As filed with the Securities and Exchange Commission on February 9, 1998.
Registration No. 333-20299
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 4
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 of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification 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.
Letterhead of Group Technologies Corporation
February __, 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 Monday, March 16, 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 Fourth
Amended and Restated Agreement and Plan of Reorganization, dated as of February
5, 1998 (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) Tube
Turns will merge with and into a newly formed, wholly-owned subsidiary of GTC
("New Tube Turns"); (iii) Bell will merge with and into a newly formed, wholly-
owned subsidiary of GTC ("New Bell"); (iv) GFP will merge with and into GTC; and
(v) GTC will contribute all of the assets of GTC (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 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 $3.04 per share, the shareholders of GFP, Tube Turns and Bell
will bear the risk of market fluctuations below $3.04 per share inasmuch as they
will receive 34,255,530, 7,472,877 and 13,638,857 shares, respectively, in the
aggregate, regardless of the actual trading price of shares of GTC Common Stock.
Similarly, under the Reorganization Agreement, GTC will bear the risk of market
fluctuations above $3.04 per share. The number of shares of GTC Common Stock
issuable to the shareholders of GFP includes the 15,064,625 shares of GTC Common
Stock owned by GFP immediately prior to the effective time of the Reorganization
and the 19,190,905 shares of GTC Common Stock to be received by GFP in the Tube
Turns Merger and the Bell Merger attributable to GFP's ownership of Tube Turns
and Bell, respectively.
The aggregate consideration to be received by the shareholders of GFP, Tube
Turns and Bell is $104,136,813, $22,717,679 and $41,462,080, respectively. The
aggregate consideration to be received by shareholders of GFP includes
$45,796,377 attributable to the GTC Common Stock owned by GFP immediately prior
to the effective time of the Reorganization and $21,261,900 and $37,078,536
attributable to shares of GTC Common Stock receivable in the Tube Turns Merger
and the Bell Merger, respectively. The valuations used in determining the
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.
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
GROUP TECHNOLOGIES CORPORATION
10901 Malcolm McKinley Drive
Tampa, Florida 33612
--------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 16, 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 Monday, March 16, 1998 at 10:00 a.m. local time, for the following
purposes:
1. To consider and vote upon a proposal to approve the Fourth Amended
and Restated Agreement and Plan of Reorganization dated as of February 5, 1998
(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. Conditioned upon the approval of proposal 1, and further
conditioned upon the failure to approve proposal 4 below to reincorporate GTC in
Delaware, 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. Conditioned upon the approval of proposal 1, 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. Conditioned upon the approval of proposal 1, 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 February 9,
1998 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
February __, 1998
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 MARCH 16, 1998)
The undersigned hereby appoints Jeffrey T. Gill and Thomas W. Lovelock 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
Technologies Corporation, a Florida corporation ("GTC") standing in my name on
the books and records of GTC at the close of business on February 9, 1998, 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
Monday, March 16, 1998 at 10:00 a.m. local time, and at any and all adjournments
or postponements, as follows:
1. To approve the Fourth Amended and Restated Agreement and Plan of
Reorganization dated as of February 5, 1998 (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 and further conditioned upon
the failure to approve proposal 4, 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 16th day of March, 1998 and the Joint Proxy Statement/Prospectus dated
the ____ day of February, 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.)
Letterhead of Group Financial Partners, Inc.
February __, 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 Tuesday, March 17, 1998 at the hour of 10:00
a.m. local time (the "GFP Special Meeting").
At the GFP Special Meeting, you will be asked to approve the Fourth
Amended and Restated Agreement and Plan of Reorganization dated as of February
5, 1998 (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) Tube Turns
will merge with and into a newly formed, wholly-owned subsidiary of GTC ("New
Tube Turns"); (iii) Bell will merge with and into a newly formed, wholly-owned
subsidiary of GTC ("New Bell"); (iv) GFP will merge with and into GTC; and (v)
GTC will contribute all of the assets of GTC (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 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 Common
Stock will be valued at $3.04 per share, the shareholders of GFP, Tube Turns and
Bell will bear the risk of market fluctuations below $3.04 per share inasmuch as
they will receive 34,255,530, 7,472,877 and 13,638,857 shares, respectively, in
the aggregate, regardless of the actual trading price of shares of GTC Common
Stock. Similarly, under the Reorganization Agreement, GTC will bear the risk of
market fluctuations above $3.04 per share. The number of shares of GTC Common
Stock issuable to the shareholders of GFP includes the 15,064,625 shares of GTC
Common Stock owned by GFP immediately prior to the effective time of the
Reorganization and the 19,190,905 shares of GTC Common Stock to be received by
GFP in the Tube Turns Merger and the Bell Merger attributable to GFP's ownership
of Tube Turns and Bell, respectively.
The aggregate consideration to be received by the shareholders of GFP
is $104,136,813. The aggregate consideration to be received by shareholders of
GFP includes $45,796,377 attributable to the GTC Common Stock owned by GFP
immediately prior to the effective time of the Reorganization and $21,261,900
and $37,078,536 attributable to shares of GTC Common Stock receivable in the
Tube Turns Merger and the Bell Merger, respectively. The valuations used in
determining the 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 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.
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
GROUP FINANCIAL PARTNERS, INC.
455 South Fourth Avenue
Suite 350
Louisville, Kentucky 40202
-------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 17, 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 Tuesday, March 17, 1998 at the hour of 10:00 a.m. local
time, for the following purposes:
1. To consider and vote upon a proposal to approve the Fourth Amended and
Restated Agreement and Plan of Reorganization dated as of February 5, 1998 (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 February 9, 1998
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
February __, 1998
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 MARCH 17, 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 February 9, 1998, 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 Tuesday,
March 17, 1998 at the hour of 10:00 a.m. local time, and at any and all
adjournments or postponements, as follows:
1. To approve the Fourth Amended and Restated Agreement and Plan of
Reorganization dated as of February 5, 1998 (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 17th day of March, 1998 and the Joint Proxy Statement/Prospectus
dated the ____ day of February, 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.)
Letterhead of Tube Turns Technologies, Inc.
February __, 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 Tuesday, March 17, 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
Fourth Amended and Restated Agreement and Plan of Reorganization dated as of
February 5, 1998 (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) Tube
Turns will merge with and into a newly formed, wholly-owned subsidiary of GTC
("New Tube Turns"); (iii) Bell will merge with and into a newly formed, wholly-
owned subsidiary of GTC ("New Bell"); (iv) GFP will merge with and into GTC; and
(v) GTC will contribute all of the assets of GTC (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 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 Common
Stock will be valued at $3.04 per share, the shareholders of GFP, Tube Turns and
Bell will bear the risk of market fluctuations below $3.04 per share inasmuch as
they will receive 34,255,530, 7,472,877 and 13,638,857 shares, respectively, in
the aggregate, regardless of the actual trading price of shares of GTC Common
Stock. Similarly, under the Reorganization Agreement, GTC will bear the risk of
market fluctuations above $3.04 per share. The number of shares of GTC Common
Stock issuable to the shareholders of GFP includes the 15,064,625 shares of GTC
Common Stock owned by GFP immediately prior to the effective time of the
Reorganization and the 19,190,905 shares of GTC Common Stock to be received by
GFP in the Tube Turns Merger and the Bell Merger attributable to GFP's ownership
of Tube Turns and Bell, respectively.
The aggregate consideration to be received by the shareholders of Tube
Turns is $22,717,679. 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.
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
TUBE TURNS TECHNOLOGIES, INC.
2820 West Broadway
Louisville, Kentucky 40211
________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 17, 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 Tuesday, March 17, 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 Fourth
Amended and Restated Agreement and Plan of Reorganization dated as of February
5, 1998 (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 February 9,
1998 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
February __, 1998
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 MARCH 17, 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 February 9,
1998, which the undersigned is entitled to cast at the Special Meeting of
Shareholders to be held at 2820 West Broadway, Louisville, Kentucky, on Tuesday,
March 17, 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 Fourth Amended and Restated Agreement and Plan of
Reorganization dated as of February 5, 1998 (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 17th day of March, 1998 and the Joint Proxy Statement/Prospectus
dated the ____ day of February, 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.)
Letterhead of Bell Technologies, Inc.
February __, 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 Monday, March 16, 1998 at the hour of 2:00 p.m. local time (the
"Bell Special Meeting").
At the Bell Special Meeting, you will be asked to approve the Fourth
Amended and Restated Agreement and Plan of Reorganization dated as of February
5, 1998 (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) Tube Turns will merge with and into
a newly formed, wholly-owned subsidiary of GTC ("New Tube Turns"); (iii) Bell
will merge with and into a newly formed, wholly-owned subsidiary of GTC ("New
Bell"); (iv) GFP will merge with and into GTC; and (v) GTC will contribute all
of the assets of GTC (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 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 Common Stock
will be valued at $3.04 per share, the shareholders of GFP, Tube Turns and Bell
will bear the risk of market fluctuations below $3.04 per share inasmuch as they
will receive 34,255,530, 7,472,877 and 13,638,857 shares, respectively, in the
aggregate, regardless of the actual trading price of shares of GTC Common Stock.
