bank"
shall mean such successor Agent Bank, effective upon its appointment, and
the former Agent Bank's rights, powers and duties as Agent Bank shall be
terminated without any other or further act or deed on the part of such
former Agent Bank or any of the other parties to this Loan Agreement.
After the resignation of any Agent Bank hereunder, the provisions of this
Section 11 shall not by reason of such resignation be deemed to release the
Agent Bank from liability for any actions taken or not taken by it while it
was the Agent Bank under this Loan Agreement.
11.14 Calculations. In the absence of gross negligence or willful
misconduct, the Agent Bank shall not be liable for any error in computing
the amount payable to any Bank whether in respect of the Revolving Credit
Loans or Term Loans or the fees or other amounts due to the Banks under
this Loan Agreement. In the event an error in computing any amount payable
to any Bank is
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made, the Agent Bank, the Borrowers and each affected Bank shall, forthwith
upon discovery of such error, make such adjustments as shall be required to
correct such error, and any compensation therefor will be calculated at
the Federal Funds Effective Rate.
11.15 Withholding Tax. (a) If any Bank is a "foreign corporation,
partnership or trust" within the meaning of the Internal Revenue Code and
such Bank claims exemption from, or a reduction of, U.S. withholding tax
under Sections 1441 or 1442 of the Internal Revenue Code, such Bank agrees
with and in favor of the Agent Bank, to deliver to the Agent Bank:
(i) if such Bank claims an exemption from, or a reduction of,
withholding tax under a United States tax treaty, two properly completed
and executed copies of IRS Form 1001 before the payment of any interest in
the first calendar year and before the payment of any interest in each
third succeeding calendar year during which interest may be paid under this
Agreement;
(ii) if such Bank claims that interest paid under this Agreement
is exempt from United States withholding tax because it is effectively
connected with a United States trade or business of such Bank, two properly
completed and executed copies of IRS Form 4224 before the payment of any
interest is due in the first taxable year of such Bank and in each
succeeding taxable year of such Bank during which interest may be paid
under this Agreement; and
(iii) such other form or forms as may be required under the
Internal Revenue Code or other laws of the United States as a condition to
exemption from, or reduction of, United States withholding tax.
Such Bank agrees to promptly notify the Agent Bank of any change in
circumstances which would modify or render invalid any claimed exemption or
reduction.
(b) If any Bank claims exemption from, or reduction of, withholding
tax under a United States tax treaty by providing IRS Form 1001 and such
Bank sells, assigns, grants a participation in, or otherwise transfers all
or part of the Obligations of the Borrowers to such Bank, such Bank agrees
to notify the Agent Bank of the percentage amount in which it is no longer
the beneficial owner of Obligations of the Borrowers to such Bank. To the
extent of such percentage amount, the Agent Bank will treat such Bank's IRS
Form 1001 as no longer valid.
(c) If any Bank claiming exemption from United States withholding tax
by filing IRS Form 4224 with the Agent Bank sells, assigns, grants a
participation in, or otherwise transfers all or part of the Obligations of
the Borrowers to such Bank, such Bank agrees to undertake sole
responsibility for complying with the
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withholding tax requirements imposed by Section 1441 and 1442 of the
Internal Revenue Code.
(d) If any Bank is entitled to a reduction in the applicable
withholding tax, the Agent Bank may withhold from any interest payment to
such Bank an amount equivalent to the applicable withholding tax after
taking into account such reduction. However, if the forms or other
documentation required by subsection (a) of this Section are not delivered
to the Agent Bank, then the Agent Bank may withhold from any interest
payment to such Bank not providing such forms or other documentation an
amount equivalent to the applicable withholding tax imposed by Sections
1441 and 1442 of the Internal Revenue Code, without reduction.
(e) If the IRS or any other Governmental Authority of the United
States or other jurisdiction asserts a claim that the Agent Bank did not
properly withhold tax from amounts paid to or for the account of any Bank
(because the appropriate form was not delivered or was not properly
executed, or because such Bank failed to notify the Agent Bank of a change
in circumstances which rendered the exemption from, or reduction of,
withholding tax ineffective, or for any other reason) such Bank shall
indemnify the Agent Bank fully for all amounts paid, directly or
indirectly, by the Agent Bank as tax or otherwise, including penalties and
interest, and including any taxes imposed by any jurisdiction on the
amounts payable to the Agent Bank under this Section, together with all
costs and expenses (including Attorney Costs). The obligation of the Banks
under this subsection shall survive the payment of all Obligations and the
resignation or replacement of the Agent Bank.
