<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 28, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMPHENOL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
22-2785165
(I.R.S. Employer Identification No.)
358 HALL AVENUE
WALLINGFORD, CONNECTICUT 06492
(203) 265-8900
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
EDWARD C. WETMORE
AMPHENOL CORPORATION
358 HALL AVENUE
WALLINGFORD, CONNECTICUT 06492
(203) 265-8900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
JOHN B. TEHAN, ESQ. KIRK A. DAVENPORT, ESQ.
SIMPSON THACHER & BARTLETT LATHAM & WATKINS
425 LEXINGTON AVENUE 885 THIRD AVENUE
NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10022
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING
SECURITIES TO BE REGISTERED REGISTERED UNIT PRICE
<S> <C> <C> <C>
Senior Subordinated Notes.............................. $240,000,000 100% (1) $240,000,000 (1)
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE
<S> <C>
Senior Subordinated Notes.............................. $72,728 (2)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Calculated pursuant to Section 6(b) of the Securities Act of 1933.
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.
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<PAGE>
Subject to Completion, dated February 28, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
, 1997
$240,000,000
AMPHENOL CORPORATION
% SENIOR SUBORDINATED NOTES DUE 2007
The % Senior Subordinated Notes due 2007 (the "Notes") are being offered
(the "Offering") by Amphenol Corporation, a Delaware corporation (the "Company"
or "Amphenol"). On January 23, 1997, the Company entered into an agreement and
plan of merger (the "Merger Agreement") with NXS Acquisition Corp. ("NXS
Acquisition"). NXS Acquisition is, as of the date hereof, a wholly owned
subsidiary of KKR 1996 Fund L.P., a limited partnership formed at the direction
of Kohlberg Kravis Roberts & Co. L.P. ("KKR"). Upon the approval of the
stockholders of the Company at the annual meeting to be held on , 1997 and
the satisfaction of certain other conditions, NXS Acquisition will be merged
with and into the Company, with the Company being the surviving corporation (the
"Merger"). The Notes are being issued as part of the financings necessary to
consummate the Merger.
The Notes will mature on , 2007. Interest on the Notes will be
payable semi-annually on and of each year, commencing on
, 1997. The Notes will be redeemable at the option of the Company, in
whole or in part, at any time on or after , 2002, in cash at the
redemption prices set forth herein, plus accrued and unpaid interest, if any,
thereon to the redemption date. In addition, at any time on or prior to
, 2000, the Company may, at its option, redeem up to 40% of the
aggregate principal amount of the Notes originally issued at a redemption price
equal to % of the aggregate principal amount thereof, plus accrued and unpaid
interest, if any, thereon to the redemption date, with the net cash proceeds of
one or more Equity Offerings (as defined); provided that at least 60% of the
aggregate principal amount of the Notes originally issued remains outstanding
immediately after the occurrence of each such redemption. The Notes will not be
subject to any sinking fund requirements. Upon the occurrence of a Change of
Control (as defined), the Company will be required to make an offer to purchase
the Notes at a price equal to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest, if any, thereon to the date of purchase. See
"Description of the Notes."
The Notes will be general unsecured obligations of the Company, will be
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined) of the Company and will be effectively subordinated to all
obligations of the subsidiaries of the Company. The Notes will rank PARI PASSU
with any future senior subordinated indebtedness of the Company and will rank
senior to all other Subordinated Indebtedness (as defined) of the Company. The
Indenture (as defined) permits the Company to incur additional indebtedness,
including up to $1.0 billion of Senior Indebtedness under the Credit Facilities
(as defined), subject to certain limitations. See "Description of the Notes." As
of December 31, 1996, on a pro forma basis, after giving effect to the Merger
and the Financings (as defined) (including the Offering), the aggregate amount
of the Company's outstanding Senior Indebtedness would have been approximately
$763.0 million (excluding $3.0 million of outstanding letters of credit and
unused commitments), and, assuming the repurchase of all of the Company's
outstanding 12 3/4% Senior Subordinated Notes due 2002 in the Debt Tender Offer
(as defined), the Company would have had no senior subordinated indebtedness
outstanding other than the Notes. In addition, as of December 31, 1996, on a pro
forma basis, after giving effect to the Merger and the Financings (including the
Offering), the aggregate amount of outstanding Indebtedness (as defined) of the
Company's subsidiaries would have been approximately $8.3 million. See "Pro
Forma Consolidated Financial Statements" and "Description of the
Notes--Subordination."
SEE "RISK FACTORS" BEGINNING ON PAGE 13 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN
THE NOTES.
THESE SECURITIES 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 PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC (1) DISCOUNT (2) COMPANY(1)(3)
<S> <C> <C> <C>
Per Note........................................... % % %
Total.............................................. $ $ $
</TABLE>
(1) PLUS ACCRUED INTEREST, IF ANY, FROM THE DATE OF ISSUANCE.
(2) AMPHENOL HAS AGREED TO INDEMNIFY THE UNDERWRITERS (AS DEFINED) AGAINST
CERTAIN LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SEE
"UNDERWRITING."
(3) BEFORE DEDUCTING EXPENSES PAYABLE BY AMPHENOL ESTIMATED AT $ .
The Notes are being offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by them, and subject to various prior
conditions, including the right to reject orders in whole or in part. It is
expected that delivery of the Notes will be made in New York, New York on or
about , 1997.
--------------------------
CO-LEAD MANAGERS
DONALDSON, LUFKIN & JENRETTE LEHMAN BROTHERS
SECURITIES CORPORATION
------------------------
CO-MANAGERS
BT SECURITIES CORPORATION CHASE SECURITIES INC.
<PAGE>
PHOTOS FOR INSIDE FRONT COVER TO PROSPECTUS
TOP OF PAGE
COMMUNICATIONS MARKET
COMMUNICATIONS-RELATED CONNECTOR PRODUCTS AND EXAMPLES OF THEIR APPLICATIONS.
BROADBAND COAXIAL CABLE PRODUCTS AND EXAMPLES OF THEIR APPLICATIONS.
MIDDLE OF PAGE
AEROSPACE MARKET
HIGH PERFORMANCE ENVIRONMENTAL (AEROSPACE) CONNECTOR PRODUCTS AND EXAMPLES OF
THEIR APPLICATIONS.
BOTTOM OF PAGE
COMMERCIAL, INDUSTRIAL AND AUTOMOTIVE MARKETS
COMMERCIAL, INDUSTRIAL AND AUTOMOTIVE CONNECTOR PRODUCTS AND EXAMPLES OF THEIR
APPLICATIONS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE OVER-THE-COUNTER MARKET OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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AVAILABLE INFORMATION
Amphenol is subject to the informational 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"). Reports, proxy statements
and other information filed by the Company with the Commission can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the Commission's regional offices at Seven World Trade Center, Suite 1300,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material can be obtained from the
Public Reference Section of the Commission at prescribed rates. Such material
may also be accessed electronically by means of the Commission's home page on
the Internet (http://www.sec.gov). Amphenol's Class A Common Stock, $.001 par
value per share (the "Common Stock"), is traded on the New York Stock Exchange
(the "NYSE"), and reports, proxy statements and other information can also be
inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street,
New York, New York 10005.
Amphenol has filed with the Commission a registration statement on Form S-3
(together with all amendments, supplements and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act") with respect to the securities offered hereby. This
Prospectus, which forms a part of the Registration Statement, does not contain
all the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. Statements contained in this Prospectus as to the contents of any
contract or other document that is filed as an exhibit to the Registration
Statement are qualified by reference to the full text of such contract or
document.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference and shall be deemed to be a part hereof:
1. Annual Report of the Company on Form 10-K for the year ended
December 31, 1996; and
2. Current Report of the Company on Form 8-K dated January 23, 1997.
All documents and reports filed by the Company with the Commission pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the Offering shall be deemed to be
incorporated herein by reference and shall be deemed to be a part hereof from
the date of filing of such documents and reports. Any statement contained in a
document or report incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any subsequently filed
document or report that also is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide, without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any or all of the documents or reports
incorporated herein by reference (other than exhibits thereto, unless such
exhibits specifically are incorporated by reference into such documents or
reports or this Prospectus). Requests for such documents or reports should be
submitted in writing, addressed to the Secretary, Amphenol Corporation, 358 Hall
Avenue, Wallingford, Connecticut 06492, telephone (203) 265-8900.
3
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS, INCLUDING THE NOTES THERETO, CONTAINED ELSEWHERE IN THIS PROSPECTUS
AND INCORPORATED HEREIN BY REFERENCE. UNLESS THE CONTEXT INDICATES OTHERWISE,
ALL REFERENCES TO THE "COMPANY" OR "AMPHENOL" SHALL MEAN AMPHENOL CORPORATION
AND ITS CONSOLIDATED SUBSIDIARIES.
THE COMPANY
Amphenol is a leading designer, manufacturer and marketer of electrical,
electronic and fiber optic connectors, interconnect systems and coaxial and
flat-ribbon cable. The primary end markets for the Company's products are
telephone, wireless and data communications systems; cable television systems;
commercial and military aerospace electronics; automotive and mass
transportation applications; and industrial factory automation equipment. For
the year ended December 31, 1996, approximately 52% of the Company's net sales
were to the worldwide communications market (including 23% for the cable
television market), 26% were for commercial and military aerospace and other
military electronics applications and 22% were for industrial, transportation
and other applications. The Company focuses on optimizing its mix of higher
margin application-specific products in its product offerings and has enhanced
the cost controls in its operations. As a result of these initiatives, the
Company's operating profit margin has increased from 13.5% in fiscal year 1993
to 17.8% in fiscal year 1996. For fiscal year 1996, the Company had net sales
and EBITDA (as defined) of $776.2 million and $166.1 million, respectively.
The Company designs and manufactures connectors and interconnect systems,
which are used primarily to conduct electrical and optical signals, for a wide
range of sophisticated electronic applications. The Company believes, based
primarily on published market research, that it is one of the largest connector
manufacturers in the world and the leading supplier of high performance
environmental connectors that require superior performance and reliability under
conditions of stress and in hostile environments. Such conditions are frequently
encountered in commercial and military aerospace applications and other
demanding industrial applications such as natural resource exploration, medical
instrumentation and off-road construction. In addition, the Company has
developed a broad range of interconnect products to serve the rapidly growing
markets of wireless communications including cellular and personal communication
networks and fiber optic networks; electronic commerce including smart cards and
electronic purse applications; and automotive safety products including airbags,
pretensioner seatbelts and anti-lock braking systems. The Company is also one of
the leaders in developing interconnect products for factory automation and
machine tools and develops interconnect products for mass transportation
applications. The Company believes that the worldwide industry for interconnect
products and systems is highly fragmented with over 1,000 producers of
connectors worldwide, of which the 10 largest producers accounted for a combined
market share of approximately 36% in 1996. The Company estimates that the total
sales for the industry were approximately $27.0 billion in 1996.
The Company's Times Fiber subsidiary is the world's second largest producer
of coaxial cable for the cable television market. The Company believes that
Times Fiber is one of the lowest cost producers of coaxial cable for the cable
television market, and that it is one of the technological leaders in increasing
the bandwidth of coaxial cable products to accommodate increased channel
capacity for full service cable television/telecommunication systems. In
addition, the Company is beginning to supply the developing market for high
bandwidth coaxial cable and related interconnect products used in full service
cable television/telecommunication systems being installed by cable operators
and telecommunication companies. The Company has also become a major supplier of
coaxial cable to the emerging international cable television markets. The
Company estimates that the total sales for the worldwide market for coaxial
cable for cable television were approximately $800.0 million in 1996.
The Company is a global manufacturer employing advanced manufacturing
processes. The Company's products are manufactured and assembled at facilities
in the United States, Canada, Mexico, Germany,
4
<PAGE>
France, the United Kingdom, the Czech Republic, Hong Kong, Taiwan, Japan, India
and the People's Republic of China. The Company's connector products are sold
through its global sales force and independent manufacturers' representatives to
thousands of original equipment manufacturers ("OEMs") in 52 countries
throughout the world as well as through a global network of electronics
distributors. The Company's coaxial cable products are primarily sold to cable
television operators and to telecommunication companies who have entered the
broadband communications market. In 1996, approximately 55% of the Company's net
sales were in North America, 33% were in Europe and 12% were in Asia and other
countries.
COMPETITIVE STRENGTHS
- LEADER IN ATTRACTIVE MARKET SEGMENTS. The Company serves diverse markets
within the connector industry such as the worldwide communications,
aerospace, automotive and industrial markets and growing segments within
these markets. For instance, the Company has a broad product offering of
communications-related interconnect products such as sophisticated
wavelength division multiplexers used in fiber optic networks, radio
frequency connector products used in base stations and handheld sets in
wireless communications, and interconnect acceptor devices used in smart
card systems. The Company, in conjunction with a significant OEM customer,
has also developed sophisticated interconnect coupler technology for
advanced commercial aircraft flight control systems. In addition, the
Company has pioneered the development of interconnect products for
automotive safety systems such as airbags and pretensioner seatbelts and
has been an innovator in the development of motion control connector
products for factory automation. With respect to its coaxial cable
products for cable television, the Company has been one of the
technological leaders in expanding the bandwidth characteristics of
coaxial cable so as to permit greater channel capacity for cable
television systems.
- CLOSE RELATIONSHIPS WITH OEMS. Due in part to its 60 year history in the
connector business and its reputation for innovative, high quality
interconnection products, the Company has developed close relationships
with many of its OEM customers in its various product segments. To this
end, the Company has achieved preferred supplier designations from many
OEMs, enabling the Company to work closely with these OEMs through product
design teams and collaborative arrangements to design and manufacture
application-specific products. The Company's key account managers enhance
the Company's role as a supplier of application-specific products for OEMs
by directing customer relationships on a global basis and bringing to bear
the Company's global resources to satisfy the worldwide needs of its
multinational OEM customers.
- GLOBAL PRESENCE. Approximately 49% of the Company's sales for fiscal year
1996 were outside of the United States. The Company has 31 manufacturing
and assembly facilities on three continents and sales and distribution
organizations and relationships in 52 countries throughout the world. The
Company's global presence enables it to serve the expanding global needs
and requirements of its existing multinational and international OEM
customers and to position itself to develop new customer relationships
with other multinational and international OEMs. The Company believes that
having a local presence in foreign markets in which its OEM customers
operate is an important factor in its ability to provide high quality
products on a timely and efficient basis. Moreover, the Company attains
important operational advantages by developing and sharing "best
practices" across its vast international design and manufacturing network.
- EXTENSIVE PRODUCT LINE. Through its advanced technological and design
capabilities, the Company has developed an extensive line of interconnect
products for its customers worldwide which resulted in sales of
approximately 83,000 SKUs in 1996. By offering a broad array of high
quality products, the Company strives to provide highly-engineered,
reliable and value-added solutions for all of its customers'
interconnection needs. For example, based on Amphenol's position as the
leading
5
<PAGE>
supplier in the high performance environmental connector market, the
Company performed certain research and development for, and is now
producing, a family of connectors comprising approximately 1,000 SKUs for
use in the international space station program. The Company believes that
the breadth of its product line combined with its global presence is an
important competitive advantage in an environment in which many OEMs and
other customers are reducing the size of their supplier bases.
- BROAD CUSTOMER BASE. The Company's products are used in a wide variety of
applications by numerous customers, none of whom accounted for more than
5% of the Company's sales in 1996 (except for sales under contract with
the U.S. Government and its subcontractors, which accounted for 8% of 1996
sales). In 1996, the Company sold its products to approximately 11,500
customer locations worldwide. The Company's products are also sold to
additional customer locations through eight of the 10 largest electronics
distributors in the United States, which the Company believes is an
important competitive advantage in effectively marketing its products. By
servicing a broad array of customers in a variety of different industries
and countries, the Company strives to develop opportunities to
cross-market products and technologies.
BUSINESS STRATEGY
The Company's strategic objective is to further enhance its position as a
leading global designer and manufacturer of interconnect solutions and coaxial
cable products. The Company seeks to achieve this objective by pursuing the
following strategies:
- INCREASE DEVELOPMENT OF APPLICATION-SPECIFIC PRODUCTS FOR OEMS. The
Company intends to expand the scope and number of preferred supplier
designations and application-specific assignments it has with OEM
customers. The Company works closely with its network of OEM customers at
the design stage to create and manufacture innovative connector solutions
to meet its customers' specific interconnection needs. The Company's
application-specific products designed and manufactured for OEMs in this
manner generally have higher margins than the Company's other
interconnection products and have been developed across all of the
Company's product lines. In addition to developing further its
relationship with these OEMs and providing a source of high margin sales,
this product development strategy has a number of important ancillary
benefits. For instance, once an application-specific product has been
developed for a specific OEM customer, such new product often becomes
widely accepted in the industry for similar applications and products
manufactured by other potential customers, thereby providing additional
sources of future revenue. For example, the Company developed an
application-specific interconnect system for automotive safety devices for
a European luxury automobile manufacturer that became broadly used by
other European automobile manufacturers for standard car models.
- EXPAND PRODUCT LINES. The Company's current product lines encompass market
segments comprising approximately 50% of the $27.0 billion connector
industry. The Company continuously strives to expand its product lines in
order to become a primary source supplier of interconnect solutions for
many of its customers. By expanding its product lines, the Company intends
to leverage its extensive customer relationships to cross-sell additional
connector products. For example, in 1995, the Company developed and is now
producing a broad line of radio frequency coaxial and fiber optic
connectors for the cable television industry, which the Company markets to
its large base of existing coaxial cable customers. Moreover, in an
environment in which many OEMs and other customers are reducing the size
of their supplier bases, the Company believes that the expansion of its
product lines will further solidify its importance to existing customers
and enable the Company to effectively market products to new customers.
6
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- FOCUS ON RAPIDLY GROWING COMMUNICATIONS SEGMENT. The Company intends to
capitalize on its advanced technological capabilities and products in the
emerging and rapidly expanding communications segment of the connector
industry, which has displayed strong growth in recent years in connection
with the proliferation of wireless communications including cellular
telephones and personal communication networks. For instance, the Company
has developed a broad range of radio frequency connector products for the
wireless communications market, and the Company's technology for smart
card acceptor devices is used in many of the hand held cellular telephones
in Europe and elsewhere. The Company also believes that many of the
advanced technologies developed through its product development activity
in the commercial and military aerospace segment provide it with
significant competitive advantages in the development of new commercial
communications connector products. For example, by using the technological
capabilities that it developed in designing filtered connectors for the
aerospace segment, the Company was able to develop a line of filtered
connectors for the commercial communications segment.
- EXPAND GLOBAL PRESENCE. The Company intends to further expand its global
manufacturing, sales and service operations to better serve its existing
client base, penetrate developing markets and establish new customer
relationships. As the Company's multinational OEM customers expand their
international operations to take advantage of developing markets and the
lower manufacturing and labor costs of such markets, the Company intends
to similarly expand its international capabilities in order to provide
just-in-time facilities near these customers. Such international expansion
also enables the Company to further reduce its reliance on the U.S.
economy and to take advantage of the lower manufacturing costs in certain
countries. The Company has recently increased its presence in this region
through the expansion of its Asia-Pacific sales force, the expansion of
its manufacturing facilities in the People's Republic of China and the
acquisition of 51% of Kai-Jack Industrial Co., Ltd. ("Kai-Jack"), one of
the leading Taiwanese radio frequency connector manufacturers.
- EXPAND INTERNATIONAL SALES OF COAXIAL CABLE. The Company believes that the
relatively low penetration rate for cable television in countries outside
of the United States provides significant opportunity for future growth in
international sales of coaxial cable. For example, it is estimated that in
1996 only 25% of the television households in Western Europe, 15% of such
households in Asia, and 11% of such households in Latin America subscribed
to some form of multichannel television service as compared to an
estimated subscription rate of 64% in the United States. Cable system
developments are currently planned in a number of different countries,
including large portions of Europe, Asia and Latin America. The Company
believes that it is well positioned to take advantage of this opportunity
because it is the second largest provider of coaxial cable for cable
television in the world and because it has extensive relationships with
many of the foreign and multinational multiple system operators ("MSOs")
planning system developments, including United International Holdings,
Inc., Telewest Communications Plc and Continental Cablevision, Inc.
- PURSUE STRATEGIC ACQUISITIONS AND INVESTMENTS. The Company intends to
continue to pursue strategic acquisitions that complement its existing
business and further expand its product lines and technological
capabilities. The interconnection industry is highly fragmented with over
1,000 producers of connectors worldwide, of which the 10 largest producers
accounted for a combined market share of approximately 36% in 1996. The
Company believes that the fragmented nature of the connector industry
provides significant opportunities for future strategic acquisitions.
Furthermore, the Company believes that it can improve the profitability of
the acquired companies through economies of scale. The Company's recent
acquisitions of The Sine Companies, Inc. ("Sine") and Kai-Jack, which
expanded the Company's capabilities in the factory automation and radio
frequency segments, respectively, and, in the case of Kai-Jack, increased
the Company's presence in the growing Asia-Pacific market, are examples of
the type of synergistic acquisitions the Company plans to continue to
pursue.
7
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THE MERGER AND THE FINANCINGS
On January 23, 1997, the Company entered into an agreement and plan of
merger (the "Merger Agreement") with NXS Acquisition Corp. ("NXS Acquisition").
NXS Acquisition, as of the date hereof, is a wholly owned subsidiary of KKR 1996
Fund L.P. (the "Partnership"), a limited partnership formed at the direction of
Kohlberg Kravis Roberts & Co. L.P. ("KKR"). Pursuant to the Merger Agreement,
upon the approval of the stockholders of the Company at the annual meeting to be
held on , 1997 and the satisfaction of certain other conditions, NXS
Acquisition will be merged with and into the Company, with the Company being the
surviving corporation (the "Merger"). The Merger contemplates that approximately
90% of the presently issued and outstanding shares of the Company's Common Stock
will be converted, at the election of the holder, into $26.00 in cash per share
(the "Cash Consideration"), and that approximately 10% of such shares will be
retained by stockholders. As a result of the Merger, the Company's existing
stockholders will own approximately 25% of the shares issued and outstanding
immediately after the Merger and the Partnership will own approximately 75% of
the shares issued and outstanding immediately after the Merger, in each case,
before giving effect to the exercise of the NXS Option or the Stockholders
Option (each as defined) granted with respect to the shares of Common Stock
owned by the DeGeorge Stockholders (as defined) pursuant to the Stockholders
Agreement (as defined). Assuming all stockholders elect to convert all of their
shares into the right to receive the Cash Consideration, which would maximize
the number of shares subject to the NXS Option and the Stockholders Option after
the Merger, then upon exercise of either such option, the Partnership would own,
directly or indirectly, approximately 82% of the shares issued and outstanding
immediately after the Merger and the remaining stockholders would own, in the
aggregate, approximately 18% of such shares. See "The Merger."
The transactions contemplated by the Merger Agreement will be funded by (i)
$750.0 million of bank borrowings by the Company pursuant to a senior secured
term loan facility (the "Term Loan Facility"), (ii) the offering of $240.0
million aggregate principal amount of the Notes (the "Offering"), (iii) an
equity investment in the Company by the Partnership of approximately $341.0
million and (iv) available cash of the Company. Such amounts will be used to (a)
pay approximately $1,048.3 million of cash merger consideration, (b) repay
indebtedness of the Company under its existing bank credit facility (the
"Existing Bank Credit Facility")($24.0 million at December 31, 1996), (c) redeem
the $100.0 million outstanding aggregate principal amount of the Company's
10.45% Senior Notes due 2001 (the "Existing Senior Notes"), (d) repurchase the
$95.0 million outstanding aggregate principal amount of the Company's 12 3/4%
Senior Subordinated Notes due 2002 (the "12 3/4% Notes" and, together with the
Existing Senior Notes, the "Existing Notes") in the Company's tender offer for
the 12 3/4% Notes (the "Debt Tender Offer"), (e) pay an estimated $19.3 million
of premiums in connection with the retirement of the Existing Notes, and (f) pay
an estimated $58.4 million in transaction fees and expenses incurred in
connection with the Merger. The Company also expects to enter into a $150.0
million senior secured revolving credit facility (the "Revolving Credit
Facility") to provide for the Company's working capital requirements following
the Merger. The Revolving Credit Facility and the Term Loan Facility
(collectively the "Credit Facilities") will be provided by a group of banks led
by Bankers Trust Company ("BTCo"). The Credit Facilities and the Offering are
collectively referred to herein as the "Financings." On January 21, 1997, the
Company received an executed commitment from BTCo to provide the Credit
Facilities. The commitment is subject to customary conditions, including the
negotiation, execution and delivery of definitive documentation with respect to
the commitment. See "Use of Proceeds," "Capitalization" and "Description of
Credit Facilities."
8
<PAGE>
The sources and uses of the funds for the Merger and the related
transactions (including the Financings and the Debt Tender Offer), which assume
that the Merger occurred on December 31, 1996, are as follows (dollars in
millions):
<TABLE>
<CAPTION>
<S> <C>
SOURCES OF FUNDS
Revolving Credit Facility.......................................................... $ 13.0
Term Loan Facility................................................................. 750.0
Senior Subordinated Notes offered hereby........................................... 240.0
Equity investment.................................................................. 341.0
Available cash..................................................................... 1.0
---------
Total Sources.................................................................. $ 1,345.0
---------
---------
USES OF FUNDS
Repayment of Existing Bank Credit Facility......................................... $ 24.0
Redemption of Existing Senior Notes................................................ 100.0
Repurchase of 12 3/4% Notes (a).................................................... 95.0
Payment of cash merger consideration............................................... 1,048.3
Estimated debt retirement premiums (a)............................................. 19.3
Estimated transaction fees and expenses (b)........................................ 58.4
---------
Total Uses..................................................................... $ 1,345.0
---------
---------
</TABLE>
- ------------------------
(a) Assumes all of the outstanding 12 3/4% Notes are repurchased in the Debt
Tender Offer; however, there can be no assurance that all of such 12 3/4%
Notes will be repurchased. At least 51% (the "Minimum Condition") of the
outstanding aggregate principal amount of such 12 3/4% Notes must be
repurchased in the Debt Tender Offer. If the Minimum Condition is met but
less than all of the holders of the 12 3/4% Notes tender, the 12 3/4% Notes
that are not repurchased will remain outstanding at least until December 15,
1997, the earliest date on which such 12 3/4% Notes may be optionally
redeemed by the Company.
(b) Includes aggregate cash consideration of up to $2.4 million related to the
Company stock options to be canceled in conjunction with the Merger.
9
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered.............. $240,000,000 in aggregate principal amount of % Senior
Subordinated Notes due 2007.
Maturity Date................... , 2007.
Interest Payment Dates.......... and of each year, commencing , 1997.
Optional Redemption............. The Notes will be redeemable at the option of the Company,
in whole or in part, at any time on or after , 2002,
in cash at the redemption prices set forth herein, plus
accrued and unpaid interest, if any, thereon to the date
of redemption. In addition, at any time on or prior to
, 2000, the Company may, at its option, redeem up to
40% of the aggregate principal amount of the Notes
originally issued at a redemption price equal to % of
the aggregate principal amount thereof, plus accrued and
unpaid interest, if any, thereon to the redemption date,
with the net cash proceeds of one or more Equity Offerings
(as defined); provided that at least 60% of the aggregate
principal amount of the Notes originally issued remains
outstanding immediately after the occurrence of each such
redemption. See "Description of the Notes-- Optional
Redemption."
Change of Control............... Upon the occurrence of a Change of Control (as defined),
the Company will be required to make an offer to purchase
the Notes at a price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and
unpaid interest, if any, thereon to the date of purchase.
See "Description of the Notes--Repurchase at the Option of
Holders--Change of Control." There can be no assurance
that, in the event of a Change of Control, the Company
would have sufficient funds to purchase all Notes
tendered. See "Risk Factors--Change of Control."
Ranking......................... The Notes will be general unsecured obligations of the
Company, will be subordinated in right of payment to all
existing and future Senior Indebtedness (as defined) of
the Company and will be effectively subordinated to all
Indebtedness and other obligations (including trade
payables) of the Company's subsidiaries. The Notes will
rank PARI PASSU with any future senior subordinated
indebtedness of the Company and will rank senior to all
other Subordinated Indebtedness (as defined) of the
Company. The Indenture permits the Company to incur
additional indebtedness, including up to $1.0 billion of
Senior Indebtedness under the Credit Facilities, subject
to certain limitations. At December 31, 1996, on a pro
forma basis after giving effect to the Merger and the
Financings (including the Offering), the aggregate amount
of the Company's outstanding Senior Indebtedness would
have been approximately $763.0 million (excluding $3.0
million of outstanding letters of credit and unused
commitments), and, assuming the repurchase of all of the
Company's 12 3/4% Notes in the Debt Tender Offer, the
Company would have had no senior subordinated indebtedness
outstanding other than the Notes. In addition, as of
December 31, 1996, on a pro forma basis after giving
effect to the Merger and the Financings (including the
Offering), the aggregate
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
amount of the outstanding Indebtedness of the Company's
subsidiaries would have been approximately $8.3 million.
See "Pro Forma Consolidated Financial Statements" and
"Description of the Notes--Subordination."
Certain Covenants............... The indenture under which the Notes will be issued (the
"Indenture") will contain covenants that will, subject to
certain exceptions, limit, among other things, the ability
of the Company and/or its Restricted Subsidiaries (as
defined) to (i) pay dividends or make certain other
restricted payments or investments; (ii) incur additional
Indebtedness and issue disqualified stock and preferred
stock; (iii) create liens on assets; (iv) merge,
consolidate, or sell all or substantially all of their
assets; (v) enter into certain transactions with
affiliates; (vi) create restrictions on dividends or other
payments by Restricted Subsidiaries to the Company; (vii)
create guarantees of indebtedness by Restricted
Subsidiaries; and (viii) incur other senior subordinated
indebtedness. See "Description of the Notes."
Use of Proceeds................. The gross proceeds from the Offering, together with
borrowings under the Credit Facilities, the equity
contribution by the Partnership and certain available cash
of the Company, will be used upon consummation of the
Merger to pay approximately $1,048.3 million of cash
merger consideration, repay indebtedness of the Company
under the Existing Bank Credit Facility ($24.0 million at
December 31, 1996), retire $195.0 million of the Existing
Notes, pay estimated debt retirement premiums of $19.3
million in connection with the retirement of the Existing
Notes, and pay an estimated $58.4 million in transaction
fees and expenses. See "The Merger" and "Use of Proceeds."
Conditions...................... The closing of the Offering is conditioned upon
consummation of the Merger and the Financings (other than
the Offering).
</TABLE>
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in connection with an investment in the Notes.
11
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth summary consolidated financial and other data
of the Company. The historical consolidated financial data for the three fiscal
years ended December 31, 1996 have been derived from, and should be read in
conjunction with, the audited consolidated financial statements of Amphenol and
related notes thereto included elsewhere in this Prospectus. The historical
consolidated financial data for the two fiscal years ended December 31, 1993
have been derived from audited consolidated financial statements of the Company
which are not contained herein. The pro forma consolidated financial data have
been derived from the Pro Forma Consolidated Financial Statements and the
related notes thereto included elsewhere herein. The pro forma statement of
income data for the period presented give effect to the Merger and the
Financings and related transactions (including the redemption of the Existing
Senior Notes and the repurchase of all of the outstanding 12 3/4% Notes in the
Debt Tender Offer) as if such transactions were consummated on January 1, 1996.
The pro forma balance sheet data give effect to the Merger and the Financings
and related transactions (including the redemption of the Existing Senior Notes
and the repurchase of all of the outstanding 12 3/4% Notes in the Debt Tender
Offer) as if such transactions had occurred as of December 31, 1996. See "Pro
Forma Consolidated Financial Statements," "Selected Historical Consolidated
Financial and Other Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the historical consolidated financial
statements and the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
<S> <C> <C> <C> <C>
1992 1993 1994 1995
--------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales.................................................................... $ 457,677 $ 603,967 $ 692,651 $ 783,233
Cost of sales, excluding depreciation and amortization expense............... 313,322 404,709 458,318 506,707
Depreciation and amortization expense........................................ 26,048 28,614 28,099 27,795
Selling, general and administrative expense.................................. 75,107 89,386 102,183 114,041
--------- --------- --------- ---------
Operating income............................................................. $ 43,200 $ 81,258 $ 104,051 $ 134,690
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income before extraordinary item......................................... $ 8,639 $ 24,749 $ 42,400 $ 62,858
--------- --------- --------- ---------
--------- --------- --------- ---------
OTHER DATA:
EBITDA (a)................................................................... $ 70,080 $ 109,035 $ 131,209 $ 162,145
EBITDA margin................................................................ 15.3% 18.1% 18.9% 20.7%
Capital expenditures......................................................... $ 6,695 $ 5,988 $ 10,936 $ 20,381
Ratio of earnings to fixed charges (b)....................................... 1.5x 1.8x 2.9x 4.1x
PRO FORMA DATA:
EBITDA (a)...................................................................
Cash interest expense (c)....................................................
Ratio of EBITDA to cash interest expense.....................................
Ratio of earnings to fixed charges (b).......................................
<CAPTION>
<S> <C>
1996
---------
<S> <C>
STATEMENT OF INCOME DATA:
Net sales.................................................................... $ 776,221
Cost of sales, excluding depreciation and amortization expense............... 494,689
Depreciation and amortization expense........................................ 28,808
Selling, general and administrative expense.................................. 114,746
---------
Operating income............................................................. $ 137,978
---------
---------
Net income before extraordinary item......................................... $ 67,578
---------
---------
OTHER DATA:
EBITDA (a)................................................................... $ 166,061
EBITDA margin................................................................ 21.4%
Capital expenditures......................................................... $ 20,374
Ratio of earnings to fixed charges (b)....................................... 4.4x
PRO FORMA DATA:
EBITDA (a)................................................................... $ 166,061
Cash interest expense (c).................................................... 88,544
Ratio of EBITDA to cash interest expense..................................... 1.9x
Ratio of earnings to fixed charges (b)....................................... 1.4x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
------------------------
<S> <C> <C>
HISTORICAL PRO FORMA
----------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................................................ $ 136,864 $ 153,395
Total assets........................................................................................... 710,662 754,421
Total debt (d)......................................................................................... 227,243 1,011,195
Total shareholders' equity (deficit)................................................................... 360,548 (379,645)
</TABLE>
- ------------------------
(a) "EBITDA" represents earnings before interest expense, other financing fees
associated with program fees on sale of accounts receivable, interest
income, income taxes, and depreciation and amortization expense, and
excludes minority interest. EBITDA is not intended to represent cash flow
from operations as defined by generally accepted accounting principles and
should not be used as an alternative to net income as an indicator of the
Company's operating performance or to cash flow as a measure of liquidity.
EBITDA is included in the Prospectus as it is a basis upon which the Company
assesses its financial performance, and certain covenants in the Company's
borrowing arrangements will be tied to similar measures. EBITDA in fiscal
1992 excludes the effects of a non-recurring charge of $4,130 associated
with an acquisition.
(b) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before income taxes and extraordinary items, plus
fixed charges. Fixed charges includes interest expenses on all indebtedness,
other financing fees associated with program fees on sale of accounts
receivable, amortization of deferred debt issuance costs, and one-third of
rental expenses on operating leases, representing that portion of rental
expense deemed by the Company to be attributable to interest.
(c) Pro forma cash interest expense is defined as interest expense exclusive of
bank agency fees, commitment fees, and amortization of deferred debt
issuance costs.
(d) Total debt includes long-term debt and the current portion of long-term
debt.
12
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY, IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING FACTORS BEFORE
PURCHASING THE NOTES OFFERED HEREBY.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE
The Company will incur substantial indebtedness in connection with the
Merger. See "The Merger" and "Capitalization." As of December 31, 1996, after
giving pro forma effect to the Merger and the Financings (including the
Offering), the Company would have had $1,011.3 million (excluding $3.0 million
of outstanding letters of credit) of consolidated indebtedness and $379.7
million of consolidated shareholders' deficit. Upon completion of the
Financings, the Company will have consolidated long-term indebtedness
substantially greater than the Company's pre-Merger long-term indebtedness. As
of December 31, 1996, after giving pro forma effect to the Merger and the
Financings, the Company would have had $134.0 million (after giving effect to
$3.0 million of outstanding letters of credit) available to be borrowed under
the $150.0 million Revolving Credit Facility. Also after giving pro forma effect
to such transactions, the Company's ratio of earnings to fixed charges would
have been 1.4 to 1.0 for the fiscal year ended December 31, 1996. Pro forma net
income for the fiscal year ended December 31, 1996 would have been $23.4
million, as compared to $67.6 million for the same period on an historical
basis, and pro forma cash interest expense for the fiscal year ended December
31, 1996 would have been $88.5 million ($95.6 million of total interest
expense), as compared to $23.9 million ($24.6 million of total interest expense)
for the same period on an historical basis. See "Capitalization" and "Pro Forma
Consolidated Financial Statements." The Company and its subsidiaries may incur
additional indebtedness in the future, subject to certain limitations contained
in the instruments governing their indebtedness. Accordingly, the Company will
have significant debt service obligations.
The Company's debt service obligations could have important consequences to
holders of the Notes, including the following: (i) a substantial portion of the
Company's cash flow available from operations after satisfying certain
liabilities arising in the ordinary course of business will be dedicated to the
payment of principal and interest on its indebtedness, thereby reducing the
funds that would otherwise be available to the Company, including for
acquisitions and future business opportunities; (ii) the Company's ability to
obtain additional financing in the future may be limited; (iii) certain of the
Company's borrowings (including, but not limited to, the amounts borrowed under
the Credit Facilities) will be at variable rates of interest, which could cause
the Company to be vulnerable to increases in interest rates; (iv) the Company's
flexibility in planning for, or reacting to, changes in its business and the
industry may be limited; (v) the Company's higher degree of leverage may make it
relatively more vulnerable to economic downturns and competitive pressures; (vi)
a substantial decrease in net operating cash flows or an increase in expenses of
the Company could make it difficult for the Company to meet its debt service
requirements or force it to modify its operations; and (vii) all of the
indebtedness incurred in connection with the Credit Facilities will become due
prior to the time the principal payment on the Notes will become due.
The Company's ability to make scheduled payments of the principal of, or to
pay interest on, or to refinance its indebtedness (including the Notes) and to
make scheduled payments under its operating leases depends on its future
performance, which to a certain extent is subject to economic, financial,
competitive and other factors beyond its control. Based upon the current level
of operations and anticipated growth, management believes that future cash flow
from operations, together with available borrowings under the Revolving Credit
Facility, will be adequate to meet the Company's anticipated requirements for
capital expenditures, working capital, interest payments and scheduled principal
payments. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-- Liquidity and Capital Resources." There can be no
assurance, however, that the Company's business will continue to generate
sufficient cash flow from operations in the future to service its debt and make
necessary capital expenditures after satisfying certain liabilities arising in
the ordinary course of business. If unable to do so, the Company may be required
to refinance all or a portion of its existing debt, including
13
<PAGE>
the Notes, to sell assets or to obtain additional financing. There can be no
assurance that any such refinancing would be possible or that any such sales of
assets or additional financing could be achieved.