Similarly, under the Reorganization Agreement, GTC will bear the risk of market
fluctuations above $3.04 per share. The number of shares of GTC Common Stock
issuable to the shareholders of GFP includes the 15,064,625 shares of GTC Common
Stock owned by GFP immediately prior to the effective time of the Reorganization
and the 19,190,905 shares of GTC Common Stock to be received by GFP in the Tube
Turns Merger and the Bell Merger attributable to GFP's ownership of Tube Turns
and Bell, respectively.
The aggregate consideration to be received by the shareholders of Bell is
$41,462,080. 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.
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
BELL TECHNOLOGIES, INC.
6120 Hanging Moss Road
Orlando, Florida 32807
________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 16, 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
Monday, March 16, 1998 at the hour of 2:00 p.m. local time, for the following
purposes:
1. To consider and vote upon a proposal to approve the Fourth
Amended and Restated Agreement and Plan of Reorganization dated as of February
5, 1998 (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 February 9,
1998 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
February __, 1998
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 MARCH 16, 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 February 9, 1998,
which the undersigned is entitled to cast at the Special Meeting of Shareholders
to be held at 6120 Hanging Moss Road, Orlando, Florida, on Monday, March 16,
1998 at the hour of 2:00 p.m. local time, and at any and all adjournments or
postponements, as follows:
1. To approve the Fourth Amended and Restated Agreement and Plan of
Reorganization dated as of February 5, 1998 (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 16th day of March, 1998 and the Joint Proxy Statement/Prospectus
dated the ____ day of February, 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.)
PROSPECTUS DATED FEBRUARY __, 1998
Joint Proxy Statement
GROUP TECHNOLOGIES CORPORATION, GROUP FINANCIAL PARTNERS, INC.,
TUBE TURNS TECHNOLOGIES, INC. AND BELL TECHNOLOGIES, INC.
__________
Prospectus
GROUP TECHNOLOGIES CORPORATION
Up to 53,376,008 Shares of Common Stock
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 February __, 1998.
At the Special Meetings, shareholders of GTC, GFP, Tube Turns and Bell
will, among other things, be asked to approve a Fourth Amended and Restated
Agreement and Plan of Reorganization (the "Reorganization Agreement"), dated as
of February 5, 1998, 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 Tube Turns with and
into a newly formed, wholly-owned subsidiary of GTC ("New Tube Turns") (the
"Tube Turns Merger"); (iii) the merger of Bell with and into a newly formed,
wholly-owned subsidiary of GTC ("New Bell") (the "Bell Merger"); (iv) the merger
of GFP with and into GTC (the "Merger"); and (v) the contribution by GTC of all
of the assets of GTC (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 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 on or before March 31,
1998.
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 Tube Turns in the Tube Turns Merger
is equal to the number of shares of GTC Common Stock determined by multiplying
the Tube Turns Conversion Ratio of 5.4276 (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
i
provided in the Reorganization Agreement (the "Tube Turns Merger Shares"); (ii)
the number of shares of GTC Common Stock to be issued to the shareholders of
Bell in the Bell Merger is equal to the number of shares of GTC Common Stock
determined by multiplying the Bell Conversion Ratio of 14.4737 (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"); and (iii) the number of shares of 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 of
106.2012 (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"). Each shareholder of Tube Turns 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 of
5.4276. Each shareholder of Bell 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 of 14.4737. 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 of 106.2012.
Fractional shares will be paid in cash based upon the GTC Share Value as
hereinafter defined.
Because, under the Reorganization Agreement, the shares of GTC Common
Stock will be valued at $3.04 per share, the shareholders of GFP, Tube Turns and
Bell will bear the risk of market fluctuations below $3.04 per share inasmuch as
they will receive 34,255,530, 7,472,877 and 13,638,857 shares, respectively, in
the aggregate, regardless of the actual trading price of shares of GTC Common
Stock. Similarly, under the Reorganization Agreement, GTC will bear the risk of
market fluctuations above $3.04 per share. The number of shares of GTC Common
Stock issuable to the shareholders of GFP includes the 15,064,625 shares of GTC
Common Stock owned by GFP immediately prior to the effective time of the
Reorganization and the 19,190,905 shares of GTC Common Stock to be received by
GFP in the Tube Turns Merger and the Bell Merger attributable to GFP's ownership
of Tube Turns and Bell, respectively.
The aggregate consideration to be received by the shareholders of GFP,
Tube Turns and Bell is $104,136,813, $22,717,679 and $41,462,080, respectively.
The aggregate consideration to be received by shareholders of GFP includes
$45,796,377 attributable to the GTC Common Stock owned by GFP immediately prior
to the effective time of the Reorganization and $21,261,900 and $37,078,536
attributable to shares of GTC Common Stock receivable in the Tube Turns Merger
and the Bell Merger, respectively. The "GTC Share Value" is $3.04 per share. The
valuations used in determining the 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
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 February 5, 1998, the closing price for GTC Common Stock as reported
by Nasdaq was $3.125 per share.
ii
The closing share price for GTC Common Stock, as reported on the Nasdaq
Stock Market, over the ninety (90) day period extending from November 1, 1997 to
January 30, 1998, has ranged from a low of $2.75 per share to a high of $4.00
per share, with an average price during the period of $3.24. The average daily
volume of shares traded during the same period has ranged from a low of 600
shares to a high of 51,100 shares, with an average daily volume of 12,350
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 53,376,008 shares of GTC Common Stock, is February
__, 1998.
iii
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 and the
management of GFP, Tube Turns and Bell; 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, Tube Turns' and Bell'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
TABLE OF CONTENTS
Page
----
Forward Looking Statements.......................................................................................................iv
Available Information............................................................................................................iv
Summary...........................................................................................................................1
Selected Historical Consolidated Financial Data of GTC...........................................................................14
Selected Historical Consolidated Financial Data of GFP...........................................................................15
Selected Historical Consolidated Financial Data of Tube Turns....................................................................17
Selected Historical Consolidated Financial Data of Bell..........................................................................18
Selected Unaudited Pro Forma Combined Financial Data.............................................................................19
Risk Factors.....................................................................................................................21
The Reorganization Parties.......................................................................................................29
The GFP Special Meeting..........................................................................................................29
The Tube Turns Special Meeting...................................................................................................32
The Bell Special Meeting.........................................................................................................35
The GTC Special Meeting..........................................................................................................38
The Reorganization...............................................................................................................50
Unaudited Pro Forma Combined Financial Statements................................................................................73
Recent Developments..............................................................................................................84
Description Of GTC's Capital Stock...............................................................................................85
Effect Of The Reorganization On Rights Of Shareholders...........................................................................86
Certain Relationships And Related Transactions...................................................................................96
GTC Executive Compensation.......................................................................................................98
Ownership of GTC Common Stock...................................................................................................103
Ownership of GTC Preferred Stock................................................................................................105
Business of GTC.................................................................................................................106
Management's Discussion and Analysis of Financial Condition and Results of Operations of GTC....................................114
Ownership of GFP Common Stock...................................................................................................126
Ownership of Tube Turns Common Stock............................................................................................127
Ownership of Bell Common Stock..................................................................................................128
Business of GFP.................................................................................................................129
Management's Discussion and Analysis of Financial Condition and Results of Operations of GFP....................................133
Legal Matters...................................................................................................................141
Experts.........................................................................................................................141
APPENDIX A Fourth 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 Tube Turns Merger; (iii) the Bell Merger;
(iv) the 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 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 in connection with the Tube
Turns Merger is equal to the Tube Turns Conversion Ratio of 5.4276 multiplied by
the shares of Tube Turns Common Stock, no par value per share (the "Tube Turns
Common Stock") 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 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, in connection with the Bell Merger is equal to the Bell
Conversion Ratio of 14.4737 multiplied by the shares of Bell Common Stock, par
value $.01 per share (the "Bell Common Stock") 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").
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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 of 106.2012 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 GTC Contribution. GTC will contribute all of the assets of GTC (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 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 Monday, March 16, 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 Tuesday, March 17, 1998, at 10:00 a.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 Tuesday, March 17, 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 Monday, March 16, 1998, at 2:00 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 February 9, 1998 (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 13,071,847 shares of GTC Common Stock entitled to vote at
the GTC Special Meeting, representing approximately 80.2% 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 82.4% 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
February 9, 1998 (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 February 9, 1998 (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 February 9, 1998 (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 858,496 shares
of Bell Common Stock representing approximately 97.6% 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, November 12, 1997, January 8, 1998 and again on February 4,
1998. 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 fixed GTC Share
Value, (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 a director of Bell, and a director of GTC and Tube Turns. Jeffrey T.
Gill serves as President, Chief Executive Officer and a director of GFP and
Chairman of GTC, Bell and Tube Turns. In addition, as of February 5, 1998,
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 80.0% of the GTC Common Stock, 100% of
the GTC Preferred Stock, approximately 98.6% of the Tube Turns Common Stock and
approximately 95.8% 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 82.3% to approximately 89.2%.
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 Turns and is expected to serve as a director of GTC after the
Reorganization.
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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 March 31, 1998. The Reverse
Stock Split and the Reincorporation are anticipated to occur immediately after
The Reorganization.
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 April 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."
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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 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."
9
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 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 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
10
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 as reported on the Nasdaq Stock Market
was $2.00 per share. On February 5, 1998 the closing sale price per share of
the GTC Common Stock as reported on the Nasdaq Stock Market was $3.125 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 $16.50 and $44.00, respectively, on
February 5, 1998. The equivalent per share prices of the GFP Common Stock on
October 9, 1996 and February 5, 1998 were $195.63 and $326.82, 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 $16.50
per share.