11.16 Beneficiaries. Except as set forth in Sections 11.5 and 11.13
hereof, the provisions of this section 11 are solely for the benefit of the
Agent Bank and the Banks, and the Borrowers shall not have any right to
rely on or enforce any of the provisions hereof. In performing its
functions and duties under this Loan Agreement, the Agent Bank shall act
solely as agent of the Banks and does not assume and shall not be deemed to
have assumed any obligation toward or relationship of agency or trust with
or for the Borrowers or any other Person.
SECTION 12
ASSIGNMENTS AND PARTICIPATIONS
------------------------------
A. Assignments to Eligible Assignees. Each Bank shall have the
right at any time, with the prior consent of the Borrowers and the Agent
Bank, which shall not be unreasonably withheld, to sell, assign, transfer
or negotiate all or any part of its Revolving Loan Commitment, Revolving
Credit Loans and Term Loans in a minimum amount of Five Million Dollars
($5,000,000) to one or more commercial banks, insurance companies, savings
and loan associations, savings
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banks or other financial institutions, pension funds or mutual funds or
other accredited investors ("Eligible Assignees"). In the case of any sale,
assignment, transfer or negotiation of all or part of the Revolving Loan
Commitment, Revolving Credit Loans or Term Loans authorized under this
Section 12, the assignee, transferee or recipient shall have, to the extent
of such sale, assignment, transfer or negotiation, the same rights,
benefits and obligations as it would if it were a Bank hereunder,
including, without limitation (x) the right to approve or disapprove
actions which, in accordance with the terms hereof, require the approval of
the Banks, and (y) the obligation to fund Revolving Credit Loans pursuant
to Section 2 hereof. The Bank assigning a portion or all of its Revolving
Loan Commitment, Revolving Credit Loans and Term Loans pursuant to this
Section 12, or the bank purchasing the interest of the Assigning Bank,
shall pay a fee to the Agent Bank in an amount to be negotiated by the
Agent Bank and the new bank.
B. Participations. Notwithstanding Section 12A hereof, each
Bank may grant participations in all or any part of its Revolving Loan
Commitment, Revolving Credit Loans and Term Loans to one or more Eligible
Assignees; provided that (i) any such disposition shall not, without the
consent of the Borrowers, require the Borrowers to file a registration
statement with the Securities and Exchange Commission or apply to qualify
the Revolving Credit Loans, the Revolving Credit Notes, the Term Loans or
Term Notes under the blue sky law of any state; and (ii) the holder of any
such participation, other than an Affiliate of such Bank, shall not be
entitled to require the Banks to take or omit to take any action hereunder
except action directly extending the final maturity of any portion of the
principal amount of or interest on a Revolving Credit Loan allocated to
such participation or a reduction of the principal amount of or the rate of
interest payable on the Revolving Credit Loans allocated to such
participation.
C. Assignments to Affiliates. Notwithstanding the foregoing
provisions of this Section 12, each Bank may at any time sell, assign,
transfer, or negotiate all or any part of its Revolving Loan Commitment,
Revolving Credit Loans and Term Loans to any Affiliate of such Bank;
provided that an Affiliate to whom such disposition has been made shall not
be considered a "Bank" for purposes of this Loan Agreement other than for
purposes of Section 10.2 hereof; provided further that the Borrowers shall
not incur any additional expenses solely as a result of such sale,
assignment, transfer or negotiation.
D. No Release of Obligations. No Bank shall, as between the
Borrowers and such Bank, be relieved of any of its obligations hereunder as
a result of any granting of participations in all or any part of its
Revolving Loan Commitment, Revolving Credit Loans or Term Loans. Each Bank
shall, as between the Borrowers and such Bank, be relieved of its
obligations hereunder as a result of any sale, assignment, transfer or
negotiation of all or any part of its Revolving Loan
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Commitment, Revolving Credit Loans and Term Loans made in accordance with
Section 12.A hereof.
SECTION 13
INDEMNITY
---------
The Borrowers shall indemnify and hold harmless each Bank and its
successors, assigns, agents and employees from and against any and all
claims, actions, suits, proceedings, costs, expenses, damages, fines,
penalties and liabilities, including, without limitation, reasonable
attorneys' fees and costs, arising out of, connected with or resulting
from the operation of the business of the Borrowers.
