<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 1997
REGISTRATION NO. 333-33591
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ESSEX INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 3357 13-3496934
(Primary Standard (I.R.S. Employer
(State or other Industrial Identification Number)
jurisdiction of Classification Number)
incorporation or
organization)
1601 WALL STREET
FORT WAYNE, IN 46802
(219) 461-4000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
MR. STEVEN R. ABBOTT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ESSEX INTERNATIONAL INC.
1601 WALL STREET
FORT WAYNE, IN 46802
(219) 461-4000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
RICHARD HALL, ESQ. Copies to: ROBERT W. REEDER, III, ESQ.
CRAVATH, SWAINE & MOORE SULLIVAN & CROMWELL
825 EIGHTH AVENUE 125 BROAD STREET
NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10004
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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, 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, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 28, 1997
4,175,000 SHARES
ESSEX
COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
-----------
Of the 4,175,000 shares of Common Stock of Essex International Inc. offered,
3,340,000 shares are being offered hereby in the United States and 835,000
shares are being offered in a concurrent international offering outside the
United States. The initial public offering price and the aggregate underwriting
discount per share will be identical for both offerings. See "Underwriting".
All the 4,175,000 shares of Common Stock offered are being sold by the
Selling Stockholders. See "Principal and Selling Stockholders". The Company
will not receive any of the proceeds from the sale of the shares offered. See
"Use of Proceeds".
The Common Stock is listed on the New York Stock Exchange under the trading
symbol "SXC". On August 27, 1997, the last reported sale price of the Common
Stock on the New York Stock Exchange was $34 7/8 per share. See "Price Range of
Common Stock".
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR 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>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO SELLING
OFFERING PRICE DISCOUNTS(1) STOCKHOLDERS(2)
-------------- ------------ -------------------
<S> <C> <C> <C>
Per Share....................... $[ ] $[ ] $[ ]
Total(3)........................ $[ ] $[ ] $[ ]
</TABLE>
- -----
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting".
(2) Expenses of the offerings, estimated at $400,000, will be paid by the
Company. See "Underwriting".
(3) The Selling Stockholders have granted the U.S. Underwriters an option for
30 days to purchase up to an additional 500,791 shares, at the initial
public offering price per share, less the underwriting discount, solely to
cover over-allotments. Additionally, the Selling Stockholders have granted
the International Underwriters a similar option with respect to an
additional 125,198 shares as part of a concurrent International Offering.
If such options are exercised in full, the total initial public offering
price, underwriting discount and proceeds to the Selling Stockholders will
be $[ ], $[ ], and $[ ], respectively. See "Underwriting".
-----------
The shares offered hereby are offered severally by the U.S. Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York,
on or about [ ], 1997, against payment therefor in immediately available
funds.
GOLDMAN, SACHS & CO. SMITH BARNEY INC.
DONALDSON, LUFKIN & JENRETTE LEHMAN BROTHERS
SECURITIES CORPORATION
-----------
The date of this Prospectus is , 1997.
<PAGE>
[Collage of pictures showing products manufactured by the Company and a
manufacturing facility, a map of the United States showing the locations of
the Company's domestic manufacturing plants and service centers, a stylized
version of "Essex" and the following text "Essex is a leading North American
producer of electric wire and cable products, and is included in the Fortune
1,000 list of industrial and service companies. Essex is supported by an
extensive distribution system, as well as 28 manufacturing facilities in 16
states, which produce a broad product line that includes magnet wire, building
wire, automotive wire, industrial wire, specialty wiring assemblies,
communications wire and electrical insulation materials".]
The Company will furnish its stockholders with annual reports containing
audited financial statements for each fiscal year of the Company.
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN THE
COMMON STOCK, AND IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements
included elsewhere in this Prospectus. Unless otherwise indicated, the
information in this Prospectus (i) assumes that the over-allotment options
granted to the U.S. Underwriters and the International Underwriters will not be
exercised and (ii) treats the shares of Common Stock underlying the Warrants
(as defined herein) in the manner described under the caption "Certain
Relationships and Related Party Transactions--The Redemption" including the
assumption of an initial public offering price of $36 per share of Common
Stock. Unless the context otherwise indicates, the term "Company" refers to
Essex International Inc. ("Essex International") and its consolidated
subsidiaries, including its wholly owned subsidiary, Essex Group, Inc.
("Essex"), and their respective predecessors. Unless otherwise indicated all
shareholdings are as of June 30, 1997. The term "Common Stock" refers to the
common stock, par value $0.01 per share, of Essex International.
THE COMPANY
The Company is a leading North American developer, manufacturer and
distributor of copper electrical wire and cable products. Founded in 1930, the
Company serves over 11,000 worldwide customers in a wide range of industrial
markets from its 28 manufacturing facilities and 38 service centers located
throughout the United States and Canada. Since 1993, the Company has
significantly strengthened its market positions through expanded sales efforts
and acquisitions, and has improved its manufacturing capacity and production
efficiencies through capital expenditure and productivity improvement programs.
As a result of these efforts, from 1993 to 1996, the Company's net sales volume
grew at a compound annual growth rate ("CAGR") of approximately 8%, generating
$1.3 billion net sales in 1996, while its earnings before interest, taxes,
depreciation and amortization ("EBITDA") grew at a CAGR of 22%, from $77
million in 1993 to $140 million in 1996, and its net income improved from a
$14.2 million loss in 1993 to a profit of $36.3 million in 1996. This growth
has continued in the first half of 1997 with EBITDA for the period of $108.8
million, up 75% from the first half of 1996, while net income in the first half
of 1997 was $42.7 million, an increase of over 200% from the same period in
1996. (With respect to EBITDA, see footnote (h) in "Selected Consolidated
Financial and Operating Data".)
The Company organizes its operating activities into the following principal
areas:
MAGNET WIRE PRODUCTS (25% of net sales for the six months ended June 30,
1997)--The Company's magnet wire products are used in a wide variety of motors,
coils, relays, generators, solenoids and transformers by the electrical
equipment and electronics industries. Annual industry data since 1991 has shown
that the Company's magnet wire products have had the highest quality in the
industry (as measured by customer returns). As a result of significantly
increasing its sales volumes of magnet wire products in recent years while
focusing on higher value-added products and controlling costs, the gross
margins of the Company's magnet wire business have increased substantially.
BUILDING WIRE AND CABLE PRODUCTS (45% of net sales for the six months ended
June 30, 1997)--The Company produces a wide range of copper building wire
products for the commercial, industrial and residential markets. These products
are marketed primarily to electrical distributors throughout the United States
and Canada for ultimate use by electrical contractors and "do-it-yourself"
consumers. Approximately two-thirds of the Company's net sales of these
products is attributable to remodeling and repair activity and the balance to
new nonresidential and residential construction.