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
11
issuance under options, which, when rounded to the nearest dollar, resulted in a
stock price of $44.00 per share.
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 13,039,625 shares of GTC
Common Stock held by GFP, (ii) the 2,025,000 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 (iii) the 19,190,905 shares of GTC
Common Stock receivable by GFP in the Tube Turns Merger and the Bell Merger. 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 106.2012
shares of GTC Common Stock to be issued in exchange for each share of GFP Common
Stock.
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:
High Low
Year Ended December 31, 1994
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 - December 31, 1997).. $ 4.563 $ 2.750
As of February 5, 1998 there were approximately 650 holders of record
of GTC Common Stock. As of February 5, 1998, there were approximately 9,140
and 247 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").
12
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 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
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.
Nine Months Ended
Years Ended December 31, -------------------------
------------------------------------------------------ Sept. 29, Sept. 28,
1992 1993(1) 1994 1995(2) 1996(3) 1996(3) 1997
-------- -------- -------- -------- -------- --------- ---------
(Unaudited)
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
14
December 31,
-------------------------------------------------- September 28,
1992(4) 1993(5) 1994 1995(6) 1996(7) 1997
------- -------- -------- -------- ------- -------
(Unaudited)
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
- ---------------
(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
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF GFP
(in thousands, except for 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.
Nine Months Ended
Years Ended December 31, September 30,
------------------------------------------------------ --------------------
1992 1993(1) 1994 1995(2)(3) 1996 1996 1997
-------- -------- -------- ---------- -------- -------- --------
(Unaudited)
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
======== ======== ======== ========== ======== ======== ========
16
Nine Months Ended
Years Ended December 31, September 30,
------------------------------------------------------ --------------------
1992 1993(1) 1994 1995(2)(3) 1996 1996 1997
-------- -------- -------- ---------- -------- -------- --------
(Unaudited)
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
December 31,
------------------------------------------------------ September 30,
1992(4) 1993(5) 1994 1995(6)(7) 1996 1997
-------- -------- -------- ---------- -------- -------------
(Unaudited)
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
- ---------------
(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
SELECTED HISTORICAL FINANCIAL DATA OF TUBE TURNS
(in thousands, except for 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.
Nine Months Ended
Years Ended December 31, September 30,
-------------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996(3) 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
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
December 31,
------------------------------------------------------ September 30,
1992(4) 1993(5) 1994 1995(6)(7) 1996 1997
-------- -------- -------- ---------- -------- -------------
(Unaudited)
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
18
SELECTED HISTORICAL FINANCIAL DATA OF BELL
(in thousands, except for 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.
Nine Months Ended
Years Ended December 31, September 30,
----------------------------------------------------- ------------------
1992 1993 1994 1995 1996(1) 1996 1997
----------- -------- -------- -------- --------- -------- --------
(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
December 31,
----------------------------------------------------- September 30,
1992 1993 1994 1995 1996(1) 1997
----------- -------- -------- -------- --------- -------------
(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
_______________
(1) Reflects the acquisition of Metrum on February 9, 1996.
19
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, the
Reorganization and the acquisition of Datatape 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.
The following selected unaudited pro forma combined financial data
should also be read in conjunction with the consolidated financial statements of
GTC, GFP and Datatape, 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, the sale of GTC's Latin American
operations and the acquisition of Datatape 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.
Year Ended December 31, 1996
---------------------------------------------------
Pro Forma for
Pro Forma for the sale of GTC's Latin
the sale of GTC's Latin American operations, the
American operations and Reorganization and the
the Reorganization Datatape acquisition
----------------------- ------------------------
Statement of Operations Data:
Revenue................................... $250,141 $296,804
Operating income.......................... 691 6,668
(Loss) income from continuing operations.. (1,293) 1,712
Nine Months Ended September 30, 1997
-------------------------------------------------
Pro Forma for
Pro Forma for the sale of GTC's Latin
the sale of GTC's Latin American operations, the
American operations and Reorganization and the
the Reorganization Datatape acquisition
----------------------- ------------------------
Statement of Operations Data:
Revenue................................... $142,305 $170,190
Operating income.......................... 1,881 5,861
Income from continuing operations......... 909 2,805
20
September 30, 1997
------------------------------------------------
Pro Forma for
Pro Forma for the sale of GTC's Latin
the sale of GTC's Latin American operations, the
American operations and Reorganization and the
the Reorganization Datatape acquisition
----------------------- ------------------------
Balance Sheet Data:
Working capital........................... $ 30,175 $ 33,691
Total assets.............................. 108,756 130,294
Current portion of long-term debt......... 2,356 2,474
Long-term debt, less current portion...... 13,114 27,697
Total shareholders' equity................ 43,180 43,180
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
Stock and the Bell Common Stock based on the Conversion Ratios of 106.2012,
5.4276 and 14.4737 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 Combined Financial Statements."
Historical
---------------------------------
Tube
GTC GFP Turns Bell
--- --- ----- ----
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
Equivalent Pro Forma Combined
---------------------------------
Pro Forma Tube
Combined GFP Turns Bell
--------- ---- ----- ----
Net income (loss) from continuing
operations per common share:
Year ended December 31, 1996.......... $(0.13) $ (3.55) $(0.18) (0.48)
Nine months ended September 30, 1997.. 0.09 2.49 0.13 0.34
Book value per common share:
As of December 31, 1996............... 4.02 106.68 5.45 14.54
As of September 30, 1997.............. 4.46 118.39 6.05 16.13
21
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
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
22
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 GTC Share Value of $3.04. Accordingly, if shareholders of GFP, Tube
Turns and Bell receive shares of GTC Common Stock in the Reorganization based on
a value of $3.04 per share when this amount exceeds the GTC trading 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 $3.04 per
share when this amount is less than the GTC trading 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 a director of Bell, and
a director of GTC and Tube Turns. Jeffrey T. Gill serves as President, Chief
Executive Officer and a director of GFP and Chairman of GTC, Bell and Tube
Turns. In addition, as of February 5, 1998, the Gill Family controlled
approximately 99.4% of the GFP Common Stock, and GFP in turn controlled
approximately 80.0% of the GTC Common Stock, 100% of the GTC Preferred Stock,
approximately 98.6% of the Tube Turns Common Stock, and approximately 95.8% 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 82.3% to approximately 89.2% and ownership of GTC by the
Unaffiliated Shareholders will decrease from approximately 17.8% to
approximately 10.3%. 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. See "The
Reorganization--Conflicts of Interest."
23
Control by Principal Shareholders and Increased Voting Power of the Gill
Family
As of February 5, 1998, the Gill Family controlled approximately 99.4% of
GFP Common Stock, and GFP in turn controlled approximately 80.0% of the GTC
Common Stock, 100% of the GTC Preferred Stock, approximately 98.6% of the Tube
Turns Common Stock and approximately 95.8% of the Bell Common Stock. Should the
Reorganization be completed, the Gill Family will own approximately 89.2% of the
outstanding shares of GTC Common Stock 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 GTC Share Value 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 January 30, 1998, the price of GTC stock has
fluctuated from a low of $2.75 to a high of $4.00. 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, the 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 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.
24
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.
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."
25
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 the GTC Share Value
of $3.04 per share, and the number of shares outstanding as of the respective
record dates for the Special Meetings, 34,185,103 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 89.2% of the 37,437,699 shares of GTC Common Stock
to be outstanding after the Reorganization as compared to approximately 82.3% of
the 18,317,221 shares of GTC Common Stock outstanding prior to the
Reorganization, assuming conversion of the GTC Preferred 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.
26
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 February 5, 1998 was $3.125, with a corresponding market
float of approximately $10.2 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.
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
27
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."
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."
28
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 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."
29
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 and, should Metrum be found liable, the damages could exceed the
amounts reserved by Metrum which could materially and adversely affect GTC's
financial position or results of operations. (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).
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
30
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.
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.
31
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
97.0% 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.
Record Date; Voting Rights; Proxies
The GFP Board has fixed the close of business on February 9, 1998 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.
32
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 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
33
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 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.
34
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 February 9, 1998
as the Tube Turns Record Date for determining holders entitled to notice of and
to vote at the Tube Turns Special Meeting.
As of the Tube Turns Record Date, there were 1,306,829 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
35
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 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.
36
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 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
37
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 February 9, 1998 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 869,020 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
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.
38
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 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
39
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 858,496 shares of Bell Common Stock,
representing approximately 97.6% 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 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.
40
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) conditioned upon the approval of proposal (i), and further
conditioned upon the failure to approve proposal (iv) below, 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) conditioned upon the approval of proposal (i), a proposed
Amendment to the GTC Articles to effect the Reverse Stock Split;
(iv) conditioned upon the approval of proposal (i), 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, 34,185,103
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 3,252,596 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, there would be 37,437,699 shares
of GTC Common Stock outstanding and 22,562,301 shares of GTC Common Stock would
remain authorized but unissued, of which 1,991,256 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.
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.
41
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 or as may be necessary to reflect the appropriate
amendment to the GTC Articles based on the authorized GTC Common Stock.