RESTRICTIVE LOAN COVENANTS
The Credit Facilities and the Indenture will contain numerous financial and
operating covenants that will limit the discretion of the Company's management
with respect to certain business matters. These covenants will place significant
restrictions on, among other things, the ability of the Company to incur
additional indebtedness, to create liens or other encumbrances, to make certain
payments and investments, to sell or otherwise dispose of assets, and to merge
or consolidate with other entities. See "Description of Credit Facilities" and
"Description of the Notes--Certain Covenants." The Credit Facilities will also
require the Company to meet certain financial ratios and tests. A failure to
comply with the obligations contained in the Credit Facilities or the Indenture
could result in an event of default under either the Credit Facilities or the
Indenture, which could result in acceleration of the related debt and the
acceleration of debt under other instruments evidencing indebtedness that may
contain cross-acceleration or cross-default provisions. If, as a result thereof,
a default occurs with respect to Senior Indebtedness, the provisions in the
Credit Facilities or the subordination provisions in the Indenture would likely
restrict payments to the holders of the Notes.
SUBORDINATION OF NOTES TO SENIOR INDEBTEDNESS
The Company's obligations under the Notes are subordinate and junior in
right of payment to all existing and future Senior Indebtedness of the Company,
including all Indebtedness under the Credit Facilities. As of December 31, 1996,
on a pro forma basis after giving effect to the Merger and the Financings
(including the Offering), the aggregate amount of the Company's outstanding
Senior Indebtedness would have been approximately $763.0 million (excluding $3.0
million of outstanding letters of credit, unused commitments and subsidiary
Indebtedness of approximately $8.3 million). Additional Senior Indebtedness may
be incurred by the Company from time to time, subject to certain restrictions.
By reason of such subordination, in the event of an insolvency, liquidation, or
other reorganization of the Company, the lenders under the Credit Facilities and
other creditors who are holders of Senior Indebtedness must be paid in full
before the holders of the Notes may be paid. Accordingly, there may be
insufficient assets remaining after payment of prior claims to pay amounts due
on the Notes. In addition, under certain circumstances, no payments may be made
with respect to the Notes if a default exists with respect to Senior
Indebtedness.
The Notes are also effectively subordinated to the obligations of the
Company's subsidiaries, including trade payables. The Notes will not be
guaranteed by any of the Company's subsidiaries. All of the Company's
significant domestic subsidiaries will guarantee all obligations outstanding
under the Credit Facilities. In the event of an insolvency, liquidation or other
reorganization of any of the subsidiaries of the Company, the creditors of the
Company (including the holders of the Notes), as well as stockholders of the
Company, will have no right to proceed against the assets of such subsidiaries
or to cause the liquidation or bankruptcy of such subsidiaries under federal
bankruptcy laws. Creditors of such subsidiaries would be entitled to payment in
full from such assets before the Company would be entitled to receive any
distribution therefrom. Except to the extent that the Company may itself be a
creditor with recognized claims against such subsidiaries, claims of creditors
of such subsidiaries will have priority with respect to the assets and earnings
of such subsidiaries over the claims of creditors of the Company, including
claims under the Notes. Certain operations of the Company are conducted through
its subsidiaries and, therefore, the Company is dependent upon the cash flow of
its subsidiaries to meet its obligations, including its obligations under the
Notes. As of December 31, 1996, the Company's subsidiaries had outstanding
Indebtedness of approximately $8.3 million and other obligations (including
trade payables) of approximately $82.0 million. See "Description of Credit
Facilities" and "Description of the Notes-- Subordination."
14
<PAGE>
ENCUMBRANCES TO SECURE CREDIT FACILITIES
In addition to being subordinated to all existing and future Senior
Indebtedness of the Company, the Notes will not be secured by any of the
Company's assets. The Company's obligations under the Credit Facilities will be
secured by a first priority pledge of and security interest in 100% of the
common stock of certain of the Company's direct domestic subsidiaries and 65% of
the common stock of certain of the Company's material direct foreign
subsidiaries. If the Company becomes insolvent or is liquidated, or if payment
under any of the Credit Facilities is accelerated, the lenders under the Credit
Facilities will be entitled to exercise the remedies available to a secured
lender under applicable law. Accordingly, such lenders will have a prior claim
with respect to the assets securing such indebtedness. See "Description of
Credit Facilities."
CHANGE OF CONTROL
The Indenture will provide that, upon the occurrence of a Change of Control,
the Company will make an offer to purchase all or any part of the Notes at a
price in cash equal to 101% of the aggregate principal amount thereof, plus
accrued and unpaid interest, if any, thereon to the date of purchase. There can
be no assurance that, in the event of a Change of Control, the Company would
have sufficient funds to purchase all Notes tendered. In addition, the Credit
Facilities will prohibit the Company from repurchasing any Notes, except with
certain proceeds of one or more Equity Offerings and certain funds from other
sources. The Credit Facilities will also provide that certain change of control
events with respect to the Company would constitute a default thereunder. Any
future credit agreements or other agreements relating to Senior Indebtedness to
which the Company becomes a party may contain similar restrictions and
provisions. In the event a Change of Control occurs at a time when the Company
is prohibited from purchasing the Notes, or if the Company is required to make
an Asset Sale Offer (as defined) pursuant to the terms of the Notes, the Company
could seek the consent of its lenders to purchase the Notes or could attempt to
refinance the borrowings that contain such prohibition. If the Company does not
obtain such a consent or refinance such borrowings, the Company will remain
prohibited from purchasing the Notes except to the extent permitted under such
provisions. In such case, the Company's failure to purchase tendered Notes would
constitute an Event of Default (as defined) under the Indenture. If, as a result
thereof, a default occurs with respect to any Senior Indebtedness, the
subordination provisions in the Indenture would likely restrict payments to the
holders of the Notes. The provisions relating to a Change of Control included in
the Indenture may increase the difficulty of a potential acquiror obtaining
control of the Company. See "Description of the Notes--Repurchase at the Option
of Holders--Change of Control."
FACTORS AFFECTING SALES TO THE CABLE TELEVISION INDUSTRY
Demand for domestic coaxial cable television products has historically
depended primarily upon capital spending cycles by cable operators for
constructing, rebuilding, upgrading and maintaining their systems. Such capital
spending is affected by a variety of factors, including general economic
conditions, access by cable operators to financing, changes in governmental
regulation of the cable television industry, competitive pressures and advances
in technology. Beginning in late 1992, capital spending by the U.S. cable
television industry increased from previously depressed levels as a result of
generally better credit markets, allowing the cable television industry to take
advantage of technological developments for offering enhanced services and to
address a perceived competitive challenge from regional Bell operating companies
("RBOCs"). Capital spending began to decrease in 1995 and continued to slow in
1996 as cable operators perceived a diminished immediate competitive threat from
RBOCs, the unavailability of some technological advancements, such as digital
converters and cable modems, and the higher cost of capital due to the generally
depressed equity values of cable operators. A number of MSOs are highly
leveraged entities with substantial indebtedness. There can be no assurance that
the capital spending by cable
15
<PAGE>
operators will not be further reduced in the future, adversely affecting demand
for the Company's cable products.
The Company's sales of coaxial cable for the U.S. cable television market
were $94.5 million, $115.4 million and $116.8 million for 1996, 1995 and 1994,
respectively. The Company's sales declined in 1996 primarily because (i) certain
RBOCs that began purchasing coaxial cable from the Company in 1994 and 1995 to
install full service communications systems significantly slowed their purchases
in 1996 in an effort to work down inventory levels and to reassess their plans
with respect to building broadband communications systems and (ii) in the fall
of 1996, Tele-Communications, Inc. ("TCI"), a major MSO, announced that it was
slowing down its equipment spending for rebuilding and upgrading many of its
cable television systems and that it would concentrate on developing compression
technology to offer expanded digital channel capacity to such systems. The
Company's sales to RBOCs and TCI declined by a total of $18.4 million in 1996
compared to 1995.
The Company's sales of coaxial cable products to international markets
increased each year from 1989 through 1995 and will continue to be an important
focus for the Company. In 1996, however, international sales of coaxial cable
declined to $84.7 million from $122.9 million in 1995. While sales to any
individual country may vary from year-to-year, the decline in 1996 was primarily
because (i) a system operator for the major cities in Australia made the
decision to change purchases of coaxial cable from the Company to a newly formed
Australian joint venture between an international coaxial cable supplier and a
local cable manufacturer and (ii) Taiwan is moving from an unregulated cable
television environment to regulation through the awarding of franchises, which
has slowed down the building of cable television systems. Sales to Australia and
Taiwan declined by a total of $29.1 million in 1996 compared to 1995. U.S. cable
television system designs are increasingly being employed in other countries
where cable television penetration is currently low. However, there can be no
assurance that international markets will continue to expand, or that growth and
profitability in the Company's international sales will not be affected by
political uncertainties, currency exchange rate fluctuations or variations in
capital spending cycles in international markets.
Technological developments which may impact the future designs of cable
television systems are occurring rapidly in the communications industry. For
example, under certain conditions, direct broadcast satellite services to
consumers with satellite receiving dishes are being pursued, and certain cable
distribution architectures that make greater use of fiber optic cable than
current hybrid fiber optic/coaxial cable systems are being investigated. While
the Company believes that for the foreseeable future cable system operators will
continue to employ systems using a combination of fiber optic cable and high
performance coaxial cable, any successful development, financing and
implementation of alternative technologies may adversely affect demand for the
Company's coaxial cable products.
EXPOSURE TO CHANGES IN MILITARY EXPENDITURES
The Company is a major supplier of high performance environmental connectors
for military applications. The U.S. defense budget has been declining in real
terms since the mid-1980s, resulting in some delays in new program starts,
program deferrals and program cancellations. Sales under contracts with the U.S.
Government or under contracts with subcontractors that identified the U.S.
Government as the ultimate purchaser represented approximately 8.0% of the
Company's sales for the year ended December 31, 1996, compared to 7.1% for 1995
and 9.1% for 1994. Additionally, there are sales of the Company's products to
the U.S. Government through its distributors. The Company's participation across
a broad spectrum of defense programs is such that the Company believes that no
one military program accounted for more than 1% of 1996 net sales. A significant
further decline in U.S. military expenditures might adversely affect the
Company's sales. The Company believes, however, that to the extent a higher
proportion of available defense budget funds will be allocated to improvements
of existing defense systems, rather than to new program starts, the impact on
the Company of declining military budgets would be mitigated because of its
substantial incumbency in existing programs and its experience in system
upgrades.
16
<PAGE>
COMPETITION
The Company encounters competition in substantially all areas of its
business. The Company competes primarily on the basis of product quality, price,
engineering, customer service and delivery time. Competitors include large,
diversified companies, some of which have substantially greater assets and
financial resources than the Company, as well as medium to smaller companies. In
the area of coaxial cable for cable television, the Company believes that it and
CommScope, a division of General Instrument Corporation, are the primary
providers of such cable; however, CommScope is larger than the Company in this
market. In addition, the Company faces competition from small companies that
have concentrated their efforts in one or more areas of the coaxial cable
market. There can be no assurance that additional competitors will not enter the
Company's existing markets, nor can there be any assurance that the Company will
be able to compete successfully against existing or new competition.
RISKS ASSOCIATED WITH FOREIGN OPERATIONS; EXCHANGE RATE FLUCTUATIONS
The Company's products are manufactured and assembled at facilities in the
United States, Canada, Mexico, Germany, France, the United Kingdom, the Czech
Republic, Hong Kong, Taiwan, Japan, India and the People's Republic of China.
Sales and expenses are frequently denominated in local currencies and are,
therefore, subject to changes in currency exchange rates in relation to the U.S.
dollar. There can be no assurance that measures taken by the Company to mitigate
its exchange rate risk, including manufacturing and procuring its products in
the same country or region in which products are sold and periodically engaging
in hedging transactions such as forward exchange contracts, will eliminate or
substantially reduce such risk.
International manufacturing and sales are subject to inherent risks,
including changes in local economic or political conditions, the imposition of
currency exchange restrictions, unexpected changes in regulatory environments,
potentially adverse tax consequences and the exchange rate risk discussed above.
There can be no assurance that these factors will not have a material adverse
impact on the Company's production capabilities or otherwise adversely affect
the Company's business and operating results.
LABOR RELATIONS
Approximately 2,300 of the Company's 4,500 hourly employees were represented
by labor unions as of December 31, 1996. Beginning October 21, 1995, the Company
experienced a seven day work stoppage at its plant in Sidney, New York when
approximately 1,000 hourly employees represented by the International
Association of Machinists and Aerospace Workers rejected a Company proposal for
a collective bargaining agreement and voted to strike upon the expiration of
their then current contract. A new three-year contract was approved and the work
stoppage ended on October 28, 1995. In 1996, the United Steelworkers
International Union, AFL-CIO attempted to organize approximately 500 hourly
employees at the Company's plant in Chatham, Virginia. The union organizing
effort was defeated by a vote of the hourly employees. A Regional Director of
the National Labor Relations Board subsequently found that unfair labor
practices had been committed by the Company prior to the election and ordered
that a new election be held. The Company has appealed the finding and order of
the Regional Director. If the Company's appeal is denied, a new election is held
at the Chatham, Virginia plant and the union is certified, the Company would be
required to bargain in good faith with the union, and its operations at such
facility could be subject to the risks associated with unionized employees
generally, including the risk of work stoppages.
CONTROL BY AFFILIATES OF KKR
Upon completion of the Merger, approximately 75% of the outstanding shares
of Common Stock will be held by the Partnership, of which KKR Associates 1996
L.P., a Delaware limited partnership ("KKR Associates 1996"), is the general
partner (before taking into account the effect of any exercise of the NXS
17
<PAGE>
Option or the Stockholders Option, the exercise of either of which could result
in the Partnership owning, directly or indirectly, up to 82% of such shares).
The sole general partner of KKR Associates 1996 is KKR 1996 GP LLC, a limited
liability company organized under Delaware law. The members of KKR 1996 GP LLC
are also the members of the limited liability company which is the general
partner of KKR. Accordingly, the members of KKR 1996 GP LLC will control the
Company and have the power to elect all of its directors, appoint new management
and approve any action requiring the approval of the Company's stockholders,
including adopting certain amendments to the Company's certificate of
incorporation and approving mergers or sales of substantially all of the
Company's assets. The directors elected by the Partnership will have the
authority to effect decisions affecting the capital structure of the Company,
including the issuance of additional capital stock, the implementation of stock
repurchase programs and the declaration of dividends. There can be no assurance
that the capital policies of the Company in effect prior to the Merger will
continue after the Merger. In addition, there can be no assurance that the
interests of the members of KKR 1996 GP LLC will not conflict with the interests
of holders of the Notes. See "Management," "Ownership of Common Stock" and
"Related Party Transactions."
FRAUDULENT TRANSFER CONSIDERATIONS
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer or conveyance law, if the
Company, at the time it issued the Notes, (a) incurred such indebtedness with
the intent to hinder, delay or defraud creditors, or (b)(i) received less than
reasonably equivalent value or fair consideration, and (ii) (A) was insolvent at
the time of such incurrence, (B) was rendered insolvent by reason of such
incurrence (and the application of the proceeds thereof), (C) was engaged or was
about to engage in a business or transaction for which the assets remaining with
the Company constituted unreasonably small capital to carry on its business, or
(D) intended to incur, or believed that it would incur, debts beyond its ability
to pay such debts as they mature, then, in each such case, a court of competent
jurisdiction could avoid, in whole or in part, the Notes or, in the alternative,
subordinate the Notes to existing and future indebtedness of the Company. The
measure of insolvency for purposes of the foregoing would likely vary depending
upon the law applied in such case. Generally, however, a debtor would be
considered insolvent if the sum of its debts, including contingent liabilities,
was greater than all of its assets at a fair valuation, or if the present fair
saleable value of its assets was less than the amount that would be required to
pay the probable liabilities on its existing debts, including contingent
liabilities, as such debts become absolute and matured. Management of the
Company believes that, for purposes of the United States Bankruptcy Code and
state fraudulent transfer or conveyance laws, the Notes are being issued without
the intent to hinder, delay or defraud creditors and for proper purposes and in
good faith, and that the Company will receive reasonably equivalent value or
fair consideration therefor, and that after the issuance of the Notes and the
application of the net proceeds therefrom, the Company will be solvent, will
have sufficient capital for carrying on its business and will be able to pay its
debts as they mature. However, there can be no assurance that a court passing on
such issues would agree with the determination of the Company's management.
LACK OF PRIOR MARKET FOR THE NOTES
There is currently no public market for the Notes and the Company has no
present plan to list any of the Notes on a national securities exchange or to
include any of the Notes for quotation through an interdealer quotation system.
There can be no assurance that such a market will develop or, if such a market
develops, as to the liquidity of such market. The Company has been advised by
the Underwriters that the Underwriters intend to make a market in the Notes
after consummation of the Offering, as permitted by applicable laws and
regulations; however, the Underwriters are not obligated to do so and any such
market making activities may be discontinued at any time without notice. See
"Underwriting."
18
<PAGE>
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements (including,
without limitation, the statements under "Business--Competitive Strengths" and
"--Business Strategy") within the meaning of Section 27A of the Securities Act
and Section 21E of the Exchange Act concerning the Company's future operations,
economic performances and financial condition, including such things as business
strategy and measures to implement strategy, competitive strengths, goals,
expansion and growth of the Company's business and operations and references to
future success. These statements are based on certain assumptions and analyses
made by the Company in light of its experience and its perception of historical
trends, current conditions and expected future developments as well as other
factors it believes are appropriate in the circumstances. However, whether
actual results and developments will conform with the Company's expectations and
predictions is subject to a number of risks and uncertainties, in addition to
the risk factors discussed above, including a global economic slowdown in any
one, or all, of the Company's market segments, unpredictable difficulties or
delays in the development of new product programs, increased difficulties in
obtaining a consistent supply of basic materials like steel, aluminum, copper,
gold or plastic resins at stable pricing levels, difficulties and unanticipated
expense of assimilating newly-acquired businesses, technological shifts away
from the Company's technologies and core competencies, unforeseen interruptions
to the Company's business with its largest customers and distributors resulting
from, but not limited to, strikes, financial instabilities or inventory
excesses, unexpected government policies and regulations affecting the Company
or its significant customers, the effects of extreme changes in monetary and
fiscal policies in the United States and abroad, including extreme currency
fluctuations and unforeseen inflationary pressures, drastic and unforeseen price
pressures on the Company's products or significant cost increases that cannot be
recovered through price increases or productivity improvements, significant
changes in interest rates or in the availability of financing for the Company or
certain of its customers, rapid escalation of the cost of regulatory compliance
and litigation, unforeseen intergovernmental conflicts or actions, including but
not limited to armed conflict and trade wars, any difficulties in obtaining or
retaining the management or other human resource competencies that the Company
needs to achieve its business objectives, and other factors, many of which are
beyond the control of the Company. Consequently, all of the forward-looking
statements made in this Prospectus are qualified by these cautionary statements,
and there can be no assurance that the actual results or developments
anticipated by the Company will be realized or, even if substantially realized,
that they will have the expected consequences to or effects on the Company and
its subsidiaries or their business or operations.
19
<PAGE>
THE MERGER
The statements made under this heading relating to the Merger are summaries
of the agreements described therein, do not purport to be complete and are
qualified in their entirety by reference to such agreements, which are
incorporated herein by reference. See "Available Information" and "Incorporation
of Certain Information by Reference."
MERGER AGREEMENT
The Company and NXS Acquisition, which as of the date hereof is a wholly
owned subsidiary of the Partnership, have entered into the Merger Agreement,
dated as of January 23, 1997. The Merger Agreement provides, among other things,
for the merger of NXS Acquisition with and into the Company, with the Company
being the surviving corporation. Pursuant to the Merger Agreement, upon
consummation of the Merger (the "Effective Time"), each share of Common Stock
issued and outstanding immediately prior to the Effective Time (other than
shares of Common Stock held by the Company, any subsidiary of the Company, the
Partnership, NXS Acquisition or any subsidiary of the Partnership, which will be
canceled and retired, and fractional shares and shares of Common Stock subject
to dissenters' rights) will be converted into either (a) the right to receive
$26.00 in cash or (b) the right to retain one share of Common Stock. The Merger
contemplates that approximately 90% of the presently issued and outstanding
shares of the Company's Common Stock will be converted, at the election of the
holder, into cash, as described above, and that approximately 10% of such shares
will be retained by stockholders. Because 25% (or 4.4 million) of the shares
outstanding after the Merger must be retained by existing stockholders of the
Company, the right to receive $26.00 in cash per share or retain shares of
Common Stock is subject to proration. Because the total number of outstanding
shares of Common Stock will decrease from approximately 44.7 million to
approximately 17.5 million, the approximately 10% of the outstanding Common
Stock (4.4 million shares) to be retained by existing stockholders in the Merger
will represent approximately 25% of the shares outstanding immediately after the
Merger and the approximately 13.1 million shares to be owned by the Partnership
will represent approximately 75% of the shares outstanding immediately after the
Merger, in each case, before giving effect to the exercise after the Merger of
the NXS Option or the Stockholders Option granted with respect to shares of
Common Stock owned by the DeGeorge Stockholders pursuant to the Stockholders
Agreement. See "--The Stockholders Agreement." Assuming all stockholders elected
to convert all of their shares into the right to receive the Cash Consideration,
which would maximize the number of shares subject to the NXS Option and the
Stockholders Option, then upon exercise of either such option, the Partnership
would own, directly or indirectly, approximately 82% of the shares issued and
outstanding immediately after the Merger and the remaining stockholders would
own, in the aggregate, approximately 18% of such shares.
The Company will submit the Merger Agreement to its stockholders for
approval and adoption at its annual meeting of stockholders of the Company,
which is expected to be held on 1997 (the "Annual Meeting"). Approval and
adoption of the Merger Agreement requires the affirmative vote of a majority of
the outstanding shares of Common Stock. Lawrence J. DeGeorge, Chairman of the
Board of Amphenol, Florence A. DeGeorge, his wife, Lawrence F. DeGeorge, one of
their sons, and the Lawrence J. and Florence A. DeGeorge Charitable Trust, a
charitable trust funded by Lawrence J. DeGeorge and Florence A. DeGeorge
(collectively, the "DeGeorge Stockholders") owned, beneficially and/or of
record, an aggregate of 13,487,453 shares of Common Stock on January 23, 1997,
representing approximately 30.2% of the outstanding shares of Common Stock
entitled to vote at the Annual Meeting. Pursuant to a Stockholders Agreement by
and among NXS I, L.L.C., a Delaware limited liability company ("NXS LLC"), which
as of the date hereof is a wholly owned subsidiary of the Partnership, and the
DeGeorge Stockholders, dated as of January 23, 1997 (the "Stockholders
Agreement"), the DeGeorge Stockholders, in their capacity as such, have agreed,
among other things, to vote such shares and all other shares of Common Stock
that the DeGeorge Stockholders acquire beneficial ownership of after January 23,
1997 and during the term of the Stockholders Agreement, if any (such shares
collectively, the "Subject Shares"),
20
<PAGE>
in favor of the approval and the adoption of the Merger Agreement. See "--The
Stockholders Agreement."
The obligations of NXS Acquisition to effect the Merger are further subject
to, among other things, the Company (i) amending the terms of the 12 3/4% Notes
in a manner agreed to by NXS Acquisition and the Company and purchasing at least
an aggregate principal amount of the 12 3/4% Notes equal to the minimum
condition of the Debt Tender Offer, (ii) calling the Existing Senior Notes for
redemption, and (iii) receiving the proceeds of the Financings, on terms and
conditions contemplated by the Merger Agreement, or upon terms and conditions
which are substantially equivalent thereto and, to the extent any of the terms
and conditions are not contemplated by the Merger Agreement, such other terms
and conditions which are reasonably satisfactory to NXS Acquisition. It is also
a condition to the Merger that NXS Acquisition is reasonably satisfied that the
Merger will be recorded as a recapitalization for financial reporting purposes.
The Merger Agreement contains customary representations, warranties and
covenants of the Company and may be terminated at any time prior to the
Effective Time, whether before or after approval of the Merger by the
stockholders of the Company, by (a) mutual written consent of NXS Acquisition
and the Company, (b) either NXS Acquisition or the Company, if any governmental
entity has issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the Merger or the
Debt Tender Offer, and such order or other action has become final and
nonappealable, or the Merger has not been consummated on or before June 30, 1997
(other than due to the failure of the party seeking to terminate the Merger
Agreement to perform its obligations under the Merger Agreement), (c) either NXS
Acquisition or the Company if the required approval of the stockholders of the
Company shall not have been obtained at a duly held meeting of stockholders or
at any adjournment thereof, (d) NXS Acquisition upon the withdrawal,
modification or amendment in any respect adverse to NXS Acquisition of the
Company's recommendation of the Merger to its stockholders, or the failure of
the Company either to mail the proxy statement relating to the Annual Meeting as
required by the Merger Agreement or to include such recommendation therein, or
the taking of certain actions by the Company with respect to a third-party
transaction proposal or the failure by the Company to take certain actions
during the pendency of such a proposal or in pursuance of the Merger Agreement
or (e) the Company if, pursuant to the Merger Agreement, the Board of Directors
of the Company concludes in good faith, based on written advice from outside
counsel, that the Board of Directors must not make or must withdraw or modify
its recommendation of the Merger and the Board does not make or withdraws or
modifies such recommendation.
THE STOCKHOLDERS AGREEMENT
Pursuant to the Stockholders Agreement, the DeGeorge Stockholders, in their
capacity as such, have agreed, among other things, to vote their respective
Subject Shares, constituting an aggregate of approximately 30.2% of the
outstanding shares of Common Stock entitled to vote at the Annual Meeting, in
favor of the Merger. Subject to the terms and conditions of the Stockholders
Agreement, the DeGeorge Stockholders have agreed to vote, and have appointed NXS
LLC and its officers, Michael Michelson and Marc Lipschultz, as their
irrevocable proxies to vote, the Subject Shares in favor of the Merger and of
certain related actions and against certain other enumerated actions or
agreements. Subject to the terms and conditions of the Stockholders Agreement,
all of the DeGeorge Stockholders have agreed to elect to convert all of their
Subject Shares into cash in the Merger, to refrain from soliciting or responding
to certain inquiries or proposals regarding the Company, to refrain from
engaging in certain competitive activities with the Company, to comply with
certain restrictions upon the transfer of the Subject Shares, to waive any
rights of appraisal available in the Merger and to take or refrain from taking
certain other actions.
If the Merger is consummated, (i) the DeGeorge Stockholders may exercise an
option (the "Stockholders Option") granted to the DeGeorge Stockholders by NXS
LLC pursuant to the Stockholders
21
<PAGE>
Agreement to sell the Subject Shares to NXS LLC and (ii) NXS LLC may exercise an
option (the "NXS Option") granted by the DeGeorge Stockholders pursuant to the
Stockholders Agreement to purchase the Subject Shares during the period
commencing upon the Effective Time and ending 30 days thereafter.
If the Merger Agreement has been terminated by reason of the occurrence of
certain events and either of the following shall have occurred: (A) any person,
other than NXS Acquisition or any of its affiliates and other than any party to
the Stockholders Agreement (and certain permitted transferees), shall have
become the beneficial owner of more than 20% of the outstanding shares of Common
Stock or (B) certain competing transaction proposals shall have been publicly
made, proposed, communicated or disclosed, then NXS LLC may exercise the NXS
Option to purchase the Subject Shares during the period commencing on the date
of such termination and ending on the date which is six months later. In
addition, if the Merger Agreement is terminated by reason of the occurrence of
certain events, and, upon or following any such termination, either (i) any of
the DeGeorge Stockholders or (ii) NXS LLC receives any cash or noncash
consideration in respect of all or any portion of the Subject Shares in
connection with certain third-party business combinations during the period
commencing on January 23, 1997 and ending one year from the date the Merger
Agreement is terminated, such selling party shall promptly pay over to the other
party or its designee certain amounts.
Upon the Effective Time of the Merger or the date the Merger Agreement is
terminated in accordance with its terms, whichever occurs first, the obligations
of the DeGeorge Stockholders (i) to vote their shares as specified in the
Stockholders Agreement, (ii) to refrain from soliciting or responding to certain
inquiries or proposals regarding the Company, and (iii) to comply with certain
restrictions upon the transfer of the Subject Shares shall terminate in
accordance with the Stockholders Agreement. If the Merger Agreement is
terminated, the obligations of the DeGeorge Stockholders to refrain from
competing with the Company shall also terminate. Subject to the foregoing, the
obligations of the parties to the Stockholders Agreement otherwise survive
termination of the Merger Agreement.
USE OF PROCEEDS
The gross proceeds received by the Company from the Offering, together with
borrowings under the Credit Facilities, the equity contribution by the
Partnership, and certain available cash of the Company, will be used upon
consummation of the Merger to (i) pay approximately $1,048.3 million of cash
merger consideration, (ii) repay indebtedness of the Company under the Existing
Bank Credit Facility (approximately $24.0 million at an interest rate of 6.0% at
December 31, 1996 and which matures on November 30, 2000), (iii) redeem $100.0
million of the Existing Senior Notes (with an interest rate of 10.45% and which
mature at various dates throughout 1999-2001), (iv) repurchase $95.0 million of
the 12 3/4% Notes (which mature on December 15, 2002), (v) pay estimated debt
retirement premiums of $19.3 million in connection with the retirement of the
Existing Notes and (vi) pay an estimated $58.4 million in transaction fees and
expenses. See "The Merger" and "Capitalization."
22
<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1996 the (i) consolidated
historical capitalization of the Company and (ii) unaudited consolidated pro
forma capitalization of the Company, as adjusted to give effect to the
transactions contemplated by the Merger Agreement and the Financings, including
the sale of the Notes pursuant to the Offering. The following table should be
read in conjunction with the "Pro Forma Consolidated Financial Statements" and
the notes thereto and the consolidated financial statements of the Company and
its subsidiaries and the related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------
<S> <C> <C>
HISTORICAL PRO FORMA
---------- ------------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cash and short-term cash investments.................................................... $ 4.0 $ 3.0
---------- ------------
---------- ------------
Long-term debt (including current portion):
Existing Bank Credit Facility......................................................... 24.0 --
Existing Senior Notes................................................................. 100.0 --
12 3/4% Notes (a)..................................................................... 95.0 --
Revolving Credit Facility (b) ........................................................ -- 13.0
Term Loan Facility.................................................................... -- 750.0
Notes offered hereby.................................................................. -- 240.0
Other debt (c)........................................................................ 8.3 8.3
---------- ------------
Total long-term debt.................................................................... 227.3 1,011.3
Total shareholders' equity (deficit) (d)................................................ 360.5 (379.7)
---------- ------------
Total capitalization................................................................ $ 587.8 $ 631.6
---------- ------------
---------- ------------
</TABLE>
- ------------------------
(a) Assumes all of the outstanding 12 3/4% Notes are repurchased in the Debt
Tender Offer; however, there can be no assurance that all of such 12 3/4%
Notes will be repurchased. If the Minimum Condition is met but less than all
of the holders of such 12 3/4% Notes tender, the 12 3/4% Notes that are not
repurchased will remain outstanding at least until December 15, 1997, the
earliest date on which such 12 3/4% Notes may be optionally redeemed by the
Company.
(b) At December 31, 1996, on a pro forma basis after giving effect to the Merger
and the Financings, the Company would have had additional availability of
approximately $134.0 million under the $150.0 million Revolving Credit
Facility (after giving effect to $3.0 million of outstanding letters of
credit). See "Description of Credit Facilities."
(c) Represents debt of foreign subsidiaries.
(d) As part of the Merger and related transactions, KKR, through NXS
Acquisition, will invest no less than $341.0 million in common equity for
approximately 75% of the shares outstanding immediately after the Merger,
and existing stockholders will retain approximately 25% of the shares
outstanding immediately after the Merger (before taking into account the
effect of any exercise of the NXS Option or the Stockholders' Option). Based
on the Cash Consideration paid in the Merger, existing stockholders will
retain $114.4 million of equity value, and the implied value of
shareholders' equity to be purchased and retained immediately after the
Merger and related transactions is approximately $455.4 million.
23
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following Pro Forma Consolidated Financial Statements have been derived
by the application of pro forma adjustments to the Company's historical
consolidated financial statements included elsewhere herein. The pro forma
consolidated statement of income for the period presented gives effect to the
Merger and related transactions as if such transactions were consummated as of
January 1, 1996 for the fiscal year ended December 31, 1996. The pro forma
consolidated balance sheet gives effect to the Merger and related transactions
as if such transactions had occurred as of December 31, 1996. The adjustments
are described in the accompanying notes. The Pro Forma Consolidated Financial
Statements should not be considered indicative of actual results that would have
been achieved had the Merger and related transactions been consummated on the
date or for the periods indicated and do not purport to indicate balance sheet
data or results of operations as of any future date or for any future period.
The Pro Forma Consolidated Financial Statements should be read in conjunction
with the Company's historical consolidated financial statements and the notes
thereto included elsewhere herein.
The pro forma adjustments were applied to the respective historical
consolidated financial statements to reflect and account for the Merger as a
recapitalization. Accordingly, the historical basis of the Company's assets and
liabilities has not been impacted by the transaction.
24
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
----------- ----------- ---------
<S> <C> <C> <C>
(DOLLARS IN MILLIONS)
ASSETS
Current Assets:
Cash and short-term cash investments..................................... $ 4.0 $ (1.0)(a) $ 3.0
Accounts receivable...................................................... 64.9 -- 64.9
Inventories.............................................................. 153.3 -- 153.3
Prepaid expenses and other assets........................................ 11.6 9.8(b) 21.4
----------- ----------- ---------
Total current assets................................................... 233.8 8.8 242.6
Land and depreciable assets, net......................................... 102.1 -- 102.1
Deferred debt issuance costs............................................. 3.7 (3.7)(c) 38.7
-- 38.7(d) --
Excess of cost over fair value of net assets acquired.................... 346.6 -- 346.6
Other assets............................................................. 24.5 -- 24.5
----------- ----------- ---------
$ 710.7 $ 43.8 $ 754.5
----------- ----------- ---------
----------- ----------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt........................................ $ 7.8 $ (7.8)(a) --
Accounts payable......................................................... 49.5 -- $ 49.5
Other accrued expenses................................................... 39.7 -- 39.7
----------- ----------- ---------
Total current liabilities.............................................. 97.0 (7.8) 89.2
Long-term debt........................................................... 219.5 (211.2)(a) 8.3
Term Loan Facility....................................................... -- 750.0(a) 750.0
Revolving Credit Facility................................................ -- 13.0(a) 13.0
Notes offered hereby..................................................... -- 240.0(a) 240.0
Deferred taxes and other liabilities..................................... 18.7 -- 18.7
Accrued pension and post employment benefit obligations.................. 15.0 -- 15.0
----------- ----------- ---------
Total liabilities...................................................... 350.2 784.0 1,134.2
Total shareholders' equity (deficit)..................................... 360.5 (740.2)(e) (379.7)
----------- ----------- ---------
$ 710.7 $ 43.8 $ 754.5
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
See Notes to Pro Forma Consolidated Balance Sheet
25
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
The pro forma financial data have been derived by the application of pro
forma adjustments to the Company's historical financial statements as of the
date noted. The Merger has been accounted for as a recapitalization which will
have no impact on the historical basis of the Company's assets and liabilities.
The pro forma financial data assumes that there are no dissenting shareholders
to the Merger.
(a) The net effect of $1.0 million reflects the following:
<TABLE>
<CAPTION>
(DOLLARS IN
TOTAL SOURCES MILLIONS)
- ------------------------------------------------------------------------- -------------------
<S> <C>
Term Loan Facility proceeds.............................................. $ 750.0
Revolving Credit Facility proceeds....................................... 13.0
Notes proceeds........................................................... 240.0
Equity investment........................................................ 341.0
--------
Total sources.......................................................... $ 1,344.0
--------
TOTAL USES
Payment of cash merger consideration..................................... $ 1,048.3
Refinancing of existing debt:
Current maturities of long-term debt................................... 7.8
Long-term debt......................................................... 211.2
Estimated debt retirement premiums....................................... 19.3
Options canceled......................................................... 2.4
Estimated transaction fees and expenses.................................. 56.0
--------
Total uses............................................................. $ 1,345.0
--------
Net.................................................................... $ (1.0)
--------
--------
</TABLE>
(b) The adjustment represents the tax benefit of deductible expenses reflected
in footnote (e) hereto.
(c) The adjustment reflects the write-off of deferred debt issuance costs
associated with the Existing Notes being retired and the termination of the
Existing Bank Credit Facility.
(d) The adjustment represents the anticipated portion of transaction fees and
expenses which will be recorded as deferred debt issuance costs and will be
amortized over the life of the debt to be issued.
(e) The adjustment represents the net change as a result of the Merger and
related transactions:
<TABLE>
<CAPTION>
(DOLLARS IN
MILLIONS)
-------------------
<S> <C>
Convert to cash 40.3 million shares of Common Stock...................... $ (1,048.3)
Issue 13.1 million shares of Common Stock................................ 341.0
Transaction fees and expenses (1)........................................ (17.3)
Write-off of deferred debt issuance costs................................ (3.7)
Options canceled......................................................... (2.4)
Estimated debt retirement premiums....................................... (19.3)
Tax benefit of above expense adjustments................................. 9.8
--------
Total.................................................................. $ (740.2)
--------
--------
</TABLE>
- ------------------------
(1) Represents the portion of the total $56.0 million of estimated transaction
fees and expenses (excluding $2.4 million of cash consideration related to
the Company stock options to be canceled in conjunction with the Merger)
which will be recorded as an expense. Such estimated transaction fees and
expenses are anticipated to consist of: (i) professional, advisory and
investment banking fees and expenses, and (ii) miscellaneous fees and
expenses such as printing and filing fees.
26
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO
HISTORICAL ADJUSTMENTS(A) FORMA
----------- --------------- ---------
<S> <C> <C> <C>
(DOLLARS IN MILLIONS)
Net sales.................................................................... $ 776.2 $ 776.2
Costs and expenses:
Cost of sales, excluding depreciation and amortization..................... 494.7 494.7
Depreciation and amortization expense...................................... 28.8 28.8
Selling, general and administration expense................................ 114.7 114.7
----------- ---------
Operating income............................................................. 138.0 138.0
Interest expense............................................................. (24.6) $ (71.0)(b) (95.6)
Other expense, net........................................................... (3.7) (0.8)(c) (4.5)
----------- ------ ---------
Income before income taxes................................................... 109.7 (71.8) 37.9
Provision for income taxes................................................... 42.1 (27.6)(d) 14.5
----------- ------ ---------
Net income................................................................... $ 67.6 $ (44.2) $ 23.4
----------- ---------
----------- ---------
Ratio of earnings to fixed charges (e)....................................... 4.4x 1.4x
----------- ---------
----------- ---------
</TABLE>
- ------------------------
The pro forma financial data have been derived by the application of pro
forma adjustments to the Company's historical financial statements for the
period noted. The Merger has been accounted for as a recapitalization which will
have no impact on the historical basis of the Company's assets and liabilities.