COMMUNICATIONS WIRE AND CABLE PRODUCTS (10% of net sales for the six months
ended June 30, 1997)--The Company's communications wire products consist of
outside plant ("OSP") voice communication copper wire and cable products for
the "local loop" segment of the telecommunication system and high bandwidth
data communication copper wire and cable products for local area
3
<PAGE>
networks ("LANs"), Internet connectivity and other premise applications.
Copper-based wire is the most widely used medium for voice and data
transmission in the local loop and in homes and offices, due in part to its
significant installed base, lower installation cost and ease of repair.
OTHER PRODUCTS AND ACTIVITIES (20% of net sales for the six months ended June
30, 1997)--The Company manufactures and markets a wide range of industrial and
automotive electrical wire products and maintains a distribution business for
the sale and distribution of its magnet wire and related third-party-
manufactured products. Industrial wire and cable products (8% of net sales for
the six months ended June 30, 1997) consist of appliance wire, motor lead wire,
submersible pump cable, power cable, flexible cord, power supply cords, welding
cable and recreational vehicle wire. The Company produces automotive wire and
cable products (5% of net sales for the six months ended June 30, 1997) for
sale to suppliers of automotive original equipment. Such products include
primary wire for use in engine and body harnesses, ignition wire and battery
cable. The Company's distribution business provides a sales channel to both
small manufacturers of original equipment and motor repair shops for some of
the Company's magnet wire and other wire and insulation products, as well as
complementary third-party-manufactured products. During the first half of 1997,
third-party products constituted 7% of net sales, while 19% of the Company's
magnet wire products were sold through this sales channel.
STRATEGY
The Company has established a strategy that is designed to capitalize on its
competitive strengths and position it to pursue opportunities for future
growth. The tenets of this strategy are:
. CAPITALIZE ON SIZE AND SCOPE OF OPERATIONS--The Company believes that it is
one of the largest (based on net sales) electrical wire and cable producers in
the United States and has one of the most diverse product lines. The Company
believes that the size and scope of its operations provide it with efficiencies
in manufacturing, purchasing and distribution and with the resources necessary
to meet the increasing technological demands of the market. The Company intends
to enhance these competitive advantages by continuing to expand its operations
through internal growth and acquisitions. The electrical copper wire and cable
industry in North America has undergone significant consolidation in the past
ten years as a result of increased demand for product quality and lower cost
products that in turn has necessitated substantial capital spending and
development of sophisticated technical capabilities by market participants.
. ENHANCE STRONG MARKET POSITIONS--The Company is focusing on improving its
leading or significant market positions in North America for its major product
categories and capitalizing on the advantages of its size. The Company believes
that it is one of two leading producers in each of the magnet wire and building
wire markets based on net sales. Recent acquisitions in magnet wire
distribution, building wire and industrial wire have enhanced the Company's
market positions in these businesses. The Company intends to maintain and
enhance its market positions through internal growth and continued
participation in future industry consolidation.
. MAINTAIN LEADERSHIP IN QUALITY AND PRODUCTIVITY--The Company employs
advanced technologies in manufacturing processes and product development and
intends to continue investing in manufacturing equipment and facilities,
engineering, research and development, and to expand its continuous improvement
programs in order to maintain its leadership in quality and productivity. The
Company believes that its wire and cable products, which have earned numerous
customer quality awards, are among the highest in quality in the industry.
Since 1992, the Company has invested approximately $154 million in capital
programs and has expanded its continuous improvement programs in order to
improve the quality of its products and increase the cost efficiency and
capacity
4
<PAGE>
of its production facilities. The Company also has lowered cost levels by
pursuing a high level of vertical integration through internal production of
its principal raw materials. In 1996, the Company produced over 85% of its
copper rod, magnet wire enamel and rubber insulation materials and 70% of its
PVC insulation requirements. As a result, the Company believes that it is among
the lowest cost domestic producers in each of its business lines. A key
productivity measure, annual copper equivalent pounds shipped per employee,
increased by 27% from 1991 to 1996.
. CAPITALIZE ON INDUSTRY GROWTH OPPORTUNITIES--The Company believes that, as
consumers continue to adapt to technological advances in both the home and the
workplace, the technical specifications of the "smart" home and office will
generate increased demand for certain electrical wire and cable products. The
Company believes that it is well positioned to capitalize on this growth due to
its significant market positions, strong name recognition and size. Growth in
the magnet wire business is expected to be driven by increasing demand for
devices containing electric motors in the home and in automobiles, along with
continuing consumer and government pressure for higher energy efficiency from
these devices (energy-efficient motors utilize materially more magnet wire per
unit than do their traditional counterparts). Growth in the building wire
business is expected to come primarily from increasing repair and remodeling
activity, as well as from new commercial, industrial and residential
construction. Both new construction and remodeling activity is being affected
by the increased number of circuits and amperage handling capacity needed to
support the increasing demand for electrical services. The Company believes
that its communications wire and cable business will benefit from the
increasing number of outside telephone lines into and inside homes and offices
and the increasing quality demands placed on these lines to facilitate
escalating data transmission from the growing demand for high bandwidth data
communication copper wire and cable for LANs, Internet connectivity and other
premise applications. In the automotive business, the Company believes that the
increasing production of cars and trucks with motorized or electrical options
will translate into increased demand for higher quality, thinner-gauge wire
products to take advantage of their lighter weights and greater efficiency.
. PURSUE ACQUISITION OPPORTUNITIES--Consistent with its historical emphasis
on vertical integration, breadth of product line and technological innovation,
the Company continuously evaluates opportunities to benefit further from its
manufacturing, purchasing and distribution capabilities, expand its customer
base, reduce costs and enter new markets through acquisitions, investments,
joint ventures and other strategic alliances. Since a major recapitalization in
1995 (the "1995 Refinancing"), which provided the Company with substantial
financial and operating flexibility, the Company has acquired three major
businesses: the distribution business of Avnet Inc. in October 1995
("Brownell"); the Canadian building wire business of BICC Phillips, Inc. in
March 1996 ("BICC Canada"); and the building and industrial wire businesses of
Triangle Wire & Cable, Inc. ("Triangle") in October 1996. The Company believes
that each of these businesses provides operating synergy that complements the
Company's existing manufacturing, distribution and administrative capabilities,
and each has met or exceeded financial and operating expectations since its
respective acquisition date. In addition, in May 1995, the Company entered into
a joint venture in India with Finolex Cable LTD for the development and
production of copper rod and other wire products for the domestic Indian market
and recently established a joint venture with Raychem Corp. for the production
and sale of high performance wire products for the automotive industry. The
Company is currently evaluating several acquisition opportunities consistent
with its business strategy, although it has not reached agreement with any
third parties at this time.
. EXPAND INTERNATIONAL BUSINESS--Historically, the Company's production and
distribution emphasis has focused on North America, primarily the U.S. market.