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) or 40,000,000 (if such proposal is not effected), to 15,000,000 or
10,000,000 (if such proposal is not effected), 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 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
42
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 (or
40,000,000 to 10,000,000 if the proposal to increase the authorized shares of
GTC Common Stock is not effected), and from 37,437,699 to 9,359,425 shares
outstanding, respectively, after the Reorganization.
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.
Shareholders should not submit any certificates until requested to do
so. No new certificate will be issued to a shareholder until he has surrendered
his outstanding certificate(s) together with the properly completed and executed
letter of transmittal to the Exchange Agent.
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
43
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.
In the aggregate, the shareholder's basis in the New Shares will equal his basis
in the Old Shares; 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 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.
44
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
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
45
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.
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
46
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),
16,292,221 shares of which were outstanding as of February 5, 1998; 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) or 10,000,000 shares (absent
such increase) and the outstanding shares will be reduced to 9,359,425 and
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 implementation of the Reverse Stock Split, there
would be 9,359,425 shares of Sypris Common Stock outstanding and 10,640,575
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 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
47
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 82.3% of the total votes of GTC Common Stock which
will increase to approximately 89.2% upon completion of the Reorganization,
assuming the conversion of GTC Preferred Stock. 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.
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.
48
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 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.
49
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."
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
50
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
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.
51
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 February 9, 1998 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 16,292,221 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 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.
52
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.
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 13,071,847 shares of GTC Common Stock and 250,000 shares of
GTC Preferred Stock entitled to vote at the GTC Special Meeting, representing
approximately 80.3% of the total number of
53
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 Tube Turns Merger; (iii) the Bell Merger; (iv) the
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.
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
54
Tube Turns 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) by the
GTC Share Value. The "Total Tube Turns Shares" is equal to 1,376,829. The
"Aggregate Tube Turns Consideration" is equal to $22,717,679.
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 Share
Value.
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 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 Share Value. The "Total Bell Shares" is equal to 942,320.
The "Aggregate Bell Consideration" is equal to $41,462,080.
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 Share Value.
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 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
55
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 Share Value. The "Total GFP Shares" is equal to 322,553. The "Aggregate
GFP Consideration" is equal to $104,136,813.
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 Share Value.
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 GTC Contribution. Immediately after the Spin Off, the Tube Turns
Merger, the Bell Merger and the Merger, GTC will contribute all of the assets of
GTC (other than the shares of New Tube Turns and New Bell and the shares of BT
Holdings and Metrum-Datatape, 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 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,
56
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.
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, August and December 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
57
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. Thereafter the terms of the Reorganization were
again revised to provide for a revised uniform valuation for the shares of Tube
Turns and the payment of no additional consideration in the Reorganization for
the cash of GFP. On January 8, 1998 Bradford delivered its opinion to the
Special Committee that the terms of the Merger Transactions, as further 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
further revised, on January 8, 1998. The Boards of Directors of each of Tube
Turns, Bell and GFP approved the Reorganization, as further revised, on January
8, 1998.
Finally, on February 5, 1998 the Reorganization was further revised to
provide for a fixed GTC Share Value of $3.04 per share based on the arithmetic
average of the closing price of the GTC Common Stock for each of the ten (10)
consecutive trading days ending February 5, 1998. The Board of GTC had
concluded that this revision was appropriate due to the substantial uncertainty
over the future trading price average of the GTC shares due to, among other
factors, volatility in the reported trading prices and the relative low number
of shares being traded. On February 4, 1998 Bradford delivered its opinion to
the Special Committee that the terms of the Merger Transactions, as so further
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 so further revised, on February 4, 1998. The Boards of
Directors of each of Tube Turns, Bell and GFP approved the Reorganization, as so
further revised, on February 4, 1998.
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 95.8% 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. 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)
58
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 positive effect on the earnings of GTC expected to result from the
Reorganization was outlined for the Board by the management of GTC in the form
of certain internal management financial projections for the years ended 1998,
1999, 2000 and 2001. As a matter of policy, GTC does not generally publicly
disclose internal management projections of the type reviewed by its Board in
connection with 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. More specifically, although no assurance can be given that any
of the following amounts will be achieved, management of GTC estimates that
revenue of the combined companies will approximate $249.1 million, $265.6
million, $281.0 million and $297.2 million in each of 1998, 1999, 2000 and 2001,
respectively. Management also estimates earnings before interest and taxes of
the combined companies will approximate $18.5 million, $22.8 million, $27.0
million and $29.3 million in each of 1998, 1999, 2000 and 2001, respectively,
while its estimates of net income of the combined companies approximated $9.9
million, $12.8 million, $15.7 million and $17.7 million in each of 1998, 1999,
2000 and 2001 respectively.
The immediately preceding paragraph 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 statements involve risks and uncertainties which may
cause actual future activities and results of operations to be materially
different from those set forth above, including, among others: GTC's dependence
on its current management and the management of GFP, Tube Turns and Bell; 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, Tube Turns' and Bell's manufacturing facilities as well
as other factors described elsewhere in this Joint Proxy Statement/Prospectus.
In approving the amended terms of the prior Reorganization Agreement on
January 8, 1998, the Special Committee considered the compensatory element which
would have resulted from a two-tier pricing structure for the Tube Turns Common
Stock and the related benefits of having a uniform price for all outstanding
shares of Tube Turns Common Stock. In addition, while considering the terms of
the Reorganization Agreement and in making its determination as to the fairness
to the unaffiliated shareholders of GTC, the Special Committee noted that the
amended terms included all of the cash of GFP in the assets to be received by
GTC, without requiring the issuance of additional shares of GTC Common Stock to
the shareholders of GFP in exchange for such cash, which would have otherwise
been required under the previous terms. Based on the foregoing, the Special
Committee determined that the prior Reorganization Agreement, as further
revised, provided benefits to GTC which were at least equal to or greater than
any benefits it would have derived under the previous terms.
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 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
59
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 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
60
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. 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. On January 8, 1998, Bradford delivered its opinion to the Special
Committee that the terms of the Merger Transactions, as further revised, were
fair to the unaffiliated shareholders of GTC from a financial point of view.
Finally, on February 4, 1998, Bradford delivered its opinion to the Special
Committee that the terms of the Merger Transactions, as finally revised, 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 February 3, 1998, which subsequent opinion supersedes all prior opinions.
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 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
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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 February 1998 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 revised uniform valuation for the shares
of Tube Turns and the payment of no additional consideration in the
Reorganization for the cash of GFP, and (c) the fixed GTC Share Value, (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 judgments and is not necessarily susceptible to partial analysis or
summary description. In arriving at its
62
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
19.7% and 35.9%, respectively, of GTC after the Reorganization. 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 discounted to present value the projected
future cash flows that Bell, Tube Turns and
63
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 value per share for Tube Turns of $16.50 in the Merger
Transactions. 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 $16.50 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 20.9x with a median multiple of 18.5x); current market price as
multiple of estimated 1998 earnings (which ranged from 3.8x to 17.2x
with a median multiple of 13.8x); total firm value (defined as equity
market value plus net debt) as a multiple of last twelve months
("LTM") revenues (which ranged from 0.6x to 4.2x with a median
multiple of 1.2x); and total firm value as a multiple of LTM EBITDA
(which ranged from 3.8x to 17.2x with a median multiple of 13.8x).
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 projected earnings and EBITDA for several publicly
traded companies engaged in
64
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 10.2x to 29.5x with a median multiple
of 15.1x); current market price as a multiple of estimated 1998
earnings (which ranged from 9.5x to 19.6x 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 1.9x
with a median multiple of 0.9x); and total firm value as a multiple of
LTM EBITDA (which ranged from 4.8x to 33.2x 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 11.8x estimated 1997 Tube Turns earnings, 7.9x estimated
1998 Tube Turns earnings, 0.9x LTM Tube Turns revenues and 7.7x LTM
Tube Turns EBITDA.
Bradford also noted that in each case, the multiples paid in the Bell
Merger and the Tube Turns Merger, respectively, were within or below
the ranges and, in some cases, below the medians of the ranges of the
multiples for the Bell Comparable Group and the Tube Turns Comparable
Group, respectively.
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 7.3x to 51.1x with a median multiple of
21.4x); current market price as a multiple of estimated 1998 earnings
(which ranged from 9.5x to 28.1x 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 0.3x to 7.7x with a median
multiple of 0.9x); and total firm value as a multiple of LTM EBITDA
(which ranged from 2.2x to 24.4x with a median multiple of 8.8x).
Bradford then compared the GTC Comparable Group multiples to the
corresponding multiples for GTC including 29.6x estimated 1998 GTC
earnings and 0.4x LTM GTC revenues, assuming an average stock price at
the time the Bradford opinion was rendered of $2.96. 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 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
65
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 Joint Proxy Statement/Prospectus.
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 a director of Bell, and
a director of GTC and Tube Turns. Jeffrey T. Gill serves as President, Chief
Executive Officer and a director of GFP and Chairman of GTC, Bell and Tube
Turns. In addition, as of February 5, 1998, the Gill Family controlled
approximately 99.4% of the GFP Common Stock, and GFP in turn controlled
approximately 80.0% of the GTC Common Stock, 100% of the GTC Preferred Stock,
approximately 98.6% of the Tube Turns Common Stock, and approximately 95.8% 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 82.3% to approximately 89.2% and ownership of GTC by the
Unaffiliated Shareholders will decrease from approximately 17.8% to
approximately 10.3%. 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
(hereinafter defined) 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
66
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 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 1,991,256 shares of GTC Common Stock at an
average exercise price of $0.92 with vesting dates ranging until 2006. Included
in this amount are 1,582,375 shares which are currently exercisable at an
average exercise price of $0.81. 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.