SECTION 14
INCREASED COSTS; TAXES; CAPITAL ADEQUACY
----------------------------------------
14.1 Compensation for Increased Costs and Taxes. In the event that
the Banks shall determine in good faith (which determination shall, absent
manifest or demonstrable error, be final and conclusive and binding upon
both the Borrowers and the Banks) that any law, treaty or governmental
rule, regulation or order, or any change therein or in the interpretation,
administration or application thereof (including the introduction of any
new law, treaty or governmental rule, regulation or order), or any
determination of a court or governmental authority, in each case that
becomes effective after the Closing Date, or compliance by the Banks with
any guideline, request or directive issued or made after the date hereof by
any central bank or other governmental or quasi-governmental authority, and
which has the force of law and first becomes effective after the Closing
Date in all cases of general applicability to the banking industry:
(i) subjects any Bank (or its applicable lending office) to any
additional Covered Tax with respect to this Loan Agreement or any of the
Revolving Credit Loans, the Swing Line Loans or the Term Loans or any of
its other obligations hereunder, or changes the basis of taxation of
payments to such Bank (or its applicable lending office) of principal,
interest, fees or any other amount payable hereunder (but not changes in
Excluded Taxes);
(ii) imposes, modifies or holds applicable any additional reserve
(including without limitation any marginal, emergency, supplemental,
special or other reserve), special deposit, compulsory loan, FDIC insurance
or similar requirement against assets held by, or deposits or other
liabilities in or for the account of, or advances or loans by, or other
credit extended by, or any other acquisition of funds by, any Bank (or its
applicable lending office) (other than any
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such reserve or other requirements with respect to LIBOR Loans that are
reflected in the definition of LIBOR); or
(iii) imposes any other condition on or affecting any Bank (or
its applicable lending office) or its obligations hereunder or the London
interbank market, other than with respect to Taxes;
and the result of any of the foregoing is to increase the cost to any Bank
of agreeing to make, making or maintaining Revolving Credit Loans, Swing
Line Loans and Term Loans hereunder or to reduce any amount received or
receivable by any Bank (or its applicable lending office) with respect
thereto, then, in any such case, the Borrowers shall promptly pay to such
Bank, upon demand, such additional amount or amounts (in the form of an
increased rate of, or a different method of calculating, interest as such
Bank in its reasonable discretion shall determine) as may be necessary to
compensate such Bank on an after-tax basis for any such increased cost or
reduction in amounts received or receivable hereunder; provided that any
increased cost arising as a result of any of the foregoing other than in
respect of Taxes shall apply only to LIBOR Loans to the extent the same
bear interest by reference to the LIBOR. The Bank seeking reimbursement
for such amounts from the Borrowers shall deliver to the Borrowers a
written statement setting forth in reasonable detail the basis for
calculating the additional amounts owed to such Bank under this Section
14.1, which statement shall be conclusive and binding upon both parties
hereto absent manifest or demonstrable error.
14.2 Withholding of Taxes.
A. Payments to Be Free and Clear. All sums payable by the
Borrowers under this Loan Agreement and the other Loan Documents to or for
the benefit of any Bank or any Person who acquires any interest in the
Revolving Credit Loans and Term Loans pursuant to the provisions hereof
shall be paid free and clear of and (except to the extent required by law)
without any deduction or withholding on account of any Covered Tax imposed,
levied, collected, withheld or assessed by or within the United States of
America or any political subdivision in or of the United States of America
or any other jurisdiction from or to which a payment is made by or on
behalf of the Borrowers or by any federation or organization of which the
United States of America or any such jurisdiction is a member at the time
of payment.