Management anticipates that while the Company will remain focused on the U.S.
market, it expects to increase efforts to expand its customer base in Canada
and Mexico, where the Company believes demand for electrical wire and cable
products will grow significantly over the next few years. Management also
expects to increase
5
<PAGE>
efforts to expand its customer base in Europe and to establish a preliminary
presence in certain developing economies, particularly in locations that have
been targeted by the Company's customers for their own expansion.
MANAGEMENT AND COMPANY HISTORY
The Company's senior management team, including its business unit managers,
possesses a high level of experience in the wire and cable industry. The eight
most senior officers average 21 years of related industry experience, with an
average of over 17 years with the Company. The equity interest of management of
the Company (approximately 9.7% on a fully diluted basis) helps ensure that the
interests of management are aligned with those of the Company's other
stockholders.
The Company was acquired (the "Acquisition") in a merger in October 1992 by
certain of its existing stockholders. On May 1, 1997, the Company completed an
initial public offering (the "IPO") of 6,546,700 shares of Common Stock,
including 3,546,700 shares sold by certain stockholders. The net proceeds to
the Company from the IPO were $46.0 million, which were used to reduce
outstanding debt of the Company. Bessemer Holdings, L.P. ("BHLP") and an
affiliated investment partnership (BHLP and such affiliated investment
partnership are collectively referred to herein as the "BH Group") currently
own 36.1% (on a fully diluted basis) of the Company. None of the Company, its
executive officers or directors, or BH Group intends to sell any shares in the
Offerings.
The Company's principal executive offices are located at 1601 Wall Street,
Fort Wayne, Indiana 46802, telephone (219) 461-4000.
6
<PAGE>
THE OFFERINGS (a)
<TABLE>
<S> <C>
Shares of Common Stock
offered by the Selling
Stockholders(b)........ 4,175,000 shares
U.S. Offering.......... 3,340,000 shares
International Offer-
ing................... 835,000 shares
Total Common Stock to be
outstanding after the
Offerings(c)........... 29,438,906 shares
Use of Proceeds......... The Company will not receive any of the proceeds from
the sale of the shares. See "Use of Proceeds".
New York Stock Exchange
Symbol................. "SXC"
</TABLE>
- --------
(a) The offering of 3,340,000 shares of Common Stock initially being offered in
the United States (the "U.S. Offering") and the concurrent offering of
835,000 shares of Common Stock initially being offered outside the United
States (the "International Offering") are collectively referred to as the
"Offerings". The underwriters for the U.S. Offering (the "U.S.
Underwriters") and the underwriters for the International Offering (the
"International Underwriters") are collectively referred to as the
"Underwriters".
(b) Includes 286,995 shares of Common Stock to be received upon the redemption
of 341,155 warrants ("Warrants") to purchase shares of Common Stock. See
"Certain Relationships and Related Party Transactions--The Redemption". If
the Underwriters' over-allotment options are exercised in full, certain of
the Selling Stockholders will offer and sell an additional 625,989 shares
of Common Stock.
(c) Does not include 2,987,421.5 shares of Common Stock issuable pursuant to
options outstanding as of June 30, 1997. See "Management--Aggregated
Option/SAR Exercises in Last Fiscal Year and Year-End Option/SAR Values".
RISK FACTORS
Prospective purchasers of the Common Stock should carefully consider the
factors set forth under "Risk Factors" immediately following this Prospectus
Summary as well as the other information set forth in this Prospectus.
7
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
(in thousands, except share and per share data and copper prices)
The following table sets forth (i) summary combined historical consolidated
financial data of the Company for the twelve months ended December 31, 1992
(which includes historical consolidated financial data of the Company prior to
the Acquisition ("Predecessor") for the nine-month period ended September 30,
1992, and historical consolidated financial data of the Company after the
Acquisition for the three-month period ended December 31, 1992), (ii) summary
historical consolidated financial data of the Company for the years ended
December 31, 1993, 1994, 1995 and 1996 and the six months ended June 30, 1996
and 1997 and as of December 31, 1996 and June 30, 1997, and (iii) supplementary
pro forma financial data for the year ended December 31, 1996 and the six
months ended June 30, 1996 and 1997 reflecting the IPO. Combined summary
consolidated financial data presented below for the 12-month period ended
December 31, 1992 and the year ended December 31, 1993 were derived from
audited consolidated financial statements of the Company and Predecessor not
included in this Prospectus. The summary consolidated financial data presented
below for the years ended December 31, 1994, 1995 and 1996, and as of December
31, 1996, were derived from the Consolidated Financial Statements of the
Company included elsewhere in this Prospectus. The summary consolidated
financial data presented below for the six months ended June 30, 1996 and 1997
and as of June 30, 1997 have been derived from unaudited consolidated financial
statements of the Company included elsewhere herein and reflect all
adjustments, consisting only of adjustments of a normal recurring nature, that
are, in the opinion of the Company's management, necessary to present fairly
the consolidated financial position of the Company as of June 30, 1997, and the
consolidated results of operations for the six months ended June 30, 1996 and
1997. Results of operations for the interim periods presented are not
necessarily indicative of results to be expected for the entire year. This data
should be read in conjunction with "Capitalization", "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements included elsewhere herein.