67
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 34,185,103 shares of GTC Common Stock to the
shareholders of GFP, Tube Turns and Bell (excluding shares to be issued under
option); 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 $30,472,000 or $0.81 per share. This represents an immediate
decrease in such net tangible book value of $0.20 per share to the existing
shareholders and an immediate dilution of $2.23 per share to new shareholders
receiving shares in the Reorganization. The following table illustrates this per
share dilution:
Conversion price per share..................................................... $ 3.04
Net tangible book value per share as of September 30, 1997..................... $ 1.01
Decrease per share attributable to new shareholders............................ (0.20)
------
Pro forma combined net tangible book value per share after the Reorganization.. 0.81
------
Dilution per share to new shareholders......................................... $ 2.23
======
In addition, as of February 5, 1998, 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 the GTC Share Value, the number of shares of GTC
Common Stock issuable under such options would be 1,991,256 and the average
exercise price per share would be $0.92. 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 $0.82 per share, representing dilution to new
shareholders of $2.22 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 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.
(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.
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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
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 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.
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(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 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.
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(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.
(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
GTC, GFP, Tube Turns and Bell believe that no regulatory or other approvals
are required to consummate the Reorganization.
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
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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 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
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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, 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 or been determined to be inapplicable.
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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 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 April
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.
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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.
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UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma 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."
78
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(in thousands, except per share data)
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
----------- --------------- --------------- ---------- --------------- ------------
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) 648 (5) 27,851 11,750 39,601
-------- ----------- ----------- -------- ------- --------
Operating income..................... 513 826 (648) 691 5,977 6,668
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 (648) (400) 4,770 4,370
Income taxes......................... 1,614 (481) (3) (240) (6) 893 1,765 2,658
-------- ----------- ----------- -------- ------- --------
(Loss) income before minority
interests and discontinued
operations.......................... (4,252) 3,367 (408) (1,293) 3,005 1,712
Minority interests................... 1,716 (673) (4) (1,043) (4) -- -- --
-------- ----------- ----------- -------- ------- --------
(Loss) income from continuing
operations.......................... $ (2,536) $ 2,694 $ (1,451) $ (1,293) $ 3,005 $ 1,712
======== =========== =========== ======== ======= ========
(Loss) income per share from
continuing operations............... $ (7.92) $ (0.13) $ 0.18
Weighted average shares outstanding.. 320 9,668 (25) 9,668
79
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(in thousands, except per share data)
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
---------- --------------- --------------- ---------- ---------------- ------------
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) (8) (13) 20,831 8,460 29,291
-------- -------- ----- -------- ------- --------
Operating income......................... 148 1,725 8 1,881 3,980 5,861
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) 8 1,510 3,010 4,520
Income taxes............................. 750 (152) (11) 3 (14) 601 1,114 1,715
-------- -------- ----- -------- ------- --------
Income before minority interests and
discontinued operations................. 1,317 (413) 5 909 1,896 2,805
Minority interests....................... 717 83 (12) (800) (12) -- -- --
-------- -------- ----- -------- ------- --------
Income from continuing operations........ $ 2,034 $ (330) $(795) $ 909 $ 1,896 $ 2,805
======== ======== ===== ======== ======= ========
Income per share from continuing
operations.............................. $ 6.33 $ 0.09 $ 0.29
Weighted average shares outstanding...... 321 9,684 (25) 9,684
80
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(in thousands)
Pro Forma
Pro Forma Adjustments Pro Forma
Adjustments for the Combined
GFP for the Pro Forma Datatape and
Historical Reorganization Combined Acquisition (22) Acquisition
---------- --------------- ------------ ---------------- -----------
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 10,226 (16) 13,331 6,635 (23) 19,966
------- ------- -------- ------- --------
$98,530 $10,226 $108,756 $21,538 $130,294
======= ======= ======== ======= ========
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 (1,267) (18) 9,072 434 9,506
------- ------- -------- ------- --------
Total noncurrent liabilities.......... 23,453 (1,267) 22,186 15,017 37,203
Minority interests in subsidiaries.... 3,187 (3,187) (19) -- -- --
Redeemable common stock............... 1,079 (1,079) (17) -- -- --
Common stock.......................... 7,892 (7,795) (20) 97 -- 97
Additional paid-in capital............ -- 7,795 (20) 23,204 -- 23,204
729 (17)
11,493 (21)
3,187 (19)
Retained earnings..................... 19,734 145 (17) 19,879 -- 19,879
------- ------- -------- ------- --------
Total shareholders' equity............ 27,626 15,554 43,180 -- 43,180
------- ------- -------- ------- --------
$98,530 $10,226 $108,756 $21,538 $130,294
======= ======= ======== ======= ========
81
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 a net increase in selling, general and administrative expense for
the following:
Increase in amortization expense of estimated intangible assets recorded for the step-up in basis on the
acquisition of minority interests of GTC, Tube Turns and Bell by GFP in the Reorganization (a).................... $682,000
Decrease for accretion recognized for the change in redemption value on redeemable common stock.................... (34,000)
--------
Increase in selling, general and administrative expense............................................................ $648,000
========
(a) 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%.
82
(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:
Datatape Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
(in thousands)
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
======= ======= =======
(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.
83
(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. Such expenses will not be
incurred by the Company after the acquisition and would not have been
incurred on a stand-alone basis.
(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.
84
(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 a net decrease in selling, general and administrative expense for
the following:
Increase in amortization expense of estimated intangible
assets recorded for the step-up in basis on the
acquisition of minority interests of GTC, Tube Turns
and Bell by GFP in the Reorganization (a)................$511,000
Decrease for accretion recognized for the change in
redemption value on redeemable common stock..............(519,000)
--------
Decrease in selling, general and administrative expense...$ (8,000)
========
- ----------------------
(a) 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%.
85
(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:
Datatape Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
(in thousands)
Revenue........................................................ $29,880 $(1,995) (a) $27,885
Cost of operations............................................. 18,125 (2,299) (b) 15,445
(927) (c)
546 (d)
------- ------ -------
Gross profit................................................... 11,755 685 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
======= ======= =======
(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.
86
(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. Such expenses will not be
incurred by the Company after the acquisition and would not have been
incurred on a stand-alone basis.
(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%.
87
(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 GTC, Tube Turns and Bell in accordance with the
rules of purchase accounting. 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:
GTC Tube Turns Bell Total
-------- ----------- ------- --------
(in thousands)
Fair value of common stock issued in exchange for common stock held by minority
interests (a)...................................................................... $10,018 $ 305 $1,637 $11,960
Fair value of stock options issued in exchange for stock options held by minority
interests (b)...................................................................... 1,384 436 1,470 3,290
Minority interests' proportionate share of the net assets of the acquired entity.... (3,187) (133) (437) (3,757)
------- ----- ------ -------
Excess of fair value of common stock and stock options issued over proportionate
share of net assets acquired....................................................... 8,215 608 2,670 11,493
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.......... 3,164 608 2,670 6,442
Deferred tax liability attributable to increase in basis of proportionate share of
net assets acquired (using 37% effective income tax rate).......................... 1,859 357 1,568 3,784
------- ----- ------ -------
Step-up in basis allocable to identifiable assets and to goodwill, if any,
attributable to acquisition of minority interests.................................. $ 5,023 $ 965 $4,238 $10,226
======= ===== ====== =======
(a) The computation of the fair value of common stock issued in exchange
for common stock held by minority interests is as follows:
GTC Tube Turns Bell
----------- ---------- ----------
Outstanding shares held by minority shareholders...................................... 3,252,596 18,229 36,726
Conversion ratios applicable to the outstanding shares................................ -- 5.4276 14.4737
Shares of GTC common stock issuable................................................... -- 98,940 531,561
Fair value of GTC common stock issuable to minority interests based on $3.08 per share $10,018,000 $305,000 $1,637,000
The per share amount of $3.08 assigned to the GTC Common Stock issuable
to minority interests represents the estimated average closing price of
the GTC Common Stock for the two trading days before and after the most
recent announcement of the terms of the Reorganization on February 4,
1998. The transaction will be recorded based upon the actual average
closing price of the GTC Common Stock for this period.
88
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:
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
==========
(18) Reflects the net effect of a $3,784,000 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 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.
89
(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:
Nine months
Year ended ended
December 31, September 30,
1996 1997
------------ -------------
(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 (a)......................................................................... 21,145 21,145
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.......................................... 1,369 1,369
------ ------
Total........................................................................................... 38,671 38,735
====== ======
To reflect the 1 for 4 Reverse Stock Split...................................................... 9,668 9,684
====== ======
- ------------
(a) The estimated shares of GTC Common Stock to be issued in conjunction
with the Reorganization represents the 34,185,103 shares of GTC Common
Stock issuable to the shareholders of GFP, Tube Turns and Bell in the
Reorganization, net of the 13,039,625 shares of GTC Common Stock owned
by GFP prior to the Reorganization.