B. Grossing-up of Payments. If the Borrowers or any other
Person is required by law to make any deduction or withholding on account
of any Covered Tax from any sum paid or payable by the Borrowers to any
Bank under any of the Loan Documents:
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(i) The Borrowers shall notify such Bank of any such requirement
or any change in any such requirement as soon as the Borrowers becomes
aware of it;
(ii) The Borrowers shall pay any such Tax before the date on
which penalties attach thereto, such payment to be made (if the liability
to pay is imposed on the Borrowers) for their own account or (if that
liability is imposed on such Bank) on behalf of and in the name of such
Bank;
(iii) The sum payable by the Borrowers in respect of which the
relevant deduction, withholding or payment is required shall be increased
to the extent necessary to ensure that, after the making of that deduction,
withholding or payment, such Bank receives on the due date and retains
(free from any liability in respect of any such deduction, withholding or
payment) a net sum equal to what it would have received and so retained had
no such deduction, withholding or payment in respect of Covered Taxes been
required or made,
(iv) Within thirty (30) days after paying any sum from which it
is required by law to make any deduction or withholding, and within thirty
(30) days after the due date of payment of any Tax which it is required to
pay by clause (ii) above, the Borrowers shall deliver to such Bank evidence
satisfactory to such Bank of such deduction, withholding or payment and of
the remit thereof to the relevant taxing or other authority;
provided that no such additional amount shall be required to be paid to any
Bank under clause (iii) above except to the extent that any change after
the date hereof in any such requirement for a deduction, withholding or
payment as is mentioned therein shall result in an increase in the rate of
such deduction, withholding or payment from that in effect at the date of
this Loan Agreement in respect of payments to such Bank.
C. Tax Refund. If the Borrowers determine in good faith that a
reasonable basis exists for contesting a Covered Tax, the relevant Bank or
Tax Transferee, as applicable, shall cooperate with the Borrowers in
challenging such Tax at the Borrowers' expense if requested by the
Borrowers (it being understood and agreed that no Bank shall have any
obligation to contest, or any responsibility for contesting, any Tax). If
any Tax Transferee or any Bank, as applicable, receives a refund (whether
by way of a direct payment or by offset of any Covered Tax for which a
payment has been made pursuant to this Section 14) the amount of such
refund (together with any interest received thereon) shall be paid to the
Borrowers to the extent payment has been made in full pursuant to this
Section 14.
14.3 Capital Adequacy Adjustment. If any Bank shall have
determined in good faith that the adoption, effectiveness, phase-in or
applicability of any law, rule
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or regulation (or any provision thereof) regarding capital adequacy, or any
change therein or in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or its
applicable lending office) with any guideline, request or directive
regarding capital adequacy of any such governmental authority, central bank
or comparable agency in all cases of general applicability to the banking
industry, and which has the force of law and first becomes effective after
the Closing Date, has or will have the effect of reducing the rate of
return on the capital of such Bank or any corporation controlling such Bank
as a consequence of, or with reference to, such Bank's Revolving Credit
Loans or Term Loans or other obligations hereunder to a level below that
which such Bank or such controlling corporation would have achieved but for
such adoption, effectiveness, phase-in, applicability, change or compliance
(taking into consideration the policies of such Bank or such controlling
corporation with regard to capital adequacy), then from time to time,
within ten (10) Business Days after demand by such Bank, the Borrowers
shall pay to such Bank such additional amount or amounts as will compensate
such Bank or such controlling corporation on an after-tax basis for such
reduction as and when incurred. Each Bank, upon determining in good faith
that any additional amounts will be payable pursuant to this Section 14.3,
will give prompt written notice thereof to the Borrowers, which notice
shall set forth the basis of the calculation of such additional amounts,
although the failure to give any such notice shall not release or diminish
any of the Borrowers' obligations to pay additional amounts under this
Section 14.3.
14.4 Banks' Obligation to Mitigate. Each Bank agrees that, as
promptly as practicable after the officer of such Bank responsible for
administering the Revolving Credit Loans and Term Loans under this Loan
Agreement becomes aware of the occurrence of an event or the existence of a
condition that would entitle such Bank to receive payments under Section 14
hereof, it will, to the extent not inconsistent with its internal policies,
use reasonable efforts (i) to make, fund or maintain its Revolving Credit
Loans and Term Loans through another lending office of such Bank, or (ii)
take such other reasonable measures if as a result thereof the additional
amounts which would otherwise be required to be paid to such Bank pursuant
to Section 14 hereof would be materially reduced and if, as determined by
such Bank in its sole discretion, the making, funding or maintaining of
such Revolving Credit Loans and Term Loans through such other lending
office or in accordance with such other measures, as the case may be, would
not otherwise materially adversely affect such Revolving Credit Loans or
Term Loans or the interests of such Bank; provided that such Bank will not
be obligated to utilize such other lending office pursuant to this Section
14.4 unless the Borrowers agree to pay all expenses incurred by such Bank
in utilizing such other lending office. A certificate as to the amount of
any such expenses payable by the Borrowers pursuant to this Section 14.4
(setting forth in reasonable detail the basis for requesting such
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amount) submitted by any Bank to the Borrowers shall be conclusive absent
manifest or demonstrable error.