8
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
COMBINED(a) YEAR ENDED DECEMBER 31, JUNE 30,
------------- --------------------------------------------- ------------------------
TWELVE MONTHS
ENDED
DECEMBER 31,
1992 1993 1994 1995 1996 1996 1997
------------- -------- ---------- ---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $909,351 $868,846 $1,010,075 $1,201,650 $ 1,332,049 $ 645,943 $ 864,109
Cost of goods sold............. 780,148 745,875 846,611 1,030,511 1,102,460 543,293 696,528
Selling and administrative
expense....................... 80,590 75,748 85,209 93,401 121,054 57,537 75,411
Other (income) expense, net (b) (305) (196) 1,114 1,032 2,045 (197) (74)
Unusual items (c).............. 18,139 -- -- -- -- -- --
-------- -------- ---------- ---------- ----------- ----------- -----------
Income from operations......... 30,779 47,419 77,141 76,706 106,490 45,310 92,244
Interest expense............... 50,645 56,723 60,155 49,055 39,994 20,324 21,274
-------- -------- ---------- ---------- ----------- ----------- -----------
Income (loss) before income
taxes and extraordinary
charge........................ (19,866) (9,304) 16,986 27,651 66,496 24,986 70,970
Provision (benefit) for income
taxes......................... (4,022) 1,552 9,500 14,380 28,988 11,000 28,300
-------- -------- ---------- ---------- ----------- ----------- -----------
Income (loss) before
extraordinary charge.......... (15,844) (10,856) 7,486 13,271 37,508 13,986 42,670
Extraordinary charge net of
income tax benefit (d)........ 122 3,367 -- 2,971 1,183 -- --
-------- -------- ---------- ---------- ----------- ----------- -----------
Net income (loss).............. $(15,966) (14,223) 7,486 10,300 36,325 13,986 42,670
========
Preferred stock redemption
premium....................... -- -- -- (4,185) -- --
Preferred stock dividend
requirement................... (5,186) (6,008) (6,962) (4,248) (3,885) --
Accretion of preferred stock... (671) (687) (703) (2,024) (358) --
Increase in fair value of
common stock subject to put... -- -- -- (3,547) -- --
-------- ---------- ---------- ----------- ----------- -----------
Net income (loss) applicable to
common stock.................. $(20,080) $ 791 $ 2,635 $ 22,321 $ 9,743 $ 42,670
======== ========== ========== =========== =========== ===========
Pro forma income per
share (e):
Pro forma income before
extraordinary charge......... $ 1.34 $ .50 $ 1.46
Extraordinary charge net of
income tax benefit........... .04 -- --
----------- ----------- -----------
Pro forma net income ......... $ 1.30 $ .50 $ 1.46
=========== =========== ===========
Shares used in computing pro
forma net income per share.... 28,082,432 28,083,083 29,325,037
=========== =========== ===========
Supplementary pro forma income
before extraordinary charge
(f)........................... $ 40,425 $ 15,675 $ 44,014
=========== =========== ===========
Supplementary pro forma income
per share before extraordinary
charge (e).................... $ 1.30 $ 0.50 $ 1.42
=========== =========== ===========
Shares used in computing
supplementary pro forma income
before extraordinary charge
(f)........................... 31,082,432 31,083,083 31,128,264
=========== =========== ===========
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
DATA:
Working capi-
tal........... $231,707 $304,600
Total assets... 842,755 895,716
Long-term debt
(including
current
portion) (g).. 432,916 405,000
Stockholders'
equity (g).... 146,090 248,623
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
COMBINED(a) YEAR ENDED DECEMBER 31, JUNE 30,
------------- --------------------------------------- ------------------
TWELVE MONTHS
ENDED
DECEMBER 31,
1992 1993 1994 1995 1996 1996 1997
------------- -------- -------- -------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA (h)...................... $ 74,388 $ 77,028 $108,314 $110,502 $ 140,224 $ 62,204 $108,841
Capital expenditures............ $ 31,180 $ 26,167 $ 30,109 $ 28,555 $ 25,569 $ 9,342 $ 14,156
Copper
equivalent pounds shipped (i).. 492,350 517,607 553,220 551,447 643,800 304,737 397,731
Average COMEX copper price per
pound.......................... $ 1.03 $ 0.85 $ 1.07 $ 1.35 $ 1.06 $ 1.17 $ 1.13
Net cash provided by (used for)
operating activities........... 31,326 60,616 41,672 89,754 64,581 (12,614) 440
Net cash used for investing
activities (j)................. (152,010) (30,785) (30,118) (50,466) (104,716) (16,998) (11,858)
Net cash provided by (used for)
financing activities (g)(k).... 132,662 (28,569) (5,120) (53,031) 41,369 26,417 15,486
</TABLE>
- --------
(a) Represents a combination of the Company's three months ended December 31,
1992 and Predecessor's nine months ended September 30, 1992. Such combined
results are not necessarily indicative of the results for the full year,
due to the effects of the Acquisition and related refinancings and the
concurrent adoption of Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes". Financial data of the Company as of October
1, 1992, and thereafter reflect the Acquisition using the purchase method
of accounting, and, accordingly, the purchase price was allocated to assets
and liabilities based upon their estimated fair values. However, to the
extent that the Company's management had a continuing investment interest
in the Company's common stock, such fair values (and contributed
stockholders' equity) were reduced proportionately to reflect the
continuing interest (approximately 10%) at the prior historical cost basis.
(b) Includes interest income of $186, $269, $247, $409 and $210 for 1992, 1993,
1994, 1995 and 1996, respectively. Also includes interest income of $48 and
$102 for the six months ended June 30, 1996 and 1997, respectively. Also
includes write-offs related to fixed asset disposals occurring in the
normal course of business.
(c) In connection with the Acquisition, Predecessor recorded certain merger-
related expenses of $18,139, consisting primarily of bonus and option
payments to certain employees and certain merger fees and expenses that
were charged to Predecessor's operations in the nine months ended September
30, 1992.
(d) During 1992, the Company repurchased outstanding indebtedness of Essex
resulting in an extraordinary charge of $122, net of applicable income tax
benefit. During 1993, the Company recognized extraordinary charges of
$3,055, net of applicable tax benefit, representing the write-off of
unamortized debt issuance costs associated with the termination of the
Company's term credit facility under its former credit agreement, and $312,
net of applicable tax benefit, representing the net loss resulting from the
redemption of indebtedness of Essex. During 1995 and 1996, the Company
recognized extraordinary charges of $2,971 and $1,183, respectively, net of
applicable tax benefit, representing the write-offs of unamortized debt
issuance cost associated with the termination of the Company's former
credit agreements.
(e) See Note 1 to the Consolidated Financial Statements.
(f) Adjustments to net income before extraordinary charge used in the
calculation of supplementary pro forma net income before extraordinary
charge per common share for the year ended December 31, 1996 and the six
months ended June 30, 1996 and 1997 are as follows: (i) $1,782, $1,027, and
$796, respectively, net of tax, representing reduced interest expense due
to the assumed repayment of a portion of the borrowings under the Company's
senior unsecured note agreement, dated as of April 12, 1995 (the "Essex
Term Loan") and the Essex Revolving Credit Agreement, from the net proceeds
of the IPO; (ii) $716, $348 and $131, respectively net of tax, representing
reduced interest expense on the indebtedness under the Essex Revolving
Credit Agreement due to lower interest rates under the Restated Credit
Agreement (each as defined in "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity, Capital Resources
and Financial Condition--Credit Facilities and Lines of Credit"); and (iii)
$419, $314 and $417, respectively net of tax, representing the elimination
of 1996 deferred financing expense associated with the Essex Term Loan. The
change in shares used to compute supplementary pro forma income per share
is attributable to the 3,000,000 shares of Common Stock sold by the Company
in the IPO.
(g) On May 1, 1997, the Company completed its IPO. The net proceeds to the
Company, after underwriting commissions and other associated expenses, were
approximately $46,022, of which $29,497, was used to repay the Essex Term
Loan and the remaining proceeds were applied to repay a portion of the
indebtedness under the Essex Revolving Credit Agreement.
(h) EBITDA is defined as earnings before net interest, income taxes,
depreciation and amortization. In 1992, EBITDA also includes an add-back of
$18,139 for unusual items. See note (c) above. EBITDA is presented because
it is a widely accepted financial indicator of a company's ability to incur
and service debt. However, EBITDA should not be considered in isolation or
as a substitute for net income or cash flow data prepared in accordance
with generally accepted accounting principles or as a measure of a
company's profitability or liquidity. Also, the EBITDA definition used
herein may not be comparable to similarly titled measures reported by other
companies.