The pro forma financial data assume that there are no dissenting shareholders to
the Merger.
(a) As described in note (e) to the Pro Forma Consolidated Balance Sheet, the
pro forma adjustments exclude (i) $2.4 million of compensation expense
related to the Company stock options to be canceled in conjunction with the
Merger, (ii) the write-off of $3.7 million of deferred debt issuance costs
associated with the Existing Notes being retired and the termination of the
Existing Bank Credit Facility, (iii) the estimated $19.3 million of premiums
on retirement of the Existing Notes, (iv) $17.3 million of estimated
transaction fees and expenses incurred in connection with the Merger and (v)
$9.8 million of tax benefit of such expenses. Such amounts represent
non-recurring expenses which the Company anticipates will be recorded in the
Consolidated Statement of Income for the period including the Merger.
(b) The pro forma adjustments to interest expense reflect the following:
<TABLE>
<CAPTION>
(DOLLARS IN
MILLIONS)
-------------------
<S> <C>
Interest expense on historical debt repaid in Merger..................... $ (23.6)
Interest expense with respect to the Credit Facilities and the Notes at
an assumed weighted average interest rate of 8.8%....................... 88.6
Amortization of deferred debt issuance costs............................. 6.0
------
Total adjustment....................................................... $ 71.0
------
------
</TABLE>
A 0.125% increase or decrease in the assumed weighted average interest rate
would change the pro forma interest expense by $1.3 million. The pro forma
net income would change by $0.8 million.
For the year ended December 31, 1996, each $1.0 million increase or decrease
in the Credit Facilities and Notes would change pro forma interest expense
by $0.09 million. The pro forma net income would change by $0.05 million.
27
<PAGE>
(c) The adjustment eliminates interest income on cash and short-term investments
not expected to be received after the Merger and related transactions.
(d) The adjustment reflects the tax effect of the pro forma adjustments at a
38.5% effective income tax rate.
(e) For purposes of determining the pro forma ratio of earnings to fixed
charges, earnings are defined as earnings before income taxes and
extraordinary items, plus fixed charges. Fixed charges include interest
expense on all indebtedness, other financing fees associated with program
fees on sale of accounts receivable, amortization of deferred debt issuance
costs, and one-third of rental expense on operating leases representing that
portion of rental expense deemed by the Company to be attributable to
interest.
28
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL
AND OTHER DATA
The following table sets forth selected historical consolidated financial
and other data of the Company. The historical consolidated financial data for
the three fiscal years ended December 31, 1996 have been derived from, and
should be read in conjunction with, the audited consolidated financial
statements of Amphenol and related notes thereto included elsewhere in this
Prospectus. The historical consolidated financial data for the two fiscal years
ended December 31, 1993 have been derived from audited consolidated financial
statements of the Company which are not contained herein. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical consolidated financial statements and the related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
<S> <C> <C> <C> <C>
1992 1993 1994 1995
----------- ----------- ----------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales............................................................ $ 457,677 $ 603,967 $ 692,651 $ 783,233
Cost of sales, excluding depreciation and amortization expense....... 313,322 404,709 458,318 506,707
Depreciation and amortization expense................................ 26,048 28,614 28,099 27,795
Selling, general and administrative expense.......................... 75,107 89,386 102,183 114,041
----------- ----------- ----------- -----------
Operating income..................................................... 43,200 81,258 104,051 134,690
Interest expense..................................................... (29,285) (41,184) (30,382) (25,548)
Nonrecurring acquisition expense..................................... (4,130) -- -- --
Other income (expense), net.......................................... 1,582 (1,998) (4,160) (4,515)
----------- ----------- ----------- -----------
Income before income taxes and extraordinary item.................... 11,367 38,076 69,509 104,627
Provision for income taxes........................................... (2,728) (13,327) (27,109) (41,769)
----------- ----------- ----------- -----------
Net income before extraordinary item................................. 8,639 24,749 42,400 62,858
Extraordinary item (a)............................................... -- -- (4,087) --
----------- ----------- ----------- -----------
Net income........................................................... $ 8,639 $ 24,749 $ 38,313 $ 62,858
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
OTHER DATA:
EBITDA (b)........................................................... $ 70,080 $ 109,035 $ 131,209 $ 162,145
EBITDA margin........................................................ 15.3% 18.1% 18.9% 20.7%
Capital expenditures................................................. $ 6,695 $ 5,988 $ 10,936 $ 20,381
Ratio of earnings to fixed charges (c)............................... 1.5x 1.8x 2.9x 4.1x
<CAPTION>
<S> <C>
1996
-----------
<S> <C>
STATEMENT OF INCOME DATA:
Net sales............................................................ $ 776,221
Cost of sales, excluding depreciation and amortization expense....... 494,689
Depreciation and amortization expense................................ 28,808
Selling, general and administrative expense.......................... 114,746
-----------
Operating income..................................................... 137,978
Interest expense..................................................... (24,617)
Nonrecurring acquisition expense..................................... --
Other income (expense), net.......................................... (3,696)
-----------
Income before income taxes and extraordinary item.................... 109,665
Provision for income taxes........................................... (42,087)
-----------
Net income before extraordinary item................................. 67,578
Extraordinary item (a)............................................... --
-----------
Net income........................................................... $ 67,578
-----------
-----------
OTHER DATA:
EBITDA (b)........................................................... $ 166,061
EBITDA margin........................................................ 21.4%
Capital expenditures................................................. $ 20,374
Ratio of earnings to fixed charges (c)............................... 4.4x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------
<S> <C> <C> <C> <C>
1992 1993 1994 1995
----------- ----------- ----------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................................................... $ 151,544 $ 90,463 $ 95,590 $ 121,313
Total assets......................................................... 766,397 691,277 677,055 689,924
Total debt (d)....................................................... 488,069 391,839 248,176 197,865
Total shareholders' equity........................................... 149,688 173,292 278,640 344,085
<CAPTION>
<S> <C>
1996
-----------
<S> <C>
BALANCE SHEET DATA:
Working capital...................................................... $ 136,864
Total assets......................................................... 710,662
Total debt (d)....................................................... 227,243
Total shareholders' equity........................................... 360,548
</TABLE>
- ------------------------
(a) Represents an extraordinary charge related to the write-off of deferred debt
issuance costs in conjunction with the prepayment of certain bank debt.
(b) "EBITDA" represents earnings before interest expense, other financing fees
associated with program fees on sale of accounts receivable, interest
income, income taxes, and depreciation and amortization expense, and
excludes minority interest. EBITDA is not intended to represent cash flow
from operations as defined by generally accepted accounting principles and
should not be used as an alternative to net income as an indicator of the
Company's operating performance or to cash flow as a measure of liquidity.
EBITDA is included in the Prospectus as it is a basis upon which the Company
assesses its financial performance, and certain covenants in the Company's
borrowing arrangements will be tied to similar measures. EBITDA in fiscal
1992 excludes the effects of a non-recurring charge of $4,130 associated
with an acquisition.
(c) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before income taxes and extraordinary items, plus
fixed charges. Fixed charges includes interest expenses on all indebtedness,
other financing fees associated with program fees on sale of accounts
receivable, amortization of deferred debt issuance costs, and one-third of
rental expenses on operating leases, representing that portion of rental
expense deemed by the Company to be attributable to interest.
(d) Total debt includes long-term debt and the current portion of long-term
debt.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion and analysis of the results of operations of the
Company should be read in conjunction with the consolidated financial statements
and notes thereto included elsewhere in this Prospectus.
RESULTS OF OPERATIONS
The following table sets forth the components of net income before
extraordinary item as a percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
Net sales................................................................................ 100.0% 100.0% 100.0%
Cost of sales, excluding depreciation and amortization................................... 66.2 64.7 63.7
Depreciation and amortization expense.................................................... 4.1 3.5 3.7
Selling, general and administrative expense.............................................. 14.7 14.6 14.8
--------- --------- ---------
Operating income......................................................................... 15.0 17.2 17.8
Interest expense......................................................................... (4.4) (3.3) (3.2)
Other expense, net....................................................................... (.6) (.6) (.5)
--------- --------- ---------
Income before income taxes and extraordinary item........................................ 10.0 13.3 14.1
Provision for income taxes............................................................... (3.9) (5.3) (5.4)
--------- --------- ---------
Net income before extraordinary item..................................................... 6.1% 8.0% 8.7%
--------- --------- ---------
--------- --------- ---------
</TABLE>
1996 COMPARED TO 1995
Net sales were $776.2 million for the year ended December 31, 1996 compared
to $783.2 million for 1995. Sales of commercial, radio frequency and industrial
interconnect products, cable assemblies and flat-ribbon cable for 1996 increased
4.9% compared to 1995 ($388.9 million--1996; $370.6 million--1995). Such
increase is primarily due to increased sales of cable assembly and interconnect
products, including fiber optics, smart card reader devices, automotive safety
devices (airbags and pretensioner seatbelts) and communications related
interconnect products. Sales of high performance environmental connectors for
1996 increased 19.4% compared to 1995 ($208.1 million--1996; $174.3
million--1995). The increase is primarily attributable to strong demand for the
Company's application-specific products for new and enhanced electronic
aerospace and avionics interconnect systems for space, military and commercial
aviation applications. Sales of coaxial cable products primarily for cable
television applications for 1996 declined 24.8% ($179.2 million--1996; $238.3
million--1995) primarily due to: (1) a decline in U.S. coaxial cable sales from
$115.4 million in 1995 to $94.5 million in 1996, of which $18.4 million is
attributable to diminished sales of coaxial cable to RBOCs that slowed their
construction of broadband systems in 1996 and reduced sales to a major U.S.
cable operator in the latter part of 1996 as that operator reduced expenditures
for the rebuilding of its systems; and (2) a decline in international coaxial
cable sales from $122.9 million in 1995 to $84.7 million in 1996, of which $29.1
million is attributable to reduced sales to a foreign cable operator as that
operator selected local sourcing for its cable requirements and reduced sales to
companies in a foreign country as that country is undergoing a regulation of
cable television franchises which slowed the construction of new systems.
Geographically, sales in the United States in 1996 increased 0.6% compared
to 1995 ($397.0 million-- 1996; $394.6 million--1995); international sales for
1996, including export sales, declined 2.4% in U.S.
30
<PAGE>
dollars ($379.2 million--1996; $388.7 million--1995) and increased approximately
0.5% in local currencies compared to 1995. The comparatively stronger U.S.
dollar in 1996 had the currency translation effect of decreasing net sales by
approximately $11.4 million when compared to foreign currency translation rates
in 1995.
The gross profit margin as a percentage of net sales (including depreciation
in cost of sales) increased to 34% in 1996 from 33% in 1995. The increase is
generally attributable to increased sales of higher margin application-specific
connector products, increased efficiencies due to increased production rates for
certain connector products, and continuing cost control programs, the effect of
which was partially offset by lower coaxial cable sales.
Selling, general and administrative expenses as a percentage of sales for
1996 remained constant at approximately 15% when compared to 1995.
Interest expense was $24.6 million for 1996 compared to $25.5 million for
1995. The decrease is due to generally lower average debt outstanding during the
year.
Other expenses, net for 1996 was $3.7 million, a decrease of $.8 million
from 1995. See Note 8 to the Company's Consolidated Financial Statements
included elsewhere herein for details of the components of other expenses, net.
The provision for income taxes for 1996 was at an effective rate of 38.4%
compared to an effective rate of 40.0% in 1995.
1995 COMPARED TO 1994
Net sales were $783.2 million for the year ended December 31, 1995 compared
to $692.7 million for 1994. Sales of commercial, radio frequency and industrial
interconnect products, cable assemblies and flat-ribbon cable for 1995 increased
15.3% ($370.6 million--1995; $321.5 million--1994). Such increase is primarily
due to strong demand, especially internationally, for connectors and
interconnect systems used in telecommunications applications, automotive safety
devices (airbags and pretensioner seatbelts), machine tool and factory
automation equipment, and smart card reader devices. Sales of high-performance
environmental connectors for 1995 increased 11.0% compared to 1994 ($174.3
million--1995; $157.0 million--1994). The increase is primarily attributable to
strong demand for the Company's application-specific products for new and
enhanced electronic aerospace and avionics interconnect systems. Sales of
coaxial cable products primarily for cable television applications for 1995
increased 11.3% ($238.3 million--1995; $214.1 million--1994) primarily due to
increased international sales; U.S. sales of coaxial cable were approximately
even with 1994 with increased sales to certain RBOCs as they began initial
construction of broadband systems offsetting a decline in sales to traditional
cable television operators.
Geographically, sales in the United States in 1995 increased 3.6% compared
to 1994 ($394.6 million-- 1995; $381.0 million--1994); international sales for
1995, including export sales, increased 24.7% in U.S. dollars ($388.7
million--1995; $311.6 million--1994) and increased approximately 19% in local
currencies compared to 1994. The comparatively weaker U.S. dollar in 1995 had
the currency translation effect of increasing net sales by approximately $19.2
million when compared to foreign currency translation rates in 1994.
The gross profit margin as a percentage of net sales (including depreciation
in cost of sales) increased to 33% in 1995 from 31% in 1994. The increase is
generally attributable to increased sales of higher margin application-specific
connector products, increased sales of the relatively higher gross margin
coaxial cable products and continuing cost control programs.
Selling, general and administrative expenses as a percentage of sales for
1995 remained even with 1994 at approximately 15%.
31
<PAGE>
Interest expense was $25.5 million for 1995 compared to $30.4 million for
1994. The decrease is due to decreased debt outstanding.
Other expenses, net for 1995 was $4.5 million, an increase of $.3 million
from 1994. See Note 8 to the Company's Consolidated Financial Statements
included elsewhere herein for details of the components of other expenses, net.
The provision for income taxes for 1995 was at an effective rate of 40%
compared to an effective rate of 39% in 1994.
LIQUIDITY AND CAPITAL RESOURCES
POST-MERGER (INCLUDING THE FINANCINGS)
Following the Merger (including the Financings), the Company's principal
sources of liquidity will be from cash flow generated from operations and
borrowings under the $150.0 million Revolving Credit Facility. The Company's
principal uses of liquidity will be to meet debt service requirements, finance
the Company's capital expenditures and provide working capital. The Company
expects that capital expenditures in 1997 will not exceed $25.0 million. The
Company expects that ongoing requirements for debt service, capital expenditures
and working capital will be funded by internally generated cash flow and
borrowings under the Revolving Credit Facility.
The Company will incur substantial indebtedness in connection with the
Merger. On a pro forma basis to reflect the Merger, the Company expects to have
approximately $1,011.3 million of consolidated indebtedness as compared to
$227.3 million of consolidated indebtedness at December 31, 1996 (in each case
excluding $3.0 million of outstanding letters of credit). The Company's debt
service obligations could have important consequences to holders of the Notes.
See "Risk Factors."
The Financings will include $750.0 million under the $900.0 million Credit
Facilities and the Offering of $240.0 million of Notes. The gross proceeds from
the Offering, together with borrowings of $750.0 million under the Term Loan
Facility, the equity investment by the Partnership and available cash of the
Company, will be used upon consummation of the Merger to pay cash merger
consideration, repay and repurchase indebtedness of the Company, and pay
transaction fees and expenses (including debt retirement premiums) in connection
therewith. At December 31, 1996, on a pro forma basis after giving effect to the
Merger, the Company would have borrowed $750.0 million under the Term Loan
Facility, borrowed approximately $13.0 million under the Revolving Credit
Facility, issued $240.0 million of the Notes, and would have had additional
availability of approximately $134.0 million under the Revolving Credit Facility
(after giving effect to $3.0 million of outstanding letters of credit).
The $750.0 million Term Loan Facility will consist of (i) a $350.0 million
seven year Term Loan A, (ii) a $200.0 million eight year Term Loan B and (iii) a
$200.0 million nine year Term Loan C. These Term Loans will amortize as follows:
<TABLE>
<CAPTION>
DATE FROM CLOSING TERM LOAN A TERM LOAN B TERM LOAN C
- --------------------------------------------- ------------- ------------------- -------------
<S> <C> <C> <C>
(DOLLARS IN
MILLIONS)
24 Mos....................................... $ 25.0 $ 0.5 $ 0.5
36 Mos....................................... 37.5 0.5 0.5
48 Mos....................................... 47.5 0.5 0.5
60 Mos....................................... 60.0 0.5 0.5
72 Mos....................................... 80.0 0.5 0.5
84 Mos....................................... 100.0 0.5 0.5
96 Mos....................................... -- 197.0 0.5
108 Mos...................................... -- -- 196.5
------ ------ ------
$ 350.0 $ 200.0 $ 200.0
------ ------ ------
------ ------ ------
</TABLE>
32
<PAGE>
The Term Loan Facility is also subject to mandatory prepayment with the
proceeds of certain asset sales and a portion of Excess Cash Flow (as defined in
the Credit Facilities). The Revolving Credit Facility will terminate seven years
after the Effective Time. See "Description of Credit Facilities."
In December 1993, a subsidiary of the Company entered into an asset-backed
securitization program whereby the subsidiary can sell to a financial
institution up to $50.0 million of trade accounts receivable. See Note 9 to the
Company's Consolidated Financial Statements included elsewhere herein. The
program costs approximate rates charged on high quality commercial paper, plus
certain administrative expenses. At December 31, 1996, sales under the program
were approximately $50.0 million. The program expires in December 1997. The
Company expects to modify or replace such program with a similar facility in
connection with the Merger.
Based upon the current level of operations and anticipated growth,
management believes that future cash flow from operations, together with
available borrowings under the Revolving Credit Facility, will be adequate to
meet the Company's anticipated requirements for capital expenditures, working
capital, interest payments and scheduled principal payments. There can be no
assurance, however, that the Company's business will continue to generate
sufficient cash flow from operations in the future to service its debt and make
necessary capital expenditures after satisfying certain liabilities arising in
the ordinary course of business. If unable to do so, the Company may be required
to refinance all or a portion of its existing debt, including the Notes, to sell
assets or to obtain additional financing. There can be no assurance that any
such refinancing would be possible or that any such sales of assets or
additional financing could be achieved. See "Risk Factors."
HISTORICAL
Cash provided by operating activities totaled $68.2 million, $79.2 million
and $88.9 million for 1996, 1995 and 1994, respectively. The decrease in cash
from operating activities in 1996 compared to 1995 is primarily attributable to
increased cash tax payments in certain foreign jurisdictions, increased cash
payments to the Company's pension plans and increases in inventory. In 1995, the
cash from operating activities was lower than 1994 primarily because of changes
in the noncash components of working capital primarily reflecting higher sales
levels and a reduction in accrued liabilities.
Cash from operating activities was used primarily for capital expenditures:
$20.4 million, $20.4 million and $10.9 million in 1996, 1995 and 1994,
respectively. In 1996, cash from operating activities was also used for
acquisitions ($29.5 million) and to repurchase in the open market the Company's
Common Stock ($52.7 million). In 1995 and 1994, the Company also used the cash
flow from operations for debt reduction ($50.4 million--1995; $145.6
million--1994); the 1994 debt reduction also included approximately $67.0
million net proceeds from the sale of 4.4 million shares of Common Stock. In
1996, the Company increased its net borrowings by approximately $26.3 million to
supplement the cash flow from operations to fund the expenditures described
above.
In 1996, the Company's Board of Directors authorized an open market share
repurchase program of up to 5.0 million shares of the Company's Common Stock. At
December 31, 1996, the Company had repurchased in the open market approximately
2.6 million shares of its Common Stock at an average price of $20.01 per share.
ENVIRONMENTAL MATTERS
In connection with the acquisition of Amphenol from Allied Corporation
("Allied") in 1987, Allied agreed to indemnify Amphenol for a portion of
environmental liabilities of Amphenol identified within a period of seven years
following the acquisition that arise out of events, conditions or circumstances
that occurred or existed at the time of or prior to the acquisition to the
extent that such liability exceeds $13.0 million. In such event, Allied is
obligated to pay 80% of the excess over $13.0 million and 100% of the excess
over $30.0 million. The Company believes that as of December 31, 1996, the $13.0
million threshold
33
<PAGE>
described above has been exceeded and that future expenditures on these projects
will be subject to the indemnification agreement. The Company has been named as
a defendant in various legal actions or as a potentially responsible party in
relation to several environmental cleanup sites in which the associated costs
are subject to the Allied indemnification agreement. There are no amounts
currently owed to the Company under the Allied indemnification agreement.
Management does not believe that the costs associated with resolution of these
matters, net of indemnification from Allied, will have a material adverse effect
on the Company's financial position or results of operations. See
"Business--Legal Proceedings."
INFLATION AND COSTS
The cost of the Company's products is influenced by the cost of a wide
variety of raw materials, including precious metals such as gold and silver used
in plating; aluminum, copper, brass and steel used for contacts, shells and
cable; and plastic materials used in molding connector bodies, inserts and
cable. In general, increases in the cost of raw materials, labor and services
have been offset by price increases, productivity improvements and cost saving
programs.
RISK MANAGEMENT
The Company has to a significant degree mitigated its exposure to currency
risk in its business operations by manufacturing and procuring its products in
the same country or region in which the products are sold so that costs reflect
local economic conditions. In other cases involving U.S. export sales, raw
materials are a significant component of product costs for the majority of such
sales and raw material costs are generally dollar based on a worldwide scale,
such as basic metals and petroleum derived materials. The Company does have
credit agreements which allow it to borrow at variable rates. In such cases the
Company may use financial instruments, primarily LIBOR contracts and interest
rate swap contracts to fix such variable rates for varying periods, generally
not longer than one year. See "Risk Factors--Substantial Leverage and Debt
Service" and "--Risks Associated with Foreign Operations; Exchange Rate
Fluctuations."
FUTURE ACCOUNTING CHANGES
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125 (FAS 125), "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." Management
has reviewed the statement and believes that implementation of the statement
will not have a material effect on the Company's financial position or results
of operations.
34
<PAGE>
BUSINESS
GENERAL
Amphenol is a leading designer, manufacturer and marketer of electrical,
electronic and fiber optic connectors, interconnect systems and coaxial and
flat-ribbon cable. The primary end markets for the Company's products are
telephone, wireless and data communications systems; cable television systems;
commercial and military aerospace electronics; automotive and mass
transportation applications; and industrial factory automation equipment. For
the year ended December 31, 1996, approximately 52% of the Company's net sales
were to the worldwide communications market (including 23% for the cable
television market), 26% were for commercial and military aerospace and other
military electronics applications and 22% were for industrial, transportation
and other applications. The Company focuses on optimizing its mix of higher
margin application-specific products in its product offerings and has enhanced
the cost controls in its operations. As a result of these initiatives, the
Company's operating profit margin has increased from 13.5% in fiscal year 1993
to 17.8% in fiscal year 1996. For fiscal year 1996, the Company had net sales
and EBITDA of $776.2 million and $166.1 million, respectively.
The Company designs and manufactures connectors and interconnect systems,
which are used primarily to conduct electrical and optical signals, for a wide
range of sophisticated electronic applications. The Company believes, based
primarily on published market research, that it is one of the largest connector
manufacturers in the world and the leading supplier of high performance
environmental connectors that require superior performance and reliability under
conditions of stress and in hostile environments. Such conditions are frequently
encountered in commercial and military aerospace applications and other
demanding industrial applications such as natural resource exploration, medical
instrumentation and off-road construction. In addition, the Company has
developed a broad range of interconnect products to serve the rapidly growing
markets of wireless communications including cellular and personal communication
networks and fiber optic networks; electronic commerce including smart cards and
electronic purse applications; and automotive safety products including airbags,
pretensioner seatbelts and anti-lock braking systems. The Company is also one of
the leaders in developing interconnect products for factory automation and
machine tools and develops interconnect products for mass transportation
applications. The Company believes that the worldwide industry for interconnect
products and systems is highly fragmented with over 1,000 producers of
connectors worldwide, of which the 10 largest producers accounted for a combined
market share of approximately 36% in 1996. The Company estimates that the total
sales for the industry were approximately $27.0 billion in 1996.
The Company's Times Fiber subsidiary is the world's second largest producer
of coaxial cable for the cable television market. The Company believes that
Times Fiber is one of the lowest cost producers of coaxial cable for the cable
television market, and that it is one of the technological leaders in increasing
the bandwidth of coaxial cable products to accommodate increased channel
capacity for full service cable television/telecommunication systems. In
addition, the Company is beginning to supply the developing market for high
bandwidth coaxial cable and related interconnect products used in full service
cable television/telecommunication systems being installed by cable operators
and telecommunication companies. The Company has also become a major supplier of
coaxial cable to the emerging international cable television markets. The
Company estimates that the total sales for the worldwide market for coaxial
cable for cable television were approximately $800.0 million in 1996.
The Company is a global manufacturer employing advanced manufacturing
processes. The Company's products are manufactured and assembled at facilities
in the United States, Canada, Mexico, Germany, France, the United Kingdom, the
Czech Republic, Hong Kong, Taiwan, Japan, India and the People's Republic of
China. The Company's connector products are sold through its global sales force
and independent manufacturers' representatives to thousands of OEMs in 52
countries throughout the world as well as through a global network of
electronics distributors. The Company's coaxial cable products are primarily
sold to cable television operators and to telecommunication companies who have
entered the
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broadband communications market. In 1996, approximately 55% of the Company's net
sales were in North America, 33% were in Europe and 12% were in Asia and other
countries.
The Company was incorporated in Delaware in 1986. The Company's principal
executive offices are located at 358 Hall Avenue, Wallingford, Connecticut 06492
and its telephone number is (203) 265-8900.
COMPETITIVE STRENGTHS
- LEADER IN ATTRACTIVE MARKET SEGMENTS. The Company serves diverse markets
within the connector industry such as the worldwide communications,
aerospace, automotive and industrial markets and growing segments within
these markets. For instance, the Company has a broad product offering of
communications-related interconnect products such as sophisticated
wavelength division multiplexers used in fiber optic networks, radio
frequency connector products used in base stations and handheld sets in
wireless communications, and interconnect acceptor devices used in smart
card systems. The Company, in conjunction with a significant OEM customer,
has also developed sophisticated interconnect coupler technology for
advanced commercial aircraft flight control systems. In addition, the
Company has pioneered the development of interconnect products for
automotive safety systems such as airbags and pretensioner seatbelts and
has been an innovator in the development of motion control connector
products for factory automation. With respect to its coaxial cable
products for cable television, the Company has been one of the
technological leaders in expanding the bandwidth characteristics of
coaxial cable so as to permit greater channel capacity for cable
television systems.
- CLOSE RELATIONSHIPS WITH OEMS. Due in part to its 60 year history in the
connector business and its reputation for innovative, high quality
interconnection products, the Company has developed close relationships
with many of its OEM customers in its various product segments. To this
end, the Company has achieved preferred supplier designations from many
OEMs, enabling the Company to work closely with these OEMs through product
design teams and collaborative arrangements to design and manufacture
application-specific products. The Company's key account managers enhance
the Company's role as a supplier of application-specific products for OEMs
by directing customer relationships on a global basis and bringing to bear
the Company's global resources to satisfy the worldwide needs of its
multinational OEM customers.
- GLOBAL PRESENCE. Approximately 49% of the Company's sales for fiscal year
1996 were outside of the United States. The Company has 31 manufacturing
and assembly facilities on three continents and sales and distribution
organizations and relationships in 52 countries throughout the world. The
Company's global presence enables it to serve the expanding global needs
and requirements of its existing multinational and international OEM
customers and to position itself to develop new customer relationships
with other multinational and international OEMs. The Company believes that
having a local presence in foreign markets in which its OEM customers
operate is an important factor in its ability to provide high quality
products on a timely and efficient basis. Moreover, the Company attains
important operational advantages by developing and sharing "best
practices" across its vast international design and manufacturing network.
- EXTENSIVE PRODUCT LINE. Through its advanced technological and design
capabilities, the Company has developed an extensive line of interconnect
products for its customers worldwide which resulted in sales of
approximately 83,000 SKUs in 1996. By offering a broad array of high
quality products, the Company strives to provide highly-engineered,
reliable and value-added solutions for all of its customers'
interconnection needs. For example, based on Amphenol's position as the
leading supplier in the high performance environmental connector market,
the Company performed certain research and development for, and is now
producing, a family of connectors comprising approximately 1,000 SKUs for
use in the international space station program. The Company believes that
the breadth of its product line combined with its global presence is an
important competitive
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advantage in an environment in which many OEMs and other customers are
reducing the size of their supplier bases.
- BROAD CUSTOMER BASE. The Company's products are used in a wide variety of
applications by numerous customers, none of whom accounted for more than
5% of the Company's sales in 1996 (except for sales under contract with
the U.S. Government and its subcontractors, which accounted for 8% of 1996
sales). In 1996, the Company sold its products to approximately 11,500
customer locations worldwide. The Company's products are also sold to
additional customer locations through eight of the 10 largest electronics
distributors in the United States, which the Company believes is an
important competitive advantage in effectively marketing its products. By
servicing a broad array of customers in a variety of different industries
and countries, the Company strives to develop opportunities to
cross-market products and technologies.
BUSINESS STRATEGY
The Company's strategic objective is to further enhance its position as a
leading global designer and manufacturer of interconnect solutions and coaxial
cable products. The Company seeks to achieve this objective by pursuing the
following strategies:
- INCREASE DEVELOPMENT OF APPLICATION-SPECIFIC PRODUCTS FOR OEMS. The
Company intends to expand the scope and number of preferred supplier
designations and application-specific assignments it has with OEM
customers. The Company works closely with its network of OEM customers at
the design stage to create and manufacture innovative connector solutions
to meet its customers' specific interconnection needs. The Company's
application-specific products designed and manufactured for OEMs in this
manner generally have higher margins than the Company's other
interconnection products and have been developed across all of the
Company's product lines. In addition to developing further its
relationship with these OEMs and providing a source of high margin sales,
this product development strategy has a number of important ancillary
benefits. For instance, once an application-specific product has been
developed for a specific OEM customer, such new product often becomes
widely accepted in the industry for similar applications and products
manufactured by other potential customers, thereby providing additional
sources of future revenue. For example, the Company developed an
application-specific interconnect system for automotive safety devices for
a European luxury automobile manufacturer that became broadly used by
other European automobile manufacturers for standard car models.
- EXPAND PRODUCT LINES. The Company's current product lines encompass market
segments comprising approximately 50% of the $27.0 billion connector
industry. The Company continuously strives to expand its product lines in
order to become a primary source supplier of interconnect solutions for
many of its customers. By expanding its product lines, the Company intends
to leverage its extensive customer relationships to cross-sell additional
connector products. For example, in 1995, the Company developed and is now
producing a broad line of radio frequency coaxial and fiber optic
connectors for the cable television industry, which the Company markets to
its large base of existing coaxial cable customers. Moreover, in an
environment in which many OEMs and other customers are reducing the size
of their supplier bases, the Company believes that the expansion of its
product lines will further solidify its importance to existing customers
and enable the Company to effectively market products to new customers.
- FOCUS ON RAPIDLY GROWING COMMUNICATIONS SEGMENT. The Company intends to
capitalize on its advanced technological capabilities and products in the
emerging and rapidly expanding communications segment of the connector
industry, which has displayed strong growth in recent years in connection
with the proliferation of wireless communications including cellular
telephones and personal communication networks. For instance, the Company
has developed a broad range of radio frequency connector products for the
wireless communications market, and the Company's
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technology for smart card acceptor devices is used in many of the hand
held cellular telephones in Europe and elsewhere. The Company also
believes that many of the advanced technologies developed through its
product development activity in the commercial and military aerospace
segment provide it with significant competitive advantages in the
development of new commercial communications connector products. For
example, by using the technological capabilities that it developed in
designing filtered connectors for the aerospace segment, the Company was
able to develop a line of filtered connectors for the commercial
communications segment.
- EXPAND GLOBAL PRESENCE. The Company intends to further expand its global
manufacturing, sales and service operations to better serve its existing
client base, penetrate developing markets and establish new customer
relationships. As the Company's multinational OEM customers expand their
international operations to take advantage of developing markets and the
lower manufacturing and labor costs of such markets, the Company intends
to similarly expand its international capabilities in order to provide
just-in-time facilities near these customers. Such international expansion
also enables the Company to further reduce its reliance on the U.S.
economy and to take advantage of the lower manufacturing costs in certain
countries. The Company has recently increased its presence in this region
through the expansion of its Asia-Pacific sales force, the expansion of
its manufacturing facilities in the People's Republic of China and the
acquisition of 51% of Kai-Jack, one of the leading Taiwanese radio
frequency connector manufacturers.
- EXPAND INTERNATIONAL SALES OF COAXIAL CABLE. The Company believes that the
relatively low penetration rate for cable television in countries outside
of the United States provides significant opportunity for future growth in
international sales of coaxial cable. For example, it is estimated that in
1996 only 25% of the television households in Western Europe, 15% of such
households in Asia, and 11% of such households in Latin America subscribed
to some form of multichannel television service as compared to an
estimated subscription rate of 64% in the United States. Cable system
developments are currently planned in a number of different countries,
including large portions of Europe, Asia and Latin America. The Company
believes that it is well positioned to take advantage of this opportunity
because it is the second largest provider of coaxial cable for cable
television in the world and because it has extensive relationships with
many of the foreign and multinational MSOs planning system developments,
including United International Holdings, Inc., Telewest Communications
Plc, and Continental Cablevision, Inc.
- PURSUE STRATEGIC ACQUISITIONS AND INVESTMENTS. The Company intends to
continue to pursue strategic acquisitions that complement its existing
business and further expand its product lines and technological
capabilities. The interconnection industry is highly fragmented with over
1,000 producers of connectors worldwide, of which the 10 largest producers
accounted for a combined market share of approximately 36% in 1996. The
Company believes that the fragmented nature of the connector industry
provides significant opportunities for future strategic acquisitions.
Furthermore, the Company believes that it can improve the profitability of
the acquired companies through economies of scale. The Company's recent
acquisitions of Sine and Kai-Jack, which expanded the Company's
capabilities in the factory automation and radio frequency segments,
respectively, and, in the case of Kai-Jack, increased the Company's
presence in the growing Asia-Pacific market, are examples of the type of
synergistic acquisitions the Company plans to continue to pursue.
INDUSTRY OVERVIEW
Connectors and interconnect systems are devices that make connections that
allow electronic and optical signals to travel from point to point. They are
used to connect wires, cables, printed circuit boards, and other electronic
components to each other and to related equipment. Connectors and interconnect
systems are found in virtually every electronic product including voice, video
and data communications equipment and networks, aerospace and military
electronics systems, medical and instrumentation equipment, automobiles,
manufacturing machines and equipment, mass transportation systems and consumer
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electronics and appliances. OEMs in these industries use connectors in the
manufacture of their products and typically collaborate with connector
manufacturers in the design of the OEM's interconnect needs and requirements.
The Company primarily competes in the wireless, telecom and data communications,
broadband communications, commercial and military aerospace, and certain
industrial and automotive electronics markets.
It is estimated that overall sales for the connector industry were
approximately $27.0 billion in 1996. Information regarding the major end-user
markets for connectors is presented in the table below.
<TABLE>
<CAPTION>
1996 SALES
(IN PERCENT OF
BILLIONS) TOTAL
----------- -----------
<S> <C> <C>
Telecommunications............................................................. $ 6.2 23.0%
Computer....................................................................... 6.0 22.2
Datacom........................................................................ 3.4 12.6
Consumer....................................................................... 2.6 9.6
Auto........................................................................... 2.5 9.3
Military and Commercial Aircraft............................................... 2.0 7.4
Test and measurement........................................................... 1.1 4.1
Industrial..................................................................... 1.6 5.9
Medical........................................................................ 1.0 3.7
Other.......................................................................... 0.6 2.2
----------- -----------
Total........................................................................ $ 27.0 100.0%
</TABLE>
Source: Fleck Research, February 26, 1997.
Demand for connector products has experienced growth in recent years and is
expected to continue to grow in the future. The Company attributes the expected
growth in the demand for electronic and fiber optic connectors and interconnect
devices to the proliferation of electronic and fiber optic systems and the
development of new electronic products and applications.
PRODUCT GROUPS
The following table sets forth the dollar amounts of the Company's net sales
for each major product group. For a discussion of factors affecting changes in
sales by product category, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1994 1995 1996
---------- ---------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales by product group:
Commercial, radio frequency and industrial interconnect products, cable
assemblies and flat-ribbon cable........................................... $ 321,511 $ 370,619 $ 388,941
High performance environmental connectors.................................... 156,995 174,329 208,071
Coaxial cable................................................................ 214,145 238,285 179,209
---------- ---------- ----------
$ 692,651 $ 783,233 $ 776,221
---------- ---------- ----------
---------- ---------- ----------
Net sales by geographic area:
United States operations................................................... $ 381,016 $ 394,563 $ 397,023
International operations(1)................................................ 311,635 388,670 379,198
---------- ---------- ----------
$ 692,651 $ 783,233 $ 776,221
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------------------
(1) Includes international coaxial cable sales, which are primarily export
sales.
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<PAGE>
COMMERCIAL, RADIO FREQUENCY AND INDUSTRIAL INTERCONNECT PRODUCTS, CABLE
ASSEMBLIES AND FLAT-RIBBON CABLE. The Company produces a broad range of
commercial and industrial interconnect products. Such products include: fiber
optic interconnect products and systems used in fiber optic networks for voice,
video and data communications; chip card acceptor interconnect devices and
readers used in conjunction with smart cards and electronic purses (a system for
cashless monetary transactions); industrial interconnect products used in a
variety of applications such as factory automation equipment, mass
transportation applications including railroads and marine transportation; and
automotive safety products including interconnect devices and systems used in
automotive airbags, pretensioner seatbelts and anti-lock braking systems. The
Company designs and produces a broad range of radio frequency connector products
used in telecommunications, computer and office equipment, instrumentation
equipment, local area networks, aerospace and military electronic applications.
The Company's radio frequency connectors are used in base stations, hand held
sets and other components of cellular and personal communications networks. The
Company has also developed a broad line of radio frequency connectors for
coaxial cable for full service cable television/telecommunication networks. The
Company also designs and produces highly-engineered cable assemblies. Such
assemblies are specially designed by the Company in conjunction with OEM
customers for specific applications, primarily for computer, communications and
office equipment systems. The cable assemblies utilize the Company's connector
and cable products as well as components purchased from others. The Company is
also a leading producer of flat-ribbon cable, a cable made of wires assembled
side by side such that the finished cable is flat. Flat-ribbon cable is used to
connect internal components in systems with space and component configuration
limitations. The product is used in computer and office equipment components as
well as in a variety of telecommunications applications.
HIGH PERFORMANCE ENVIRONMENTAL CONNECTORS. The Company believes, based
primarily on published market research, that it is the leading supplier of
circular, military-specification connectors; such connectors require superior
performance and reliability under conditions of stress and in hostile
environments. Such connectors are generally used to interconnect electronic and
fiber optic systems in sophisticated aerospace, military, commercial and
industrial equipment. These applications present demanding technological
requirements in that such connectors are subject to rapid and severe temperature
changes, vibration, humidity or nuclear radiation. Frequent applications of
these connectors include aircraft, guided missiles, radar, military vehicles,
equipment for spacecraft, energy and geophysical applications and off-road
construction equipment. Specially designed high performance environmental
connectors, which include fiber optic, filtered, nonmetallic, diode and
breakaway connectors, are manufactured to specific customer input/output
configurations.