SECTION 15
NOTICES
-------
All notices required or permitted to be given hereunder shall be
given in writing and shall be personally delivered or sent by facsimile
transmission or by registered or certified United States mail, return
receipt requested, postage prepaid, addressed as follows (or to such other
address as to which any party hereto shall have given the other parties
written notice):
If to Group
Financial: Group Financial Partners, Inc.
The Starks Bldg., Suite 350
Louisville, KY 40202
Attn: President
If to BT: Group Financial Partners, Inc.
The Starks Bldg., Suite 350
Louisville, KY 40202
Attn: President
If to TT: Tube Turns Technologies, Inc.
2900 West Broadway
P.O. Box 32160
Louisville, Kentucky 40232-2160
Attn: Mr. John M. Kramer
If to Bell: Bell Technologies, Inc.
6120 Hanging Moss Drive
Orlando, Florida 32807
Attn: Mr. Rick A. Affolter
If to GTC: Group Technologies Corporation
10901 Malcolm McKinley Drive
Tampa, Florida
Attn: President
If to MD: Group Financial Partners, Inc.
455 South 4th Avenue, Suite 350
Louisville, KY 40202
Attn: President
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If to Group
Financial: Group Financial Partners, Inc.
455 South 4th Avenue, Suite 350
Louisville, KY 40202
Attn: President
If to the Banks: BANK ONE, KENTUCKY, NA
416 West Jefferson Street
Louisville, KY 40202
Attn: Mr. Todd D. Munson
If to the
Agent Bank: BANK ONE, KENTUCKY, NA
416 West Jefferson Street
Louisville, KY 40202
Attn: Mr. Todd D. Munson
All notices hereunder shall be deemed given upon the earlier of (i)
actual delivery in person or by facsimile transmission, or (ii) two (2)
Business Days after having been deposited in the United States mails, in
accordance with the foregoing.
SECTION 16
MISCELLANEOUS
-------------
16.1 Joint and Several Liability of Borrowers. The obligation of
each of the Borrowers for repayment of all unpaid principal of and interest
on Revolving Credit Loans, the Swing Line Loans, the Term Loans, and all
other Obligations to the Banks and for repayment of all unpaid principal of
and interest and all other Obligations to the Agent Bank shall be joint and
several.
16.2 Ratable Sharing. Each Bank agrees with the other Bank that (i)
with respect to all amounts received by it which are applicable to the
payment of principal of or interest on the Term Loans or the Revolving
Credit Loans and the Revolving Credit Facility Commitment Fees, including,
without limitation, all amounts received by such Bank pursuant to the
exercise of the right of setoff pursuant to Section 10.2 hereof, equitable
adjustment will be made so that, in effect, all such amounts will be shared
among the Banks proportionately in accordance with their respective Term
Loan Pro Rata Shares, Revolving Credit Facility Pro Rata Shares, whether
received by voluntary payment, by the exercise of the right of set-off or
banker's lien, by counterclaim or cross action or by the enforcement of any
or all of the Obligations, and (ii) if any of them shall exercise any right
of counterclaim, set-off, banker's lien
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or similar right with respect to amounts owed by the Borrowers hereunder,
that Bank shall apportion the amount recovered as a result of the exercise
of such right pro rata in accordance with (a) all amounts outstanding at
such time owed by the Borrowers to it hereunder with respect to the Term
Loans and Revolving Credit Loans, and (b) all amounts otherwise owed by the
Borrowers to it, and (iii) if any of them shall thereby through the
exercise of any right of counterclaim, set-off, banker's lien or otherwise,
or as adequate protection of a deposit treated as cash collateral under the
Bankruptcy Code, receive payment or reduction of a proportion of the
aggregate amount of principal and interest due with respect to the
Revolving Credit Loans and Term Loans made by that Bank or any
participation therein, or any other amount payable hereunder (collectively,
the "Aggregate Amount Due" to such Bank), which is greater than the
proportion received by any other Bank in respect of the Aggregate Amount
Due to such other Bank, then the Bank receiving such proportionately
greater payment shall (y) notify each other Bank and the Agent Bank of such
receipt and (z) purchase participations (which it shall be deemed to have
done simultaneously upon the receipt of such payment) in the Aggregate
Amounts Due to the other Banks so that all recoveries of Aggregate Amounts
Due shall be shared by the Banks in proportion to their respective Term
Loan Pro Rata Shares and their respective Revolving Credit Facility Pro
Rata Shares; provided that if all or part of such proportionately greater
payment received by such purchasing Bank is thereafter recovered from such
Bank, those purchases shall be rescinded and the purchase prices paid for
such participations shall be returned to that Bank to the extent of such
recovery, but without interest. The Borrowers expressly consent to the
foregoing arrangements and agree that any participant in respect of any
Term Loan or any Revolving Credit Loan may exercise any and all rights of
banker's lien, set-off or counterclaim with respect to any and all rights
of banker's lien, set-off or counterclaim with respect to any and all
monies owing by the Borrowers to that participant as fully as if that
participant were a Bank in the amount of such participation held by that
participant.