(i) Copper equivalent pounds include aluminum pounds which have been converted
to a copper pound basis.
(j) Includes the costs associated with the BICC Canada and Triangle
acquisitions of approximately $7,631 and $71,764, respectively, in 1996 and
the acquisition of Brownell in 1995 at a total cost of $24,934.
(k) Includes the redemption of the Company's Senior Discount Debentures due
2004 in 1995 at a total cost of $272,850.
10
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully by prospective investors in evaluating
the Company before purchasing any Common Stock offered hereby. This Prospectus
includes "forward-looking statements". Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from
the Company's expectations ("Cautionary Statements") are disclosed in this
Prospectus, including below under "Risk Factors". All subsequent written and
oral forward-looking statements attributable to the Company or persons acting
on its behalf are expressly qualified in their entirety by the Cautionary
Statements.
COMPETITION
The market for copper wire and cable products is highly competitive, and
some of the Company's competitors may have greater financial resources than
the Company. The Company competes with at least one major competitor with
respect to each of its business units. No single competitor, however, competes
with the Company across the entire spectrum of the Company's product lines.
Many of the Company's products are made to industry specifications and
therefore may be fungible with competitors' products. Accordingly, the Company
is subject to competition in many markets on the basis of price, delivery
time, customer service and its ability to meet specialty needs. In particular,
with respect to building wire, the Company believes that price is an important
competitive factor. The pricing environment for building wire has been strong
in the second half of 1996 and the first six months of 1997, which has enabled
the Company to increase both its sales of building wire and its operating
margins but there can be no assurance that this favorable price environment
will continue in the future. The Company believes that certain of its
competitors plan to bring into operation additional capacity in the magnet
wire business in the next two years. Although the Company believes that such
capacity is being added to meet increases in demand, such additional capacity
could increase competition and negatively impact prices and, as a result,
could adversely affect the Company's results of operations, cash flows and
financial condition. In addition, the Company has been subject to competition
from foreign manufacturers from time to time and such competition may continue
in the future. Although foreign manufacturers presently do not constitute an
important source of competition, there can be no assurance that this will
continue to be the case in the future.
INTEGRATING ACQUISITIONS AND MANAGING GROWTH
The Company's business strategy involves pursuing opportunities to grow its
business both internally and through selective acquisitions, investments,
joint ventures and strategic alliances. The Company's ability to implement its
growth strategy depends, in part, on its success in making such acquisitions,
investments, joint ventures and strategic alliances on satisfactory terms and
successfully integrating them into the Company's operations. Implementation of
the Company's growth strategy may impose significant strains on the Company's
management, operating systems and financial resources. Failure by the Company
to manage its growth, or unexpected difficulties encountered during expansion,
could have a material adverse impact on the Company's results of operations,
cash flows or financial condition.
INTERNATIONAL EXPANSION
To date, a substantial majority of the Company's sales have been made in the
North American market, where the Company believes it has substantial expertise
and experience. The Company is actively pursuing international opportunities
for growth, primarily through acquisitions and joint ventures. International
expansion will create new challenges for the Company's management. If the
Company is successful in increasing its international business, it may
encounter new risks that have
11
<PAGE>
not been encountered traditionally, including potential political, social and
economic instability. In addition, risks associated with fluctuations between
the U.S. dollar, which is the reporting currency in the Company's financial
statements, and the local currencies in which the Company may transact
business, may be encountered. There can be no assurance that expansion of the
Company's operations into international markets will not have any adverse
consequences for the Company's results of operations, cash flows or financial
condition.
ADVANCING TECHNOLOGY
The Company believes that incorporating technological advancements in its
product development and manufacturing processes is important to remaining
competitive in each of its business units. For example, the demand for more
energy-efficient products, as well as smaller products, is necessitating the
engineering of more efficient components, including wire and cable components
of these products. There can be no assurance that the Company will
successfully introduce new products or product enhancements that will meet
with commercial acceptance, or that its existing technology will not be
superseded by new technological breakthroughs introduced by competitors. The
commercial development of fiber optics has had and may continue to have an
adverse effect on the Company's copper communications wire business unit, and
in particular its OSP products. Future technological developments could
materially adversely affect the Company's results of operations, cash flows
and financial condition.
MANUFACTURING CAPACITY
The Company is currently operating its manufacturing facilities at high
utilization rates. In order to meet growing customer demand, the Company will
need to invest in additional manufacturing equipment. Failure to have new
equipment operational in a timely manner or shut-downs of existing capacity
due to breakdowns or other reasons could adversely affect the Company's
results of operations, cash flows and financial condition.
SUBSTANTIAL LEVERAGE
The Company has, on a consolidated basis, substantial indebtedness and
significant debt service obligations. The Company's aggregate notes payable to
banks plus long-term debt at June 30, 1997 was $433.6 million. The Company's
ratio of debt to total capital was approximately 0.64 to 1 at June 30, 1997.
The degree to which the Company is leveraged could have important
consequences to holders of the Common Stock, including the following: (i) the
Company's ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes may
be impaired in the future; (ii) a substantial portion of the Company's cash
flow from operations must be dedicated to the payment of principal and
interest on its indebtedness, thereby reducing the funds available to the
Company for other purposes; (iii) certain of the Company's borrowings are, and
will continue to be, at variable rates of interest, which exposes the Company
to the risk of increased interest rates; (iv) the indebtedness outstanding
under the Restated Credit Agreement (as defined in "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity,
Capital Resources and Financial Condition") is secured by substantially all
the assets of the Company; (v) the Company may be substantially more leveraged
than certain of its competitors, and this may place the Company at a
competitive disadvantage; and (vi) the Company's substantial degree of
leverage may hinder its ability to adjust rapidly to changing market
conditions and could make it more vulnerable in the event of a downturn in
general economic conditions or a downturn in its business.
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
The Company is subject to federal, state and local environmental protection
laws and regulations governing its operations and use, handling, disposal and
remediation of hazardous substances currently or formerly used by the Company.
A risk of environmental liability is inherent in the current
12
<PAGE>
and former manufacturing activities of the Company in the event of a release
or discharge of a hazardous substance generated by the Company. Under certain
environmental laws, the Company could be held jointly and severally
responsible for the remediation of any hazardous substance contamination at
its facilities and at third party waste disposal sites and could also be held
liable for any consequences arising out of human exposure to such substances
or other environmental damage. The Company has been named as a potentially
responsible party in proceedings that involve environmental remediation. The
Company has also been named as a defendant in lawsuits alleging exposure to
asbestos in the Company's products. See "Business--Legal and Environmental
Matters". There can be no assurance that the costs of complying with
environmental, health and safety laws in its current operations or the
liabilities arising from past releases of, or exposure to, hazardous
substances, will not result in future expenditures by the Company that could
materially and adversely affect the Company's results of operations, cash
flows or financial condition.