90
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 environment 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.
91
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 $18.0 million 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
February 5, 1998, there were 16,292,221 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 (80.0% of the issued and outstanding
shares of GTC Common Stock and 100% of the GTC Preferred Stock as of February 5,
1998) and by GTC's officers and directors (including the share ownership of GFP,
80.2% of the issued and outstanding shares of Common Stock and 100% of the GTC
Preferred Stock as of February 5, 1998), 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
100
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.
101
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
102
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.
103
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
contains a similar 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.
104
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.
105
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").
Long-Term
Annual Compensation (1) Compensation Awards
----------------------- -------------------
Restricted Options/ All
Stock SARs Other
Name and Principal Position Year Salary Bonus Awards (#) Compensation
- --------------------------- ---- ----------- ----------- ---------- ---------- ------------
Carl P. McCormick (2)........... 1996 $199,529 (3) $ -- $ -- 124,066 (3) $365,916 (4)
President & Chief Executive 1995 280,299 -- -- -- 13,868
Officer 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 1995 149,151 -- -- -- 7,187
Manager of International 1994 129,206 -- -- -- 6,689
EMS Operations
J. Hardie Harris (9)............ 1996 136,154 -- -- 80,000 6,286 (10)
Vice President & General 1995 99,380 20,000 -- 30,000 4,987
Manager of U.S. EMS
Operations
David D. Johnson................ 1996 119,849 50,000 (11) -- 120,000 2,319 (12)
Vice President &
Chief Financial Officer
- ------------
(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
106
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 $50,000
on March 22, 1996.
(12) The amount shown is for Matching and Profit Sharing Contributions made by
GTC pursuant to its 401(k) Plan.
107
Option Grants in Last Fiscal Year
Set forth below is information on stock options granted during the fiscal
year ended December 31, 1996 to the Named Officers of GTC.
Potential
Individual Grants (1) Realizable
-------------------------------------------------- Value at Assumed
No. of % of Total Rates of Stock Price
Securities Options Exercise Appreciation for
Underlying Granted to or Base Option Term (2)
Options Employees in Price Expiration --------------------
Name Granted Fiscal Year ($/Share) Date 5% 10%
- ---- ---------- ------------ --------- ---------- ------- -------
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
- -------------
(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.
108
(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.
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
- ---- ----------- ----------- ----------- ------------- ----------- -------------
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 -- --
- ----------
(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.
109
(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
110
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.
111
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.
Shares Beneficially Owned
----------------------------------------------------
After the
January 30, 1998 Reorganization
-------------------------- ---------------------
Name Number Percent(1) Number(2) Percent
---- ---------- ---------- --------- -------
(a) Certain Beneficial Owners
Group Financial Partners, Inc. (3)........................... 15,064,625 82.2% -- --
455 South Fourth Avenue
Louisville, Kentucky 40202
(b) Management
Carl P. McCormick............................................ 336,846(4) 2.0% 336,846 1.1%
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.............................................. 118,809(8) * 118,809 *
Sidney R. Petersen........................................... 117,129(9) * 117,129 *
Roger W. Johnson............................................. 38,543(10) * 38,543 *
Robert E. Gill............................................... 15,068,625(11) 82.3% 13,456,913 35.0%
Jeffrey T. Gill.............................................. 15,065,300(12) 82.2% 11,158,134 29.0%
All directors and executive officers as a group.............. 15,715,674 83.8% 24,608,241 65.0%
- -----------------
* less than 1%
(1) The percentages shown were calculated based upon 16,292,221 shares of GTC
Common Stock which were outstanding as of January 30, 1998, 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) Based on the GTC Share Value of $3.04 per share.
(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, may be deemed to have an indirect beneficial interest in all of
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 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. Each of Robert E. Gill,
Jeffrey T. Gill, R. Scott Gill, Virginia G. Gill and Patricia G. Gill
disclaims beneficial ownership of any shares of GTC Common Stock and GTC
Preferred Stock held by GFP, other than the pro rata portion of such shares
allocable to any of them and their spouses.
112
(4) Includes 150,000 shares issuable under currently exercisable options.
(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 113,809 shares issuable under currently exercisable options.
(9) Includes 114,629 shares issuable under currently exercisable options.
(10) Includes 38,543 shares issuable under currently exercisable options.
(11) Includes (i) 2,000 shares directly owned by Robert E. Gill, (ii) 2,000
shares owned by his spouse, (iii) 13,039,625 shares of GTC Common Stock
held by GFP which may be deemed beneficially owned by him, but a portion of
which ownership is disclaimed as set forth in note (3) above, and (iv)
2,025,000 shares of GTC Common Stock into which the shares of GTC Preferred
Stock held by GFP are convertible, but a portion of which ownership is
disclaimed as set forth in note (3) above.
(12) Includes (i) 675 shares directly owned by Jeffrey T. Gill, (ii) 13,039,625
shares of GTC Common Stock held by GFP which may be deemed beneficially
owned by him, but a portion of which ownership is disclaimed as set forth
in note (3) above, and (iii) 2,025,000 shares of GTC Common Stock into
which the shares of GTC Preferred Stock held by GFP are convertible, but a
portion of which ownership is disclaimed as set forth in note (3)
above.
113
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.
Shares Beneficially Owned
-----------------------------------------------
After the
January 30, 1998 Reorganization
---------------- ---------------
Name Number Percent Number Percent
---- ------- ------- ------ -------
(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............................. 250,000 (2) 100.0% -- --
Jeffrey T. Gill............................ 250,000 (3) 100.0% -- --
All directors and executive officers
as a group................................ 250,000 100.0% -- --
- ----------------
(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, may be deemed to have an indirect beneficial interest in all of
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. Each of Robert E. Gill, Jeffrey T. Gill, R. Scott
Gill, Virginia G. Gill and Patricia G. Gill disclaims beneficial ownership
of any shares of GTC Common Stock and GTC Preferred Stock held by GFP,
other than the pro rata portion of such shares allocable to any of them and
their spouses.
(2) Consists of 250,000 shares of GTC Preferred Stock held by GFP which may be
deemed beneficially owned by Robert E. Gill and his spouse, but a portion
of which ownership is disclaimed as set forth in note (1) above.
(3) Consists of 250,000 shares of GTC Preferred Stock held by GFP which may be
deemed beneficially owned by Jeffrey T. Gill and his spouse, but a portion
of which ownership is disclaimed as set forth in note (1) above.
114
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 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.
115
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.
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
116
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.
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.
117
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 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.
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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
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.
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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.
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
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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.
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.
Name Age Position with GTC and Principal Occupation
---- --- ------------------------------------------
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.... 42 Vice President of Finance and Chief Financial Officer
James G. Cocke...... 50 Vice President and Manager of Federal Systems Division
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.
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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 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 29, 1996 and September 28, 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.
Three Months Ended Nine Months Ended
--------------------- ---------------------
Sept. 29, Sept. 28, Sept. 29, Sept. 28,
1996 1997 1996 1997
--------- --------- --------- ---------
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)%
===== ===== ===== =====
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
126
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, payments of $750,000 occurring quarterly thereafter 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.
127
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:
Years ended December 31,
------------------------
1994 1995 1996
------ ----- ------
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)%
===== ===== =====
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
128
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,
including fourth quarter physical inventory adjustments totaling $1.0 million.
The $1.0 million inventory adjustment in the fourth quarter of 1996 was
comprised of a $0.3 million domestic adjustment and a $0.7 million Latin
American adjustment (Mexico City facility). GTC performed domestic and
international physical inventory counts during July 1996 and August 1996,
respectively, to ensure that any excess shrinkage was identified timely.
Therefore, management determined that the $1.0 million adjustment was
principally associated with the fourth quarter of 1996.
As a result of the inventory adjustments recorded in the fourth
quarters of 1995 and 1996, GTC developed new internal controls and enhanced
existing internal controls, including refinement of accrued inventory receipts
reports, increased cycle count activity, increased monitoring of scrap and
shrinkage rates and utilization of a third party warehousing and freight
forwarding service (for its Mexico City operation). GTC 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
129
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.
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.
130
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.
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
131
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 a related
inventory adjustment based on an accounts payable reconciliation of $0.8
million. The accounts payable reconciliation identified additional inventory to
be included in the general ledger for comparison to the physical count. The
total variance of $2.5 million between the perpetual and physical amounts, as
more fully discussed below, was not anticipated by management. Both the physical
inventory observation and inventory and accounts payable reconciliations were
performed during the fourth quarter of 1995. GTC also recognized certain other
charges during the fourth quarter totaling $0.5 million related to the disposal
of idle manufacturing equipment.
The significant book to physical adjustment during the fourth quarter
of 1995 represented approximately an additional 2.5% shrinkage during the year
and is the result of a change between historical shrinkage rates and actual
shrinkage rates experienced during the year. GTC utilized its historical
experience in applying scrap and shrinkage rates each month during 1995 and had
no reason to believe that higher rates were being incurred on an actual basis.
Therefore a physical inventory count in an interim period prior to the fourth
quarter of 1995 was not conducted. The increase in the level of commercial
business and the integration of a new business operation into the Tampa facility
may have caused the actual rates to vary from the historical rates which
variance was ultimately identified and determinable upon a full physical count
of the inventory. In conclusion, GTC recognized a change in estimate from
booking rates to actual scrap and shrinkage rates during the fourth quarter of
1995. Costs associated with earlier periods were not determinable. In response
to this situation, management increased cycle counting and performed a semi-
annual inventory observation during 1996.