COAXIAL CABLE. The Company designs, manufactures and markets coaxial cable
primarily for use in the cable television industry. The Company manufactures two
primary types of coaxial cable: semi-flexible, which has an aluminum tubular
shield, and flexible, which has one or more braided metallic shields. Semi-
flexible coaxial cable is used in the trunk and feeder distribution portion of
cable television systems, and flexible cable (also known as drop cable) is used
primarily for hookups from the feeder cable to the cable television subscriber's
residence. Flexible cable is also used in other communication applications.
The rapid developments in fiber optic technologies, digital compression
(which allows several channels to be transmitted within the same bandwidth that
a single analog channel currently requires) and other communication
technologies, including the Company's development of higher capacity coaxial
cable, have resulted in technologies which are expected to give cable television
systems channel capacity in excess of 500 channels. Such expanded channel
capacity, along with other component additions, will permit cable operators to
offer full service networks with a variety of capabilities, including near
video-on-demand, pay-per-view special events, home shopping networks,
interactive entertainment and education services, telephone services, and
high-speed access to data resources such as the Internet. With respect to
expanded channel capacity systems, cable operators have generally adopted, and
the Company believes that for the foreseeable future will continue to adopt, a
cable system using both fiber optic cable and coaxial cable.
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Such systems combine the advantages of fiber optic cable in transmitting clear
signals over a long distance without amplification with the advantages of
coaxial cable in ease of installation, low cost and compatibility with the
receiving components of the customer's communications devices. The Company
believes that while system operators are likely to increase their use of fiber
optic cable for the trunk and feeder portions of the cable systems, there will
be an ongoing need for high capacity coaxial cable for the local distribution
and street-to-the-home portions of the cable system.
U.S. cable system designs are increasingly being employed in international
markets where cable television penetration is low. For example, it is estimated
that in 1996 only 25% of the television households in Western Europe subscribed
to some form of multichannel television service as compared to an estimated
subscription rate of 64% in the United States. The estimated subscription rates
in the Asian and Latin American markets were even lower at approximately 15% and
11%, respectively. In terms of television households, it is estimated that there
were 178 million television households in Western Europe, 398 million in Asia
and 81 million in Latin America. This compares to an estimated 97 million
television households in the U.S. In 1996, the Company had sales of coaxial
cable in approximately 40 countries, and the Company believes the development of
cable television systems in international markets presents a significant
opportunity to increase sales of its coaxial cable products. See "Risk
Factors--Risks Associated with Foreign Operations; Exchange Rate Fluctuations."
PRODUCT DEVELOPMENT
The Company's product development strategy is to offer a broad range of
products to meet the specific interconnect requirements of its customers in its
target markets. The Company's market focus is primarily in interconnect products
for the (i) wireless, telecom and data communications market; (ii) broadband
communications, primarily cable television and the developing markets for full
service television, telephone and data communication broadband networks; (iii)
commercial and military aerospace markets; (iv) industrial markets, primarily
factory automation and mass transportation; and (v) automotive electronics,
primarily automotive safety devices such as airbags, pretensioner seatbelts and
anti-lock braking systems. The Company implements its product development
strategy through product design teams and collaboration arrangements with
customers which result in obtaining approved vendor status for the customer's
new products and programs. The Company further seeks to have its products become
widely accepted within the industry for similar applications and products
manufactured by other potential customers, thereby providing additional sources
of future revenue. The development of application-specific products has
decreased the significance of standard products which generally experience
greater pricing pressure. In addition to product design teams and customer
collaboration arrangements, the Company uses key account managers to direct
customer relationships on a global basis such that the Company can bring to bear
its total resources to meet the worldwide needs of its multinational customers.
The Company is also focused on making strategic acquisitions in certain markets
to further broaden and enhance its product offerings and expand its global
capabilities.
The following examples illustrate the Company's market and product
development strategy:
- The use of fiber optics in communications systems has been increasing in
recent years, including fiber optic applications in long distance
telephone systems and local area networks. The Company has developed a
broad line of fiber optic interconnect components for fiber optic systems
including sophisticated narrowband wavelength division multiplexers, which
permit greater transmission capability, and fiber optic management
systems, which facilitate the organizing and management of a fiber optic
network.
- Radio frequency/microwave electronics technology has been characterized by
developments that expand circuit capacity with increasingly smaller
electronic devices. These technologies have
41
<PAGE>
expanded into the growing markets of cellular and personal communication
networks. The Company has developed a broad line of interconnect products
and systems used in base stations for such wireless communication systems.
- Smart cards, where data is stored in a chip on a plastic card, are
increasingly being used in banking systems (including electronic purses),
telephone credit cards, security systems and other applications. The
Company is one of the leaders in developing acceptor devices used in
readers that transmit the information stored on smart cards or as
components of the electronic purse.
- Performance, reliability and ability to withstand harsh environments are
essential to products and systems for the commercial and military
aerospace market. The Company, in conjunction with a significant OEM
customer, has developed a sophisticated interconnect coupler technology
for advanced commercial aircraft flight control systems. The Company also
performed certain research and development studies and is now producing a
family of connectors comprising approximately 1,000 SKUs for use in the
international space station program.
- The use of electronics and sensing devices in automobiles has been
increasing for the past several years. The Company, in conjunction with
major European automobile manufacturers, has developed a broad line of
interconnect products used in automotive airbags and pretensioner
seatbelts. Such products, which were originally used primarily in European
luxury cars, have evolved in technology and availability to standard
European car models and are being used in a wider array of applications
such as passenger side and side impact protection.
- The Company has been one of the technology leaders in expanding the
bandwidth characteristics of coaxial cable for cable television. The
Company produces 1 gigahertz coaxial cable which is used in hybrid fiber
coaxial cable ("HFC") full service networks for offering video, voice and
data services. In addition, in 1995 the Company developed and is now
producing a broad line of radio frequency coaxial connectors for the cable
television industry.
- The Company also seeks to expand its product offering and global presence
in its chosen markets through strategic acquisitions. In 1996, for
example, the Company acquired Sine, one of the leading suppliers of
interconnect products and assemblies for the factory automation market.
This acquisition complemented the Company's existing line of industrial
interconnect products and further positioned the Company for growth in
factory motion control equipment. The Company also acquired a 51% interest
in Kai-Jack, one of the leading Taiwanese radio frequency connector
manufacturers. The acquisition strengthens the Company's manufacturing
capabilities and worldwide sourcing of radio frequency products as well as
expands the Company's presence in the growing Asian markets.
INTERNATIONAL OPERATIONS
The Company believes that its global presence is an important competitive
advantage as it allows the Company to provide quality products on a timely and
worldwide basis to its multinational customers. Approximately 49% of the
Company's sales for the year ended December 31, 1996 were outside of the United
States. Approximately 68% of such international sales were in Europe. The
Company has manufacturing facilities in the United Kingdom, Germany, France, the
Czech Republic and sales offices in most other European markets. The European
operations generally have strong positions in their respective local markets.
Local operations coordinate product design and manufacturing responsibility with
the Company's other operations around the world. The balance of the Company's
international activities are located primarily in Canada, Mexico and the Far
East, which includes manufacturing facilities in Hong Kong, Taiwan, India, Japan
and the People's Republic of China. The Hong Kong, Taiwan, India, People's
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<PAGE>
Republic of China and Mexico facilities generally serve their respective local
markets as well as provide low cost manufacturing and assembly sources for world
markets.
CUSTOMERS
The Company's products are used in a wide variety of applications by
numerous customers, none of whom accounted for more than 5% of the Company's
sales for 1996 (except for sales under contract with the U.S. Government and its
subcontractors, which accounted for 8% of 1996 sales). The Company's
participation across a broad spectrum of defense programs is such that the
Company believes that no one military program accounts for more than 1% of 1996
net sales. See "Risk Factors--Exposure to Changes in Military Expenditures." The
Company's products are sold directly to OEMs, cable system operators,
telecommunication companies and through distributors. There has been a trend on
the part of OEM customers to consolidate their lists of qualified suppliers to
companies that have a global presence, can meet quality and delivery standards,
have a broad product portfolio and design capability, and have competitive
prices. The Company has focused its global resources to position itself to
compete effectively in this environment. The Company has concentrated its
efforts on service and productivity improvements, including advanced computer
aided design and manufacturing systems, statistical process controls and just-
in-time inventory programs to increase product quality and shorten product
delivery schedules. The Company's strategy is to provide a broad selection of
products in the areas in which it competes. The Company has achieved a preferred
supplier designation from many of its OEM customers.
Cable television services in the United States are provided primarily by
MSOs. It is estimated that in 1996 the twenty largest MSOs served 85% of the
estimated 62 million cable television subscribers in the United States. The
major MSOs include such companies as TCI, Time Warner Companies Inc.,
Continental Cablevision, Inc., Comcast Corporation and Cablevision Systems
Corporation. Many of the major MSOs are customers of the Company, including
those listed above.
The Company's sales to distributors represented approximately 26% of the
Company's 1996 sales. The Company's recognized brand names, including
"Amphenol," "Times Fiber," "Pyle-National," "Spectra-Strip," "Sine," "Tuchel"
and "Socapex," together with the Company's strong connector design-in position
(products that are specified in the plans and are qualified by the OEM), enhance
its ability to reach the secondary market through its network of distributors.
The Company's products are sold by eight of the 10 largest electronics
distributors in the United States, and the Company believes that its distributor
network represents a competitive advantage.
MANUFACTURING
The Company employs advanced manufacturing processes including molding,
stamping, plating, turning, extruding, die casting and assembly operations as
well as proprietary process technology for flat-ribbon and coaxial cable
production. The Company's manufacturing facilities are generally vertically
integrated operations from the initial design stage through final design and
manufacturing. Outsourcing of certain fabrication processes is used when
cost-effective. Substantially all of the Company's manufacturing facilities are
certified to the ISO9000 series of quality standards.
The Company employs a global manufacturing strategy to lower its production
costs and to improve service to customers. The Company sources its products on a
worldwide basis with manufacturing and assembly operations in the United States,
Canada, Mexico, the United Kingdom, France, Germany, the Czech Republic, Hong
Kong, Taiwan, India, Japan and the People's Republic of China. To better serve
high volume OEM customers, the Company has established just-in-time facilities
near major customers.
The Company's policy is to maintain strong cost controls in its
manufacturing and assembly operations. The Company has undertaken programs to
rationalize its production facilities, reduce plant and
43
<PAGE>
corporate overhead expense and maximize the return on capital expenditures. The
programs to improve productivity are ongoing.
The Company purchases a wide variety of raw materials for the manufacture of
its products, including precious metals such as gold and silver used in plating;
brass, copper, aluminum and steel used for cable, contacts and connector shells;
and plastic materials used for cable and connector bodies and inserts. All such
raw materials are readily available throughout the world and are purchased
locally from a variety of suppliers. The Company is not dependent upon any one
source for raw materials or if one source is used, alternate sources of supply
are available.
RESEARCH AND DEVELOPMENT
The Company's research, development and engineering expenditures for the
creation and application of new and improved products and processes were $14.6
million, $15.7 million and $14.3 million (excluding customer sponsored programs
representing expenditures of $0.9 million, $1.3 million and $0.8 million) for
1996, 1995 and 1994, respectively. The Company's research and development
activities focus on selected product areas and are performed by individual
operating divisions. Generally, the operating divisions work closely with OEM
customers to develop highly engineered products that meet the customer's needs.
The Company continues to focus its research and development efforts primarily on
those product areas that it believes have the potential for broad market
applications and significant sales within a one- to three-year period.
TRADEMARKS AND PATENTS
The Company owns a number of active patents worldwide. While the Company
considers its patents to be valuable assets, the Company does not believe that
its competitive position is dependent on patent protection or that its
operations are dependent on any individual patent.
Allied Corporation has granted to the Company a worldwide non-exclusive
license to use all trademarks, service marks, trade names and corporate names
relating to "Bendix" which the Company has used in its sales and marketing of
high performance environmental connectors. The license will expire on June 2,
1997. The Company has been increasing its use of other trade names in its
marketing of high performance connectors and accordingly does not believe that
its operations will be materially adversely affected by the expiration of this
license.
The Company regards its trademarks "Amphenol," "Pyle-National," "Tuchel,"
"Socapex," "Spectra-Strip," "Sine" and "Times Fiber" to be of value in its
businesses. The Company has exclusive rights in all its major markets to use
these registered trademarks.
COMPETITION
The Company encounters competition in substantially all areas of its
business. The Company competes primarily on the basis of product quality, price,
engineering, customer service and delivery time. Competitors include large,
diversified companies, some of which have substantially greater assets and
financial resources than the Company, as well as medium to small companies. In
the area of coaxial cable for cable television, the Company believes that it and
CommScope, a division of General Instrument Corporation, are the primary
providers of such cable; however, CommScope is larger than the Company in this
market. In addition, the Company faces competition from smaller companies that
have concentrated their efforts in one or more areas of the coaxial cable
market. See "Risk Factors--Competition."
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BACKLOG
The Company estimates that its backlog of unfilled orders was $207.4 million
and $203.4 million at December 31, 1996 and 1995, respectively. Orders typically
fluctuate from quarter to quarter based on customer demands and general business
conditions. Unfilled orders may be cancelled prior to shipment of goods;
however, such cancellations historically have not been material. It is expected
that all or a substantial portion of the backlog will be filled within the next
12 months. However, significant elements of the Company's business, such as
sales to the cable television industry, distributors, the computer industry, and
other commercial customers generally have short lead times. Therefore, backlog
may not be indicative of future demand.
EMPLOYEES
As of December 31, 1996, the Company had approximately 6,200 full-time
employees worldwide. Of these employees, approximately 4,500 were hourly
employees, of which approximately 2,300 were represented by labor unions and the
remainder were salaried. Beginning October 21, 1995, the Company experienced a
seven day work stoppage at its plant in Sidney, New York when approximately
1,000 hourly employees represented by the International Association of
Machinists and Aerospace Workers rejected a Company proposal and voted to strike
upon the expiration of their then current collective bargaining contract. A new
three year contract was approved and the work stoppage ended on October 28,
1995. The Sidney, New York plant manufactures interconnect products used
primarily in the aerospace industry and other commercial and industrial markets.
The one week work stoppage did not involve any other operation of the Company.
The Company has not had any other work stoppages in the past ten years. In 1996,
the United Steelworkers International Union, AFL-CIO attempted to organize
approximately 500 employees of the Company's plant in Chatham, Virginia, the
Company's primary plant for the production of coaxial cable. The union
organizing effort was defeated by a vote of the hourly employees. A Regional
Director of the National Labor Relations Board subsequently found that unfair
labor practices had been committed by the Company prior to the election and
ordered that a new election be held. The Company has appealed the finding and
order of the Regional Director. If the Company's appeal is denied and a new
election is held at the Chatham, Virginia plant and the union is certified, the
Company would be required to bargain in good faith with the union and its
operations at such facility could be subject to the risks associated with
unionized employees generally, including the risk of work stoppages. The Company
believes that it has a good relationship with its unionized and nonunionized
employees.
45
<PAGE>
PROPERTIES
The table below presents the location, size and function of the Company's
principal manufacturing and assembly facilities as of January 31, 1997. The
Company's principal executive offices are located at 358 Hall Avenue,
Wallingford, Connecticut 06492.
<TABLE>
<CAPTION>
LOCATION SQUARE FEET FUNCTION
- ------------------------------------ ------------- ------------------------------------------------------------
<S> <C> <C>
UNITED STATES:
Chatham, VA 175,000 coaxial cable manufacturing
Chatham, VA(1) 100,000 coaxial cable warehousing
Chatham, VA(1) 40,000 coaxial cable manufacturing and warehousing
Chicago, IL 270,000 industrial connector manufacturing and assembly
Danbury, CT(1) 170,000 RF connector manufacturing
Danville, VA(1) 80,000 coaxial cable warehousing
Endicott, NY 125,000 cable assembly
Hamden, CT 60,000 cable manufacturing
Hamden, CT(1) 25,000 cable warehousing
Lisle, IL (1) 28,000 fiber optic connector manufacturing
Mt. Clemens, MI(1) 71,360 industrial connector manufacturing and assembly
Nogales, AZ(1) 20,250 connector warehousing and assembly
Parsippany, NJ(1) 32,500 RF connector manufacturing
Phoenix, AZ(1) 12,000 coaxial cable warehousing
Sidney, NY 685,000 high performance environmental connector manufacturing and
assembly
Wallingford, CT(1) 28,800 executive offices
CANADA:
Renfrew, Ontario(1) 26,000 coaxial cable manufacturing
Scarborough, Ontario(1) 88,000 high performance connector manufacturing
MEXICO:
Nogales(1) 27,558 connector assembly
Nogales(1) 12,700 connector assembly
Nogales(1) 57,884 connector assembly
UNITED KINGDOM:
Greenock, Scotland(1) 10,000 connector manufacturing and cable assembly
Nottingham, England(1) 11,000 high performance environmental connector manufacturing and
cable assembly
Romsey, England(1) 24,000 cable manufacturing and cable assembly
Whitstable, England 135,000 connector manufacturing, cable assembly and coaxial cable
warehousing
GERMANY:
Heilbronn 130,000 connector manufacturing and cable assembly
CZECH REPUBLIC:
Klucouska 16,300 connector assembly
FRANCE:
Dole 121,000 connector manufacturing
Thyez 125,000 connector manufacturing
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
LOCATION SQUARE FEET FUNCTION
- ------------------------------------ ------------- ------------------------------------------------------------
<S> <C> <C>
HONG KONG:
Fotan Shatin(1) 70,000 cable manufacturing and assembly
TAIWAN:
Taoyuan Hsien(1) 15,700 cable assembly
Tainan(1) 64,600 RF connector manufacturing and assembly
JAPAN:
Ritto-cho, Shiga(1) 15,700 assembly, warehousing
INDIA:
Pune(2) 53,400 connector manufacturing and assembly
Bangalore 12,200 connector manufacturing and assembly
CHINA:
Changzhou 65,000 coaxial cable manufacturing and warehousing
</TABLE>
- ------------------------
(1) These facilities are leased. Such leases expire at various times through
2007.
(2) This facility is owned but is situated on property subject to a long-term
lease arrangement expiring in 2065.
The Company estimates that during 1996 its principal manufacturing
facilities operated at between 70% and 95% of capacity.
In addition to the facilities described above, the Company leases various
warehouses and sales and administrative offices.
LEGAL PROCEEDINGS
On January 23, 1997, the Board of Directors approved, subject to shareholder
approval and certain other closing conditions, and the Company entered into the
Merger Agreement with NXS Acquisition. See "The Merger." The proposed
transaction was announced to the public on January 23, 1997 and on that same
date the Company and its directors (four of whom are also executive officers of
the Company) were named as defendants in a complaint filed in the Court of
Chancery in the State of Delaware by two alleged stockholders of the Company,
individually and purportedly as a class action on behalf of stockholders of the
Company. In general, the complaint alleges that the Company's directors have
breached their fiduciary duties by, among other things, resolving to approve of
the Merger Agreement at an allegedly inadequate price and by allegedly failing
to take adequate steps to enhance the value of the Company and/or its
attractiveness as a merger or acquisition candidate, including failing to
conduct an auction. The complaint seeks injunctive relief prohibiting the
Company from, among other things, consummating the Merger Agreement. The
complaint also seeks unspecified damages, attorney's fees and other relief. The
Company believes that the allegations contained in the complaint are without
merit and intends to contest the action vigorously, on behalf of itself and its
directors, if the plaintiffs elect to proceed with their action.
The Company and its subsidiaries have been named as defendants in several
other legal actions in which various amounts are claimed arising from normal
business activities. Although the amount of any ultimate liability with respect
to such matters cannot be precisely determined, in the opinion of management,
any such liability will not have a material effect on the Company.
Certain operations of the Company are subject to federal, state and local
environmental laws and regulations which govern the discharge of pollutants into
the air and water, as well as the handling and disposal of solid and hazardous
wastes. The Company believes that its operations are currently in substantial
compliance with all applicable environmental laws and regulations and that the
costs of continuing compliance will not be material to the Company's financial
condition or results of operations.
In connection with the acquisition of Amphenol in 1987, Allied agreed to
indemnify Amphenol for a portion of environmental liabilities of Amphenol
identified within a period of seven years following the acquisition that arise
out of events, conditions or circumstances that occurred or existed at the time
of or prior to the transaction to the extent that such liability exceeds $13.0
million. In such event, Allied is
47
<PAGE>
obligated to pay 80% of the excess over $13.0 million and 100% of the excess
over $30.0 million. Allied representatives are presently working closely with
the Company in addressing the most significant potential environmental
liabilities including the Sidney Center Landfill and the Richardson Hill
landfill project, as described below. The Company believes that as of December
31, 1996, the $13.0 million threshold described above has been exceeded and that
future expenditures on these projects will be subject to the indemnification
agreement. However, there can be no assurance that Allied will not dispute the
amount of any future claims that the Company makes under this indemnification
nor as to the ultimate resolution of any dispute.
Owners and occupiers of sites containing hazardous substances, as well as
generators of hazardous substances, are subject to broad liability under various
federal and state environmental laws and regulations, including expenditures for
cleanup costs and damages arising out of past disposal activities. Such
liability in many cases may be imposed regardless of fault or the legality of
the original disposal activity. The Company is currently performing
investigative and monitoring activities at its manufacturing site in Sidney, New
York. In addition, the Company is currently voluntarily performing monitoring,
investigation, design and cleanup activities at two local public off-site
disposal sites previously utilized by the Sidney facility and others. The
Company is also performing proposed remedial design activities and is currently
negotiating with respect to a third site. The Company and Allied have entered
into an administrative consent order with the United States Environmental
Protection Agency (the "EPA") and are presently determining necessary and
appropriate remedial measures for one such site (the "Richardson Hill" landfill)
used by Amphenol and other companies, which has been designated a "Superfund"
site on the National Priorities List under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980. With respect to the second
site (the "Route 8" landfill), used exclusively by Amphenol, the Company
initiated a remediation program pursuant to a Consent Order with the New York
Department of Environmental Protection and is continuing to monitor the results
of those remediation efforts. In December 1995, the Company and Allied received
a letter from the EPA demanding that the Company and Allied accept
responsibility for the investigation and cleanup of the Sidney Center Landfill,
another Superfund Site. The Sidney Center Landfill was a municipal landfill site
utilized by the Company's Sidney facility and other local towns and businesses.
The Company has acknowledged that it sent general plant refuse but no hazardous
waste to the Sidney Center Landfill site. Allied and the Company offered to
prepare a remedial design and to assist the EPA in identifying other potentially
responsible parties for the Sidney Center Landfill site. In July 1996, the
Company and Allied received a unilateral order from the EPA directing the
Company and Allied to perform certain investigation, design and cleanup
activities at the Sidney Center Landfill site. The Company and Allied responded
to the unilateral order by agreeing to undertake certain remedial design
activities. To date the Company and Allied have not accepted any responsibility
for the cleanup of the Sidney Center Landfill site. The Company also is engaged
in remediating or monitoring environmental conditions at several of its other
manufacturing facilities and has been named as a potentially responsible party
for cleanup costs at several other off-site disposal sites. During 1996, the
Company spent approximately $1.4 million in connection with investigating,
remediating and monitoring environmental conditions at these facilities and
sites. Amphenol expects such expenditures, net of indemnification payments
expected from Allied, to be less than $0.5 million in 1997.
Since 1987, the Company has not been identified nor has it been named as a
potentially responsible party with respect to any other significant on-site or
off-site hazardous waste matters. In addition, the Company believes that all of
its manufacturing activities and disposal practices since 1987 have been in
material compliance with all applicable environmental laws and regulations.
Nonetheless, it is possible that the Company will be named as a potentially
responsible party in the future with respect to additional Superfund or other
sites. Although the Company is unable to predict with any reasonable certainty
the extent of its ultimate liability with respect to any pending or future
environmental matters, the Company believes, based upon all information
currently known by management about the Company's manufacturing activities,
disposal practices and estimates of liability with respect to all known
environmental matters, that any such liability will not be material to its
financial condition or results of operations.
48
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position with the Company
of each person who is expected to serve as a director or executive officer of
Amphenol after the Effective Time. After the Effective Time, the Board of
Directors will be subject to change from time to time.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------- --- --------------------------------------------------------------------
<S> <C> <C>
Martin H. Loeffler................ 52 Chairman of the Board, Chief Executive Officer and President
Edward G. Jepsen.................. 53 Executive Vice President and Chief Financial Officer
Timothy F. Cohane................. 44 Senior Vice President
Edward C. Wetmore................. 40 Secretary and General Counsel
Diana G. Reardon.................. 37 Controller and Treasurer
Henry R. Kravis................... 53 Director
George R. Roberts................. 53 Director
Michael W. Michelson.............. 45 Director
Marc S. Lipschultz................ 28 Director
</TABLE>
MARTIN H. LOEFFLER has been a Director of Amphenol since December 1987. He
has also served as President and Chief Operating Officer of Amphenol since July
1987. He was a Vice President of LPL Technologies Inc. ("LPL").
EDWARD G. JEPSEN has been Executive Vice President and Chief Financial
Officer of Amphenol since May 1989, and Senior Vice President and Director of
Finance since November 1988. He was a Director, Executive Vice President, Chief
Financial Officer and Controller of LPL.
TIMOTHY F. COHANE has been Vice President of Amphenol since December 1991.
He was a Director and Vice President of LPL.
EDWARD C. WETMORE has been Secretary and General Counsel of Amphenol since
1987. He was also Secretary and General Counsel of LPL.
DIANA G. REARDON has been Treasurer of Amphenol since March 1992 and
Controller since July 1994. From June 1988 until her appointment as Treasurer
she served as Assistant Controller of Amphenol and LPL.
HENRY R. KRAVIS is a Founding Partner of KKR and effective January 1, 1996
he became a managing member of the Executive Committee of the limited liability
company which serves as the general partner of KKR. He is also a director of
AutoZone, Inc., Borden, Inc., Bruno's, Inc., Evenflo & Spalding Holdings
Corporation, Flagstar Companies Inc., Flagstar Corporation, The Gillette
Company, IDEX Corporation, K-III Communications Corporation, Merit Behavioral
Care Corporation, Newquest Capital plc, Owens-Illinois Group, Inc.,
Owens-Illinois, Inc., Safeway, Inc., Sotheby's Holdings Inc., Union Texas
Petroleum Holdings, Inc., and World Color Press, Inc.
GEORGE R. ROBERTS is a Founding Partner of KKR and effective January 1,
1996 he became a managing member of the Executive Committee of the limited
liability company which serves as the general partner of KKR. He is also a
director of AutoZone, Inc., Borden, Inc., Bruno's, Inc., Evenflo & Spalding
49
<PAGE>
Holdings Corporation, Flagstar Companies Inc., Flagstar Corporation, IDEX
Corporation, K-III Communications Corporation, Merit Behavioral Care
Corporation, Newquest Capital plc, Owens-Illinois Group, Inc., Owens-Illinois,
Inc., Safeway, Inc., Union Texas Petroleum Holdings, Inc., and World Color
Press, Inc.
MICHAEL W. MICHELSON was a General Partner of KKR from January 1, 1987
until January 1, 1996 when he became a member of the limited liability company
which serves as the general partner of KKR. Prior to 1987, Mr. Michelson was an
Executive at KKR. He is also a director of AutoZone, Inc., Doubletree
Corporation, Owens-Illinois Group, Inc., Owens-Illinois, Inc., and Union Texas
Petroleum Holdings, Inc.
MARC S. LIPSCHULTZ has been an Executive at KKR since 1995. Prior thereto,
he was an investment banker with Goldman, Sachs & Co. He is also a director of
Evenflo & Spalding Holdings Corporation.
Messrs. Kravis and Roberts are first cousins.
The business address of Messrs. Kravis and Lipschultz is 9 West 57th Street,
New York, New York 10019 and of Messrs. Roberts and Michelson is 2800 Sand Hill
Road, Suite 200, Menlo Park, California 94025.
In addition to the directors named above, it is expected that two
independent persons will become directors of the Company upon the consummation
of the Merger.
COMPENSATION OF DIRECTORS
All directors will be reimbursed for their usual and customary expenses
incurred in attending all Board and committee meetings. It is anticipated that
each director who is not an employee of the Company will receive an aggregate
annual fee of $30,000, payable in quarterly installments. Directors who are also
employees of the Company will receive no remuneration for serving as directors.
STOCK OPTION PLANS
Immediately prior to the Effective Time, each employee or director stock
option to purchase Common Stock ("Company Stock Options") granted under any
stock option or stock purchase plan, program or arrangement of the Company (the
"Stock Plans") will be cancelled, whether or not then exercisable, and each
holder of any such Company Stock Option having an exercise price of less than
$26.00 (which constitutes all Company Stock Options except for Company Stock
Options to purchase an aggregate of 110,000 shares of Common Stock at an
exercise price of $26 5/8 per share) will receive, in consideration of such
cancellation, a payment from the Company (subject to applicable withholding
taxes) equal to the product of (1) the total number of shares of Common Stock
subject to such Company Stock Option and (2) the excess of $26.00 over the
exercise price per share of Common Stock subject to such Company Stock Option,
payable in cash at the Effective Time or as soon as practicable thereafter,
representing approximately $2.4 million in the aggregate. It is anticipated that
the Stock Plans will terminate as of the Effective Time, and that following the
Effective Time no holder of a Company Stock Option nor any participant in any
Stock Plan will have any right thereunder to acquire equity securities of the
Company. See "--Stock Purchase and Option Agreements."
STOCK PURCHASE AND OPTION AGREEMENTS
It is expected that Messrs. Martin H. Loeffler, Edward G. Jepsen and Timothy
F. Cohane, each of whom is an officer and director of the Company, will elect to
retain shares in the Merger with the intention of retaining 96,154 shares,
76,923 shares and 76,923 shares, respectively, of Common Stock. To the extent
that the proration provisions of the Merger Agreement result in such persons
retaining a different number of shares, the Company expects to permit and/or to
provide such persons with an opportunity to buy or sell shares in an amount
necessary to result in such persons retaining the intended amounts and, in
connection therewith, to eliminate for such persons the impact of any adverse
tax consequences arising from such
50
<PAGE>
purchase or sale. Messrs. Loeffler, Jepsen and Cohane will also be granted
options to acquire an additional 336,538 shares, 230,769 shares and 230,769
shares, respectively, of Common Stock following the Merger. It is also expected
that options to acquire approximately 555,000 shares will be available for sale,
either directly or through grants of options, to other members of the Company's
management. The options will be exercisable at $26.00 per share and, subject to
certain exceptions, will vest over five years at 20% per year. Messrs. Loeffler,
Jepsen and Cohane, as well as other members of the Company's management
receiving such shares and options, are expected to enter into agreements with
the Company restricting transferability of the shares of Common Stock held by
such persons for up to five years after the Effective Time and setting forth,
among other things, the limited circumstances in which such shares may be called
by or put to the Company.
51
<PAGE>
OWNERSHIP OF COMMON STOCK FOLLOWING THE MERGER
The following table sets forth certain information regarding the expected
ownership of the Company's Common Stock after the Effective Time by (i) persons
who, as of the date hereof, own beneficially more than 5% of the outstanding
shares of Common Stock and who, after the Effective Time, are expected by the
Company to own beneficially or who may possibly own beneficially more than 5% of
the outstanding shares of Common Stock, (ii) each person who will become a
director of the Company, (iii) the Chairman and each of the other three most
highly compensated executive officers of the Company for the year ended December
31, 1996 who are expected to continue to serve as executive officers of Amphenol
after the Effective Time and (iv) all directors and executive officers of the
Company as a group. The following table assumes that all of the shares of Common
Stock owned by the DeGeorge Stockholders are converted into cash in connection
with the Merger. See "The Merger--The Stockholders Agreement."
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OF CLASS
NAME SHARES OWNED OUTSTANDING (A)
- ---------------------------------------------------------------------------------- ------------- -------------------
<S> <C> <C>
Martin H. Loeffler (b)............................................................ 96,154 *
Edward G. Jepsen (b).............................................................. 76,923 *
Timothy F. Cohane (b)............................................................. 76,923 *
Edward C. Wetmore (c)............................................................. -- --
KKR 1996 GP LLC c/o Kohlberg Kravis Roberts & Co. Inc. L.P. (d)................... 13,116,955 75%
9 West 57th Street
New York, New York 10019
All officers and directors as a group (9 persons) (b)(c)(d)....................... -- --
Clover Capital Management, Inc. (e)............................................... -- --
</TABLE>
- ------------------------
* Less than 1%.
(a) The amounts and percentage of Common Stock beneficially owned are reported
on the basis of regulations of the Commission governing the determination of
beneficial ownership of securities. Under the rules of the Commission, a
person is deemed to be a "beneficial owner" of a security if that person has
or shares "voting power," which includes the power to vote or to direct the
voting of such security, or "investment power," which includes the power to
dispose of or to direct the disposition of such security. A person is also
deemed to be a beneficial owner of any securities of which that person has a
right to acquire beneficial ownership within 60 days. Under these rules,
more than one person may be deemed a beneficial owner of the same securities
and a person may be deemed to be a beneficial owner of securities as to
which he has no economic interest. The percentage of class outstanding after
the Effective Time is based on the 17,516,955 shares of Common Stock
expected to be outstanding after the Effective Time.
(b) It is expected that Messrs. Loeffler, Jepsen and Cohane will elect to retain
shares in the Merger with the intention of retaining 96,154 shares, 76,923
shares and 76,923 shares, respectively, of Common Stock. To the extent that
the proration provisions of the Merger Agreement result in such persons
retaining a different number of shares, the Company expects to permit and/or
provide such persons with an opportunity to buy or sell shares in an amount
necessary to result in such persons retaining the intended amounts and, in
connection therewith, to eliminate for such persons the impact of any
adverse tax consequences arising from such purchase or sale. Assuming that
Messrs. Loeffler, Jepsen and Cohane own 96,154 shares, 76,923 shares and
76,923 shares, respectively, of Common Stock following the Effective Time,
each such person will own less than 1% of the Common Stock outstanding after
the Effective Time.
52
<PAGE>
(c) Because of the potential effect of proration, it is impossible to determine
if any of the directors or executive officers of the Company's Common Stock
(except as described in note (b) above) will continue to own shares of
Common Stock after the Effective Time.
(d) After the Effective Time, shares of Common Stock shown as beneficially owned
by KKR 1996 GP LLC will be held by the Partnership. KKR 1996 GP LLC is the
sole general partner of KKR Associates 1996. KKR Associates 1996, a limited
partnership, is the sole general partner of the Partnership and possesses
sole voting and investment power with respect to such shares. KKR 1996 GP
LLC is a limited liability company, the members of which are Messrs. Henry
R. Kravis, George R. Roberts, Robert I. MacDonnell, Paul E. Raether, Michael
W. Michelson, Michael T. Tokarz, James H. Greene, Jr., Perry Golkin, Clifton
S. Robbins, Scott M. Stuart and Edward A. Gilhuly. Messrs. Kravis and
Roberts are members of the Executive Committee of KKR 1996 GP LLC. Messrs.
Kravis, Roberts and Michelson will also be directors of the Company after
the Effective Time. Mr. Marc S. Lipschultz is a limited partner of KKR
Associates 1996 and will also be a director of the Company. Each of such
individuals may be deemed to share beneficial ownership of the shares shown
as beneficially owned by KKR 1996 GP LLC. Each of such individuals disclaim
beneficial ownership of such shares. An affiliate of KKR 1996 GP LLC may
beneficially own at the Effective Time less than 1% of the outstanding
Common Stock. Does not give effect to the exercise of the NXS Option or the
Stockholders Option. Assuming all stockholders elected to convert all of
their shares into the right to receive cash, then upon exercise of either
such option, the Partnership would own, directly or indirectly, 14,443,957
shares, equal to approximately 82% of the shares issued and outstanding
immediately after the Merger.
(e) Based solely on a Schedule 13G filed by Clover Capital Management, Inc. and
its directors (collectively, "Clover"), Clover beneficially owns an
aggregate of 2,779,685 shares (approximately 6.2%) of the Common Stock
outstanding as of February 14, 1997. Because the Company does not know
whether or not Clover intends to elect to retain any shares in the Merger,
and due to the potential effect of proration, the Company cannot predict the
number of shares (or percentage) of Common Stock, if any, that will be owned
by Clover after the Effective Time.
53
<PAGE>
RELATED PARTY TRANSACTIONS
KKR 1996 GP LLC will beneficially own approximately 75% of the Company's
outstanding shares of Common Stock at the Effective Time (before taking into
account the effect of any exercise of the NXS
Option or the Stockholders Option, the exercise of either of which could result
in the Partnership owning, directly or indirectly, up to approximately 82% of
such shares). The managing members of KKR 1996 GP LLC are Messrs. Henry R.
Kravis and George R. Roberts and the other members of which are Messrs. Robert
I. MacDonnell, Paul E. Raether, Michael W. Michelson, Michael T. Tokarz, James
H. Greene, Jr., Perry Golkin, Clifton S. Robbins, Scott M. Stuart and Edward A.
Gilhuly. The sole general partner of KKR Associates 1996 is KKR 1996 GP LLC.
Messrs. Kravis, Roberts and Michelson will also be directors of the Company, as
will Mr. Marc Lipschultz, who is a limited partner of KKR Associates 1996. Each
of the members of KKR 1996 GP LLC is also a member of the limited liability
company which serves as the general partner of KKR, and Mr. Lipschultz is an
executive of KKR. KKR, an affiliate of KKR 1996 GP LLC, is expected to receive a
fee of $ million in cash from the Company on the closing date for
negotiating the Merger and arranging the financing therefor, plus the
reimbursement of its expenses in connection therewith, and, from time to time in
the future, KKR may receive customary fees for services rendered to the Company.
In addition, KKR has agreed to render management, consulting and financial
services to the Company for customary fees. See "Management--Directors and
Executive Officers" and "Ownership of Common Stock."
KKR 1996 GP LLC is the general partner of KKR Associates 1996, a Delaware
limited partnership, of which certain past and present employees of KKR and
partnerships and trusts for the benefit of the families of such past and present
employees and a former partner of KKR are the limited partners. KKR Associates
1996 is the general partner of the Partnership, which will own at the Effective
Time approximately 75% of the outstanding Common Stock (before taking into
account the effect of any exercise of the NXS Option or the Stockholders Option,
the exercise of either of which could result in the Partnership owning, directly
or indirectly, up to approximately 82% of such shares).
DESCRIPTION OF CREDIT FACILITIES
The Credit Facilities will be provided by a syndicate of banks and other
financial institutions led by BTCo., as administrative agent (the
"Administrative Agent"), The Chase Manhattan Bank, as syndication agent
("Chase"), and The Bank of New York, as documentation agent. The Credit
Facilities will provide for $750.0 million in term loans ("Term Loans") and for
$150.0 million in revolving credit loans ("Revolving Credit Loans"). The
Revolving Credit Facility will include borrowing capacity available for letters
of credit and for borrowings on same-day notice ("Swingline Loans"). The Term
Loans are comprised of Term Loan A ($350.0 million), which will have a maturity
of seven years, Term Loan B ($200.0 million), which will have a maturity of
eight years, and Term Loan C ($200.0 million), which will have a maturity of
nine years. The Revolving Credit Facility commitment will terminate seven years
after the date of initial funding of the Credit Facilities.