COPPER PRICES
Net sales of the Company are heavily influenced by the price of copper, the
Company's major raw material. The Company's net income has limited exposure to
the price of copper, however, as the Company has historically been able to
pass through copper price increases and decreases to its customers on a
current or slightly delayed basis. In addition, the Company has generally been
able to match its copper purchases with its production requirements and
minimize copper cathode and rod inventories. However, no assurance can be
given that the Company will be able to pass through price increases in the
future.
HOLDING COMPANY STRUCTURE; RESTRICTIONS ON THE PAYMENT OF DIVIDENDS; ESSEX
INTERNATIONAL'S DEPENDENCE ON DIVIDENDS FROM ESSEX TO MEET CASH REQUIREMENTS
Essex International is a holding company whose operations are and will be
conducted solely through Essex, its wholly owned subsidiary. Essex
International has no independent operations, virtually no assets other than
its ownership of the outstanding common stock of Essex (all of which is
pledged to the lenders under the Restated Credit Agreement) and no independent
means of generating cash flow. Therefore, Essex International is and will
continue to be dependent on the cash flow of Essex to meet its obligations.
The Restated Credit Agreement and the Essex Senior Note Indenture (as
defined in "Description of Certain Indebtedness") restrict the ability of
Essex to declare and pay dividends and to make other distributions to Essex
International. Subject to the availability of an alternative financing source,
Essex International's ability to meet its cash obligations in the future will
be dependent upon Essex' ability to pay dividends, to loan, or otherwise
advance or transfer funds to Essex International in sufficient amounts.
Additionally, the Restated Credit Agreement prohibits the Company from paying
dividends to its common stockholders. See "Description of Certain
Indebtedness--Restated Credit Agreement".
PRINCIPAL STOCKHOLDERS
After the Offerings, BH Group will own approximately 39.2% (36.2% on a fully
diluted basis) of the outstanding Common Stock. In addition certain members of
the Company's Board of Directors are affiliated with BH Group. As long as BH
Group continues to own in the aggregate a large percentage of the outstanding
shares of Common Stock, it will have practical control over the composition of
the Board of Directors of the Company, over the outcome of any corporate
transaction or other matter submitted to the stockholders for approval,
including mergers, consolidations and the sale of all or substantially all the
Company's assets, and over a change in control of the Company. See
"Management", "Principal and Selling Stockholders" and "Certain Relationships
and Related Party Transactions".
13
<PAGE>
ANTI-TAKEOVER PROVISIONS
The Company's Second Amended and Restated Certificate of Incorporation (the
"Restated Certificate") and the Amended and Restated By-laws (the "By-laws")
contain certain provisions that may have the effect of discouraging, delaying
or preventing a change in control of the Company or unsolicited acquisition
proposals that a stockholder might consider favorable, including provisions
authorizing the issuance of "blank check" preferred stock, limiting the
persons who may call special meetings of stockholders, limiting stockholder
action by written consent, establishing advance notice requirements for
nominations for election to the Board of Directors of the Company or for
proposing matters that can be acted upon at stockholders meetings, providing
for a Board of Directors with staggered, three-year terms and requiring super-
majority voting to effect certain amendments to the Restated Certificate and
the By-laws.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after the
Offerings, pursuant to Rule 144 ("Rule 144") under the Securities Act or
otherwise, or the perception that such sales could occur, may adversely affect
prevailing market prices for the Common Stock and could impair the Company's
future ability to raise capital through an offering of its equity securities.
The Company, the Selling Stockholders, BH Group, each of the directors and
certain executive officers of the Company have agreed not to sell or otherwise
dispose of any shares of Common Stock (subject to certain exceptions) for a
period of 90 days after the date of this Prospectus without the prior written
consent of Goldman, Sachs & Co. ("Goldman Sachs"). See "Underwriting".
Following the 90-day period, the 17,156,280 shares of Common Stock held by BH
Group and such other stockholders will be tradable pursuant to Rule 144,
including 16,246,181 shares of Common Stock subject to the volume and other
resale limitations thereof. In addition, after the 90-day period the BH Group
has the right to demand registration under the Securities Act of shares of
Common Stock and has the right to have shares of Common Stock included in
future registered public offerings of securities by the Company. See "Shares
Eligible for Future Sale--Registration Rights--BH Group".
LIMITED TRADING HISTORY; POSSIBLE VOLATILITY OF SHARE PRICE
Prior to the consummation of the IPO in May 1997, there was no public market
for the Common Stock. Accordingly, the Common Stock has a limited trading
history. The market price of the Common Stock after the Offerings may be
significantly affected by factors such as quarterly variations in the
Company's results of operations, the announcement of new products or product
enhancements by the Company or its competitors, technological innovation by
the Company or its competitors changes in government regulations and general
market conditions specific to particular industries. In addition, the stock
markets have in recent years experienced significant price fluctuations, which
often have been unrelated to the operating performance of the specific
companies whose stock is traded. Market fluctuations, as well as economic
conditions, may adversely affect the market price of the Common Stock.
14
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Shareholders.
DIVIDEND POLICY
No dividends have been paid by the Company on the Common Stock in the prior
two fiscal years or in the first half of 1997 and the Company does not
anticipate paying dividends in the foreseeable future. Any determination to
pay cash dividends in the future will be at the discretion of the Company's
Board of Directors and will depend upon the Company's results of operations,
financial condition, contractual restrictions and other factors deemed
relevant at that time by the Company's Board of Directors.
The ability of the Company to pay dividends on the Common Stock is dependent
upon the ability of Essex to pay dividends, or otherwise loan, advance or
transfer funds, to the Company. Both the Restated Credit Agreement and the
Essex Senior Note Indenture impose limitations on the ability of Essex to pay
dividends or make other payments to the Company, and the Restated Credit
Agreement also prohibits the Company from paying dividends to its common
stockholders. See "Description of Certain Indebtedness--Restated Credit
Agreement--Negative Covenants".
PRICE RANGE OF COMMON STOCK
The Common Stock has been traded on the New York Stock Exchange, Inc. (the
"NYSE") since April 18, 1997, under the symbol "SXC". The following table sets
forth, for the periods indicated the high and low sale prices per share of the
Common Stock, as reported by the NYSE.
<TABLE>
<CAPTION>
1997 HIGH LOW
---- ------- -------
<S> <C> <C>
Second Quarter (April 18 to June 30)..................... $28 1/4 $ 17
Third Quarter (through August 27)........................ $ 37 $25 1/2
</TABLE>
The last reported sales price of the Common Stock on August 27, 1997 was $34
7/8 per share. As of June 30, 1997, there were approximately 133 holders of
record of the Common Stock.