16.3 Waiver. No course of dealing in respect of, nor any omission
or delay in the exercise of, any right, power, remedy or privilege by the
Banks shall operate as a wavier thereof, nor shall any right, power, remedy
or privilege of the Banks be exclusive of any other right, power, remedy or
privilege referred to herein or in any related document or now or hereafter
available at law, in equity, in bankruptcy, by statute or otherwise. Each
such right, power, remedy or privilege may be exercised by the Banks,
either independently or concurrently with others, and as often and in such
order as the Banks may deem expedient. No waiver or consent granted by the
Banks in respect of this Loan Agreement or the other Loan Documents shall
be binding upon the Banks unless specifically granted in writing by a duly
authorized officer of the Agent Bank, which writing shall be strictly
construed.
16.4 Survival of Representations and Warranties. All
representations, warranties and covenants of the Borrowers and each Bank
contained herein or made
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pursuant hereto shall survive the execution and delivery of this Loan
Agreement and shall continue throughout the term hereof. Further, the
indemnities set forth in Section 13 hereof shall survive the payment of the
Revolving Credit Notes, the Term Notes and the other Obligations to the
Banks, as applicable.
16.5 Invalidity. If any part of this Loan Agreement shall be
adjudged invalid or unenforceable, whether in general or in any particular
circumstance, then such partial invalidity or enforceability shall not
cause the remainder of this Loan Agreement to be or to become invalid or
unenforceable, and if a provision hereof is held invalid or unenforceable
in one or more of its applications, the parties hereto agree that said
provision shall remain in effect in all valid applications that are
severable from the invalid or unenforceable application or applications.
16.6 Assignment. This Loan Agreement may not be assigned by the
Borrowers without the prior written consent of the Banks. This Loan
Agreement may be assigned by the Banks as provided in Section 12 hereof.
All rights of the Banks hereunder shall inure to the benefit of their
respective successors and assigns, and all obligations, covenants and
agreements of the Borrowers shall bind their permitted successors and
assigns, if any.
16.7 Governing Law. This Loan Agreement and the rights and
obligations of the parties hereunder shall, in all respects, be governed by
and construed in accordance with the laws of the Commonwealth of Kentucky.
16.8 Section Headings. The section headings of this Loan Agreement
are inserted herein solely for convenience of reference and shall not
affect the construction or interpretation of the provisions hereof.
16.9 Entire Agreement. This Loan Agreement and the other Loan
Documents constitute the entire agreement between the Borrowers and the
Banks with respect to the subject matter hereof.
16.10 Time of the Essence. Time shall be of the essence in the
payment and performance of all of the Borrowers' obligations under this
Loan Agreement, the Revolving Credit Note and the other Loan Documents to
which the Borrowers are party.