All Term Loans and Revolving Credit Loans will bear interest, at the
Company's option, at either: (a) a "base rate" equal to the higher of (i) the
federal funds rate plus 0.50% per annum or (ii) the Administrative Agent's prime
rate, plus (A) in the case of Term Loan A, a debt to EBITDA-dependent rate
ranging from 0.00% to 1.00% per annum, (B) in the case of Term Loan B, a debt to
EBITDA-dependent rate ranging from 1.00% to 1.50% per annum, (C) in the case of
Term Loan C, a debt to EBITDA-dependent rate ranging from 1.50% to 2.00% per
annum or (D) in the case of Revolving Credit Loans and Swingline Loans, a debt
to EBITDA-dependent rate ranging from 0.00% to 1.00% per annum or (b) a
"eurodollar rate" plus (i) in the case of Term Loan A, a debt to
EBITDA-dependent rate ranging from 1.00% to 2.25% per annum, (ii) in the case of
Term Loan B a debt to EBITDA-dependent rate ranging from 2.25% to 2.75% per
annum, (iii) in the case of Term Loan C, a debt to EBITDA-dependent rate ranging
from 2.75% to 3.25% per annum or (iv) in the case of Revolving Credit Loans, a
debt to
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<PAGE>
EBITDA-dependent rate ranging from 1.00% to 2.25% per annum. Swingline Loans may
only be base rate loans.
The Company will pay a commitment fee calculated at a debt to
EBITDA-dependent rate ranging from 0.25% to 0.50% per annum of the available
unused commitment under the Revolving Credit Facility and certain delayed-draw
term loan commitments, in each case in effect on each day. Such fee will be
payable quarterly in arrears and upon termination of the Revolving Credit
Facility.
The Company will pay a letter of credit fee calculated at a debt to
EBITDA-dependent rate ranging from 1.00% to 2.25% per annum of the face amount
of each letter of credit less a fronting fee calculated at a rate equal to
0.125% per annum of the face amount of each letter of credit. Such fees will be
payable quarterly in arrears and upon the termination of the Revolving Credit
Facility. In addition, the Company will pay customary transaction charges in
connection with any letters of credit.
The Term Loans will be subject to the following amortization schedule:
<TABLE>
<CAPTION>
DATE FROM CLOSING TERM LOAN A TERM LOAN B TERM LOAN C
- --------------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
(DOLLARS IN MILLIONS)
24 Mos............................................. $ 25.0 $ 0.5 $ 0.5
36 Mos............................................. 37.5 0.5 0.5
48 Mos............................................. 47.5 0.5 0.5
60 Mos............................................. 60.0 0.5 0.5
72 Mos............................................. 80.0 0.5 0.5
84 Mos............................................. 100.0 0.5 0.5
96 Mos............................................. -- 197.0 0.5
108 Mos............................................ -- -- 196.5
------ ------ ------
$ 350.0 $ 200.0 $ 200.0
------ ------ ------
------ ------ ------
</TABLE>
The Term Loans will be subject to mandatory prepayment (i) with the proceeds
of certain asset sales and (ii) on an annual basis with 50% of the Company's
excess cash flow (as defined in the Credit Facilities) if the ratio of the
Company's total debt (as defined in the Credit Facilities) to EBITDA (as defined
in the Credit Facilities) is greater than 4.0 to 1.0 on the last day of any
fiscal year. The Company's obligations under the Credit Facilities will be
secured by a pledge of 100% of the stock of certain of the Company's direct
domestic subsidiaries and 65% of the stock of certain of the Company's material
direct foreign subsidiaries. In addition, indebtedness under the Credit Facility
will be guaranteed by significant domestic subsidiaries of the Company. See
"Description of the Notes--Subordination" and "Risk Factors-- Subordination of
Notes to Senior Indebtedness," and "--Encumbrances on Assets to Secure Credit
Facilities."
The Credit Facilities will contain customary covenants and restrictions on
the Company's ability to engage in certain activities. In addition, the Credit
Facilities provide that the Company must meet or exceed certain interest
coverage ratios and must not exceed certain leverage ratios.
The Credit Facilities will include customary events of default.
55
<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to an Indenture (the "INDENTURE") between
the Company and , as trustee (the "TRUSTEE"). The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (the "TRUST INDENTURE ACT"). The
Notes are subject to all such terms, and Holders of Notes are referred to the
Indenture and the Trust Indenture Act for a statement thereof. The following
summary of the material provisions of the Indenture does not purport to be
complete and is qualified in its entirety by reference to the provisions of the
Indenture, including the definitions therein of certain terms used below. Copies
of the proposed form of Indenture have been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The definitions of
certain terms used in the following summary are set forth below under "--Certain
Definitions." For purposes of this summary, the term "COMPANY" refers only to
Amphenol Corporation and not to any of its Subsidiaries.
The Notes will be general unsecured obligations of the Company and will be
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company. As of December 31, 1996, on a pro forma basis giving effect to
the Merger and the Financings (including the Offering), the aggregate amount of
the Company's outstanding Senior Indebtedness would have been approximately
$763.0 million (excluding $3.0 million of outstanding letters of credit and
unused commitments). The Notes will also be effectively subordinated to all
Indebtedness and other obligations (including trade payables) of the Company's
Subsidiaries. Any right of the Company to receive assets of any of its
Subsidiaries upon the latter's liquidation or reorganization (and the consequent
right of the Holders of the Notes to participate in those assets) will be
effectively subordinated to the claims of that Subsidiary's creditors, except to
the extent that the Company is itself recognized as a creditor of such
Subsidiary, in which case the claims of the Company would still be subordinate
to any security in the assets of such Subsidiary and any indebtedness of such
Subsidiary senior to that held by the Company. Certain operations of the Company
are conducted through its Subsidiaries and, therefore, the Company is dependent
upon the cash flow of its Subsidiaries to meet its obligations, including its
obligations under the Notes. As of December 31, 1996, the Company's Subsidiaries
would have had approximately $8.3 million of Indebtedness and approximately
$82.0 million of other obligations (including trade payables) outstanding after
giving pro forma effect to the Merger and the Financings (including the
Offering). The Indenture will permit incurrence of additional Senior
Indebtedness in the future. See "Risk Factors--Subordination of Notes to Senior
Indebtedness."
As of the Issuance Date, all of the Company's Subsidiaries other than
Amphenol Funding Corp. will be Restricted Subsidiaries. Under certain
circumstances, the Company will be able to designate additional current or
future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will
not be subject to any of the restrictive covenants set forth in the Indenture.
SUBORDINATION
The payment of the Subordinated Note Obligations will be subordinated in
right of payment, as set forth in the Indenture, to the prior payment in full in
cash equivalents of all Senior Indebtedness, whether outstanding on the date of
the Indenture or thereafter incurred. Upon any distribution to creditors of the
Company in a liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property, an assignment for the benefit of creditors or any
marshalling of the Company's assets and liabilities, the holders of Senior
Indebtedness will be entitled to receive payment in full in cash equivalents of
such Senior Indebtedness before the holders of Notes will be entitled to receive
any payment with respect to the Subordinated Note Obligations, and until all
Senior Indebtedness is paid in full in cash equivalents, any distribution to
which the holders of Notes would be entitled shall be made to the holders of
Senior Indebtedness (except that holders of Notes may receive (i) shares of
stock and any debt securities that are subordinated at least to the same extent
as the
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<PAGE>
Notes to (a) Senior Indebtedness and (b) any securities issued in exchange for
Senior Indebtedness and (ii) payments made from the trusts described under
"--Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the
Subordinated Note Obligations (except in such subordinated securities or from
the trust described under "--Legal Defeasance and Covenant Defeasance") if (i) a
default in the payment of the principal of, premium, if any, or interest on, or
of unreimbursed amounts under drawn letters of credit or in respect of bankers'
acceptances or fees relating to letters of credit or bankers' acceptances
constituting, Designated Senior Indebtedness occurs and is continuing beyond any
applicable period of grace (a "PAYMENT DEFAULT") or (ii) any other default
occurs and is continuing with respect to Designated Senior Indebtedness that
permits holders of the Designated Senior Indebtedness as to which such default
relates to accelerate its maturity (a "NON-PAYMENT DEFAULT") and the Trustee
receives a notice of such default (a "PAYMENT BLOCKAGE NOTICE") from a
representative of holders of such Designated Senior Indebtedness. Payments on
the Notes, including any missed payments, may and shall be resumed (a) in the
case of a payment default, upon the date on which such default is cured or
waived or shall have ceased to exist or such Designated Senior Indebtedness
shall have been discharged or paid in full in cash equivalents and (b) in case
of a nonpayment default, the earlier of (x) the date on which such nonpayment
default is cured or waived, (y) 179 days after the date on which the applicable
Payment Blockage Notice is received (each such period, the "PAYMENT BLOCKAGE
PERIOD") or (z) the date such Payment Blockage Period shall be terminated by
written notice to the Trustee from the requisite holders of such Designated
Senior Indebtedness necessary to terminate such period or from their
representative. No new period of payment blockage may be commenced unless and
until 365 days have elapsed since the effectiveness of the immediately preceding
Payment Blockage Notice. However, if any Payment Blockage Notice within such
365-day period is given by or on behalf of any holders of Designated Senior
Indebtedness (other than the agent under the Senior Credit Facility), the agent
under the Senior Credit Facility may give another Payment Blockage Notice within
such period. In no event, however, may the total number of days during which any
Payment Blockage Period or Periods is in effect exceed 179 days in the aggregate
during any 365 consecutive day period. No nonpayment default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the Trustee
shall be or be made, the basis for a subsequent Payment Blockage Notice unless
such default shall have been cured or waived for a period of not less than 90
days.
If the Company fails to make any payment on the Notes when due or within any
applicable grace period, whether or not on account of the payment blockage
provision referred to above, such failure would constitute an Event of Default
under the Indenture and would enable the Holders of the Notes to accelerate the
maturity thereof.
The Indenture will further require that the Company promptly notify holders
of Senior Indebtedness if payment of the Notes is accelerated because of an
Event of Default.
As a result of the subordination provisions described above, in the event of
insolvency, bankruptcy, administration, reorganization, receivership or similar
proceedings relating to the Company, holders of Notes may recover less ratably
than creditors of the Company who are holders of Senior Indebtedness. At
December 31, 1996, on a pro forma basis after giving effect to the Merger and
the Financings (including the Offering), the Company would have had
approximately $763.0 million of Senior Indebtedness outstanding (excluding $3.0
million of outstanding letters of credit and unused commitments) and the Company
would have had additional availability of $134.0 million (after giving effect to
$3.0 million of outstanding letters of credit) for borrowings under the Senior
Credit Facility, all of which would be Senior Indebtedness of the Company. In
addition, the Notes will be structurally subordinated to the liabilities of
Subsidiaries of the Company. Although the Indenture contains limitations on the
amount of additional Indebtedness that the Company and its Subsidiaries may
incur, under certain circumstances the amount of such Indebtedness could be
substantial and, in any case, such Indebtedness may be Senior Indebtedness. See
"--Certain Covenants--Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock."
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<PAGE>
"DESIGNATED SENIOR INDEBTEDNESS" means (i) Senior Indebtedness under the
Senior Credit Facility and (ii) any other Senior Indebtedness permitted under
the Indenture the principal amount of which is $50.0 million or more and that
has been designated by the Company as Designated Senior Indebtedness.
"SENIOR INDEBTEDNESS" means (i) the Obligations under the Senior Credit
Facility and (ii) any other Indebtedness permitted to be incurred by the Company
under the terms of the Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Notes, including, with respect to (i)
and (ii), interest accruing subsequent to the filing of, or which would have
accrued but for the filing of, a petition for bankruptcy, whether or not such
interest is an allowable claim in such bankruptcy proceeding. Notwithstanding
anything to the contrary in the foregoing, Senior Indebtedness will not include
(1) any liability for federal, state, local or other taxes owed or owing by the
Company, (2) any obligation of the Company to any of its Subsidiaries, (3) any
accounts payable or trade liabilities arising in the ordinary course of business
(including instruments evidencing such liabilities) other than obligations in
respect of bankers' acceptances and letters of credit under the Senior Credit
Facility, (4) any Indebtedness that is incurred in violation of the Indenture,
(5) Indebtedness which, when incurred and without respect to any election under
Section 1111 (b) of Title 11, United States Code, is without recourse to the
Company, (6) any Indebtedness, guarantee or obligation of the Company which is
subordinate or junior to any other Indebtedness, guarantee or obligation of the
Company, (7) Indebtedness evidenced by the Notes and (8) Capital Stock of the
Company.
"SUBORDINATED NOTE OBLIGATIONS" means any principal of, premium, if any, and
interest on the Notes payable pursuant to the terms of the Notes or upon
acceleration, together with and including any amounts received upon the exercise
of rights of rescission or other rights of action (including claims for damages)
or otherwise, to the extent relating to the purchase price of the Notes or
amounts corresponding to such principal, premium, if any, or interest on the
Notes.
The Notes will rank senior in right of payment to all Subordinated
Indebtedness of the Company. At the Issuance Date the Company will have no
Subordinated Indebtedness.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $240.0 million
and will mature on , 2007. Interest on the Notes will accrue at the rate
of % per annum and will be payable semi-annually in arrears on and
, commencing on , 1997, to Holders of record on the immediately
preceding and . Interest on the Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of original issuance. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months. Principal of, premium, if any,
and interest on the Notes will be payable at the office or agency of the Company
maintained for such purpose within the City and State of New York or, at the
option of the Company, payment of interest may be made by check mailed to the
Holders of the Notes at their respective addresses set forth in the register of
Holders of Notes; PROVIDED that all payments of principal, premium, interest
with respect to Notes represented by one or more permanent global Notes
registered in the name of or held by The Depository Trust Company or its nominee
will be made by wire transfer of immediately available funds to the accounts
specified by the Holders thereof. Until otherwise designated by the Company, the
Company's office or agency in New York will be the office of the Trustee
maintained for such purpose. The Notes will be issued in denominations of $1,000
and integral multiples thereof.
MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
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<PAGE>
OPTIONAL REDEMPTION
Except as described below, the Notes will not be redeemable at the Company's
option prior to , 2002. From and after , 2002, the Notes will be
subject to redemption at any time at the option of the Company, in whole or in
part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below, plus
accrued and unpaid interest thereon, if any, to the applicable redemption date,
if redeemed during the twelve-month period beginning on of each of the
years indicated below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---------------------------------------------------------------------------- -----------------
<S> <C>
2002........................................................................ %
2003........................................................................
2004........................................................................
2005 and thereafter......................................................... 100.00%
</TABLE>
In addition, at any time or from time to time, on or prior to ,
2000, the Company may, at its option, redeem up to 40% of the aggregate
principal amount of Notes originally issued under the Indenture on the Issuance
Date at a redemption price equal to % of the aggregate principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the redemption
date, with the net proceeds of one or more Equity Offerings; PROVIDED that at
least 60% of the aggregate principal amount of Notes originally issued under the
Indenture on the Issuance Date remains outstanding immediately after the
occurrence of each such redemption; PROVIDED FURTHER that each such redemption
occurs within 60 days of the date of closing of each such Equity Offering. The
Trustee shall select the Notes to be purchased in the manner described under
"Repurchase at the Option of Holders--Selection and Notice."
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
The Indenture will provide that, upon the occurrence of a Change of Control,
the Company will make an offer to purchase all or any part (equal to $1,000 or
an integral multiple thereof) of the Notes pursuant to the offer described below
(the "CHANGE OF CONTROL OFFER") at a price in cash (the "CHANGE OF CONTROL
PAYMENT") equal to 101% of the aggregate principal amount thereof plus accrued
and unpaid interest, if any, to the date of purchase. The Indenture will provide
that within 30 days following any Change of Control, the Company will mail a
notice to each Holder of Notes issued under the Indenture, with a copy to the
Trustee, with the following information: (1) a Change of Control Offer is being
made pursuant to the covenant entitled "Change of Control," and that all Notes
properly tendered pursuant to such Change of Control Offer will be accepted for
payment; (2) the purchase price and the purchase date, which will be no earlier
than 30 days nor later than 60 days from the date such notice is mailed, except
as may be otherwise required by applicable law (the "CHANGE OF CONTROL PAYMENT
DATE"); (3) any Note not properly tendered will remain outstanding and continue
to accrue interest; (4) unless the Company defaults in the payment of the Change
of Control Payment, all Notes accepted for payment pursuant to the Change of
Control Offer will cease to accrue interest on the Change of Control Payment
Date; (5) Holders electing to have any Notes purchased pursuant to a Change of
Control Offer will be required to surrender the Notes, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes completed, to
the paying agent specified in the notice at the address specified in the notice
prior to the close of business on the third Business Day preceding the Change of
Control Payment Date; (6) Holders will be entitled to withdraw their tendered
Notes and their election to require the Company to purchase such Notes, PROVIDED
that the paying agent receives, not later than the close of business on the last
day of the Offer Period (as defined in the Indenture), a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
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<PAGE>
principal amount of Notes tendered for purchase, and a statement that such
Holder is withdrawing his tendered Notes and his election to have such Notes
purchased; and (7) that Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered, which unpurchased portion must be equal to $1,000 in
principal amount or an integral multiple thereof.
The Indenture will provide that, prior to complying with the provisions of
this covenant, but in any event within 30 days following a Change of Control,
the Company will either repay all outstanding Senior Indebtedness or obtain the
requisite consents, if any, under any outstanding Senior Indebtedness to permit
the repurchase of the Notes required by this covenant.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws or regulations are applicable in connection with the repurchase
of the Notes pursuant to a Change of Control Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
the Indenture, the Company will comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations described
in the Indenture by virtue thereof.
The Indenture will provide that on the Change of Control Payment Date, the
Company will, to the extent permitted by law, (1) accept for payment all Notes
or portions thereof properly tendered pursuant to the Change of Control Offer,
(2) deposit with the paying agent an amount equal to the aggregate Change of
Control Payment in respect of all Notes or portions thereof so tendered and (3)
deliver, or cause to be delivered, to the Trustee for cancellation the Notes so
accepted together with an Officers' Certificate stating that such Notes or
portions thereof have been tendered to and purchased by the Company. The
Indenture will provide that the paying agent will promptly mail to each Holder
of Notes the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail to each Holder a new Note equal in principal
amount to any unpurchased portion of the Notes surrendered, if any, PROVIDED,
that each such new Note will be in a principal amount of $1,000 or an integral
multiple thereof. The Company will publicly announce the results of the Change
of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Senior Credit Facility will, and future credit agreements or other
agreements relating to Senior Indebtedness to which the Company becomes a party
may, prohibit the Company from purchasing any Notes as a result of a Change of
Control and/or provide that certain change of control events with respect to the
Company would constitute a default thereunder. In the event a Change of Control
occurs at a time when the Company is prohibited from purchasing the Notes, the
Company could seek the consent of its lenders to the purchase of the Notes or
could attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing the Notes. In such case, the Company's
failure to purchase tendered Notes would constitute an Event of Default under
the Indenture. If, as a result thereof, a default occurs with respect to any
Senior Indebtedness, the subordination provisions in the Indenture would likely
restrict payments to the Holders of the Notes.
The existence of a Holder's right to require the Company to repurchase such
Holder's Notes upon the occurrence of a Change of Control may deter a third
party from seeking to acquire the Company in a transaction that would constitute
a Change of Control.
ASSET SALES
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, cause, make or suffer to exist an Asset
Sale, unless (x) the Company, or its Restricted Subsidiaries, as the case may
be, receives consideration at the time of such Asset Sale at least equal to the
fair market value (as determined in good faith by the Company) of the assets
sold or otherwise disposed of and (y) at least 75% of the consideration therefor
received by the Company, or such Restricted Subsidiary,
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<PAGE>
as the case may be, is in the form of cash or Cash Equivalents; PROVIDED that
the amount of (a) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet or in the notes thereto) of the Company
or any Restricted Subsidiary (other than liabilities that are by their terms
subordinated to the Notes), that are assumed by the transferee of any such
assets, (b) any notes or other obligations received by the Company or such
Restricted Subsidiary from such transferee that are converted by the Company or
such Restricted Subsidiary into cash (to the extent of the cash received) within
180 days following the closing of such Asset Sale and (c) any Designated Noncash
Consideration received by the Company or any of its Restricted Subsidiaries in
such Asset Sale having an aggregate fair market value, taken together with all
other Designated Noncash Consideration received pursuant to this clause (c) that
is at that time outstanding, not to exceed 15% of Total Assets at the time of
the receipt of such Designated Noncash Consideration (with the fair market value
of each item of Designated Noncash Consideration being measured at the time
received and without giving effect to subsequent changes in value), shall be
deemed to be cash for purposes of this provision and for no other purpose.
Within 365 days after the Company's or any Restricted Subsidiary's receipt
of the Net Proceeds of any Asset Sale, the Company or such Restricted Subsidiary
may apply the Net Proceeds from such Asset Sale, at its option, (i) to
permanently reduce Obligations under the Senior Credit Facility (and to
correspondingly reduce commitments with respect thereto) or other Senior
Indebtedness or Pari Passu Indebtedness (provided that if the Company shall so
reduce Obligations under Pari Passu Indebtedness, it will equally and ratably
reduce Obligations under the Notes if the Notes are then prepayable or, if the
Notes may not be then prepaid, the Company shall make an offer (in accordance
with the procedures set forth below for an Asset Sale Offer) to all Holders to
purchase at 100% of the principal amount thereof the amount of Notes that would
otherwise be prepaid), (ii) to an investment in any one or more businesses,
capital expenditures or acquisitions of other assets in each case, used or
useful in a Similar Business and/or (iii) to an investment in properties or
assets that replace the properties and assets that are the subject of such Asset
Sale. Pending the final application of any such Net Proceeds, the Company or
such Restricted Subsidiary may temporarily reduce Indebtedness under a revolving
credit facility, if any, or otherwise invest such Net Proceeds in Cash
Equivalents or Investment Grade Securities. The Indenture will provide that any
Net Proceeds from the Asset Sale that are not invested as provided and within
the time period set forth in the first sentence of this paragraph will be deemed
to constitute "EXCESS PROCEEDS." When the aggregate amount of Excess Proceeds
exceeds $15.0 million, the Company shall make an offer to all Holders of Notes
(an "ASSET SALE OFFER") to purchase the maximum principal amount of Notes, that
is an integral multiple of $1,000, that may be purchased out of the Excess
Proceeds at an offer price in cash in an amount equal to 100% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date fixed for
the closing of such offer, in accordance with the procedures set forth in the
Indenture. The Company will commence an Asset Sale Offer with respect to Excess
Proceeds within ten Business Days after the date that Excess Proceeds exceeds
$15.0 million by mailing the notice required pursuant to the terms of the
Indenture, with a copy to the Trustee. To the extent that the aggregate amount
of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes to be purchased in the manner described under the caption "Selection
and Notice" below. Upon completion of any such Asset Sale Offer, the amount of
Excess Proceeds shall be reset at zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws or regulations are applicable in connection with the repurchase
of the Notes pursuant to an Asset Sale Offer. To the extent that the provisions
of any securities laws or regulations conflict with the provisions of the
Indenture, the Company will comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations described
in the Indenture by virtue thereof.
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SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time or if more
Notes are tendered pursuant to an Asset Sale Offer than the Company is required
to purchase, selection of such Notes for redemption or purchase, as the case may
be, will be made by the Trustee in compliance with the requirements of the
principal national securities exchange, if any, on which such Notes are listed,
or, if such Notes are not so listed, on a pro rata basis, by lot or by such
other method as the Trustee shall deem fair and appropriate (and in such manner
as complies with applicable legal requirements); PROVIDED that no Notes of
$1,000 or less shall be purchased or redeemed in part.
Notices of purchase or redemption shall be mailed by first class mail,
postage prepaid, at least 30 but not more than 60 days before the purchase or
redemption date to each Holder of Notes to be purchased or redeemed at such
Holder's registered address. If any Note is to be purchased or redeemed in part
only, any notice of purchase or redemption that relates to such Note shall state
the portion of the principal amount thereof that has been or is to be purchased
or redeemed.
A new Note in principal amount equal to the unpurchased or unredeemed
portion of any Note purchased or redeemed in part will be issued in the name of
the Holder thereof upon cancellation of the original Note. On and after the
purchase or redemption date unless the Company defaults in payment of the
purchase or redemption price, interest shall cease to accrue on Notes or
portions thereof purchased or called for redemption.
CERTAIN COVENANTS
LIMITATION ON RESTRICTED PAYMENTS
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or
pay any dividend or make any distribution on account of the Company's or any of
its Restricted Subsidiaries' Equity Interests, including any dividend or
distribution payable in connection with any merger or consolidation (other than
(A) dividends or distributions by the Company payable in Equity Interests (other
than Disqualified Stock) of the Company or (B) dividends or distributions by a
Restricted Subsidiary so long as, in the case of any dividend or distribution
payable on or in respect of any class or series of securities issued by a
Subsidiary other than a Wholly Owned Subsidiary, the Company or a Restricted
Subsidiary receives at least its PRO RATA share of such dividend or distribution
in accordance with its Equity Interests in such class or series of securities);
(ii) purchase, redeem, defease or otherwise acquire or retire for value any
Equity Interests of the Company or any direct or indirect parent of the Company;
(iii) make any principal payment on, or redeem, repurchase, defease or otherwise
acquire or retire for value in each case, prior to any scheduled repayment, or
maturity, any Subordinated Indebtedness (other than Indebtedness permitted under
clauses (g) and (i) of the covenant described under "Limitations on Incurrence
of Indebtedness and Issuance of Disqualified Stock"); or (iv) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (iv) above being collectively referred to as "RESTRICTED PAYMENTS"),
unless, at the time of such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) immediately before and immediately after giving effect to such
transaction on a pro forma basis, the Company could incur $1.00 of
additional Indebtedness under the provisions of the first paragraph of
"--Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Issuance Date (including Restricted Payments
permitted by clauses (i), (ii) (with respect to the payment of dividends on
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Refunding Capital Stock pursuant to clause (b) thereof), (v) (only to the
extent that amounts paid pursuant to such clause are greater than amounts
that would have been paid pursuant to such clause if $5.0 million and $10.0
million were substituted in such clause for $10.0 million and $20.0 million,
respectively), (vi), (ix) and (x) of the next succeeding paragraph, but
excluding all other Restricted Payments permitted by the next succeeding
paragraph), is less than the sum of (i) 50% of the Consolidated Net Income
of the Company for the period (taken as one accounting period) from the
fiscal quarter that first begins after the Issuance Date to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, in the
case such Consolidated Net Income for such period is a deficit, minus 100%
of such deficit), PLUS (ii) 100% of the aggregate net cash proceeds and the
fair market value, as determined in good faith by the Board of Directors, of
marketable securities received by the Company since immediately after the
closing of the Merger and the Financings from the issue or sale of Equity
Interests of the Company (including Refunding Capital Stock (as defined
below), but excluding cash proceeds and marketable securities received from
the sale of Equity Interests to members of management, directors or
consultants of the Company and its Subsidiaries after the Issuance Date to
the extent such amounts have been applied to Restricted Payments in
accordance with clause (v) of the next succeeding paragraph and excluding
Excluded Contributions) or debt securities of the Company that have been
converted into such Equity Interests of the Company (other than Refunding
Capital Stock (as defined below) or Equity Interests (or convertible debt
securities of the Company sold to a Restricted Subsidiary of the Company and
other than Disqualified Stock or debt securities that have been converted
into Disqualified Stock), PLUS (iii) 100% of the aggregate amount of cash
and marketable securities contributed to the capital of the Company
following the Issuance Date (excluding Excluded Contributions), PLUS (iv)
100% of the aggregate amount received in cash and the fair market value of
marketable securities (other than Restricted Investments) received from (A)
the sale or other disposition (other than to the Company or a Restricted
Subsidiary) of Restricted Investments made by the Company and its Restricted
Subsidiaries or (B) a dividend from, or the sale (other than to the Company
or a Restricted Subsidiary) of the stock of, an Unrestricted Subsidiary
(other than an Unrestricted Subsidiary the Investment in which was made by
the Company or a Restricted Subsidiary pursuant to clauses (vii) or (xii)
below).
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration such payment would have
complied with the provisions of the Indenture;
(ii) (a) the redemption, repurchase, retirement or other acquisition of
any Equity Interests (the "RETIRED CAPITAL STOCK") or Subordinated
Indebtedness of the Company in exchange for, or out of the proceeds of the
substantially concurrent sale (other than to a Restricted Subsidiary) of,
Equity Interests of the Company (other than any Disqualified Stock) (the
"REFUNDING CAPITAL STOCK"), and (b) if immediately prior to the retirement
of Retired Capital Stock, the declaration and payment of dividends thereon
was permitted under clause (vi) of this paragraph, the declaration and
payment of dividends on the Refunding Capital Stock in an aggregate amount
per year no greater than the aggregate amount of dividends per annum that
was declarable and payable on such Retired Capital Stock immediately prior
to such retirement; PROVIDED, HOWEVER, that at the time of the declaration
of any such dividends, no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence thereof;
(iii) distributions or payments of Receivables Fees;
(iv) the redemption, repurchase or other acquisition or retirement of
Subordinated Indebtedness of the Company made by exchange for, or out of the
proceeds of the substantially concurrent sale of, new Indebtedness of the
Company so long as (A) the principal amount of such new Indebtedness does
not exceed the principal amount of the Subordinated Indebtedness being so
redeemed, repurchased,
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acquired or retired for value (plus the amount of any premium required to be
paid under the terms of the instrument governing the Subordinated
Indebtedness being so redeemed, repurchased, acquired or retired), (B) such
Indebtedness is subordinated to the Senior Indebtedness and the Notes at
least to the same extent as such Subordinated Indebtedness so purchased,
exchanged, redeemed, repurchased, acquired or retired for value, (C) such
Indebtedness has a final scheduled maturity date equal to or later than the
final scheduled maturity date of the Subordinated Indebtedness being so
redeemed, repurchased, acquired or retired and (D) such Indebtedness has a
Weighted Average Life to Maturity equal to or greater than the remaining
Weighted Average Life to Maturity of the Subordinated Indebtedness being so
redeemed, repurchased, acquired or retired;
(v) a Restricted Payment to pay for the repurchase, retirement or other
acquisition or retirement for value of common Equity Interests of the
Company held by any future, present or former employee, director or
consultant of the Company or any Subsidiary pursuant to any management
equity plan or stock option plan or any other management or employee benefit
plan or agreement; PROVIDED, HOWEVER, that the aggregate Restricted Payments
made under this clause (v) does not exceed in any calendar year $10.0
million (with unused amounts in any calendar year being carried over to
succeeding calendar years subject to a maximum (without giving effect to the
following proviso) of $20.0 million in any calendar year); PROVIDED FURTHER
that such amount in any calendar year may be increased by an amount not to
exceed (i) the cash proceeds from the sale of Equity Interests of the
Company to members of management, directors or consultants of the Company
and its Subsidiaries that occurs after the Issuance Date (to the extent the
cash proceeds from the sale of such Equity Interest have not otherwise been
applied to the payment of Restricted Payments by virtue of the preceding
paragraph (c)) plus (ii) the cash proceeds of key man life insurance
policies received by the Company and its Restricted Subsidiaries after the
Issuance Date less (iii) the amount of any, Restricted Payments previously
made pursuant to clauses (i) and (ii) of this subparagraph (v); and PROVIDED
FURTHER that cancellation of Indebtedness owing to the Company from members
of management of the Company or any of its Restricted Subsidiaries in
connection with a repurchase of Equity Interests of the Company will not be
deemed to constitute a Restricted Payment for purposes of this covenant or
any other provision of the Indenture;
(vi) the declaration and payment of dividends to holders of any class or
series of Designated Preferred Stock (other than Disqualified Stock) issued
after the Issuance Date (including, without limitation, the declaration and
payment of dividends on Refunding Capital Stock in excess of the dividends
declarable and payable thereon pursuant to clause (ii)); PROVIDED, HOWEVER,
that for the most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date
of issuance of such Designated Preferred Stock, after giving effect to such
issuance on a pro forma basis, the Company and its Restricted Subsidiaries
would have had a Fixed Charge Coverage Ratio of at least 1.75 to 1.00;
(vii) Investments in Unrestricted Subsidiaries having an aggregate fair
market value, taken together with all other Investments made pursuant to
this clause (vi) that are at that time outstanding, not to exceed $25.0
million at the time of such Investment (with the fair market value of each
Investment being measured at the time made and without giving effect to
subsequent changes in value);
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(viii) repurchases of Equity Interests deemed to occur upon exercise of
stock options if such Equity Interests represent a portion of the exercise
price of such options;
(ix) the payment of dividends on the Company's Common Stock, following
the first public offering of the Company's Common Stock after the Issuance
Date, of up to 6% per annum of the net proceeds received by the Company in
such public offering, other than public offerings with respect to the
Company's Common Stock registered on Form S-8;
(x) a Restricted Payment to pay for the repurchase, retirement or other
acquisition or retirement for value of Equity Interests of the Company in
existence on the Issuance Date and which are not held by KKR or any of their
Affiliates or the Management Group on the Issuance Date (including any
Equity Interests issued in respect of such Equity Interests as a result of a
stock split, recapitalization, merger, combination, consolidation or
otherwise, but excluding any management equity plan or stock option plan or
similar agreement), provided that the aggregate Restricted Payments made
under this clause (x) shall not exceed $80.0 million, PROVIDED FURTHER that
notwithstanding the foregoing proviso, the Company shall be permitted to
make Restricted Payments under this clause (x) only if after giving effect
thereto, the Company would be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first sentence of the covenant described under "--Limitations
on Incurrence of Indebtedness and Issuance of Disqualified Stock";
(xi) Investments in Unrestricted Subsidiaries that are made with
Excluded Contributions; and
(xii) other Restricted Payments in an aggregate amount not to exceed
$25.0 million; PROVIDED, HOWEVER, that at the time of, and after giving
effect to, any Restricted Payment permitted under clauses (iv), (v), (vi),
(vii), (viii), (ix), (x), (xi) and (xii), no Default or Event of Default
shall have occurred and be continuing or would occur as a consequence
thereof; and PROVIDED FURTHER that for purposes of determining the aggregate
amount expended for Restricted Payments in accordance with clause (c) of the
immediately preceding paragraph, only the amounts expended under clauses
(i), (ii) (with respect to the payment of dividends on Refunding Capital
Stock pursuant to clause (b) thereof), (v) (only to the extent that amounts
paid pursuant to such clause are greater than amounts that would have been
paid pursuant to such clause if $5.0 million and $10.0 million were
substituted in such clause for $10.0 million and $20.0 million,
respectively), (vi), (ix) and (x) shall be included.
As of the Issuance Date, all of the Company's Subsidiaries other then
Amphenol Funding Corp. will be Restricted Subsidiaries. The Company will not
permit any Unrestricted Subsidiary to become a Restricted Subsidiary except
pursuant to the second to last sentence of the definition of "Unrestricted
Subsidiary." For purposes of designating any Restricted Subsidiary as an
Unrestricted Subsidiary, all outstanding Investments by the Company and its
Restricted Subsidiaries (except to the extent repaid) in the Subsidiary so
designated will be deemed to be Restricted Payments in an amount determined as
set forth in the last sentence of the definition of "Investments." Such
designation will only be permitted if a Restricted Payment in such amount would
be permitted at such time (whether pursuant to the first paragraph of this
covenant or under clause (vii) or (xi)) and if such Subsidiary otherwise meets
the definition of an Unrestricted Subsidiary. Unrestricted Subsidiaries will not
be subject to any of the restrictive covenants set forth in the Indenture.
LIMITATIONS ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "INCUR" and
collectively, an "INCURRENCE") any Indebtedness (including Acquired
Indebtedness) and that the Company will not issue any shares of Disqualified
Stock and will not permit any of its Restricted Subsidiaries to issue any shares
of preferred stock; PROVIDED, HOWEVER, that the Company may incur Indebtedness
(including Acquired
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Indebtedness) or issue shares of Disqualified Stock if the Fixed Charge Coverage
Ratio for the Company's and the Restricted Subsidiaries' most recently ended
four full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least 1.75 to 1.00,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, and the application of
proceeds therefrom had occurred at the beginning of such four-quarter period.