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.
132
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 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
133
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.
GTC also invested $0.3 million in 1995 to provide funding for the start-up of
GTC's Brazilian operation.
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 GTC, 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, GTC
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.
Impact of Year 2000
Some of GTC's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
GTC has completed an assessment and will have to modify or replace
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter. The total year 2000
project cost for the purchase of new software is not expected to be material. To
date, GTC has incurred minor expenses, primarily for assessment of the year 2000
issue and the development of a modification plan and purchase of new software.
The project is estimated to be completed not later than December 31,
1999, which is prior to any anticipated impact on its operating systems. GTC
believes that with modifications to existing software and conversions to new
software, the year 2000 issue will not pose significant operational problems for
its computer systems. However, if such modifications and conversions are not
made, or are not completed timely, the year 2000 issue could have a material
impact on the operations of GTC.
GTC has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which GTC's interface
systems are vulnerable to those third parties' failure to remediate their own
year 2000 issues. There is no guarantee that the systems of other companies on
which GTC's systems rely will be timely converted and would not have an adverse
effect on GTC's systems.
The costs of the project and the date on which GTC believes it will
complete the year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
134
OWNERSHIP OF GFP COMMON STOCK
The authorized capital stock of GFP consists of 1,000,000 shares of
GFP Common Stock. As of January 30, 1998, 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 January 30, 1998, 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.
Shares Beneficially Owned
-------------------------
Name Number Percent
---- ------- -------
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
- -----------------
* 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.
135
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 January 30, 1998, there were
1,306,829 shares outstanding which were held by 140 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 January 30, 1998,
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.
Shares Beneficially Owned
-------------------------
Name Number Percent
---- ------ -------
(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)............................... 1,288,600 98.6%
Jeffrey T. Gill (6).............................. 1,288,600 98.6%
R. Scott Gill (7)................................ 1,288,600 98.6%
All directors and executive officers as a group.. 1,342,981 99.0%
- -------------
* 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, may be deemed to have an
indirect beneficial interest in all of 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.
Each of Robert E. Gill, Jeffrey T. Gill, R. Scott Gill, Virginia G. Gill
and Patricia G. Gill disclaims beneficial ownership of any shares of Tube
Turns Common Stock held by GFP, other than the pro rata portion of such
shares allocable to any of them and their spouses.
(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) Consists of 1,288,600 shares of Tube Turns Common Stock held by GFP which
may be deemed beneficially owned by Robert E. Gill and his spouse, but a
portion of which ownership is disclaimed as set forth in note (1) above.
(6) Consists of 1,288,600 shares of Tube Turns Common Stock held by GFP which
may be deemed beneficially owned by Jeffrey T. Gill and his spouse, but a
portion of which ownership is disclaimed as set forth in note (1) above.
(7) Consists of 1,288,600 shares of Tube Turns Common Stock held by GFP which
may be deemed beneficially owned by R. Scott Gill, but a portion of which
ownership is disclaimed as set forth in note (1) above.
136
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 January 30, 1998, there were 869,020 shares
outstanding which were held by 247 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 January 30, 1998, 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.
Shares Beneficially Owned
-------------------------
Name Number Percent
---- ------ -------
(a) Certain Beneficial Owners
Group Financial Partners, Inc. (1)............... 842,694 95.8%
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)............................... 842,694 97.0%
Jeffrey T. Gill (7).............................. 842,694 97.0%
R. Scott Gill (8)................................ 842,694 97.0%
All directors and executive officers as a group.. 890,896 97.7%
- ------------
* 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, may be deemed to have an indirect
beneficial interest in all of 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. Each of Robert E. Gill, Jeffrey T.
Gill, R. Scott Gill, Virginia G. Gill and Patricia G. Gill disclaims
beneficial ownership of any shares of Bell Common Stock, other than the pro
rata portion of such shares allocable to any of them and their spouses.
(2) Includes 21,500 shares issuable under currently exercisable options.
(3) Includes 3,900 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) Consists of 842,694 shares of Bell Common Stock held by GFP which may be
deemed beneficially owned by Robert E. Gill and his spouse, but a portion
of which ownership is disclaimed as set forth in note (1) above.
(7) Consists of 842,694 shares of Bell Common Stock held by GFP which may be
deemed beneficially owned by Jeffrey T. Gill and his spouse, but a portion
of which ownership is disclaimed as set forth in note (1) above.
(8) Consists of 842,694 shares of Bell Common Stock held by GFP which may be
deemed beneficially owned by R. Scott Gill, but a portion of which
ownership is disclaimed as set forth in note (1) above.
137
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 January 7, 1998, 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 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.
138
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.
139
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.
140
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.
141
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.
142
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:
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)
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
======== === ======== === ======== === ======== === ======== ===
Income (Loss) before Gain on Issuance of Stock by Subsidiary, Income Taxes,
Minority Interests and Discontinued Operations
Nine months ended
Years ended December 31, September 30,
--------------------------------------------- -----------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ------------- -------------
Amount % Amount % Amount % Amount % Amount %
-------- --- -------- --- -------- --- -------- --- -------- ---
(in thousands, except percent data)
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
======== ======== ======== ======== ========
- ------------
(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
143
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.
144
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.
145
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
146
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
147
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,
148
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.
Impact of Year 2000
Some of GFP's older computer programs were written using two digits rather
than four to define the applicable year. As a result, those computer programs
have time-sensitive software that recognize a date using "00" as the year 1900
rather than the year 2000. This could cause a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities.
GFP has completed an assessment and will have to modify or replace portions
of its software so that its computer systems will function properly with respect
to dates in the year 2000 and thereafter. The total year 2000 project cost for
the purchase of new software is not expected to be material. To date, GFP has
incurred minor expenses, primarily for assessment of the year 2000 issue and the
development of a modification plan and purchase of new software.
The project is estimated to be completed not later than December 31, 1999,
which is prior to any anticipated impact on its operating systems. GFP believes
that with modifications to existing software and conversions to new software,
the year 2000 issue will not pose significant operational problems for its
computer systems. However, if such modifications and conversions are not made,
or are not completed timely, the year 2000 issue could have a material impact on
the operations of GFP.
GFP has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which GFP's interface
systems are vulnerable to those third parties' failure to remediate their own
year 2000 issues. There is no guarantee that the systems of other companies on
which GFP's systems rely will be timely converted and would not have an adverse
effect on GFP's systems.
The costs of the project and the date on which GFP believes it will
complete the year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
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.
The consolidated financial statements of DATATAPE Incorporated at December
31, 1995 and 1996, and for the period from July 22, 1994 through December 31,
1994 and for the years ended December 31, 1995 and 1996, appearing in this Joint
Proxy Statement/Prospectus, have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon the report, which includes
an explanatory paragraph regarding an uncertainty as to DATATAPE Incorporated's
ability to continue as a going concern, given on 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.
149
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:
Page
----
GROUP TECHNOLOGIES CORPORATION
AUDITED CONSOLIDATED FINANCIAL STATEMENTS (Years ended
December 31, 1994, 1995 and 1996)
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
F-1
Page
----
DATATAPE, INCORPORATED
AUDITED FINANCIAL STATEMENTS (Period from July 22, 1994 through
December 31, 1994 and the years ended December 31, 1995 and 1996)
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
F-2
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
GROUP TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
December 31,
------------------
1995 1996
-------- -------
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
======== =======
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
GROUP TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data)
Years ended December 31,
------------------------------
1994 1995 1996
-------- -------- --------
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
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
GROUP TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except for share data)
Common Stock Additional
-------------------- Paid-In Retained Deferred Shareholders'
Shares Amount Capital Earnings Compensation Equity
------------ ------ ------- ----------- ------------- --------------
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
========== ==== ======= ======== ===== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
GROUP TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years ended December 31,
-------------------------------
1994 1995 1996
-------- --------- --------
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
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
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
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
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
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
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.
(5) Accounts Receivable
Accounts receivable consist of the following:
December 31,
-----------------
1995 1996
------- -------
(in thousands)
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
======= =======
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
GROUP TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(6) Inventories
Inventories consist of the following:
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
======== =======
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:
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
======== ========
(8) Property and Equipment
Property and equipment consists of the following:
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
======== ========
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
GROUP TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(9) Accrued Liabilities
Accrued liabilities consist of the following:
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
======= =======
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:
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
======= =======
(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
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.
(in thousands)
1997............................................ $3,513
1998............................................ 10,119
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
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
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
GROUP TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
The following table summarizes option activity for the three years ended
December 31, 1996:
Options Outstanding
----------------------
Option
price
Shares per share
---------- ----------
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
========= ==========
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
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:
Years ended December 31,
--------------------------
1995 1996
------------- -----------
(in thousands, except
per share data)
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)
The following table summarizes the weighted average exercise prices for
option activity for the year ended December 31, 1996:
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
=====
The following table summarizes certain weighted average data for options
outstanding and currently exercisable as of December 31, 1996:
Outstanding Exercisable
-------------------------------- ---------------------
Weighted Average
--------------------- Weighted
Remaining Average
Exercise Contractual Exercise
Exercise Price Range Shares Price Life Shares Price
- ---------------------- --------- -------- ----------- ----------- --------
$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
========= =======
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
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:
(in thousands)
1997......................................................... $3,638
1998......................................................... 3,553
1999......................................................... 2,449
2000......................................................... 1,151
2001......................................................... 1,187
Thereafter................................................... 593
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, through its subsidiary, Metrum, is involved in matters
involving alleged overpayments made by the U.S. Government to Metrum and
predecessor companies which owned the Metrum business prior to December 1992.