16.11 Modifications. This Loan Agreement may be modified only in
writing executed by the Borrowers and the Banks. Neither this Loan
Agreement nor the other Loan Documents nor any terms hereof or thereof may
be changed, waived, discharged or terminated unless such change, waiver,
discharge or termination is in writing signed by Banks holding at least
sixty six and 66/100 percent (66 2/3%) of the aggregate of the Revolving
Credit Facility Pro Rata Shares and the Term Loan Pro Rata Shares (the
"Majority Banks"); provided, however, that no such change,
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waiver, discharge or termination, shall, without the consent of each Bank,
(i) extend the Revolving Loan Commitment Termination Date or the final
maturity of the Revolving Credit Note or the Term Note of such Bank, or
change the rate or extend the time of payment of interest, principal or
fees, or reduce the principal amount thereof, or increase the aggregate
amount of the Revolving Loan Commitments above the maximum amount provided
for in Section 2.1 hereof, or increase any Bank's commitment to disburse
its Revolving Loan Pro Rata Share of Revolving Credit Loans requested by
the Borrowers as set forth in Section 2.1 hereof, or (ii) release any
Collateral except as it shall otherwise be provided in any Loan Document,
or (iii) amend, modify or waive any provisions of this Section 16.11
(Modifications), Section 2 (Revolving Credit Facility), Section 2.6 (Swing
Line Credit Subfacility), Section 2.7 (Letter of Credit Subfacility),
Section 3 (Term Loans), Section 9 (Events of Default; Acceleration),
Section 10 (Remedies Upon Default, Etc.), Section 11 (The Agent Bank),
Section 16.2 (Ratable Sharing), or (iv) amend, modify or waive any
provision requiring consent of all Banks, or (v) reduce the percentages
specified in this Section 16.11 or (vi) consent to the assignment or
transfer by the Borrowers of any of their rights and obligations under this
Agreement.
16.12 Submission to Jurisdiction, Etc. The Borrowers hereby
irrevocably agree that any legal action, suit or proceeding against the
Borrowers with respect to the obligations and liabilities of the Borrowers
hereunder or any other matter under or arising out of or in connection with
this Loan Agreement, the Revolving Credit Notes, the Term Notes, the
Mortgages, or any other Loan Document or for recognition or enforcement of
any judgment rendered in any such action, suit or proceeding may be brought
in the United States District Court of the Western District of Kentucky at
Louisville, Kentucky or in the Jefferson County, Kentucky Circuit Court, as
the Banks may elect, and, by execution and delivery of this Loan Agreement,
the Borrowers hereby irrevocably accept and submit to the non-exclusive
jurisdiction of each of the aforesaid courts in personam generally and
unconditionally with respect to any such action, suit or proceeding
involving the Borrowers and in respect of the Borrowers' property. The
Borrowers further agree that final judgment against the Borrowers in any
action, suit or proceeding referred to herein shall be conclusive after all
appeals have been exhausted or waived by the Borrowers, and may thereafter
be enforced in any other jurisdiction, within or outside the United States
of America, by suit on the judgment, a certified or exemplified copy of
which shall be conclusive evidence of the fact and of the amount of the
Borrowers' obligations and liabilities. The Borrowers further irrevocably
consent and agree to the service of any and all legal process, summons,
notices and documents out of any of the aforesaid courts in any such
action, suit or proceeding by mailing copies thereof by serving copies
thereof upon any statutory agent for service of process of the Borrowers.
The Borrowers agree that service upon the Borrowers as provided for herein
shall constitute valid and effective personal service upon the Borrowers
and that the failure of any statutory agent to
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give any notice of such service to the Borrowers shall not impair or affect
in any way the validity of such service or any judgment rendered in any
action or proceeding based thereon. Nothing herein shall, or shall be
construed so as to, limit the right of the Banks to bring actions, suits or
proceedings with respect to the obligations and liabilities of the
Borrowers under, or any other matter arising out of or in connection with,
this Loan Agreement, the Revolving Credit Notes, the Term Notes, the
Security Agreements, the Mortgages and/or the other Loan Documents, or for
recognition or enforcement of any judgment rendered in any such action,
suit or proceeding, in the courts of whatever jurisdiction in which
property of the Borrowers may be found or as otherwise shall to the Banks
seem appropriate, or to affect the right to service of process in any
jurisdiction in any manner permitted by law. In addition, the Borrowers
hereby irrevocably and unconditionally waive any objection which the
Borrowers may now or hereafter have to the laying of venue of any of the
aforesaid actions, suits or proceedings arising out of or in connection
with this Loan Agreement, the Revolving Credit Notes, the Term Notes, the
Security Agreements, the Mortgages and/or the other Loan Documents brought
in the Circuit Court of Jefferson County, Kentucky or in the United States
District Court for the Western District of Kentucky at Louisville,
Kentucky, and hereby further irrevocably and unconditionally waives and
agrees not to plead or claim that any such action, suit or proceeding
brought in either such court has been brought in an inconvenient forum.