The foregoing limitations will not apply to:
(a) the incurrence by the Company or its Restricted Subsidiaries of
Indebtedness under Credit Facilities and the issuance and creation of
letters of credit and banker's acceptances thereunder (with letters of
credit and banker's acceptances being deemed to have a principal amount
equal to the face amount thereof) up to an aggregate principal amount of
$1.0 billion outstanding at any one time; PROVIDED, HOWEVER, that
Indebtedness incurred by Restricted Subsidiaries pursuant to this clause (a)
does not exceed $100.0 million (or the equivalent thereof in any other
currency) at any one time outstanding;
(b) the incurrence by the Company of Indebtedness represented by the
Notes;
(c) the Existing Indebtedness (other than Indebtedness described in
clauses (a) and (b));
(d) Indebtedness (including Capitalized Lease Obligations) incurred by
the Company or any of its Restricted Subsidiaries, to finance the purchase,
lease or improvement of property (real or personal) or equipment (whether
through the direct purchase of assets or the Capital Stock of any Person
owning such assets) in an aggregate principal amount which, when aggregated
with the principal amount of all other Indebtedness then outstanding and
incurred pursuant to this clause (d) and including all Refinancing
Indebtedness incurred to refund, refinance or replace any other Indebtedness
incurred pursuant to this clause (d), does not exceed 10% of Total Assets;
(e) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including without
limitation letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims; PROVIDED, HOWEVER, that
upon the drawing of such letters of credit or the incurrence of such
Indebtedness, such obligations are reimbursed within 30 days following such
drawing or incurrence;
(f) Indebtedness arising from agreements of the Company or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with
the disposition of any business, assets or a Subsidiary, other than
guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; PROVIDED, HOWEVER, that (i) such Indebtedness is
not reflected on the balance sheet of the Company or any Restricted
Subsidiary (contingent obligations referred to in a footnote to financial
statements and not otherwise reflected on the balance sheet will not be
deemed to be reflected on such balance sheet for purposes of this clause
(i)) and (ii) the maximum assumable liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds including noncash
proceeds (the fair market value of such noncash proceeds being measured at
the time received and without giving effect to any subsequent changes in
value) actually received by the Company and its Restricted Subsidiaries in
connection with such disposition;
(g) Indebtedness of the Company to a Restricted Subsidiary; PROVIDED
that any such Indebtedness is made pursuant to an intercompany note and is
subordinated in right of payment to the Notes; PROVIDED FURTHER that any
subsequent issuance or transfer of any Capital Stock or any other event
which
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results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any other subsequent transfer of any such Indebtedness (except
to the Company or another Restricted Subsidiary) shall be deemed, in each
case to be an incurrence of such Indebtedness;
(h) shares of preferred stock of a Restricted Subsidiary issued to the
Company or another Restricted Subsidiary; PROVIDED that any subsequent
issuance or transfer of any Capital Stock or any other event which results
in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or
any other subsequent transfer of any such shares of preferred stock (except
to the Company or another Restricted Subsidiary) shall be deemed, in each
case to be an issuance of shares of preferred stock;
(i) Indebtedness of a Restricted Subsidiary to the Company or another
Restricted Subsidiary; PROVIDED that (i) any such Indebtedness is made
pursuant to an intercompany note and (ii) if a Guarantor incurs such
Indebtedness from a Restricted Subsidiary that is not a Guarantor such
Indebtedness is subordinated in right of payment to the Guarantee of such
Guarantor; PROVIDED FURTHER that any subsequent transfer of any such
Indebtedness (except to the Company or another Restricted Subsidiary) shall
be deemed, in each case to be an incurrence of such Indebtedness;
(j) Hedging Obligations that are incurred in the ordinary course of
business (1) for the purpose of fixing or hedging interest rate risk with
respect to any Indebtedness that is permitted by the terms of the Indenture
to be outstanding or (2) for the purpose of fixing or hedging currency
exchange rate risk with respect to any currency exchanges;
(k) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
in the ordinary course of business;
(l) Indebtedness of any Guarantor in respect of such Guarantor's
Guarantee;
(m) Indebtedness of the Company and any of its Restricted Subsidiaries
not otherwise permitted hereunder in an aggregate principal amount, which
when aggregated with the principal amount of all other Indebtedness then
outstanding and incurred pursuant to this clause (m), does not exceed $200.0
million at any one time outstanding; PROVIDED, HOWEVER, that (i)
Indebtedness of Foreign Subsidiaries, which when aggregated with the
principal amount of all other Indebtedness of Foreign Subsidiaries then
outstanding and incurred pursuant to this clause (m), does not exceed $100.0
million (or the equivalent thereof in any other currency) at any one time
outstanding and (ii) Indebtedness of a Restricted Subsidiary organized under
the laws of the United States, any state thereof, the District of Columbia
or any territory thereof, which when aggregated with the principal amount of
all other Indebtedness of such Restricted Subsidiaries then outstanding and
incurred pursuant to this clause (m), does not exceed $100.0 million at any
one time outstanding;
(n) (i) any guarantee by the Company of Indebtedness or other
obligations of any of its Restricted Subsidiaries so long as the incurrence
of such Indebtedness incurred by such Restricted Subsidiary is permitted
under the terms of the Indenture and (ii) any Excluded Guarantee (as defined
below under "--Limitation on Guarantees of Indebtedness by Restricted
Subsidiaries") of a Restricted Subsidiary;
(o) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness which serves to refund, refinance or restructure any
Indebtedness incurred as permitted under the first paragraph of this
covenant and clauses (b) and (c) above, or any Indebtedness issued to so
refund, refinance or restructure such Indebtedness including additional
Indebtedness incurred to pay premiums and fees in connection therewith (the
"REFINANCING INDEBTEDNESS") prior to its respective maturity; PROVIDED,
HOWEVER, that such Refinancing Indebtedness (i) has a Weighted Average Life
to Maturity at the time such Refinancing Indebtedness is incurred which is
not less than the remaining Weighted Average Life to Maturity of
Indebtedness being refunded or refinanced, (ii) to the extent such
Refinancing Indebtedness refinances Indebtedness subordinated or pari passu
to the Notes, such
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Refinancing Indebtedness is subordinated or pari passu to the Notes at least
to the same extent as the Indebtedness being refinanced or refunded and
(iii) shall not include (x) Indebtedness of a Subsidiary that refinances
Indebtedness of the Company or (y) Indebtedness of the Company or a
Restricted Subsidiary that refinances Indebtedness of an Unrestricted
Subsidiary; and PROVIDED FURTHER that subclauses (i) and (ii) of this clause
(o) will not apply to any refunding or refinancing of any Senior
Indebtedness; and
(p) Indebtedness or Disqualified Stock of Persons that are acquired by
the Company or any of its Restricted Subsidiaries or merged into a
Restricted Subsidiary in accordance with the terms of the Indenture;
provided that such Indebtedness or Disqualified Stock is not incurred in
contemplation of such acquisition or merger; and PROVIDED FURTHER that after
giving effect to such acquisition, either (i) the Company would be permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first sentence of this covenant
or (ii) the Fixed Charge Coverage Ratio is greater than immediately prior to
such acquisition.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories of
permitted Indebtedness described in clauses (a) through (p) above or is entitled
to be incurred pursuant to the first paragraph of this covenant, the Company
shall, in its sole discretion, classify such item of Indebtedness in any manner
that complies with this covenant and such item of Indebtedness will be treated
as having been incurred pursuant to only one of such clauses or pursuant to the
first paragraph hereof. Accrual of interest, the accretion of accreted value and
the payment of interest in the form of additional Indebtedness will not be
deemed to be an incurrence of Indebtedness for purposes of this covenant.
LIENS
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly create, incur,
assume or suffer to exist any Lien that secures obligations under any Pari Passu
Indebtedness or Subordinated Indebtedness on any asset or property of the
Company or such Restricted Subsidiary, or any income or profits therefrom, or
assign or convey any right to receive income therefrom, unless the Notes are
equally and ratably secured with the obligations so secured or until such time
as such obligations are no longer secured by a Lien.
The Indenture will provide that no Guarantor will directly or indirectly
create, incur, assume or suffer to exist any Lien that secures obligations under
any Pari Passu Indebtedness or Subordinated Indebtedness of such Guarantor on
any asset or property of such Guarantor or any income or profits therefrom, or
assign or convey any right to receive income therefrom, unless the Guarantee of
such Guarantor is equally and ratably secured with the obligations so secured or
until such time as such obligations are no longer secured by a Lien.
MERGER, CONSOLIDATION, OR SALE OF ALL OR SUBSTANTIALLY ALL ASSETS
The Indenture will provide that the Company may not consolidate or merge
with or into or wind up into (whether or not the Company is the surviving
corporation), or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its properties or assets in one or more related
transactions, to any Person unless (i) the Company is the surviving corporation
or the Person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, lease, conveyance
or other disposition will have been made is a corporation organized or existing
under the laws of the United States, any state thereof, the District of
Columbia, or any territory thereof (the Company or such Person, as the case may
be, being herein called the "SUCCESSOR COMPANY"); (ii) the Successor Company (if
other than the Company) expressly assumes all the obligations of the Company
under the Indenture and the Notes pursuant to a supplemental indenture or other
documents or instruments in form reasonably satisfactory to the Trustee; (iii)
immediately after such transaction no
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Default or Event of Default exists; (iv) immediately after giving pro forma
effect to such transaction, as if such transaction had occurred at the beginning
of the applicable four-quarter period, (A) the Successor Company would be
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first sentence of the covenant
described under "--Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock" or (B) the Fixed Charge Coverage Ratio for the Successor
Company and its Restricted Subsidiaries would be greater than such Ratio for the
Company and its Restricted Subsidiaries immediately prior to such transaction;
(v) each Guarantor, if any, unless it is the other party to the transactions
described above, shall have by supplemental indenture confirmed that its
Guarantee shall apply to such Person's obligations under the Indenture and the
Notes; and (vi) the Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
Indenture. The Successor Company will succeed to, and be substituted for, the
Company under the Indenture and the Notes. Notwithstanding the foregoing clause
(iv), (a) any Restricted Subsidiary may consolidate with, merge into or transfer
all or part of its properties and assets to the Company and (b) the Company may
merge with an Affiliate incorporated solely for the purpose of reincorporating
the Company in another State of the United States so long as the amount of
Indebtedness of the Company and its Restricted Subsidiaries is not increased
thereby.
Each Guarantor, if any, shall not, and the Company will not permit a
Guarantor to, consolidate or merge with or into or wind up into (whether or not
such Guarantor is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions to, any Person unless (i) such
Guarantor is the surviving corporation or the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor) or to which such
sale, assignment, transfer, lease, conveyance or other disposition will have
been made is a corporation organized or existing under the laws of the United
States, any state thereof, the District of Columbia, or any territory thereof
(such Guarantor or such Person, as the case may be, being herein called the
"SUCCESSOR GUARANTOR"); (ii) the Successor Guarantor (if other than such
Guarantor) expressly assumes all the obligations of such Guarantor under the
Indenture and such Guarantor's Guarantee pursuant to a supplemental indenture or
other documents or instruments in form reasonably satisfactory to the Trustee;
(iii) immediately after such transaction no Default or Event of Default exists;
and (iv) the Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
Indenture. The Successor Guarantor will succeed to, and be substituted for, such
Guarantor under the Indenture and such Guarantor's Guarantee.
TRANSACTIONS WITH AFFILIATES
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or purchase
any property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "AFFILIATE TRANSACTION")
involving aggregate consideration in excess of $5.0 million, unless (a) such
Affiliate Transaction is on terms that are not materially less favorable to the
Company or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (b) the Company delivers to the Trustee
with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $10.0 million, a
resolution adopted by the majority of the Board of Directors approving such
Affiliate Transaction and set forth in an Officers' Certificate certifying that
such Affiliate Transaction complies with clause (a) above.
The foregoing provisions will not apply to the following: (i) transactions
between or among the Company and/or any of its Restricted Subsidiaries; (ii)
Restricted Payments permitted by the provisions of
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the Indenture described above under the covenant "--Limitation on Restricted
Payments"; (iii) the payment of customary annual management, consulting and
advisory fees and related expenses to KKR and its Affiliates; (iv) the payment
of reasonable and customary fees paid to, and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary; (v) payments by the Company or any of its Restricted Subsidiaries to
KKR and its Affiliates made for any financial advisory, financing, underwriting
or placement services or in respect of other investment banking activities,
including, without limitation, in connection with acquisitions or divestitures
which payments are approved by a majority of the Board of Directors of the
Company in good faith; (vi) transactions in which the Company or any of its
Restricted Subsidiaries, as the case may be, delivers to the Trustee a letter
from an Independent Financial Advisor stating that such transaction is fair to
the Company or such Restricted Subsidiary from a financial point of view or
meets the requirements of clause (a) of the preceding paragraph; (vii) payments
or loans to employees or consultants which are approved by a majority of the
Board of Directors of the Company in good faith; (viii) any agreement as in
effect as of the Issuance Date or any amendment thereto (so long as any such
amendment is not disadvantageous to the holders of the Notes in any material
respect) or any transaction contemplated thereby; (ix) the existence of, or the
performance by the Company or any of its Restricted Subsidiaries of its
obligations under the terms of, any stockholders agreement (including any
registration rights agreement or purchase agreement related thereto) to which it
is a party as of the Issuance Date and any similar agreements which it may enter
into thereafter; PROVIDED, HOWEVER, that the existence of, or the performance by
the Company or any of its Restricted Subsidiaries of obligations under any
future amendment to any such existing agreement or under any similar agreement
entered into after the Issuance Date shall only be permitted by this clause (ix)
to the extent that the terms of any such amendment or new agreement are not
otherwise disadvantageous to the holders of the Notes in any material respect;
(x) the payment of all fees and expenses related to the Merger and the
Financings; (xi) transactions with customers, clients, suppliers, or purchasers
or sellers of goods or services, in each case in the ordinary course of business
and otherwise in compliance with the terms of the Indenture which are fair to
the Company or its Restricted Subsidiaries, in the reasonable determination of
the Board of Directors of the Company or the senior management thereof, or are
on terms at least as favorable as might reasonably have been obtained at such
time from an unaffiliated party; and (xii) sales of accounts receivable, or
participations therein, in connection with any Receivables Facility.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or consensual restriction on the ability of any Restricted
Subsidiary to:
(a)(i) pay dividends or make any other distributions to the Company or
any of its Restricted Subsidiaries (1) on its Capital Stock or (2) with
respect to any other interest or participation in, or measured by, its
profits, or (ii) pay any Indebtedness owed to the Company or any of its
Restricted Subsidiaries;
(b) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(c) sell, lease or transfer any of its properties or assets to the
Company or any of its Restricted Subsidiaries; except (in each case) for
such encumbrances or restrictions existing under or by reason of:
(1) contractual encumbrances or restrictions in effect on the
Issuance Date, including pursuant to the Senior Credit Facility and its
related documentation;
(2) the Indenture and the Notes;
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(3) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature discussed in
clause (c) above on the property so acquired;
(4) applicable law or any applicable rule, regulation or order;
(5) any agreement or other instrument of a Person acquired by the
Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), which encumbrance
or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of
the Person, so acquired;
(6) contracts for the sale of assets, including, without limitation
customary restrictions with respect to a Subsidiary pursuant to an
agreement that has been entered into for the sale or disposition of all
or substantially all of the Capital Stock or assets of such Subsidiary;
(7) secured Indebtedness otherwise permitted to be incurred pursuant
to the covenants described under "Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Stock" and "Liens" that limit
the right of the debtor to dispose of the assets securing such
Indebtedness;
(8) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business;
(9) other Indebtedness of Restricted Subsidiaries permitted to be
incurred subsequent to the Issuance Date pursuant to the provisions of
the covenant described under "--Limitations on Incurrence of Indebtedness
and Issuance of Disqualified Stock";
(10) customary provisions in joint venture agreements and other
similar agreements entered into in the ordinary course of business;
(11) customary provisions contained in leases and other agreements
entered into in the ordinary course of business;
(12) restrictions created in connection with any Receivables Facility
that, in the good faith determination of the Board of Directors of the
Company, are necessary or advisable to effect such Receivables Facility;
or
(13) any encumbrances or restrictions of the type referred to in
clauses (a), (b) and (c) above imposed by any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements
or refinancings of the contracts, instruments or obligations referred to
in clauses (1) through (11) above, provided that such amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are, in the good faith judgment
of the Company's Board of Directors, no more restrictive with respect to
such dividend and other payment restrictions than those contained in the
dividend or other payment restrictions prior to such amendment,
modification, restatement, renewal, increase, supplement, refunding,
replacement or refinancing.
LIMITATION ON GUARANTEES OF INDEBTEDNESS BY RESTRICTED SUBSIDIARIES
(a) The Indenture will provide that the Company will not permit any
Restricted Subsidiary to guarantee the payment of any Indebtedness of the
Company or any Indebtedness of any other Restricted Subsidiary unless (i) such
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture to the Indenture providing for a Guarantee of payment of the Notes by
such Restricted Subsidiary except that (A) if the Notes are subordinated in
right of payment to such Indebtedness, the Guarantee under the supplemental
indenture shall be subordinated to such Restricted Subsidiary's guarantee with
respect to such Indebtedness substantially to the same extent as the Notes are
subordinated
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to such Indebtedness under the Indenture and (B) if such Indebtedness is by its
express terms subordinated in right of payment to the Notes, any such guarantee
of such Restricted Subsidiary with respect to such Indebtedness shall be
subordinated in right of payment to such Restricted Subsidiary's Guarantee with
respect to the Notes substantially to the same extent as such Indebtedness is
subordinated to the Notes; (ii) such Restricted Subsidiary waives and will not
in any manner whatsoever claim or take the benefit or advantage of, any rights
of reimbursement, indemnity or subrogation or any other rights against the
Company or any other Restricted Subsidiary as a result of any payment by such
Restricted Subsidiary under its Guarantee; and (iii) such Restricted Subsidiary
shall deliver to the Trustee an opinion of counsel to the effect that (A) such
Guarantee of the Notes has been duly executed and authorized and (B) such
Guarantee of the Notes constitutes a valid, binding and enforceable obligation
of such Restricted Subsidiary, except insofar as enforcement thereof may be
limited by bankruptcy, insolvency or similar laws (including, without
limitation, all laws relating to fraudulent transfers) and except insofar as
enforcement thereof is subject to general principles of equity; PROVIDED that
this paragraph (a) shall not be applicable to any guarantee of any Restricted
Subsidiary (x) that (A) existed at the time such Person became a Restricted
Subsidiary of the Company and (B) was not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary of the Company or
(y) that guarantees the payment of Obligations of the Company or any Restricted
Subsidiary under the Senior Credit Facility or any other bank facility which is
designated as Senior Indebtedness and any refunding, refinancing or replacement
thereof, in whole or in part, PROVIDED that such refunding, refinancing or
replacement thereof constitutes Senior Indebtedness and is not incurred pursuant
to a registered offering of securities under the Securities Act or a private
placement of securities (including under Rule 144A) pursuant to an exemption
from the registration requirements of the Securities Act, which private
placement provides for registration rights under the Securities Act (any
guarantee excluded by operations of this clause (y) being an "EXCLUDED
GUARANTEE").
(b) Notwithstanding the foregoing and the other provisions of the Indenture,
any Guarantee by a Restricted Subsidiary of the Notes shall provide by its terms
that it shall be automatically and unconditionally released and discharged upon
(i) any sale, exchange or transfer, to any Person not an Affiliate of the
Company, of all of the Company's Capital Stock in, or all or substantially all
the assets of, such Restricted Subsidiary (which sale, exchange or transfer is
not prohibited by the Indenture) or (ii) the release or discharge of the
guarantee which resulted in the creation of such Guarantee, except a discharge
or release by or as a result of payment under such guarantee.
LIMITATION ON OTHER SENIOR SUBORDINATED INDEBTEDNESS
The Indenture will provide that the Company will not, and will not permit
any Guarantor to, directly or indirectly, incur any Indebtedness (including
Acquired Indebtedness) that is subordinate in right of payment to any
Indebtedness of the Company or any Indebtedness of any Guarantor, as the case
may be, unless such Indebtedness is either (a) pari passu in right of payment
with the Notes or such Guarantor's Guarantee, as the case may be or (b)
subordinate in right of payment to the Notes, or such Guarantor's Guarantee, as
the case may be, in the same manner and at least to the same extent as the Notes
are subordinate to Senior Indebtedness or such Guarantor's Guarantee is
subordinate to such Guarantor's Senior Indebtedness, as the case may be.
REPORTS AND OTHER INFORMATION
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act or otherwise report on
an annual and quarterly basis on forms provided for such annual and quarterly
reporting pursuant to rules and regulations promulgated by the Securities and
Exchange Commission (the "COMMISSION"), the Indenture will require the Company
to file with the Commission (and provide the Trustee and Holders with copies
thereof, without cost to each Holder, within 15 days after it files them with
the Commission), (a) within 90 days after the end of each fiscal year, annual
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reports on Form 1O-K (or any successor or comparable form) containing the
information required to be contained therein (or required in such successor or
comparable form); (b) within 45 days after the end of each of the first three
fiscal quarters of each fiscal year, reports on Form 1O-Q (or any successor or
comparable form); (c) promptly from time to time after the occurrence of an
event required to be therein reported, such other reports on Form 8-K (or any
successor or comparable form); and (d) any other information, documents and
other reports which the Company would be required to file with the Commission if
it were subject to Section 13 or 15(d) of the Exchange Act; PROVIDED, HOWEVER,
the Company shall not be so obligated to file such reports with the Commission
if the Commission does not permit such filing, in which event the Company will
make available such information to prospective purchasers of Notes, in addition
to providing such information to the Trustee and the Holders, in each case
within 15 days after the time the Company would be required to file such
information with the Commission, if it were subject to Sections 13 or 15(d) of
the Exchange Act.
EVENTS OF DEFAULT AND REMEDIES
The following events constitute Events of Default under the Indenture:
(i) default in payment when due and payable, upon redemption,
acceleration or otherwise, of principal of, or premium on, if any, the Notes
whether or not such payment shall be prohibited by the subordination
provisions relating to the Notes;
(ii) default for 30 days or more in the payment when due of interest on
or with respect to the Notes whether or not such payment shall be prohibited
by the subordination provisions relating to the Notes;
(iii) failure by the Company or any Guarantor for 30 days after receipt
of written notice given by the Trustee or the holders of at least 30% in
principal amount of the Notes then outstanding to comply with any of its
other agreements in the Indenture or the Notes;
(iv) default under any mortgage, indenture or instrument under which
there is issued or by which there is secured or evidenced any Indebtedness
for money borrowed by the Company or any of its Restricted Subsidiaries or
the payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries (other than Indebtedness owed to the Company or a Restricted
Subsidiary), whether such Indebtedness or guarantee now exists or is created
after the Issuance Date, if both (A) such default either (1) results from
the failure to pay any such Indebtedness at its stated final maturity (after
giving effect to any applicable grace periods) or (2) relates to an
obligation other than the obligation to pay principal of any such
Indebtedness at its stated final maturity and results in the holder or
holders of such Indebtedness causing such Indebtedness to become due prior
to its stated maturity and (B) the principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in default
for failure to pay principal at stated final maturity (after giving effect
to any applicable grace periods), or the maturity of which has been so
accelerated, aggregate $25.0 million or more at any one time outstanding;
PROVIDED, HOWEVER, that any default under or acceleration of the Existing
Senior Notes within the 35-day period commencing on the consummation of the
Merger shall not be deemed to be a Default or Event of Default under the
Indenture so long as all outstanding Existing Senior Notes have been repaid
in full within 35 days of the consummation of the Merger;
(v) failure by the Company or any of its Significant Subsidiaries to pay
final judgments aggregating in excess of $25.0 million, which final
judgments remain unpaid, undischarged and unstayed for a period of more than
60 days after such judgment becomes final, and in the event such judgment is
covered by insurance, an enforcement proceeding has been commenced by any
creditor upon such judgment or decree which is not promptly stayed;
(vi) certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries; or
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(vii) any Guarantee shall for any reason cease to be in full force and
effect or be declared null and void or any responsible officer of the
Company or any Guarantor denies that it has any further liability under any
Guarantee or gives notice to such effect (other than by reason of the
termination of the Indenture or the release of any such Guarantee in
accordance with the Indenture).
If any Event of Default (other than of a type specified in clause (vi)
above) occurs and is continuing under the Indenture, the Trustee or the Holders
of at least 30% in principal amount of the then outstanding Notes may declare
the principal, premium, if any, interest and any other monetary obligations on
all the then outstanding Notes to be due and payable immediately; PROVIDED,
HOWEVER, that, so long as any Indebtedness permitted to be incurred pursuant to
the Senior Credit Facility shall be outstanding, no such acceleration shall be
effective until the earlier of (i) acceleration of any such Indebtedness under
the Senior Credit Facility or (ii) five business days after the giving of
written notice to the Company and the administrative agent under the Senior
Credit Facility of such acceleration. Upon the effectiveness of such
declaration, such principal and interest will be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising under
clause (vi) of the first paragraph of this section, all outstanding Notes will
become due and payable without further action or notice. Holders of the Notes
may not enforce the Indenture or the Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of the
then outstanding Notes may direct the Trustee in its exercise of any trust or
power. The Indenture provides that the Trustee may withhold from Holders of
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal, premium, if any, or
interest) if it determines that withholding notice is in their interest. In
addition, the Trustee shall have no obligation to accelerate the Notes if in the
best judgment of the Trustee acceleration is not in the best interest of the
Holders of such Notes.
The Indenture provides that the Holders of a majority in aggregate principal
amount of the then outstanding Notes issued thereunder by notice to the Trustee
may on behalf of the Holders of all of such Notes waive any existing Default or
Event of Default and its consequences under the Indenture except a continuing
Default or Event of Default in the payment of interest on, premium, if any, or
the principal of any such Note held by a non-consenting Holder. In the event of
any Event of Default specified in clause (iv) above, such Event of Default and
all consequences thereof (including without limitation any acceleration or
resulting payment default) shall be annulled, waived and rescinded,
automatically and without any action by the Trustee or the Holders of the Notes,
if within 20 days after such Event of Default arose (x) the Indebtedness or
guarantee that is the basis for such Event of Default has been discharged, or
(y) the holders thereof have rescinded or waived the acceleration, notice or
action (as the case may be) giving rise to such Event of Default, or (z) if the
default that is the basis for such Event of Default has been cured.
The Indenture provides that the Company is required to deliver to the
Trustee annually a statement regarding compliance with the Indenture, and the
Company is required, within five Business Days, upon becoming aware of any
Default or Event of Default or any default under any document, instrument or
agreement representing Indebtedness of the Company or any Guarantor, to deliver
to the Trustee a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Guarantor, shall have any liability for any obligations of the Company or
the Guarantors under the Notes, the Guarantees or the Indenture or for any claim
based on, in respect of, or by reason of such obligations or their creation.
Each Holder of Notes by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the Notes.
Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The obligations of the Company and the Guarantors, if any, under the
Indenture will terminate (other than certain obligations) and will be released
upon payment in full of all of the Notes. The Company may, at its option and at
any time, elect to have all of its obligations discharged with respect to the
outstanding Notes and have each Guarantor's obligation discharged with respect
to its Guarantee ("LEGAL DEFEASANCE") and cure all then existing Events of
Default except for (i) the rights of Holders of outstanding Notes to receive
payments in respect of the principal of, premium, if any, and interest on such
Notes when such payments are due solely out of the trust created pursuant to the
Indenture, (ii) the Company's obligations with respect to Notes concerning
issuing temporary Notes, registration of such Notes, mutilated, destroyed, lost
or stolen Notes and the maintenance of an office or agency for payment and money
for security payments held in trust, (iii) the rights, powers, trusts, duties
and immunities of the Trustee, and the Company's obligations in connection
therewith and (iv) the Legal Defeasance provisions of the Indenture. In
addition, the Company may, at its option and at any time, elect to have the
obligations of the Company and each Guarantor released with respect to certain
covenants that are described in the Indenture ("COVENANT DEFEASANCE") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment on other
indebtedness, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance with
respect to the Notes:
(i) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest
due on the outstanding Notes on the stated maturity date or on the
applicable redemption date, as the case may be, of such principal, premium,
if any, or interest on the outstanding Notes;
(ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that, subject to customary assumptions
and exclusions, (A) the Company has received from, or there has been
published by, the United States Internal Revenue Service a ruling or (B)
since the Issuance Date, there has been a change in the applicable U.S.
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel in the United States shall confirm that, subject to
customary assumptions and exclusions, the Holders of the outstanding Notes
will not recognize income, gain or loss for U.S. federal income tax purposes
as a result of such Legal Defeasance and will be subject to U.S. federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, the Holders of the outstanding Notes will not
recognize income, gain or loss for U.S. federal income tax purposes as a
result of such Covenant Defeasance and will be subject to such tax on the
same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be
continuing with respect to certain Events of Default on the date of such
deposit;
(v) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any material
agreement or instrument (other than the Indenture) to which, the Company or
any Guarantor is a party or by which the Company or any Guarantor is bound;
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(vi) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that, as of the date of such opinion and subject to
customary assumptions and exclusions following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally under
any applicable U.S. federal or state law, and that the Trustee has a
perfected security interest in such trust funds for the ratable benefit of
the Holders;
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect as
to all Notes issued thereunder, when either (a) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes which have
been replaced or paid and Notes for whose payment money has theretofore been
deposited in trust and thereafter repaid to the Company) have been delivered to
the Trustee for cancellation; or (b) (i) all such Notes not theretofore
delivered to such Trustee for cancellation have become due and payable by reason
of the making of a notice of redemption or otherwise or will become due and
payable within one year and the Company or any Guarantor has irrevocably
deposited or caused to be deposited with such Trustee as trust funds in trust an
amount of money sufficient to pay and discharge the entire indebtedness on such
Notes not theretofore delivered to the Trustee for cancellation for principal,
premium, if any, and accrued interest to the date of maturity or redemption;
(ii) no Default or Event of Default with respect to the Indenture or the Notes
shall have occurred and be continuing on the date of such deposit or shall occur
as a result of such deposit and such deposit will not result in a breach or
violation of, or constitute a default under, any other instrument to which the
Company or any Guarantor is a party or by which the Company or any Guarantor is
bound; (iii) the Company or any Guarantor has paid or caused to be paid all sums
payable by it under such Indenture; and (iv) the Company has delivered
irrevocable instructions to the Trustee under such Indenture to apply the
deposited money toward the payment of such Notes at maturity or the redemption
date, as the case may be. In addition, the Company must deliver an Officers'
Certificate and an opinion of counsel to the Trustee stating that all conditions
precedent to satisfaction and discharge have been satisfied.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture, any
Guarantee and the Notes issued thereunder may be amended or supplemented with
the consent of the Holders of at least a majority in principal amount of the
Notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes),
and any existing default or compliance with any provision of the Indenture or
the Notes may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes (including consents obtained in
connection with a tender offer or exchange offer for Notes).
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The Indenture will provide that without the consent of each Holder affected,
an amendment or waiver may not (with respect to any Notes held by a
non-consenting Holder of the Notes): (i) reduce the principal amount of Notes
whose Holders must consent to an amendment, supplement or waiver, (ii) reduce
the principal of or change the fixed maturity of any such Note or alter or waive
the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described above under the caption
"--Repurchase at the Option of Holders"), (iii) reduce the rate of or change the
time for payment of interest on any Note, (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Notes (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of such Notes and a waiver of the
payment default that resulted from such acceleration), or in respect of a
covenant or provision contained in the Indenture or any Guarantee which cannot
be amended or modified without the consent of all Holders, (v) make any Note
payable in money other than that stated in such Notes, (vi) make any change in
the provisions of the Indenture relating to waivers of past Defaults or the
rights of Holders of Notes to receive payments of principal of or premium, if
any, or interest on the Notes, (vii) make any change in the foregoing amendment
and waiver provisions, (viii) impair the right of any Holder of the Notes to
receive payment of principal of, or interest on such Holder's Notes on or after
the due dates therefore or to institute suit for the enforcement of any payment
on or with respect to such Holder's Notes or (ix) make any change in the
subordination provisions of the Indenture that would adversely affect the
holders of the Notes.
The Indenture will provide that, notwithstanding the foregoing, without the
consent of any Holder of Notes, the Company, any Guarantor (with respect to a
Guarantee or the Indenture to which it is a party) and the Trustee may amend or
supplement the Indenture, any Guarantee or the Notes (i) to cure any ambiguity,
defect or inconsistency, (ii) to provide for uncertificated Notes in addition to
or in place of certificated Notes, (iii) to comply with the covenant relating to
mergers, consolidations and sales of assets, (iv) to provide for the assumption
of the Company's or any Guarantor's obligations to Holders of such Notes, (v) to
make any change that would provide any additional rights or benefits to the
Holders of Notes or that does not adversely affect the legal rights under the
Indenture of any such Holder, (vi) to add covenants for the benefit of the
Holders or to surrender any right or power conferred upon the Company, (vii) to
comply with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act, or (viii) to add a
Guarantor under the Indenture.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Indenture will provide that the Holders of a majority in principal
amount of the outstanding Notes issued thereunder will have the right to direct
the time, method and place of conducting any proceeding for exercising any
remedy available to the Trustee, subject to certain exceptions. The Indenture
will provide that in case an Event of Default shall occur (which shall not be
cured), the Trustee will be required, in the exercise of its power, to use the
degree of care of a prudent person in the conduct of his own affairs. Subject to
such provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any Holder of such Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense.
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GOVERNING LAW
The Indenture, the Notes and the Guarantees, if any, will be, subject to
certain exceptions, governed by and construed in accordance with the internal
laws of the State of New York, without regard to the choice of law rules
thereof.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided. For
purposes of the Indenture, unless otherwise specifically indicated, the term
"consolidated" with respect to any Person refers to such Person consolidated
with its Restricted Subsidiaries, and excludes from such consolidation any
Unrestricted Subsidiary as if such Unrestricted Subsidiary were not an Affiliate
of such Person.
"ACQUIRED INDEBTEDNESS" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person, and (ii) Indebtedness secured by
a Lien encumbering any asset acquired by such specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED, HOWEVER,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"ASSET SALE" means (i) the sale, conveyance, transfer or other disposition
(whether in a single transaction or a series of related transactions) of
property or assets (including by way of a sale and leaseback) of the Company or
any Restricted Subsidiary (each referred to in this definition as a
"DISPOSITION") or (ii) the issuance or sale of Equity Interests of any
Restricted Subsidiary (whether in a single transaction or a series of related
transactions), in each case, other than: (a) a disposition of Cash Equivalents
or Investment Grade Securities or obsolete equipment in the ordinary course of
business; (b) the disposition of all or substantially all of the assets of the
Company in a manner permitted pursuant to the provisions described above under
"--Merger, Consolidation or Sale of All or Substantially All Assets" or any
disposition that constitutes a Change of Control pursuant to the Indenture; (c)
any Restricted Payment that is permitted to be made, and is made, under the
first paragraph of the covenant described above under "Limitation on Restricted
Payments;" (d) any disposition of assets with an aggregate fair market value of
less than $1.0 million; (e) any disposition of property or assets by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Wholly Owned Restricted Subsidiary; (f) any exchange of like
property pursuant to Section 1031 of the Internal Revenue Code of 1986, as
amended, for use in a Similar Business; (g) any financing transaction with
respect to property built or acquired by the Company or any Restricted
Subsidiary after the Issuance Date including, without limitation,
sale-leasebacks and asset securitizations; (h) foreclosures on assets; (i) sales
of accounts receivable, or participations therein, in connection with any
Receivables Facility; and (j) any sale of Equity Interests in, or Indebtedness
or other securities of, an Unrestricted Subsidiary.
"CAPITALIZED LEASE OBLIGATION" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized and reflected as a liability on
a balance sheet (excluding the footnotes thereto) in accordance with GAAP.
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"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"CASH EQUIVALENTS" means (i) U. S. dollars, (ii) securities issued or
directly and fully guaranteed or insured by the U. S. Government or any agency
or instrumentality thereof, (iii) certificates of deposit, time deposits and
eurodollar time deposits with maturities of one year or less from the date of
acquisition, bankers' acceptances with maturities not exceeding one year and
overnight bank deposits, in each case with any commercial bank having capital
and surplus in excess of $500.0 million, (iv) repurchase obligations for
underlying securities of the types described in clauses (ii) and (iii) entered
into with any financial institution meeting the qualifications specified in
clause (iii) above, (v) commercial paper rated A-1 or the equivalent thereof by
Moody's or S&P and in each case maturing within one year after the date of
acquisition, (vi) investment funds investing 95% of their assets in securities
of the types described in clauses (i)-(v) above, (vii) readily marketable direct
obligations issued by any state of the United States of America or any political
subdivision thereof having one of the two highest rating categories obtainable
from either Moody's or S&P and (viii) Indebtedness or preferred stock issued by
Persons with a rating of "A" or higher from S&P or "A2" or higher from Moody's.
"CHANGE OF CONTROL" means the occurrence of any of the following:
(i) the sale, lease or transfer, in one or a series of related
transactions, of all or substantially all of the assets of the Company and
its Subsidiaries, taken as a whole; or
(ii) the Company becomes aware of (by way of a report or any other
filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written
notice or otherwise) the acquisition by any Person or group (within the
meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any
successor provision), including any group acting for the purpose of
acquiring, holding or disposing of securities (within the meaning of Rule
13d-5(b)(1) under the Exchange Act), other than the Permitted Holders and
their Related Parties, in a single transaction or in a related series of
transactions, by way of merger, consolidation or other business combination
or purchase of beneficial ownership (within the meaning of Rule 13d-3 under
the Exchange Act, or any successor provision) of 50% or more of the total
voting power of the Voting Stock of the Company.
"CONSOLIDATED DEPRECIATION AND AMORTIZATION EXPENSE" means with respect to
any Person for any period, the total amount of depreciation and amortization
expense of such Person and its Restricted Subsidiaries for such period on a
consolidated basis and otherwise determined in accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any period, the sum,
without duplication, of: (a) consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, to the extent, such expense was
deducted in computing Consolidated Net Income (including amortization of
original issue discount, non-cash interest payments, the interest component of
Capitalized Lease Obligations, and net payments and receipts (if any) pursuant
to Hedging Obligations to the extent included in Consolidated Interest Expense,
excluding amortization of deferred financing fees) and (b) consolidated
capitalized interest of such Person and its Restricted Subsidiaries for such
period, whether paid or accrued; PROVIDED, HOWEVER, that Receivables Fees shall
be deemed not to constitute Consolidated Interest Expense.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any period,
the aggregate of the Net Income, of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, and otherwise determined in accordance
with GAAP; PROVIDED, HOWEVER, that (i) any net after-tax extraordinary gains or
losses (less all fees and expenses relating thereto) shall be excluded, (ii) the
Net Income for such period shall not include the cumulative effect of a change
in accounting principles during such period,
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(iii) any net after-tax income (loss) from discontinued operations and any net
after-tax gains or losses on disposal of discontinued operations shall be
excluded, (iv) any net after-tax gains or losses (less all fees and expenses
relating thereto) attributable to asset dispositions other than in the ordinary
course of business (as determined in good faith by the Board of Directors of the
Company) shall be excluded, (v) the Net Income for such period of any Person
that is not a Subsidiary, or is an Unrestricted Subsidiary, or that is accounted
for by the equity method of accounting, shall be included only to the extent of
the amount of dividends or distributions or other payments paid in cash (or to
the extent converted into cash) to the referent Person or a Wholly Owned
Restricted Subsidiary thereof in respect of such period, (vi) the Net Income of
any Person acquired in a pooling of interests transaction shall not be included
for any period prior to the date of such acquisition and (vii) the Net Income
for such period of any Restricted Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Restricted Subsidiary of its Net Income is not at the date of determination
permitted without any prior governmental approval (which has not been obtained)
or, directly or indirectly, by the operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule, or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, unless
such restriction with respect to the payment of dividends or in similar
distributions has been legally waived.
"CONTINGENT OBLIGATIONS" means, with respect to any Person, any obligation
of such Person guaranteeing any leases, dividends or other obligations that do
not constitute Indebtedness ("PRIMARY OBLIGATIONS") of any other Person (the
"PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (ii) to advance or supply funds (A) for the
purchase or payment of any such primary obligation or (B) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, or (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation against loss in respect thereof.
"CREDIT FACILITIES" means, with respect to the Company, one or more debt
facilities (including, without limitation, the Senior Credit Facility) or
commercial paper facilities with banks or other institutional lenders providing
for revolving credit loans, term loans, receivables financing (including through
the sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
in whole or in part from time to time.
"DEFAULT" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"DESIGNATED NONCASH CONSIDERATION" means the fair market value of noncash
consideration received by the Company or one of its Restricted Subsidiaries in
connection with an Asset Sale that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, setting forth the basis of
such valuation, executed by the principal executive officer and the principal
financial officer of the Company, less the amount of cash or Cash Equivalents
received in connection with a sale of such Designated Noncash Consideration.
"DESIGNATED PREFERRED STOCK" means preferred stock of the Company (other
than Disqualified Stock) that is issued for cash (other than to a Restricted
Subsidiary) and is so designated as Designated Preferred Stock, pursuant to an
Officers' Certificate executed by the principal executive officer and the
principal financial officer of the Company, on the issuance date thereof.