The majority of the alleged overpayments were made under various government
contracts which were performed during the time the predecessor companies owned
the Metrum business. Metrum is evaluating its position and developing a strategy
for resolving these issues. It is not possible to reasonably estimate the extent
of Metrum's liability at this time.
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
GROUP TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(16) Income Taxes
The components of income tax expense (benefit) are:
Years ended December 31,
--------------------------
1994 1995 1996
------- --------- ------
(in thousands)
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
====== ======= =====
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:
Years ended December 31,
--------------------------
1994 1995 1996
------ -------- --------
(in thousands)
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
====== ======= =======
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
GROUP TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
Significant components of the Company's deferred tax assets and liabilities
are as follows:
December 31,
------------------
1995 1996
-------- --------
(in thousands)
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 $ --
======= =======
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
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:
December 31,
--------------------
1995 1996
--------- ---------
(in thousands)
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
======== ========
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
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
GROUP TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
December 31, September 28,
1996 1997
------------ -------------
(Unaudited)
ASSETS
Current assets:
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
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
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
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
F-25
GROUP TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data)
Three months ended Nine months ended
------------------------------ ------------------------------
September 29, September 28, September 29, September 28,
1996 1997 1996 1997
-------------- -------------- -------------- --------------
(Unaudited) (Unaudited)
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
The accompanying notes are an integral part of the consolidated financial
statements.
F-26
GROUP TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine months ended
------------------------------
September 29, September 28,
1996 1997
-------------- --------------
(Unaudited)
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
======== =======
The accompanying notes are an integral part of the consolidated financial
statements.
F-27
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
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:
December 31, September 28,
1996 1997
------------ -------------
(in thousands)
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
============ =============
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
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:
December 31, September 28,
1996 1997
------------ -------------
(in thousands)
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 $ --
======= =====
(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
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
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
December 31,
--------------------
1995 1996
-------- --------
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
======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
F-32
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for share and per share data)
Years ended December 31,
------------------------------
1994 1995 1996
-------- -------- --------
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
The accompanying notes are an integral part of the consolidated financial
statements.
F-33
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except for share data)
Common Stock Total
---------------- Retained Shareholders'
Shares Amount Earnings Equity
------- ------ -------- -------------
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
======= ====== ======= =======
The accompanying notes are an integral part of the
consolidated financial statements.
F-34
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years ended December 31,
--------------------------------
1994 1995 1996
-------- -------- --------
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
======== ======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
F-35
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
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
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
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
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
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:
December 31,
---------------------
1995 1996
-------- --------
(in thousands)
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
======== ========
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:
December 31,
---------------------
1995 1996
-------- --------
(in thousands)
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
======== ========
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
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:
December 31,
--------------------
1995 1996
--------- ---------
(in thousands)
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
======== ========
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:
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
======= =======
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:
(in thousands)
Bell Line of Credit Note.. $ 112
P-III Mortgage Note....... 5,808
------
$5,920
======
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
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:
December 31,
-------------------
1995 1996
-------- --------
(in thousands)
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
======== ========
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
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.
(in thousands)
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
=======
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
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:
Years ended December 31,
---------------------------
1994 1995 1996
-------- -------- -------
(in thousands)
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
====== ======= ======
The significant assumptions used in accounting for the TTT Pension Plans
are as follows:
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%
The funded status of the TTT Pension Plans and amounts recognized in
the Company's consolidated balance sheet are as follows:
December 31,
------------------
1995 1996
-------- --------
(in thousands)
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
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
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:
(in thousands)
1997................. $ 5,052
1998................. 4,328
1999................. 3,040
2000................. 1,680
2001................. 1,632
2002 and thereafter.. 903
-------
$16,635
=======
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.
GTC, through its subsidiary, Metrum, is involved in matters involving
alleged overpayments made by the U.S. Government to Metrum and predecessor
companies which owned the Metrum business prior to December 1992. The majority
of the alleged overpayments were made under various government contracts which
were performed during the time the predecessor companies owned the Metrum
business. Metrum is evaluating its position and developing a strategy for
resolving these issues. It is not possible to reasonably estimate the extent of
Metrum's liability at this time.
F-46
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 is not subject
to the redemption obligation and is shown in the accompanying consolidated
balance sheet in shareholders' equity.
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
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:
GFP TTT Bell GTC
--------------------- -------------------- -------------------- ----------------------
Exercise Exercise Exercise Exercise
Price Price Price Price
Shares Range Shares Range Shares Range Shares Range
------- ------------ ------ ----------- -------- ------------ --------- ----------
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
===== ============ ====== =========== ======= ============ ========= ==========
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
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:
GFP, TTT and
Bell Options GTC Options
------------- -------------
Years ended Years ended
December 31, December 31,
------------- -------------
1995 1996 1995 1996
------ ------ ------ ------
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
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
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:
Years ended December 31,
--------------------------
1995 1996
------------- -----------
(in thousands, except
per share data)
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
The per share weighted average fair value of options granted during the
years ended December 31, 1995 and 1996 follows:
Years ended December 31,
-------------------------
1995 1996
--------- ---------
(in thousands, except
per share data)
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
The following table summarizes the weighted average exercise prices for
option activity for the year ended December 31, 1996:
GFP TTT Bell GTC
------ ------ ------ -----
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
====== ====== ====== =====
F-50
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:
Outstanding Exercisable
------------------------------------- ----------------------
Weighted Average Weighted
Remaining Average
Exercise Contractual Exercise
Exercise Price Range Shares Price Life Shares Price
-------------------------------------------- ------------ -------- -------------- ------------ --------
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
========= ========
(14) Income Taxes
The components of income tax expense are:
Years Ended December 31,
------------------------------------
1994 1995 1996
-------- -------- --------
(in thousands)
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
======== ======== ========
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
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:
Years ended December 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(in thousands)
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
======= ======== =======
Deferred income tax assets and liabilities are as follows:
December 31,
--------------------
1995 1996
-------- -------
(in thousands)
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)
======== =======
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
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:
Years ended December 31,
-----------------------------------
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
======== ======== ========
F-53
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
Years ended December 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(in thousands)
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
======== ======== ========
F-54
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:
Years ended December 31,
------------------------
1995 1996
-------- --------
(in thousands)
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
======== ========
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:
Years Ended December 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
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
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
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:
December 31,
----------------
1995 1996
------- -------
(in thousands)
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
F-56
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:
Years ended December 31,
------------------------
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
======= =======
(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
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.
TTT Bell
---------------- -----------------
December 31, December 31,
---------------- -----------------
1995 1996 1995 1996
------- ------- ------- -------
(in thousands)
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
======= ======= ======= =======
F-58
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
TTT Bell
--------------------------- ------------------------
Years Ended December 31, Years Ended December 31,
---------------------------- -------------------------
1994 1995 1996 1994 1995 1996
-------- -------- -------- ------- ------- -------
(in thousands, except per share data)
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
======= ======= ======= ======= ======= =======
Net income per share.......................... $ 0.77 $ 0.76 $ 1.23 $ 1.17 $ 1.15 $ 2.98
Shares used in computing net income per share. 1,326 1,396 1,349 904 920 928
F-59
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
TTT Bell
------------------------------- --------------------------------
Years ended December 31, Years ended December 31,
------------------------------- --------------------------------
1994 1995 1996 1994 1995 1996
------- ------- ------- ------- ------- --------
(in thousands)
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
======= ======= ======= ======= ======= ========
F-60
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
December 31, September 30,
1996 1997
----------- ------------
(Unaudited)
ASSETS
Current assets:
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
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
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
=========== ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-61
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share data)
Nine months ended September 30,
---------------------------------
1996 1997
----------------- --------------
(Unaudited)
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
The accompanying notes are an integral part of the consolidated financial
statements.
F-62
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine months ended
September 30,
--------------------
1996 1997
-------- --------
(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
======== ========
The accompanying notes are an integral part
of the consolidated financial statements.
F-63
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
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(3) Inventories
Inventories consist of the following:
December 31, September 30,
1996 1997
------------ ------------
(in thousands)
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
======= =======
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
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.
Long-term debt consists of the following:
December 31, September 30,
1996 1997
------------- -------------
(in thousands)
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
======= =======
F-66
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.
September 30, 1997
------------------
TTT Bell
------- -------
(in thousands)
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
======= =======
F-67
GROUP FINANCIAL PARTNERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
TTT Bell
------------------- -------------------
Nine Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1996 1997 1996 1997
-------- -------- -------- --------
(in thousands, except per share data)
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
======== ======== ======== ========
Net income per share............................................ $ 0.81 $ 1.04 $ 2.16 $ 3.27
Shares used in computing net income per share................... 1,350 1,347 928 924
TTT Bell
------------------- -------------------
Nine Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1996 1997 1996 1997
-------- -------- -------- --------
(in thousands)