16.13 WAIVER OF JURY TRIAL. EACH BORROWER, EACH BANK AND THE AGENT
BANK EACH HEREBY AGREES TO WAIVE ITS RIGHT TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS LOAN AGREEMENT, THE
REVOLVING CREDIT NOTES, THE MORTGAGES OR THE OTHER LOAN DOCUMENTS. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL
DISPUTES THAT MAY BE FILED IN ANY COURT THAT RELATE TO THE SUBJECT MATTER
OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS. THE BORROWER, EACH BANK AND THE AGENT BANK EACH ACKNOWLEDGES THAT
THIS WAIVER IS A MATERIAL INDUCEMENT FOR EACH SUCH PARTY TO ENTER INTO A
BUSINESS RELATIONSHIP, AND THAT EACH BORROWER, EACH BANK AND THE AGENT BANK
HAVE ALREADY RELIED ON THE WAIVER IN ITS RELATED FUTURE DEALINGS WITH THE
OTHERS. THE BORROWER, EACH BANK AND THE AGENT BANK EACH FURTHER WARRANTS
AND REPRESENTS THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL,
AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE,
MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS
WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
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MODIFICATIONS TO THIS LOAN AGREEMENT, THE REVOLVING CREDIT NOTES, THE
MORTGAGES OR THE OTHER LOAN DOCUMENTS. IN THE EVENT OF LITIGATION, THIS
LOAN AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
IN WITNESS WHEREOF, the Agent Bank, the Banks, Group Financial
and the Borrowers have caused this Loan Agreement to be duly executed as of
the day and year first above written.
BANK ONE, KENTUCKY, NA, as a Bank
("the Agent Bank")
/s/ Todd D. Munson
-----------------------------------------
By: Todd D. Munson, Senior Vice President
BANK ONE, KENTUCKY, NA, as Agent
Bank (the "Agent Bank")
/s/ Todd D. Munson
-----------------------------------------
By: Todd D. Munson, Senior Vice President
BT HOLDINGS, INC.
(a "Borrower")
/s/ Richard L. Davis
-----------------------------------------
By: Richard L. Davis, Treasurer
BELL TECHNOLOGIES, Inc.
("Bell")
/s/ Anthony C. Allen
-----------------------------------------
By: Anthony C. Allen, Assistant Treasurer
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TUBE TURNS TECHNOLOGIES, INC.
("TT")
/s/ Richard L. Davis
-----------------------------------------
By: Richard L. Davis, Treasurer
GROUP TECHNOLOGIES CORPORATION
("GTC")
/s/ David D. Johnson
-----------------------------------------
By: David D. Johnson, Vice President
METRUM-D, INC.
("MD")
/s/ Richard L. Davis
-----------------------------------------
By: Richard L. Davis, Vice President
GROUP FINANCIAL PARTNERS, INC.
as Guarantor
("Group Financial")
/s/ Richard L. Davis
-----------------------------------------
By: Richard L. Davis, Senior Vice President
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EXHIBIT 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 28, 1997, included in the Proxy Statement of Group
Technologies Corporation that is made a part of Amendment No. 2 to the
Registration Statement (Form S-4 No. 333-20299) and Prospectus of Group
Technologies Corporation for the registration of 49,651,648 shares of its common
stock.
/s/ Ernst & Young LLP
Tampa, Florida
December 1, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated September 10, 1997, with respect to the consolidated
financial statements and schedule of Group Financial Partners Inc. and
Subsidiaries included in Amendment No. 2 to the Registration Statement (Form S-4
No. 333-20299) and related Prospectus of Group Technologies Corporation.
/s/ Ernst & Young LLP
Louisville, Kentucky
December 1, 1997
<PAGE>
EXHIBIT 23.5
We hereby consent to the use of the opinion letter, dated November 12,
1997, to the Special Committee of the Board of Directors of Group Technologies
Corporation included as Appendix E to the Proxy Statement/Prospectus, which
forms a part of Amendment No. 2 to Registration Statement of Form S-4 (No. 333-
20299), and to references to such opinion in such Proxy Statement/Prospectus. In
giving such consent, we do not admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange Commission
thereunder, nor do we admit that we are experts with respect to any part of such
Registration Statement within the meaning of the term "experts" as used in the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
J.C. BRADFORD & CO., L.L.C.
November 12, 1997
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Amendment No. 2 to this Registration Statement on
Form S-4 (Registration No. 333-20299) of our report dated April 25, 1997, except
for Note 17, as to which the date is November 14, 1997, on our audits of the
financial statements of DATATAPE, Incorporated.
/s/ Coopers & Lybrand L.L.P.
Newport Beach, California
December 4, 1997