"DISQUALIFIED STOCK" means, with respect to any Person, any Capital Stock of
such Person which, by its terms (or by the terms of any security into which it
is convertible or for which it is putable or exchangeable), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part,
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in each case prior to the date 91 days after the maturity date of the Notes;
PROVIDED, HOWEVER, that if such Capital Stock is issued to any employee or to
any plan for the benefit of employees of the Company or its Subsidiaries or by
any such plan to such employees, such Capital Stock shall not constitute
Disqualified Stock solely because it may be required to be repurchased by the
Company in order to satisfy applicable statutory or regulatory obligations.
"EBITDA" means, with respect to any Person for any period, the Consolidated
Net Income of such Person for such period plus (a) provision for taxes based on
income or profits of such Person for such period deducted in computing
Consolidated Net Income, plus (b) Consolidated Interest Expense of such Person
for such period and any Receivables Fees paid by such Person or any of its
Restricted Subsidiaries during such period, in each case to the extent the same
was deducted in calculating such Consolidated Net Income, plus (c) Consolidated
Depreciation and Amortization Expense of such Person for such period to the
extent such depreciation and amortization were deducted in computing
Consolidated Net Income, plus (d) any expenses or charges related to any Equity
Offering, Permitted Investment or Indebtedness permitted to be incurred by the
Indenture (including such expenses or charges related to the Merger (including
the costs of (i) the cancellation of the stock options and (ii) the retirement
of the Existing Notes) and the Financings) and deducted in such period in
computing Consolidated Net Income, plus (e) the amount of any restructuring
charge deducted in such period in computing Consolidated Net Income, plus (f)
without duplication, any other non-cash charges reducing Consolidated Net Income
for such period (excluding any such charge which requires an accrual of a cash
reserve for anticipated cash charges for any future period), plus (g) the amount
of any minority interest expense deducted in calculating Consolidated Net
Income, less, without duplication (h) non-cash items increasing Consolidated Net
Income of such Person for such period (excluding any items which represent the
reversal of any accrual of, or cash reserve for, anticipated cash charges in any
prior period).
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EQUITY OFFERING" means any public or private sale of common stock or
preferred stock of the Company (excluding Disqualified Stock), other than (i)
public offerings with respect to the Company's Common Stock registered on Form
S-8 and (ii) any such public or private sale that constitutes an Excluded
Contribution.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"EXCLUDED CONTRIBUTIONS" means the net cash proceeds received by the Company
after the closing of the Merger from (a) contributions to its common equity
capital and (b) the sale (other than to a Subsidiary or to any Company or
Subsidiary management equity plan or stock option plan or any other management
or employee benefit plan or agreement) of Capital Stock (other than Disqualified
Stock) of the Company, in each case designated as Excluded Contributions
pursuant to an Officers' Certificate executed by the principal executive officer
and the principal financial officer of the Company on the date such capital
contributions are made or the date such Equity Interests are sold, as the case
may be, the cash proceeds of which are excluded from the calculation set forth
in paragraph (c) of the "Limitation on Restricted Payments" covenant.
"EXISTING INDEBTEDNESS" means Indebtedness of the Company or its Restricted
Subsidiaries in existence on the Issuance Date, plus interest accruing thereon,
after application of the net proceeds of the sale of the Notes as described in
this Prospectus.
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"EXISTING NOTES" means the Company's 10.45% Senior Notes due 2001 and the
Company's 12 3/4% Senior Subordinated Notes due 2002.
"FIXED CHARGE COVERAGE RATIO" means, with respect to any Person for any
period, the ratio of EBITDA of such Person for such period to the Fixed Charges
of such Person for such period. In the event that the Company or any of its
Restricted Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness
(other than in the case of revolving credit borrowings, in which case interest
expense shall be computed based upon the average daily balance of such
Indebtedness during the applicable period) or issues or redeems preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the event for which the calculation of
the Fixed Charge Coverage Ratio is made (the "CALCULATION DATE"), then the Fixed
Charge Coverage Ratio shall be calculated giving pro forma effect to such
incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter period. For purposes of making the
computation referred to above, Investments, acquisitions, dispositions, mergers,
consolidations and discontinued operations (as determined in accordance with
GAAP) that have been made by the Company or any of its Restricted Subsidiaries
during the four-quarter reference period or subsequent to such reference period
and on or prior to or simultaneously with the Calculation Date shall be
calculated on a pro forma basis assuming that all such Investments,
acquisitions, dispositions, discontinued operations, mergers and consolidations
(and the reduction of any associated fixed charge obligations and the change in
EBITDA resulting therefrom) had occurred on the first day of the four-quarter
reference period. If since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Investment, acquisition, disposition, discontinued operation,
merger or consolidation that would have required adjustment pursuant to this
definition, then the Fixed Charge Coverage Ratio shall be calculated giving pro
forma effect thereto for such period as if such Investment, acquisition,
disposition, discontinued operation, merger or consolidation had occurred at the
beginning of the applicable four-quarter period. For purposes of this
definition, whenever pro forma effect is to be given to a transaction, the pro
forma calculations shall be made in good faith by a responsible financial or
accounting officer of the Company. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest on such Indebtedness
shall be calculated as if the rate in effect on the Calculation Date had been
the applicable rate for the entire period (taking into account any Hedging
Obligations applicable to such Indebtedness). Interest on a Capitalized Lease
Obligation shall be deemed to accrue at an interest rate reasonably determined
by a responsible financial or accounting officer of the Company to be the rate
of interest implicit in such Capitalized Lease Obligation in accordance with
GAAP. For purposes of making the computation referred to above, interest on any
Indebtedness under a revolving credit facility computed on a pro forma basis
shall be computed based upon the average daily balance of such Indebtedness
during the applicable period. Interest on Indebtedness that may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rate, shall be deemed to have been
based upon the rate actually chosen, or, if none, then based upon such optional
rate chosen as the Company may designate.
"FIXED CHARGES" means, with respect to any Person for any period, the sum of
(a) Consolidated Interest Expense of such Person for such period and (b) all
cash dividend payments (excluding items eliminated in consolidation) on any
series of preferred stock of such Person.
"FOREIGN SUBSIDIARY" means a Restricted Subsidiary not organized or existing
under the laws of the United States, any State thereof, the District of Columbia
or any territory thereof.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which
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are in effect on the Issuance Date. For the purposes of the Indenture, the term
"consolidated" with respect to any Person shall mean such Person consolidated
with its Restricted Subsidiaries, and shall not include any Unrestricted
Subsidiary.
"GOVERNMENT SECURITIES" means securities that are (a) direct obligations of
the United States of America for the timely payment of which its full faith and
credit is pledged or (b) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Securities
or a specific payment of principal of or interest on any such Government
Securities held by such custodian for the account of the holder of such
depository receipt; PROVIDED that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in respect of
the Government Securities or the specific payment of principal of or interest on
the Government Securities evidenced by such depository receipt.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness or other obligations.
"GUARANTEE" means any guarantee of the obligations of the Company under the
Indenture and the Notes by any Person in accordance with the provisions of the
Indenture. When used as a verb, "Guarantee" shall have a corresponding meaning.
No Guarantees will be issued in connection with the initial offering and sale of
the Notes.
"GUARANTOR" means any Person that incurs a Guarantee; PROVIDED that upon the
release and discharge of such Person from its Guarantee in accordance with the
Indenture, such Person shall cease to be a Guarantor. No Guarantees will be
issued in connection with the initial offering and sale of the Notes.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (i) currency exchange or interest rate swap agreements,
currency exchange or interest rate cap agreements and currency exchange or
interest rate collar agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in currency exchange or
interest rates.
"HOLDER" means a holder of the Notes.
"INDEBTEDNESS" means, with respect to any Person, (a) any indebtedness of
such Person, whether or not contingent (i) in respect of borrowed money, (ii)
evidenced by bonds, notes, debentures or similar instruments or letters of
credit or bankers' acceptances (or, without double counting, reimbursement
agreements in respect thereof), (iii) representing the balance deferred and
unpaid of the purchase price of any property (including Capitalized Lease
Obligations), except any such balance that constitutes a trade payable or
similar obligation to a trade creditor, in each case accrued in the ordinary
course of business or (iv) representing any Hedging Obligations, if and to the
extent of any of the foregoing Indebtedness (other than letters of credit and
Hedging Obligations) that would appear as a liability upon a balance sheet
(excluding the footnotes thereto) of such Person prepared in accordance with
GAAP, (b) to the extent not otherwise included, any obligation by such Person to
be liable for, or to pay, as obligor, guarantor or otherwise, on the
Indebtedness of another Person (other than by endorsement of negotiable
instruments for collection in the ordinary course of business) and (c) to the
extent not otherwise included, Indebtedness of another Person secured by a Lien
on any asset owned by such Person (whether or not such Indebtedness is assumed
by such Person); PROVIDED, HOWEVER, that Contingent Obligations incurred in the
ordinary course of business shall be deemed not to constitute Indebtedness and
obligations under or in respect of Receivables Facilities shall not be deemed to
constitute Indebtedness of a Person.
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"INDEPENDENT FINANCIAL ADVISOR" means an accounting, appraisal, investment
banking firm or consultant to Persons engaged in Similar Businesses of
nationally recognized standing that is, in the judgment of the Company's Board
of Directors, qualified to perform the task for which it has been engaged.
"INVESTMENT GRADE SECURITIES" means (i) securities issued or directly and
fully guaranteed or insured by the United States government or any agency or
instrumentality thereof (other than Cash Equivalents), (ii) debt securities or
debt instruments with a rating of BBB- or higher by S&P or Baa3 or higher by
Moody's or the equivalent of such rating by such rating organization, or, if no
rating of S&P or Moody's then exists, the equivalent of such rating by any other
nationally recognized securities rating agency, but excluding any debt
securities or instruments constituting loans or advances among the Company and
its Subsidiaries, and (iii) investments in any fund that invests exclusively in
investments of the type described in clauses (i) and (ii) which fund may also
hold immaterial amounts of cash pending investment and/or distribution.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of loans (including
guarantees), advances or capital contributions (excluding advances to customers,
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for consideration
of Indebtedness, Equity Interests or other securities issued by any other Person
and investments that are required by GAAP to be classified on the balance sheet
(excluding the footnotes thereto) of the Company in the same manner as the other
investments included in this definition to the extent such transactions involve
the transfer of cash or other property. For purposes of the definition of
"Unrestricted Subsidiary" and the covenant described under "--Certain
Covenants--Limitation on Restricted Payments," (i) "Investments" shall include
the portion (proportionate to the Company's equity interest in such Subsidiary)
of the fair market value of the net assets of a Subsidiary of the Company at the
time that such Subsidiary is designated an Unrestricted Subsidiary; PROVIDED,
HOWEVER, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary equal to an amount (if positive)
equal to (x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation; and (ii) any property transferred
to or from an Unrestricted Subsidiary shall be valued at its fair market value
at the time of such transfer, in each case as determined in good faith by the
Board of Directors.
"ISSUANCE DATE" means the closing date for the sale and original issuance of
the Notes under the Indenture.
"LETTER OF CREDIT/BANKERS' ACCEPTANCE OBLIGATIONS" means Indebtedness of the
Company or any of its Restricted Subsidiaries with respect to letters of credit
or bankers' acceptances constituting Senior Indebtedness or Pari Passu
Indebtedness which shall be deemed to consist of (i) the aggregate maximum
amount then available to be drawn under all such letters of credit (the
determination of such maximum amount to assume compliance with all conditions
for drawing), (ii) the aggregate face amount of all unmatured bankers'
acceptances and (iii) the aggregate amount that has then been paid by, and not
reimbursed to, the issuers under such letters of credit or creation of such
bankers' acceptances.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction); provided that in
no event shall an operating lease be deemed to constitute a Lien.
"MANAGEMENT GROUP" means the group consisting of the Officers of the
Company.
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"MOODY'S" means Moody's Investors Service, Inc.
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends.
"NET PROCEEDS" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
Designated Noncash Consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale and the sale or disposition of such Designated
Noncash Consideration (including, without limitation, legal, accounting and
investment banking fees, and brokerage and sales commissions), and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements related thereto), amounts required
to be applied to the repayment of principal, premium (if any) and interest on
Indebtedness required (other than required by clause (i) of the second paragraph
of "-- Repurchase at the Option of Holders--Asset Sales") to be paid as a result
of such transaction and any deduction of appropriate amounts to be provided by
the Company as a reserve in accordance with GAAP against any liabilities
associated with the asset disposed of in such transaction and retained by the
Company after such sale or other disposition thereof, including, without
limitation, pension and other post-employment benefit liabilities and
liabilities related to environmental matters or against any indemnification
obligations associated with such transaction.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements (including, without limitation, reimbursement
obligations with respect to letters of credit and banker's acceptances), damages
and other liabilities payable under the documentation governing any
Indebtedness.
"OFFICER" means the Chairman of the Board, the President, any Executive Vice
President, Senior Vice President or Vice President, the Treasurer or the
Secretary of the Company.
"OFFICERS' CERTIFICATE" means a certificate signed on behalf of the Company
by two officers of the Company, one of whom must be the principal executive
officer, the principal financial officer, the treasurer or the principal
accounting officer of the Company that meets the requirements set forth in the
Indenture.
"PARI PASSU INDEBTEDNESS" means (a) with respect to the Notes, Indebtedness
which ranks pari passu in right of payment to the Notes and (b) with respect to
any Guarantee, Indebtedness which ranks pari passu in right of payment to such
Guarantee.
"PERMITTED HOLDERS" means KKR and any of its Affiliates and the Management
Group.
"PERMITTED INVESTMENTS" means (a) any Investment in the Company or any
Restricted Subsidiary; (b) any Investment in cash and Cash Equivalents or
Investment Grade Securities; (c) any Investment by the Company or any Restricted
Subsidiary of the Company in a Person that is a Similar Business if as a result
of such Investment (i) such Person becomes a Restricted Subsidiary or (ii) such
Person, in one transaction or a series of related transactions, is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Company or a Restricted
Subsidiary; (d) any Investment in securities or other assets not constituting
cash or Cash Equivalents and received in connection with an Asset Sale made
pursuant to the provisions of "--Repurchase at the Option of Holders--Asset
Sales" or any other disposition of assets not constituting an Asset Sale; (e)
any Investment existing on the Issuance Date; (f) advances to employees not in
excess of $10.0 million outstanding at any one time, in the aggregate; (g) any
Investment acquired by the Company or any of its Restricted Subsidiaries (i) in
exchange for any other Investment or accounts receivable held by the Company or
any such Restricted Subsidiary in connection with or as a result of a
bankruptcy, workout, reorganization or recapitalization of the issuer of such
other Investment or accounts receivable or (ii) as a result of a foreclosure by
the Company or any of its Restricted Subsidiaries with respect to any secured
Investment or other transfer of title with respect to any secured Investment in
default; (h) Hedging Obligations permitted under clause (i) of the "Limitation
of Incurrence of Indebtedness and Issuance of
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Disqualified Stock" covenant; (i) loans and advances to officers, directors and
employees for business-related travel expenses, moving expenses and other
similar expenses, in each case incurred in the ordinary course of business; (j)
any Investment in a Similar Business (other than an Investment in an
Unrestricted Subsidiary) having an aggregate fair market value, taken together
with all other Investments made pursuant to this clause (j) that are at that
time outstanding, not to exceed the greater of (x) $100.0 million or (y) 15% of
Total Assets at the time of such Investment (with the fair market value of each
Investment being measured at the time made and without giving effect to
subsequent changes in value); (k) Investments the payment for which consists of
Equity Interests of the Company (exclusive of Disqualified Stock); PROVIDED,
HOWEVER, that such Equity Interests will not increase the amount available for
Restricted Payments under clause (c) of the "Limitation on Restricted Payments"
covenant; (l) additional Investments having an aggregate fair market value,
taken together with all other Investments made pursuant to this clause (l) that
are at that time outstanding, not to exceed the greater of (x) $35.0 million or
(y) 5% of Total Assets at the time of such Investment (with the fair market
value of each Investment being measured at the time made and without giving
effect to subsequent changes in value); (m) any transaction to the extent it
constitutes an investment that is permitted by and made in accordance with the
provisions of the second paragraph of the covenant described under "--Certain
Covenants--Transactions with Affiliates" (except transactions described in
clauses (ii) and (vi) of such paragraph); (n) any Investment by Restricted
Subsidiaries in other Restricted Subsidiaries and Investments by Subsidiaries
that are not Restricted Subsidiaries in other Subsidiaries that are not
Restricted Subsidiaries; and (o) Investments relating to any special purpose
Wholly Owned Subsidiary of the Company organized in connection with a
Receivables Facility that, in the good faith determination of the Board of
Directors of the Company, are necessary or advisable to effect such Receivables
Facility.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"PREFERRED STOCK" means any Equity Interest with preferential right of
payment of dividends or upon liquidation, dissolution, or winding up.
"RELATED PARTIES" means any Person controlled by a Permitted Holder,
including any partnership of which a Permitted Holder or its Affiliates is the
general partner.
"REPURCHASE OFFER" means an offer made by the Company to purchase all or any
portion of a Holder's Notes pursuant to the provisions described under the
covenants entitled "--Repurchase at the Option of Holders-Change of Control" or
"--Repurchase at the Option of Holders--Asset Sales."
"RECEIVABLES FACILITY" means one or more receivables financing facilities,
as amended from time to time, pursuant to which the Company and/or any of its
Restricted Subsidiaries sells its accounts receivable to a Person that is not a
Restricted Subsidiary.
"RECEIVABLES FEES" means distributions or payments made directly or by means
of discounts with respect to any participation interests issued or sold in
connection with, and other fees paid to a Person that is not a Restricted
Subsidiary in connection with, any Receivables Facility.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" means, at any time, any direct or indirect
Subsidiary of the Company that is not then an Unrestricted Subsidiary; PROVIDED,
HOWEVER, that upon the occurrence of an Unrestricted Subsidiary ceasing to be an
Unrestricted Subsidiary, such Subsidiary shall be included in the definition of
"Restricted Subsidiary."
"S&P" means Standard and Poor's Ratings Group.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
86
<PAGE>
"SENIOR CREDIT FACILITY" means that certain credit facility described in
this Prospectus among the Company and the lenders from time to time party
thereto, including any collateral documents, instruments and agreements executed
in connection therewith, and the term Senior Credit Facility shall also include
any amendments, supplements, modifications, extensions, renewals, restatements
or refundings thereof and any credit facilities that replace, refund or
refinance any part of the loans, other credit facilities or commitments
thereunder, including any such replacement, refunding or refinancing facility
that increases the amount borrowable thereunder or alters the maturity thereof,
PROVIDED, HOWEVER, that there shall not be more than one facility at any one
time that constitutes the Senior Credit Facility and, if at any time there is
more than one facility which would constitute the Senior Credit Facility, the
Company will designate to the Trustee which one of such facilities will be the
Senior Credit Facility for purposes of the Indenture.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"SIMILAR BUSINESS" means a business, the majority of whose revenues are
derived from the design, manufacture and/or marketing of electrical, electronic
and fiber optic connectors, coaxial and flat-ribbon cable, and interconnect
systems, or whose revenues are derived from the licensing of the Amphenol name,
or any business or activity that is reasonably similar thereto or a reasonable
extension, development or expansion thereof or ancillary thereto.
"SUBORDINATED INDEBTEDNESS" means (a) with respect to the Notes, any
Indebtedness of the Company which is by its terms subordinated in right of
payment to the Notes and (b) with respect to any Guarantee, any Indebtedness of
the applicable Guarantor which is by its terms subordinated in right of payment
to such Guarantee.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association, or other business entity (other than a partnership) of which more
than 50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time of determination owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person or a combination thereof and (ii) any partnership,
joint venture, limited liability company or similar entity of which (x) more
than 50% of the capital accounts, distribution rights, total equity and voting
interests or general or limited partnership interests, as applicable, are owned
or controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person or a combination thereof whether in the form
of membership, general, special or limited partnership or otherwise and (y) such
Person or any Wholly Owned Restricted Subsidiary of such Person is a controlling
general partner or otherwise controls such entity.
"TOTAL ASSETS" means the total consolidated assets of the Company and its
Restricted Subsidiaries, as shown on the most recent balance sheet (excluding
the footnotes thereto) of the Company.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary of the Company which at
the time of determination is an Unrestricted Subsidiary (as designated by the
Board of Directors of the Company, as provided below) and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors of the Company may designate
any Subsidiary of the Company (including any existing Subsidiary and any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such Subsidiary or any of its Subsidiaries owns any Equity Interests of, or
owns, or holds any Lien on, any property of, the Company or any Subsidiary of
the Company (other than any Subsidiary of the Subsidiary to be so designated),
PROVIDED that (a) any Unrestricted Subsidiary must be an entity of which shares
of the capital stock or other equity interests (including partnership interests)
entitled to cast at least a majority of the votes that may be cast by all shares
or equity interests having ordinary voting power for the election of directors
or other governing body are owned, directly or indirectly, by the Company, (b)
the Company certifies that such designation complies with the covenants
described under "--Certain Covenants--Limitation on Restricted Payments" and (c)
each of (I) the Subsidiary to be so designated and (II) its Subsidiaries has not
at the time of
87
<PAGE>
designation, and does not thereafter, create, incur, issue, assume, guarantee or
otherwise become directly or indirectly liable with respect to any Indebtedness
pursuant to which the lender has recourse to any of the assets of the Company or
any of its Restricted Subsidiaries. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED that,
immediately after giving effect to such designation, (i) the Company could incur
at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test described under "--Certain Covenants--Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Stock" or (ii) the Fixed Charge
Coverage Ratio for the Company and its Restricted Subsidiaries would be greater
than such ratio for the Company and its Restricted Subsidiaries immediately
prior to such designation, in each case on a pro forma basis taking into account
such designation. Any such designation by the Board of Directors shall be
notified by the Company to the Trustee by promptly filing with the Trustee a
copy of the board resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"VOTING STOCK" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
or Disqualified Stock, as the case may be, at any date, the quotient obtained by
dividing (i) the sum of the products of the number of years from the date of
determination to the date of each successive scheduled principal payment of such
Indebtedness or redemption or similar payment with respect to such Disqualified
Stock multiplied by the amount of such payment, by (ii) the sum of all such
payments.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" is any Wholly Owned Subsidiary that is
a Restricted Subsidiary.
"WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such Person
100% of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
BOOK-ENTRY; DELIVERY AND FORM
The Notes will be issued in the form of one or more fully registered global
certificates (the "Global Certificates"). The Global Certificates will be
deposited with, or on behalf of, The Depository Trust Company, New York, New
York (the "Depositary") and registered in the name of the Depositary's nominee.
The Depositary will maintain the Notes in denominations of $1,000 and integral
multiples thereof through its book-entry facilities.
Except as set forth below, the Global Certificates may be transferred, in
whole and not in part, only to another nominee of the Depositary or to a
successor of the Depositary or its nominee.
The Depositary has advised the Company and the Underwriters as follows: It
is a limited-purpose trust company organized under the Banking Law of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary was created to hold securities for its participating
organizations (the "Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. Participants
include securities brokers and dealers (including the Underwriters), banks,
trust companies, clearing corporations and certain other organizations, some of
whom (and/or their representatives) own the Depositary. Access to the
Depositary's book-entry system is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("indirect
participants"). Persons who are not Participants may beneficially own securities
held by the Depositary only through Participants or indirect participants.
88
<PAGE>
The Depositary has also advised that, pursuant to procedures established by
it, (i) upon the issuance by the Company of the Notes, the Depositary will
credit the accounts of Participants designated by the Underwriters with the
principal amount of the Notes purchased by the Underwriters and (ii) ownership
of beneficial interests in the Global Certificates will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
the Depositary (with respect to Participants' interests), the Participants and
the indirect participants. A beneficial owner is the person who has the right to
sell, transfer or otherwise dispose of an interest in the Notes and the right to
receive the proceeds therefrom, as well as principal, premium (if any) and
interest payable in respect of the Notes. The beneficial owner must rely on the
foregoing arrangements to evidence its interest in the Notes. Beneficial
ownership of the Notes may be transferred only by complying with the procedures
of a beneficial owner's Participant (e.g., a brokerage firms) and the
Depositary. The laws of some states require that certain persons take physical
delivery in definitive form of securities which they own. Consequently, the
ability to transfer beneficial interests in the Global Certificates is limited
to such extent.
So long as a nominee of the Depositary is the registered owner of the Global
Certificates, such nominee will be considered the sole owner or holder of the
Notes for all purposes under the Indenture and any applicable laws. Except as
provided below, owners of beneficial interests in the Global Certificates will
not be entitled to have Notes registered in their names, will not receive or be
entitled to receive physical delivery of Notes in definitive form and will not
be considered the owners or holders thereof under the Indenture.
All rights of ownership must be exercised through the Depositary and the
book-entry system, and notices that are to be given to registered owners by the
Company or the Trustee will be given only to the Depositary. It is expected that
the Depositary will forward notices to the Participants who will in turn forward
notices to the beneficial owners. Neither the Company, the Trustee, the paying
agents nor the Notes registrars will have any responsibility or obligation to
assure that any notices are forwarded by the Depositary to any Participant or by
any Participant to the beneficial owners. Neither the Company, the Trustee, the
paying agents nor the Notes registrars will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in the Global Certificates, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
Principal and interest payments on the Global Certificates registered in the
name of the Depositary's nominee will be made by the Company, either directly or
through a paying agent, to the Depositary's nominee as the registered owner of
the Global Certificates. Under the terms of the Indenture, the Company and the
Trustee will treat the persons in whose names the Notes are registered as the
owners of such Notes for the purpose of receiving payments of principal and
interest on such Notes and for all other purposes whatsoever. Therefore, neither
the Company, the Trustee nor any paying agent has any direct responsibility or
liability for the payment of principal or interest on the Notes to owners of
beneficial interests in the Global Certificates. The Depositary has advised the
Company and the Trustee that its present practice upon receipt of any payment of
principal or interest is to credit immediately the accounts of the Participants
with payment in amounts proportionate to their respective holdings in principal
amount of beneficial interests in the Global Certificates as shown on the
records of the Depositary. Payments by Participants and indirect participants to
owners of beneficial interests in the Global Certificates will be governed by
standing instructions and customary practices as is now the case with securities
held for the accounts of customers in bearer form or registered in "street name"
and will be the responsibility of such Participants or indirect participants.
As long as the Notes are represented by the Global Certificates, the
Depositary's nominee will be the holder of the Notes and therefore will be the
only entity that can exercise a right to repayment or repurchase of the Notes.
See "--Repurchase at the Option of Holders--Change of Control" and
"--Repurchase at the Option of Holders--Asset Sales." Notice by Participants or
indirect participants or by owners of beneficial interests in the Global
Certificates held through such Participants or indirect
89
<PAGE>
participants of the exercise of the option to elect repayment of beneficial
interest in Notes represented by the Global Certificates must be transmitted to
the Depositary in accordance with its procedures on a form required by the
Depositary and provided to Participants. In order to ensure that the
Depositary's nominee will timely exercise a right to repayment with respect to a
particular Note, the beneficial owner of such Note must instruct the broker or
other Participant or indirect participant through which it holds an interest in
such Note to notify the Depositary of its desire to exercise a right to
repayment. Different firms have deadlines for accepting instructions from their
customers and, accordingly, each beneficial owner should consult the broker or
other Participant or indirect participant through which it holds an interest in
a Note in order to ascertain the deadline by which such an instruction must be
given in order for timely notice to be delivered to the Depositary. The Company
will not be liable for any delay in delivery of notices of the exercise of the
option to elect repayment.
The Company will issue Notes in definitive form in exchange for the Global
Certificates if, and only if, either (i) the Depositary is at any time unwilling
or unable to continue as depositary and a successor depositary is not appointed
by the Company within 90 days or (ii) an Event of Default has occurred and is
continuing and the applicable Notes registrar has received a request from the
Depositary to issue Notes in definitive form in lieu of all or a portion of the
Global Certificates. In either instance, an owner of a beneficial interest in
the Global Certificates will be entitled to have the applicable Notes equal in
principal amount or principal amount at maturity, as the case may be, to such
beneficial interest registered in its name and will be entitled to physical
delivery of such Notes in definitive form. Notes so issued in definitive form
will be issued in denominations of $1,000 and integral multiples thereof and
will be issued in registered form only, without coupons.
90
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement") among the Company, Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), Lehman Brothers Inc. ("Lehman"), BT Securities
Corporation ("BTSC") and Chase Securities Inc. ("CSI") (collectively, the
"Underwriters"), the Underwriters have agreed, severally and not jointly, to
purchase from the Company, and the Company has agreed to issue and sell to each
of the Underwriters, the respective principal amount of Notes set forth opposite
its name below, at the public offering price set forth on the cover page of this
Prospectus, less the underwriting discounts and commissions:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF NOTES
---------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation..........................
Lehman Brothers Inc..........................................................
BT Securities Corporation....................................................
Chase Securities Inc.........................................................
Total..................................................................
---------------
$ 240,000,000
---------------
---------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters are subject to the approval of certain legal matters by counsel and
to certain other conditions precedent. The nature of the Underwriters'
obligations under the Underwriting Agreement is such that they are committed to
purchase all of the Notes if any of Notes are purchased.
The Underwriters have advised the Company that they propose to offer the
Notes directly to the public initially at the offering price set forth on the
cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of % of the principal amount of the Notes. The
Underwriters may allow, and such dealers may reallow, a concession to certain
other dealers not in excess of % of the principal amount of the Notes. After
the initial public offering of the Notes, the public offering price, concession
and reallowance may be changed by the Underwriters at any time without notice.
The Underwriters have informed the Company that they will not confirm sales
to any accounts over which they exercise discretionary authority without prior
written approval of such transactions by the customer.
There is currently no public market for the Notes, and the Company has no
present plan to list any of the Notes on a national securities exchange or to
include any of the Notes for quotation through an inter-dealer quotation system.
The Underwriters have advised the Company they currently intend to make a market
in the Notes. However, the Underwriters are not obligated to do so and may
discontinue any such market-making at any time without notice in their sole
discretion. Accordingly, there can be no assurance that an active public market
will develop for, or as to the liquidity of, the Notes. See "Risk Factors--Lack
of Prior Market for the Notes."
Certain of the Underwriters or their affiliates have from time to time
provided investment banking and financial advisory services to KKR and its
affiliates and/or the Company in the ordinary course of business, for which they
have received customary fees, and they may continue to provide such services to
KKR and its affiliates and/or the Company in the future. DLJ has acted as
financial advisor for NXS Acquisition and Lehman has acted as a financial
advisor to the Company in connection with the Merger and DLJ and Lehman have
acted as Dealer Managers and Solicitation Agents for the Company in connection
with the Debt Tender Offer. BTSC is an affiliate of BTCo. which will be
administrative agent and a lender to the Company under the Credit Facilities,
and CSI is an affiliate of Chase which will be syndication agent and a lender to
the Company under the Credit Facilities. In addition, affiliates of BTSC and CSI
are limited partners of certain limited partnerships organized by KKR.
Furthermore, Chase and
91
<PAGE>
BTCo. are lenders under the Existing Revolving Credit Facility being repaid with
the proceeds of the Offering.
The Company has agreed to indemnify the Underwriters and certain persons
controlling the Underwriters against certain liabilities and expenses in
connection with the offer and sale by the Company of the Notes, including
liabilities under the Securities Act, and to contribute to payments the
Underwriters are required to make in respect thereof.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Edward C.
Wetmore, Secretary and General Counsel of the Company, Winthrop, Stimson, Putnam
& Roberts, New York, New York, special counsel to the Company, and by Simpson
Thacher & Bartlett (a partnership which includes professional corporations), New
York, New York, special counsel to the Company. Certain legal matters relating
to the Offering will be passed upon for the Underwriters by Latham & Watkins,
New York, New York.
EXPERTS
The financial statements as of December 31, 1996 and 1995 and for each of
the three years in the period ended December 31, 1996 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
92
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Financial Statements
Report of Independent Accountants..................................................... F-2
Consolidated Statement of Income--
Years Ended December 31, 1996, December 31, 1995 and December 31, 1994.............. F-3
Consolidated Balance Sheet--December 31, 1996 and December 31, 1995................... F-4
Consolidated Statement of Changes in Shareholders' Equity--
Years Ended December 31, 1996, December 31, 1995 and December 31, 1994.............. F-5
Consolidated Statement of Cash Flow--
Years Ended December 31, 1996, December 31, 1995 and December 31, 1994.............. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Amphenol Corporation
In our opinion, the consolidated financial statements listed in the Index
appearing on page F-1 present fairly, in all material respects, the financial
position of Amphenol Corporation and its subsidiaries at December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Hartford, Connecticut
January 14, 1997, except as to Note 12, which is as of January 23, 1997
F-2
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
1996 1995 1994
------------- ------------- -------------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net sales........................................................... $ 776,221 $ 783,233 $ 692,651
Costs and expenses:
Cost of sales, excluding depreciation and amortization............ 494,689 506,707 458,318
Depreciation and amortization expense............................. 28,808 27,795 28,099
Selling, general and administrative expense....................... 114,746 114,041 102,183
------------- ------------- -------------
Operating income.................................................... 137,978 134,690 104,051
Interest expense.................................................... (24,617) (25,548) (30,382)
Other expenses, net................................................. (3,696) (4,515) (4,160)
------------- ------------- -------------
Income before income taxes and extraordinary item................... 109,665 104,627 69,509
Provision for income taxes.......................................... (42,087) (41,769) (27,109)
------------- ------------- -------------
Net income before extraordinary item................................ 67,578 62,858 42,400
Extraordinary item:
Loss on early extinguishment of debt, net of income taxes of
$2,613 (Note 1)................................................. (4,087)
------------- ------------- -------------
Net income.......................................................... $ 67,578 $ 62,858 $ 38,313
------------- ------------- -------------
------------- ------------- -------------
Net income per share:
Income before extraordinary item.................................. $ 1.45 $ 1.33 $ .91
Extraordinary loss................................................ (.09)
------------- ------------- -------------
Net income........................................................ $ 1.45 $ 1.33 $ .82
------------- ------------- -------------
------------- ------------- -------------
Average common shares outstanding................................... 46,649,541 47,304,180 46,611,759
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
ASSETS
Current Assets:
Cash and short-term cash investments.................................................. $ 3,984 $ 12,028
Accounts receivable, less allowance for doubtful accounts of $1,868 and $1,758........ 64,904 67,419
Inventories:
Raw materials and supplies.......................................................... 21,648 21,094
Work in process..................................................................... 92,771 79,971
Finished goods...................................................................... 38,864 33,688
----------- -----------
153,283 134,753
Prepaid expenses and other assets..................................................... 11,611 11,516
----------- -----------
Total current assets................................................................ 233,782 225,716
----------- -----------
Land and depreciable assets:
Land.................................................................................. 11,090 11,143
Buildings............................................................................. 65,379 64,452
Machinery and equipment............................................................... 188,716 169,624
----------- -----------
265,185 245,219
Less accumulated depreciation......................................................... (163,110) (150,560)
----------- -----------
102,075 94,659
Deferred debt issuance costs............................................................ 3,717 4,332
Excess of cost over fair value of net assets acquired................................... 346,583 342,624
Other assets............................................................................ 24,505 22,593
----------- -----------
$ 710,662 $ 689,924
----------- -----------
----------- -----------
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable...................................................................... $ 49,484 $ 51,684
Accrued interest...................................................................... 2,481 2,701
Accrued salaries, wages and employee benefits......................................... 12,671 11,972
Other accrued expenses................................................................ 24,523 35,376
Current portion of long-term debt..................................................... 7,759 2,670
----------- -----------
Total current liabilities........................................................... 96,918 104,403
----------- -----------
Long-term debt.......................................................................... 219,484 195,195
Deferred taxes and other liabilities.................................................... 18,696 18,755
Accrued pension and post employment benefit obligations................................. 15,016 27,486
Commitments and contingent liabilities (Notes 2, 6 and 9)
Shareholders' Equity:
Class A Common Stock, $.001 par value; 96,250,000 shares authorized; 44,720,287 and
47,320,382 shares outstanding at December 31, 1996 and 1995, respectively........... 47 47
Additional paid-in capital............................................................ 265,425 265,193
Accumulated earnings.................................................................. 151,634 84,056
Cumulative valuation adjustments (Note 5)............................................. (3,887) (5,211)
Treasury stock, at cost, 2,625,100 shares............................................. (52,671)
----------- -----------
Total shareholders' equity.......................................................... 360,548 344,085
----------- -----------
$ 710,662 $ 689,924
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL ACCUMULATED CUMULATIVE TREASURY TOTAL
COMMON PAID-IN EARNINGS VALUATION STOCK SHAREHOLDERS'
STOCK CAPITAL (DEFICIT) ADJUSTMENTS AT COST EQUITY
------------- ---------- ------------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
BALANCE DECEMBER 31, 1993.................... $ 42 $ 197,424 $ (17,115) $ (7,059) $ 173,292
Net income................................. 38,313 38,313
Translation adjustments.................... 3,786 3,786
Net proceeds from sale of 4,410,689 shares
of Class A Common Stock.................. 4 66,913 66,917
Conversion of warrants..................... 1 5 6
Amortization of deferred compensation...... 66 66
Stock options exercised.................... 413 413
Appreciation in market value of marketable
securities available for sale, net of
tax...................................... 162 162
Minimum pension liability adjustment, net
of tax................................... (4,315) (4,315)
--- ---------- ------------ ----------- ---------- -------------
BALANCE DECEMBER 31, 1994.................... 47 264,821 21,198 (7,426) 278,640
Net income................................. 62,858 62,858
Translation adjustments.................... 2,246 2,246
Amortization of deferred compensation...... 384 384
Stock options exercised and vesting of
restricted stock, net of tax............. (12) (12)
Decline in market value of marketable
securities available for sale, net of
tax...................................... (1,194) (1,194)
Minimum pension liability adjustment, net
of tax................................... 1,163 1,163
--- ---------- ------------ ----------- ---------- -------------
BALANCE DECEMBER 31, 1995.................... 47 265,193 84,056 (5,211) 344,085
Net income................................. 67,578 67,578
Translation adjustments.................... 647 647
Purchase of Treasury Stock................. (52,671) (52,671)
Amortization of deferred compensation...... 65 65
Stock options exercised.................... 167 167
Decline in market value of marketable
securities available for sale, net of
tax...................................... (1,085) (1,085)
Minimum pension liability adjustment, net
of tax................................... 1,762 1,762
--- ---------- ------------ ----------- ---------- -------------
BALANCE DECEMBER 31, 1996.................... $ 47 $ 265,425 $ 151,634 $ (3,887) $ (52,671) $ 360,548
--- ---------- ------------ ----------- ---------- -------------
--- ---------- ------------ ----------- ---------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Net income.................................................................... $ 67,578 $ 62,858 $ 38,313
Adjustments for cash from operations:
Depreciation and amortization............................................... 28,808 27,795 28,099
Amortization of deferred debt issuance costs................................ 691 652 674
Net extraordinary charge for write off of deferred debt issuance costs...... 4,087
Net change in:
Accounts receivable......................................................... 7,315 (6,954) (14,236)
Inventory................................................................... (10,801) (1,790) 13,483
Prepaid expenses and other assets........................................... 604 90 2,152
Accounts payable............................................................ (3,411) 4,121 4,282
Accrued liabilities......................................................... (13,832) 831 11,352
Accrued pension and post employment benefits................................ (7,590) (2,483) (1,492)
Deferred taxes and other liabilities........................................ (970) (5,443) 824
Other....................................................................... (185) (450) 1,333
---------- ---------- ----------
Cash provided by operations................................................... 68,207 79,227 88,871
---------- ---------- ----------
Cash flow from investing activities:
Additions to property, plant and equipment.................................. (20,374) (20,381) (10,936)
Net investment in acquisitions and joint ventures........................... (29,461) (1,234)
Other....................................................................... (1,030) (1,290)
---------- ---------- ----------
Cash flow used by investing activities........................................ (49,835) (21,411) (13,460)
---------- ---------- ----------
Cash flow from financing activities:
Decrease in long-term debt.................................................. (45,368) (97,972)
Net increase (decrease) in borrowings under revolving credit facilities..... 26,255 (5,002) (47,659)
Net proceeds from issuance of common stock.................................. 66,917
Net proceeds from the sale of accounts receivable........................... 5,000
Treasury stock repurchases.................................................. (52,671)
---------- ---------- ----------
Cash flow used by financing activities........................................ (26,416) (50,370) (73,714)
---------- ---------- ----------
Net change in cash and short-term cash investments............................ (8,044) 7,446 1,697
Cash and short-term cash investments balance, beginning of period............. 12,028 4,582 2,885
---------- ---------- ----------
Cash and short-term cash investments balance, end of period................... $ 3,984 $ 12,028 $ 4,582
---------- ---------- ----------
---------- ---------- ----------
Cash paid during the year for:
Interest.................................................................... $ 24,180 $ 25,109 $ 30,139
Income taxes paid, net of refunds........................................... 54,765 37,606 15,624
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Amphenol Corporation ("Amphenol" or the "Company") is in one business
segment which consists of designing, manufacturing and marketing connectors,
cable and interconnect systems, principally for telephone, wireless and data
communication systems; cable television; commercial and military aerospace
electronics equipment; automotive and mass transportation applications; and
industrial factory automation equipment.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION AND INVESTMENTS
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Other assets includes an investment in equity securities
deemed available-for-sale. Such investment is recorded at its market value at
December 31, 1996 of $8,187 ($9,857 at December 31, 1995), and the cumulative
appreciation in market value over the cost basis of the investment, net of
deferred tax, of $3,687 ($4,772 at December 31, 1995) is recorded as a component
of shareholders' equity.
CASH AND SHORT-TERM CASH INVESTMENTS
Cash and short-term cash investments consist of cash and liquid investments
with a maturity of less than three months.
INVENTORIES
Inventories are stated at the lower of standard cost, which approximates
average cost, or market. The principal components of cost included in
inventories are materials, direct labor and manufacturing overhead.
DEPRECIABLE ASSETS
Property, plant and equipment are carried at cost. Depreciation and
amortization of property, plant and equipment are provided on a straight-line
basis over the respective asset lives determined on a composite basis by asset
group or on a specific item basis using the estimated useful lives of such
assets which range from 3 to 12 years for machinery and equipment and 20 to 40
years for buildings. It is the Company's policy to periodically review fixed
asset lives.
DEFERRED DEBT ISSUANCE COSTS
Deferred debt issuance costs are being amortized on the interest method over
the term of the related debt. In 1994, in conjunction with the prepayment of
certain bank debt, the Company incurred an extraordinary net charge of
approximately $4,087 for the write off of deferred debt issuance costs.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
The excess of cost over the fair value of net assets acquired (goodwill) is
being amortized on the straight-line basis over a period of 40 years.
Accumulated amortization was $85,657 and $74,695 at December 31, 1996 and 1995,
respectively. Management continually reassesses the appropriateness of both the
carrying value and remaining life of goodwill. Such reassessments are based on
forecasting cash flows, on an undiscounted basis, and other factors.
REVENUE RECOGNITION
Sales and related cost of sales are recognized primarily upon shipment of
products. Sales and related cost of sales under long-term contracts with
commercial customers and the U.S. Government are recognized as units are
delivered or services provided.
RETIREMENT PENSION PLANS
Costs for retirement pension plans include current service costs and
amortization of prior service costs over periods of up to thirty years. It is
the Company's policy to fund current pension costs in conformance with minimum
funding requirements and maximum tax deductible limitations. The expense of
retiree medical benefit programs is recognized during the employees' service
with the Company as well as amortization of a transition obligation recognized
on adoption of the accounting principle in 1993.
INCOME TAXES
Deferred income taxes are provided for revenue and expenses which are
recognized in different periods for income tax and financial statement purposes.
Deferred income taxes are not provided on undistributed earnings of foreign
affiliated companies which are considered to be permanently invested.
RESEARCH AND DEVELOPMENT
Research, development and engineering expenditures for the creation and
application of new and improved products and processes were $14,550, $15,740 and
$14,261, excluding customer sponsored programs representing expenditures of
$927, $1,272 and $831, for the years 1996, 1995 and 1994, respectively.
ENVIRONMENTAL OBLIGATIONS
The Company recognizes the potential cost for environmental remediation
activities when assessments are made, remedial efforts are probable and related
amounts can be reasonably estimated; potential insurance reimbursements are not
recorded. The Company regularly assesses its environmental liabilities through
reviews of contractual commitments, site assessments, feasibility studies and
formal remedial design and action plans.
NET INCOME PER SHARE
Net income per share is based on the net income for the period divided by
the weighted average common shares outstanding.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments, which are periodically used by the Company
in the management of its interest rate and foreign currency exposures, are
accounted for on an accrual basis. Income and expense are recorded in the same
category as that arising for the related asset or liability. For example,
amounts to be paid or received under interest rate swap agreements are
recognized as interest income or expense in the periods in which they accrue.
NOTE 2--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
INTEREST RATE AT ------------------------
DECEMBER 31, 1996 MATURITY 1996 1995
----------------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Senior notes.......................................... 10.45% 1999-2001 $ 100,000 $ 100,000
Senior subordinated debentures........................ 12.75% 2002 95,000 95,000
Revolving credit facility............................. 6.0% 2000 24,000
Notes payable to foreign banks........................ 1.62-9.25% 1997-2000 8,243 2,865
---------- ------------
227,243 197,865
Less current portion.................................. 7,759 2,670
---------- ------------
Total long-term debt.................................. $ 219,484 $ 195,195
---------- ------------
---------- ------------
</TABLE>
On November 30, 1995, the Company entered into a $150,000 five year
unsecured revolving credit agreement with a group of banks. Interest on
borrowings under the credit agreement generally accrues at 0.275% over LIBOR or,
at the Company's option, at the bank's base rate; in addition, the Company pays
a facility fee. The credit agreement requires the Company to meet certain
financial tests including minimum net worth, interest coverage and leverage
ratios. In addition, the agreement includes limitations with respect to secured
borrowings and restricted payments, including dividends on the Company's common
stock.
The Senior Notes are unsecured and subject to redemption at the option of
the Company at any time, in whole or in part, at par plus a make-whole premium
determined in relation to the current interest rate on U.S. Government
securities at the time of an optional redemption. The Senior Subordinated
Debentures are subject to redemption at the option of the Company, in whole or
in part, beginning in 1997 at 104.8% and declining to 100% by 2000.
The maturity of the Company's long-term debt over each of the next five
years ending December 31, is as follows: 1997--$7,759; 1998--$206;
1999--$33,576; 2000--$33,368; and 2001--$33,334.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3--INCOME TAXES
The components of income before income taxes and the provision (benefit) for
income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
<S> <C> <C> <C>
1996 1995 1994
---------- ---------- ---------
Income before taxes and extraordinary item:
United States................................................................ $ 67,889 $ 69,694 $ 47,402
Foreign...................................................................... 41,776 34,933 22,107
---------- ---------- ---------
$ 109,665 $ 104,627 $ 69,509
---------- ---------- ---------
---------- ---------- ---------
Current provision:
United States................................................................ $ 24,174 $ 18,045 $ 25,771
Foreign...................................................................... 15,993 16,144 3,000
---------- ---------- ---------
40,167 34,189 28,771
---------- ---------- ---------
---------- ---------- ---------
Deferred provision (benefit):
United States................................................................ 1,884 7,122 (1,103)
Foreign...................................................................... 36 458 (559)
---------- ---------- ---------
1,920 7,580 (1,662)
---------- ---------- ---------
Total provision for income taxes............................................... $ 42,087 $ 41,769 $ 27,109
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
At December 31, 1996, the Company had $15,009 of foreign tax loss
carryforwards and $380 of tax credit carryforwards that expire in various
periods.
Differences between the U.S. statutory federal tax rate and the Company's
effective income tax rate are analyzed below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
U.S. statutory federal tax rate...................................................... 35.0% 35.0% 35.0%
State and local taxes................................................................ 1.5 1.2 1.8
Non-deductible purchase accounting differences....................................... 3.7 3.6 5.4
Foreign tax provisions at rates different from the U.S. statutory rate............... .5 4.8 .7
Tax cost (benefit) of foreign dividend income, net of related tax credits............ (2.6) (2.8) .2
Valuation allowance.................................................................. (4.1) (1.8) (5.3)
Other................................................................................ 4.4 (.1) 1.2
--- --- ---
Effective tax rate................................................................... 38.4% 39.9% 39.0%
--- --- ---
--- --- ---
</TABLE>
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3--INCOME TAXES (CONTINUED)
The Company's deferred tax assets and liabilities, prior to valuation
allowance, were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Deferred tax assets:
Accrued liabilities and reserves...................................... $ 6,359 $ 9,190
Operating loss carryforwards.......................................... 4,447 5,663
Foreign tax credit carryforwards...................................... 380 1,558
Employee benefits..................................................... 6,459 8,499
--------- ---------
$ 17,645 $ 24,910
--------- ---------
--------- ---------
Deferred tax liabilities:
Depreciation.......................................................... $ 9,351 $ 10,262
Marketable securities................................................. 1,985 2,570
Prepaid pension costs................................................. 4,930 3,510
--------- ---------
$ 16,266 $ 16,342
--------- ---------
--------- ---------
</TABLE>
A valuation allowance of $8,184 and $12,628 at December 31, 1996 and 1995,
respectively, has been recorded which relates primarily to foreign net operating
loss carryforwards, foreign tax credits and certain deferred tax deductions for
which a tax benefit is less likely than not to be received. The net change in
the valuation allowance for deferred tax assets was a decrease of $4,444 in 1996
and $1,842 in 1995 and reduced income tax expenses each year. The net decrease
in the valuation allowance related primarily to benefits arising from
utilization of foreign net operating losses and foreign tax credit carryforwards
in 1996 and 1995. Changes to certain deferred tax deductions resulted in an
increase to the valuation allowance for 1995 and a decrease for 1996. Current
and non-current deferred tax assets and liabilities within the same tax
jurisdiction are offset for presentation in the consolidated balance sheet.
United States income taxes have not been provided on undistributed earnings
of international subsidiaries. The Company's intention is to reinvest these
earnings permanently or to repatriate the earnings only when it is tax effective
to do so. Accordingly, the Company believes that any United States tax on
repatriated earnings would be substantially offset by U.S. foreign tax credits.
NOTE 4--BENEFIT PLANS AND OTHER POSTRETIREMENT BENEFITS
The Company and its domestic subsidiaries have a number of defined benefit
plans covering substantially all U.S. employees. Plan benefits are generally
based on years of service and compensation. The plans are noncontributory,
except for certain salaried employees. Certain foreign subsidiaries have
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 4--BENEFIT PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
defined benefit plans covering their employees. The following is a summary of
the defined benefit plans' funded status as of the most recent actuarial
valuations (December 31, 1996 and 1995).
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
-------------------------- --------------------------
<S> <C> <C> <C> <C>
ACCUMULATED ASSETS ACCUMULATED ASSETS
BENEFITS EXCEED BENEFITS EXCEED
EXCEED ACCUMULATED EXCEED ACCUMULATED
ASSETS BENEFITS ASSETS BENEFITS
------------ ------------ ------------ ------------
Actuarial present value of benefit obligations:
Vested benefit obligation................................. $ 72,983 $ 102,685 $ 145,750 $ 26,595
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Accumulated benefit obligation............................ $ 74,319 $ 104,576 $ 147,390 $ 26,802
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Projected benefit obligation.............................. $ 76,959 $ 112,777 $ 156,824 $ 28,316
Plan assets at fair value................................. 42,637 136,202 114,485 39,366
------------ ------------ ------------ ------------
Plan assets over (under) projected benefit obligation..... (34,322) 23,425 (42,339) 11,050
Unrecognized net loss (gain).............................. 11,625 (2,994) 22,986 (2,365)
Unrecognized prior service cost........................... 4,116 1,351 6,214 (154)
Unrecognized transition asset............................. 241 (3,350) (11) (2,236)
------------ ------------ ------------ ------------
Pension asset (liability) included in the Consolidated
Balance Sheet........................................... $ (18,340) $ 18,432 $ (13,150) $ 6,295
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Net pension expense included the following components:
Service cost benefits earned.................................................... $ 3,551 $ 3,221 $ 3,163
Interest cost on projected benefit obligation................................... 13,707 13,313 12,508
Actual return on plan assets.................................................... (16,193) (33,906) 4,664
Net amortization and deferral of actuarial (gains) losses....................... 1,321 20,045 (17,862)
--------- --------- ---------
Net pension expense............................................................... $ 2,386 $ 2,673 $ 2,473
--------- --------- ---------
--------- --------- ---------
</TABLE>
The weighted-average discount rate and rate of increase in future
compensation levels used in determining actuarial present value of the projected
benefit obligation was 7.5% (7.5% in 1995 and 8.5% in 1994) and 3.50% (3.50% in
1995 and 4.50% in 1994), respectively. The expected long-term rate of return on
assets was 10.5%. The largest non-U.S. plan, in accordance with local custom, is
unfunded and had an accumulated benefit obligation of approximately $20,485 and
$20,761 at December 31, 1996 and 1995, respectively. Such obligation is included
in the consolidated balance sheet and the tables above. Pension plans of certain
of the Company's other international subsidiaries generally do not determine the
actuarial value of accumulated benefits and the value of net assets on the basis
shown above. The plans, in accordance with local practices, are generally
unfunded. The vested benefit obligations of these plans are not significant.
In accordance with the provisions of FAS No. 87, the Company recorded a
minimum pension liability at December 31, 1996 of 13,572 ($15,558 at December
31, 1995) for circumstances in which a pension
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 4--BENEFIT PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
plan's accumulated benefit obligation exceeded the fair value of the plan's
assets and accrued pension liability. Such liability was partially offset by an
intangible asset equal to the unrecognized prior service cost, with the balance
recorded as a reduction in shareholders' equity, net of related deferred tax
benefits.
The Company maintains self insurance programs for that portion of its health
care and workers compensation costs not covered by insurance. The Company also
provides certain health care and life insurance benefits to certain eligible
retirees through postretirement benefit programs. Beginning in late 1996, the
Company implemented changes in its postretirement medical benefit plans such
that the Company's share of the cost of such plans for most participants is
fixed, and any increase in the cost of such plans will be the responsibility of
the retirees. The cost of postretirement health care and life insurance benefit
programs charged to expense was approximately $2,734, $2,088, and $1,831 for the
years 1996, 1995 and 1994, respectively. The Company expects to fund the benefit
costs principally on a pay-as-you-go basis. Since the Company has modified its
postretirement medical plans to hold constant its obligation and since the
accumulated postretirement benefit obligation ("APBO") and the net
postretirement benefit expense are not material in relation to the Company's
financial condition or results of operations, management believes any change in
medical costs from that estimated will not have a significant impact on the
Company. The discount rate used in determining the APBO at December 31, 1996 and
1995 was 7.5%.
Summary information on the Company's postretirement medical plans as of
December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Accumulated postretirement benefit obligation:
Retirees.............................................................. $ 10,710 $ 15,486
Fully eligible, active plan participants.............................. 1,236 832
Other active participants............................................. 1,156 825
--------- ---------
Postretirement benefit obligation..................................... 13,102 17,143
Unrecognized gain (loss).............................................. (6,815) (2,891)
Unrecognized transition obligation.................................... (933) (7,134)
--------- ---------
Postretirement benefit liability included in the balance sheet........ $ 5,354 $ 7,118
--------- ---------
--------- ---------
Components of net postretirement benefit expense are as follows:
Service cost.......................................................... $ 36 $ 26
Interest cost......................................................... 1,545 1,535
Amortization of transition obligation................................. 424 424
Net amortization and deferral of actuarial (gains) losses............. 729 103
--------- ---------
Net postretirement benefit expense.................................... $ 2,734 $ 2,088
--------- ---------
--------- ---------
</TABLE>
NOTE 5--SHAREHOLDERS' EQUITY
The Company has entered into a Stockholders' Agreement with Lawrence J.
DeGeorge, Chairman. The Agreement provides that if Mr. DeGeorge, together with
his estate and his spouse, own at least 25%
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 5--SHAREHOLDERS' EQUITY (CONTINUED)
of the Company's outstanding common stock, the Company will agree to nominate
directors designated by Mr. DeGeorge, his estate or his spouse that represent up
to 25% of the Board of Directors (but in no event fewer than two directors). If
Mr. DeGeorge, together with his estate and his spouse, own less than 25% but at
least 10% of the Company's outstanding common stock, the Company will agree to
nominate that number of directors designated by Mr. DeGeorge, his estate or his
spouse, that represent not less than 10% of the Board of Directors (but in no
event fewer than one director). The Agreement also provides for certain
registration rights in respect of common stock owned by Mr. DeGeorge. At
December 31, 1996, Mr. DeGeorge, his estate and his spouse beneficially owned
approximately 25.2% of the Company's common stock on a fully diluted basis.
The Company has authorized 3,750,000 shares of Class B Common Stock, par
value $.001. Such shares are equivalent to Class A Common Stock except the Class
B shares are non-voting. There are no Class B shares outstanding.
The Company has adopted a stock option plan which, as amended in 1996,
authorized the granting of stock options by the Board of Directors for up to a
maximum of 1,000,000 shares of Class A Common Stock. Options will be granted at
fair market value at the time of the grant. Options granted under the Stock
Option Plan may constitute incentive stock options (within the meaning of
Section 422A of the Internal Revenue Code of 1986) or nonstatutory stock
options. Such shares vest ratably over a period of three years from date of
grant and are exercisable over a period of ten years from date of grant. At
December 31, 1996 and 1995, 157,841 and 82,343 options were exercisable,
respectively.
Stock option plan activity for 1994, 1995, and 1996 was as follows:
<TABLE>
<CAPTION>
OPTIONS AVERAGE PRICE
--------- -------------
<S> <C> <C>
OPTIONS OUTSTANDING AT DECEMBER 31, 1993............................ 202,667 $ 8.94
Options granted..................................................... 155,000 15.53
Options exercised................................................... (47,787) 8.65
Options cancelled................................................... (38,499) 11.66
---------
OPTIONS OUTSTANDING AT DECEMBER 31, 1994............................ 271,381 12.36
Options granted..................................................... 155,500 26.32
Options exercised................................................... (54,705) 11.40
Options cancelled................................................... (58,332) 18.56
---------
OPTIONS OUTSTANDING AT DECEMBER 31, 1995............................ 313,844 18.48
Options granted..................................................... 173,600 23.82
Options exercised................................................... (15,005) 11.11
Options cancelled................................................... (49,001) 21.53
---------
OPTIONS OUTSTANDING AT DECEMBER 31, 1996............................ 423,438 $ 20.58
---------
---------
</TABLE>
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 5--SHAREHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE AVERAGE
EXERCISE PRICE SHARES PRICE TERM SHARES PRICE
- --------------------- --------- --------- ----- --------- ---------
$ 5.00-- $ 10.00 64,003 $ 9.14 5.93 64,003 $ 9.14
10.01-- 15.00 -- -- -- -- --
15.01-- 20.00 91,335 $ 15.59 7.25 56,838 $ 15.50
20.01-- 25.00 158,100 $ 23.88 9.25 333 $ 25.00
25.01-- 30.00 110,000 $ 26.63 8.25 36,667 $ 26.63
</TABLE>
The Company applies APB Opinion 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for the stock option plan.
Accordingly, no compensation cost has been recognized for the plan. Had
compensation cost for the stock option plan been determined based on the fair
value of the option at date of grant consistent with the requirements of
Statement of Financial Accounting Standards No 123, "Accounting for Stock-Based
Compensation," the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Net income
As reported........................................................... $ 67,578 $ 62,858
Pro forma............................................................. 66,884 62,366
Net income per share
As reported........................................................... $ 1.45 $ 1.33
Pro forma............................................................. 1.43 1.32
</TABLE>
The fair value of each stock option has been estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Risk free interest rate............................................... 6.1% 6.6%
Expected life......................................................... 4 years 4 years
Expected volatility................................................... 30.0% 30.0%
Expected dividend yield............................................... -- --
</TABLE>
The weighted-average fair values of options granted during 1996 and 1995
were $7.98 and $9.14, respectively.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 5--SHAREHOLDERS' EQUITY (CONTINUED)
Activity in the Company's Shareholders' Equity cumulative valuation
adjustment accounts for 1994, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
CUMULATIVE
CUMULATIVE MINIMUM TOTAL
CUMULATIVE APPRECIATION PENSION CUMULATIVE
TRANSLATION IN MARKETABLE LIABILITY VALUATION
ADJUSTMENT SECURITIES ADJUSTMENT ADJUSTMENT
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Balance December 31, 1993................................... $ (8,444) $ 5,804 $ (4,419) $ (7,059)
Translation adjustments................................... 3,786 3,786
Change in appreciation in market value of marketable
securities available-for-sale........................... 162 162
Change in minimum pension liability adjustment............ (4,315) (4,315)
----------- ------ ----------- -----------
Balance December 31, 1994................................... (4,658) 5,966 (8,734) (7,426)
Translation adjustments................................... 2,246 2,246
Change in appreciation in market value of marketable
securities available-for-sale........................... (1,194) (1,194)
Change in minimum pension liability adjustment............ 1,163 1,163
----------- ------ ----------- -----------
Balance December 31, 1995................................... (2,412) 4,772 (7,571) (5,211)
Translation adjustments................................... 647 647
Change in appreciation in market value of marketable
securities available-for-sale........................... (1,085) (1,085)
Change in minimum pension liability adjustment............ 1,762 1,762
----------- ------ ----------- -----------
Balance December 31, 1996................................... $ (1,765) $ 3,687 $ (5,809) $ (3,887)
----------- ------ ----------- -----------
----------- ------ ----------- -----------
</TABLE>
NOTE 6--LEASES
At December 31, 1996, the Company was committed under operating leases which
expire at various dates through 2004. Total rent expense under operating leases
for the years 1996, 1995, and 1994 was $12,216, $11,594 and $10,108,
respectively.
MINIMUM LEASE PAYMENTS UNDER NON-CANCELABLE OPERATING LEASES ARE AS FOLLOWS:
<TABLE>
<S> <C>
1997............................................................... $ 7,249
1998............................................................... 5,974
1999............................................................... 3,849
2000............................................................... 2,851
2001............................................................... 2,002
Beyond 2001........................................................ 2,915
---------
Total minimum obligation..................................... $ 24,840
---------
---------
</TABLE>
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 7--INTERNATIONAL OPERATIONS
A portion of the Company's revenues and assets relate to international
operations. The Company has manufacturing facilities in Germany, the United
Kingdom, France, Canada, Taiwan and Hong Kong and operations of lesser size in a
number of other countries. Amounts included in the accompanying consolidated
financial statements associated with operations outside the United States
consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1996 1995 1994
---------- ---------- ----------
Net sales:
United States operations................................................... $ 503,385 $ 534,322 $ 494,299
International operations:
Europe................................................................. 233,670 217,143 177,549
Other.................................................................. 92,689 78,442 59,744
Eliminations............................................................... (53,523) (46,674) (38,941)
---------- ---------- ----------
Net sales............................................................ $ 776,221 $ 783,233 $ 692,651
---------- ---------- ----------
---------- ---------- ----------
Net income before extraordinary item:
United States operations................................................... $ 42,614 $ 46,493 $ 25,505
International operations:
Europe................................................................. 21,954 16,266 16,679
Other.................................................................. 3,010 99 216
---------- ---------- ----------
Net income before extraordinary item................................. $ 67,578 $ 62,858 $ 42,400
---------- ---------- ----------
---------- ---------- ----------
Identifiable assets:
United States operations................................................... $ 473,889 $ 458,313 $ 470,209
International operations:
Europe................................................................. 172,640 170,319 155,833
Other.................................................................. 75,560 73,406 65,682
Eliminations............................................................... (11,427) (12,114) (14,669)
---------- ---------- ----------
Total assets......................................................... $ 710,662 $ 689,924 $ 677,055
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------------------
Note: Corporate net income (loss) and assets are included in United States
operations.
The Company had export sales from its United States operations of
approximately $80,000, $118,000 and $93,000 in 1996, 1995 and 1994,
respectively. The sales were made principally to Asia and the Far East, Europe
and Latin America.
Pursuant to FAS No. 52, "Foreign Currency Translation," the financial
position and results of operations of all of the Company's significant foreign
subsidiaries are measured using local currency as the functional currency.
Assets and liabilities of such subsidiaries have been translated at current
exchange rates, and related revenues and expenses have been translated at
weighted average exchange rates. The aggregate effect of translation adjustments
so calculated is included as a separate component of shareholders' equity.
Transaction gains and losses are included in other expenses, net.
The Company periodically enters into foreign exchange contracts to hedge its
transaction exposures. At December 31, 1996, the Company had no outstanding
foreign exchange contracts.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 8--OTHER EXPENSES, NET
Other income (expense) is comprised as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Royalty income (expense).......................................................... $ 108 $ (59) $ 92
Interest income................................................................... 784 134 66
Foreign currency transaction gains (losses)....................................... 339 205 (357)
Equity in net earnings (losses) of investments.................................... (60) 272
Gain (loss) on sale of assets..................................................... (28) 262 (18)
Program fees on sale of accounts receivable....................................... (3,504) (3,902) (3,180)
Minority interests................................................................ (251) (407) (105)
Other............................................................................. (1,144) (688) (930)
--------- --------- ---------
$ (3,696) $ (4,515) $ (4,160)
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 9--COMMITMENTS AND CONTINGENCIES
In the course of pursuing its normal business activities, the Company is
involved in various legal proceedings and claims. Management does not expect
that amounts, if any, which may be required to be paid by reason of such
proceedings or claims will have a material effect on the Company's financial
position or results of operations.
In connection with the acquisition of Amphenol from Allied Corporation in
1987, Allied agreed to provide substantial indemnification for potential
environmental liabilities identified within a period of seven years following
the acquisition that arise out of events, conditions or circumstances that
occurred or existed at the time of or prior to the acquisition to the extent
that such liability exceeds $13,000. In such event, Allied is obligated to pay
80% of the excess over $13,000 and 100% of the excess over $30,000. The Company
has been named as a defendant in various legal actions or as a potentially
responsible party in relation to several environmental clean-up sites in which
the associated costs are subject to the Allied indemnification agreement.
Management does not believe that the costs associated with resolution of these
matters will have a material adverse effect on the Company's financial position
or results of operations.
In December 1993, a subsidiary of the Company entered into a four year
agreement with a financial institution whereby the subsidiary would sell an
undivided interest of up to $50,000 in a designated pool of qualified accounts
receivable. Under the terms of the agreement, new receivables are added to the
pool as collections reduce previously sold accounts receivable. The Company
services, administers and collects the receivables on behalf of the purchaser.
Fees payable to the purchaser under this agreement are equivalent to rates
afforded high quality commercial paper issuers plus certain administrative
expenses and are included in other expense, net in the accompanying Consolidated
Statement of Income. The agreement contains certain covenants and provides for
various events of termination. In certain circumstances the Company is
contingently liable for the collection of the receivables sold; management
believes that its allowance for doubtful accounts will be adequate to absorb the
expense of any such liability. At December 31, 1996 and 1995, approximately
$50,000 in receivables were sold under the agreement and are therefore not
reflected in the accounts receivable balance in the accompanying Consolidated
Balance Sheet at that date.
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 10--FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
CASH AND SHORT-TERM CASH INVESTMENTS: The carrying amount approximates fair
value because of the short maturity of those instruments.
LONG-TERM DEBT: The fair value of the Company's long-term debt is estimated
based on the quoted market prices for the same or similar issues or on the
current rates offered to the Company for debt of the same remaining maturities.
INVESTMENTS: The fair value of investments is based upon quoted market
prices. The fair value equals the carrying value of equity investments, which
are classified as available-for-sale.
At December 31, 1996 and 1995, based on market quotes for the same or
similar securities, it is estimated that the Company's 12.75% subordinated
debentures due 2002 and 10.45% senior notes due 2001 were trading at premiums of
approximately 10% to 20% over book value. It is estimated that the carrying
value of the Company's other financial instruments at December 31, 1996 and 1995
approximates fair value.
The Company periodically uses derivative financial instruments. The
instruments are primarily used to manage defined interest rate risk, and to a
lesser extent foreign exchange and commodity risks arising out of the Company's
core activities. During 1994, the Company had interest rate protection
agreements that fixed the interest cost relating to the majority of the
Company's floating rate debt. During 1995, the Company used forward contracts to
hedge certain foreign currency exposures. There were no derivative financial
instruments outstanding at December 31, 1996 and 1995.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 11--SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------
<S> <C> <C> <C> <C>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- ---------- ------------ ------------
1996
Net sales.................................................... $ 194,822 $ 198,921 $ 184,876 $ 197,602
Gross profit, including depreciation......................... 66,639 67,816 63,523 66,539
Net income................................................... 16,940 17,408 16,697 16,533
Net income per share......................................... .36 .37 .36 .37
Stock price - High........................................... 26 27 5/8 22 7/8 23
- Low............................................... 20 1/8 19 7/8 18 3/4 19
1995
Net sales.................................................... $ 197,975 $ 207,584 $ 189,012 $ 188,662
Gross profit, including depreciation......................... 63,840 67,267 64,630 64,771
Net income................................................... 14,221 16,065 16,090 16,482
Net income per share......................................... .30 .34 .34 .35
Stock price - High........................................... 27 1/2 30 3/8 29 1/2 24 1/4
- Low............................................... 20 23 3/4 21 1/2 18 3/4
1994
Net sales.................................................... $ 155,508 $ 173,565 $ 178,172 $ 185,406
Gross profit, including depreciation......................... 46,974 54,431 56,606 59,997
Net income................................................... 7,047(a) 10,620 11,705 13,028
Net income per share......................................... .16(a) .22 .25 .28
Stock price - High........................................... 18 18 1/2 24 25 1/8
- Low............................................... 14 3/8 14 1/8 16 1/4 20 7/8
</TABLE>
- ------------------------
(a) Excludes an extraordinary charge for the write off of deferred debt issuance
costs of $4,087 or $.09 per share.
NOTE 12--SUBSEQUENT EVENT--PROPOSED TRANSACTION
On January 23, 1997, the Company announced that it signed an Agreement and
Plan of Merger ("Agreement") with an affiliate of Kohlberg Kravis Roberts & Co.
L.P. ("KKR"). Upon completion of the transaction, which is expected to be
consummated in April 1997, affiliates of KKR will be the majority owner of the
Company. The Agreement provides that the owner of each outstanding share of
Class A common stock can elect either to receive $26.00 in cash for that share
or to retain that share. However, in no event can more than 4.4 million shares
of common stock (approximately 10% of the currently outstanding shares) be
retained by present Amphenol shareholders. If holders elect to retain more than
4.4 million of the outstanding shares, then the shares available will be
prorated among those electing to retain and cash will be paid for all other
shares. If holders elect to retain fewer than 4.4 million of the outstanding
shares, the remaining available shares will be prorated among those electing
cash. Following the merger, affiliates of KKR expect to own in excess of 75% of
the Company's outstanding shares. Affiliates of KKR will invest up to $374
million of equity in the transaction. The balance of funds necessary to complete
the transaction, estimated at approximately $990 million, including refinancing
of the Company's existing indebtedness and obligations, will come from
borrowings.
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 12--SUBSEQUENT EVENT--PROPOSED TRANSACTION (CONTINUED)
Lawrence J. DeGeorge, Chairman of the Board of the Company, and certain
members of his family (and a trust founded by them) who hold, in the aggregate,
approximately 30% of the outstanding common stock, have agreed to vote their
shares in favor of the merger. An affiliate of KKR will also have the option to
call the DeGeorge family shares under certain circumstances, and following the
recapitalization the DeGeorge interests will have the option to put the shares
which they retain following the merger to the affiliate, in each case for $26.00
in cash per share.
The merger is subject to certain conditions including the approval of the
Company's shareholders at its annual meeting, the expiration of antitrust
regulatory waiting periods and the completion of financing arrangements. After
the merger, Amphenol will continue to operate as an independent public company
under its current name with headquarters in Wallingford, Connecticut.
F-21
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT RELATES IN ANY JURISDICTION
WHERE OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THE PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information................. 3
Incorporation of Certain Information
by Reference........................ 3
Prospectus Summary.................... 4
Risk Factors.......................... 13
The Merger............................ 20
Use of Proceeds....................... 22
Capitalization........................ 23
Pro Forma Consolidated Financial
Statements (Unaudited).............. 24
Selected Historical Consolidated
Financial and Other Data............ 29
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 30
Business.............................. 35
Management............................ 49
Ownership of Common Stock Following
the Merger.......................... 52
Related Party Transactions............ 54
Description of Credit Facilities...... 54
Description of the Notes.............. 56
Underwriting.......................... 91
Legal Matters......................... 92
Experts............................... 92
Index to Financial Statements......... F-1
</TABLE>
$240,000,000
AMPHENOL CORPORATION
% SENIOR SUBORDINATED
NOTES DUE 2007
---------------------
PROSPECTUS
---------------------
CO-LEAD MANAGERS
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEHMAN BROTHERS
------------------
CO-MANAGERS
BT SECURITIES CORPORATION
CHASE SECURITIES INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Company in connection with the
offering described in this Registration Statement are as follows:
<TABLE>
<S> <C>
Registration Fee................................................... $ 72,728
Legal fees and expenses............................................
Blue Sky fees and expenses.........................................
Accounting fees and expenses.......................................
Trustee fees and expenses..........................................
Printing and duplicating expenses..................................
NASD fee........................................................... 24,500
Miscellaneous expenses.............................................
Total............................................................
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a corporation may indemnify directors and officers as well as other
employees and individuals against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative, or
investigative (other than action by or in the right of the corporation a
"derivative action"), if they acted in good faith and in a 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 proceedings, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with the
defense or settlement of such actions, and the statute requires court approval
before there can be any indemnification where the person seeking indemnification
has been found liable to the corporation. The statute provides that it is not
exclusive of other indemnification that may be granted by a corporation's
charter, by-laws, disinterested director vote, stockholder vote, agreement or
otherwise. Article VIII of the Registrant's By-laws requires indemnification to
the fullest extent permitted by Delaware law.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duties as a director, except for liability (i) for any
transaction from which the director derives an improper personal benefit, (ii)
for acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) for improper payment of dividends or
redemptions of shares, or (iv) for any breach of a director's duty of loyalty to
the company or its stockholders. Article Eighth of the Registrant's Restated
Certificate of Incorporation includes such a provision.
ITEM 16. EXHIBITS.
See Exhibit Index.
II-1
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the Company's
annual report pursuant to section 13(a) or section 15(d) of the Exchange Act
(and, where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Exchange Act) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions set forth in response to Item 15, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial BONA FIDE offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Wallingford, State of Connecticut, on February 28,
1997.
AMPHENOL CORPORATION
By: /s/ MARTIN H. LOEFFLER
-----------------------------------------
POWER OF ATTORNEY
We, the undersigned directors and officers of Amphenol Corporation, do
hereby constitute and appoint Edward G. Jepsen and Edward C. Wetmore, or either
of them, our true and lawful attorneys and agents, each with the power of
substitution to do any and all acts and things in our name and on our behalf in
our capacities as directors and officers and to execute any and all instruments
for us and in our names in the capacities indicated below, which said attorneys
and agents, or either of them, may deem necessary or advisable to enable said
Corporation to comply with the Securities Act of 1933 and any rules, regulations
and requirements of the Securities and Exchange Commission, in connection with
this Registration Statement, including specifically, but without limitation,
power and authority to sign for us or any of us in our names in the capacities
indicated below, any and all amendments (including post-effective amendments)
hereto and any additional Registration Statement related hereto permitted by
Rule 462(b) promulgated under the Securities Act of 1933 (and all amendments,
including post-effective amendments, thereto) and we do hereby ratify and
confirm all that said attorneys and agents, or either of them, or their
respective substitute or substitutes, shall do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on February 28, 1997 by the following
persons in the capacities indicated.
SIGNATURE TITLE
- ------------------------------ --------------------------
/s/ LAWRENCE J. DEGEORGE
- ------------------------------ Chairman of the Board
Lawrence J. DeGeorge
Director, Chief Financial
/s/ EDWARD G. JEPSEN Officer (Principal
- ------------------------------ Financial and Accounting
Edward G. Jepsen Officer)
/s/ MARTIN H. LOEFFLER
- ------------------------------ Director
Martin H. Loeffler
/s/ TIMOTHY F. COHANE
- ------------------------------ Director
Timothy F. Cohane
/s/ FLORENCE A. DEGEORGE
- ------------------------------ Director
Florence A. DeGeorge
/s/ A. HENRY MORGAN
- ------------------------------ Director
A. Henry Morgan
/s/ DR. MARCIA A. SAVAGE
- ------------------------------ Director
Dr. Marcia A. Savage
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
**1 Underwriting Agreement
2.1 Agreement and Plan of Merger dated as of January 23, 1997 between NXS Acquisition Corp. and Amphenol
Corporation (incorporated by reference to Current Report on Form 8-K dated January 23, 1997 (the "Form
8-K"))
2.2 Stockholders Agreement (incorporated by reference to the Form 8-K)
**4.1 Indenture between Amphenol Corporation and , as Trustee
4.2 Form of Senior Subordinated Note (included in Exhibit 4.1)
**5 Opinion of Simpson Thacher & Bartlett
12 Computation of Ratio of Earnings to Fixed Charges (incorporated by reference to the Annual Report on Form
10-K for the year ended December 31, 1996)
23.1 Consent of Simpson Thacher & Bartlett (included as part of its opinion filed as Exhibit 5 hereto)
*23.2 Consent of Price Waterhouse LLP, independent accountants
24 Powers of Attorney (included on page II-3)
**25 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of ,
as Trustee (separately bound)
**99.1 Consent of Henry R. Kravis
**99.2 Consent of George R. Roberts
**99.3 Consent of Michael W. Michelson
**99.4 Consent of Marc S. Lipschultz
</TABLE>
- ------------------------
* Filed herewith
** To be filed by amendment
<PAGE>
EXHIBIT 23.2
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3 of our report dated January 14, 1997, except
as to Note 12, which is as of January 23, 1997 relating to the financial
statements of Amphenol Corporation, which appears in such Prospectus. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Hartford, Connecticut
February 27, 1997