15
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of June 30, 1997. The table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements included elsewhere in
this Prospectus. The Company will not receive any of the proceeds from the
Offerings. See "Use of Proceeds".
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------
(dollars in thousands)
<S> <C> <C>
Cash.................................................... $ 8,497
=============
Notes payable and current portion of long-term debt..... $ 31,107
Long-term debt:
Restated Credit Agreement............................... 185,000
Essex Senior Notes...................................... 200,000
Essex Sale and Leaseback Agreement...................... 20,000
-------------
405,000
Less: current portion................................. 2,500
-------------
Total long-term debt.................................... 402,500
Stockholders' equity:
Common Stock, par value $0.01 per share; 150,000,000
shares authorized, 29,027,762 shares issued and
outstanding (a)....................................... 290
Additional paid-in capital............................. 199,160
Carryover of predecessor basis (b)..................... (15,259)
Retained earnings...................................... 64,432
-------------
Total stockholders' equity.............................. 248,623
-------------
Total capitalization.................................. $ 682,230
=============
</TABLE>
- --------
(a) Excludes 2,987,421.5 shares of Common Stock reserved for issuance pursuant
to the exercise of options outstanding as of July 1, 1997, at a weighted
average exercise price of $5.35 per share, of which options to purchase
1,385,921.5 shares of Common Stock were then exercisable, and 392,306.5
shares of Common Stock issuable upon exercise of the Warrants, at an
exercise price of $5.72 per share, all of which Warrants may be sold to
the Underwriters pursuant to the Underwriters' over-allotment options. See
"Management-Stock--Option Plan".
(b) Reflects effect of Predecessor's cost basis carried forward from time of
Acquisition.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(in thousands, except share and per share data and copper prices)
The following table sets forth (i) selected combined historical consolidated
financial data of the Company as of and for the twelve months ended December
31, 1992 (which includes historical consolidated financial data of the Company
prior to the Acquisition ("Predecessor") for the nine-month period ended
September 30, 1992, and historical consolidated financial data of the Company
after the Acquisition for the three-month period ended December 31, 1992),
(ii) selected historical consolidated financial data of the Company as of and
for the years ended December 31, 1993, 1994, 1995 and 1996, and as of and for
the six months ended June 30, 1996 and 1997 and (iii) supplementary pro forma
financial data for the year ended December 31, 1996 and the six months ended
June 30, 1996 and 1997 reflecting the IPO. Combined selected consolidated
financial data presented below as of and for the 12-month period ended
December 31, 1992 and the year ended December 31, 1993 were derived from
audited consolidated financial statements of the Company and Predecessor not
included in this Prospectus. The selected consolidated financial data
presented below as of December 31, 1995 and 1996 and for the years ended
December 31, 1994, 1995 and 1996 were derived from the Consolidated Financial
Statements of the Company included elsewhere in this Prospectus. The selected
consolidated financial data presented below for the six months ended June 30,
1996 and 1997 and as of June 30, 1997 have been derived from unaudited
consolidated financial statements of the Company included elsewhere herein.
The selected consolidated financial data presented below as of June 30, 1996
were derived from unaudited consolidated financial statements of the Company
not included in this Prospectus. The selected consolidated financial data
presented below as of and for the six months ended June 30, 1996 and 1997
reflect all adjustments, consisting only of adjustments of a normal recurring
nature, that are, in the opinion of the Company's management, necessary to
present fairly the consolidated financial position of the Company as of June
30, 1996 and 1997, and the consolidated results of operations for the six
months ended June 30, 1996 and 1997. Results of operations for the interim
periods presented are not necessarily indicative of results to be expected for
the entire year. This data should be read in conjunction with
"Capitalization", "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements included
elsewhere herein.
17
<PAGE>
<TABLE>
<CAPTION>
COMBINED(a)
-------------
SIX MONTHS
TWELVE MONTHS ENDED
ENDED YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, -------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
------------- -------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $909,351 $868,846 $1,010,075 $1,201,650 $1,332,049 $ 645,943 $ 864,109
Cost of goods sold...... 780,148 745,875 846,611 1,030,511 1,102,460 543,293 696,528
Selling and
administrative
expense................ 80,590 75,748 85,209 93,401 121,054 57,537 75,411
Other (income) expense,
net (b)................ (305) (196) 1,114 1,032 2,045 (197) (74)
Unusual items (c)....... 18,139 -- -- -- -- -- --
-------- -------- ---------- ---------- ---------- ---------- ----------
Income from operations.. 30,779 47,419 77,141 76,706 106,490 45,310 92,244
Interest expense........ 50,645 56,723 60,155 49,055 39,994 20,324 21,274
-------- -------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes and
extraordinary charge... (19,866) (9,304) 16,986 27,651 66,496 24,986 70,970
Provision (benefit) for
income taxes........... (4,022) 1,552 9,500 14,380 28,988 11,000 28,300
-------- -------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
extraordinary charge... (15,844) (10,856) 7,486 13,271 37,508 13,986 42,670
Extraordinary charge net
of income tax benefit
(d).................... 122 3,367 -- 2,971 1,183 -- --
-------- -------- ---------- ---------- ---------- ---------- ----------
Net income (loss)....... $(15,966) (14,223) 7,486 10,300 36,325 13,986 42,670
Preferred stock
redemption premium..... -- -- -- (4,185) -- --
Preferred stock dividend
requirement............ (5,186) (6,008) (6,962) (4,248) (3,885) --
Accretion of preferred
stock.................. (671) (687) (703) (2,024) (358) --
Increase in fair value
of common stock subject
to put................. -- -- -- (3,547) -- --
-------- ---------- ---------- ---------- ---------- ----------
Net income (loss)
applicable to common
stock.................. $(20,080) $ 791 $ 2,635 $ 22,321 $ 9,743 $ 42,670
======== ========== ========== ========== ========== ==========
Pro forma income per
share (e):
Pro forma income before
extraordinary charge.. $ 1.34 $ .50 $ 1.46
Extraordinary charge
net of income tax
benefit............... .04 -- --
---------- ---------- ----------
Pro forma net income... $ 1.30 $ .50 $ 1.46
========== ========== ==========
Shares used in computing
pro forma net income
per share.............. 28,082,432 28,083,083 29,325,037
========== ========== ==========
Supplementary pro forma
income before
extraordinary charge
(f).................... $ 40,425 $ 15,675 $ 44,014
========== ========== ==========
Supplementary pro forma
income per share before
extraordinary charge
(e).................... $ 1.30 $ 0.50 $ 1.42
========== ========== ==========
Shares used in computing
supplementary pro forma
income before
extraordinary charge
(f).................... 31,082,432 31,083,083 31,128,264
========== ========== ==========
BALANCE SHEET DATA:
Working capital......... $133,048 $176,001 $ 221,480 $ 171,166 $ 231,707 $ 221,385 $ 304,600
Total assets............ 716,196 712,051 750,930 746,063 842,755 780,541 895,716
Long-term debt (includ-
ing current portion)
(g).................... 420,052 428,942 458,960 412,750 432,916 430,804 405,000
Redeemable preferred
stock.................. 28,603 34,460 41,155 48,820 -- -- --
Stockholders' equity
(g).................... 78,499 59,667 60,828 64,300 146,090 74,131 248,623
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
COMBINED(a) YEAR ENDED DECEMBER 31, JUNE 30,
------------- -------------------------------------- -----------------
TWELVE MONTHS
ENDED
DECEMBER 31,
1992 1993 1994 1995 1996 1996 1997
------------- ------- -------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA (h).............. $ 74,388 $77,028 $108,314 $110,502 $ 140,224 $62,204 $108,841
Capital expenditures.... $ 31,180 $26,167 $ 30,109 $ 28,555 $ 25,569 9,342 14,156
Copper equivalent pounds
shipped (i)............ 492,350 517,607 553,220 551,447 643,800 304,737 397,731
Average COMEX copper
price per pound........ $ 1.03 $ 0.85 $ 1.07 $ 1.35 $ 1.06 $ 1.17 $ 1.13
Net cash provided by
(used for) operating
activities............. 31,326 60,616 41,672 89,754 64,581 (12,614) 440
Net cash used for in-
vesting activities
(j).................... (152,010) (30,785) (30,118) (50,466) (104,716) (16,998) (11,858)
Net cash provided by
(used for)
financing activities
(g)(k)................. 132,662 (28,569) (5,120) (53,031) 41,369 26,417 15,486
</TABLE>
- --------
(a) Represents a combination of the Company's three months ended December 31,
1992 and Predecessor's nine months ended September 30, 1992. Such combined
results are not necessarily indicative of the results for the full year,
due to the effects of the Acquisition and related refinancings and the
concurrent adoption of Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes". Financial data of the Company as of October
1, 1992, and thereafter reflect the Acquisition using the purchase method
of accounting, and, accordingly, the purchase price was allocated to
assets and liabilities based upon their estimated fair values. However, to
the extent that the Company's management had a continuing investment
interest in the Company's common stock, such fair values (and contributed
stockholders' equity) were reduced proportionately to reflect the
continuing interest (approximately 10%) at the prior historical cost
basis.
(b) Includes interest income of $186, $269, $247, $409 and $210 for 1992,
1993, 1994, 1995 and 1996, respectively. Also includes interest income of
$48 and $102 for the six months ended June 30, 1996 and 1997,
respectively. Also includes write-offs related to fixed asset disposals
occurring in the normal course of business.
(c) In connection with the Acquisition, Predecessor recorded certain merger-
related expenses of $18,139, consisting primarily of bonus and option
payments to certain employees and certain merger fees and expenses that
were charged to Predecessor's operations in the nine months ended
September 30, 1992.
(d) During 1992, the Company repurchased outstanding indebtedness of Essex
resulting in an extraordinary charge of $122, net of applicable income tax
benefit. During 1993, the Company recognized extraordinary charges of
$3,055, net of applicable tax benefit, representing the write-off of
unamortized debt issuance costs associated with the termination of the
Company's term credit facility under its former credit agreement, and
$312, net of applicable tax benefit, representing the net loss resulting
from the redemption of indebtedness of Essex. During 1995 and 1996, the
Company recognized extraordinary charges of $2,971 and $1,183,
respectively, net of applicable tax benefit, representing the write-offs
of unamortized debt issuance cost associated with the termination of the
Company's former credit agreements.
(e) See Note 1 to the Consolidated Financial Statements.
(f) Adjustments to net income before extraordinary charge used in the
calculation of supplementary pro forma net income before extraordinary
charge per common share for the year ended December 31, 1996 and the six
months ended June 30, 1996 and 1997 are as follows: (i) $1,782, $1,027,
and $796, respectively net of tax, representing reduced interest expense
due to the assumed repayment of a portion of the Essex Term Loan and the
Essex Revolving Credit Agreement from the net proceeds of the IPO; (ii)
$716, $348 and $131, respectively, net of tax, representing reduced
interest expense on the indebtedness under the Essex Revolving Credit
Agreement due to lower interest rates under the Restated Credit Agreement
and; (iii) $419, $314 and $417, respectively, net of tax, representing the
elimination of 1996 deferred financing expense associated with the Essex
Term Loan. The change in shares used to compute supplementary pro forma
income per share is attributable to the 3,000,000 shares of Common Stock
sold by the Company in the IPO.
(g) On May 1, 1997, the Company completed its IPO. The net proceeds to the
Company, after underwriting commissions and other associated expenses,
were approximately $46,022, of which $29,497 was used to repay the Essex
Term Loan and the remaining proceeds were applied to repay a portion of
the indebtedness under the Essex Revolving Credit Agreement.
(h) EBITDA is defined as earnings before net interest, income taxes,
depreciation and amortization. In 1992, EBITDA also includes an add-back
of $18,139 for unusual items. See note (c) above. EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to incur and service debt. However, EBITDA should not be considered in
isolation or as a substitute for net income or cash flow data prepared in
accordance with generally accepted accounting principles or as a measure
of a company's profitability or liquidity. Also, the EBITDA definition
used herein may not be comparable to similarly titled measures reported by
other companies.
(i) Copper equivalent pounds include aluminum pounds which have been converted
to a copper pound basis.
(j) Includes the costs associated with the BICC Canada and Triangle
acquisitions of approximately $7,631 and $71,764, respectively, in 1996,
and the acquisition of Brownell in 1995 at a total cost of $24,934.
(k) Includes the redemption of the Company's Senior Discount Debentures due
2004 in 1995 at a total cost of $272,850.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company, founded in 1930, is a leading developer, manufacturer and
marketer of electrical wire and cable products. Among the Company's products
are magnet wire for electromechanical devices such as motors, transformers and
electrical controls; building wire for commercial and residential
applications; copper voice and data communication wire; automotive wire and
specialty wiring assemblies for automobiles and trucks; and industrial wire
for applications in appliances, construction and recreational vehicles. The
Company's operations at June 30, 1997 included 28 domestic manufacturing
facilities and employed approximately 5,000 persons.
As a result of the flexibility allowed by the 1995 Refinancing, the Company
embarked upon an opportunistic acquisition strategy. As a result of several
recent acquisitions, the Company has consolidated its market position in its
core products. The acquisition of certain assets of Avnet Inc.'s distribution
operation in 1995 (the "Brownell Acquisition") considerably strengthened the
Company's distribution business, particularly with respect to value-added
magnet wire products supplied to smaller customers. The acquisition of the
building wire assets of BICC Canada in 1996 expanded the Company's presence in
the Canadian building wire market. The acquisition of certain assets of
Triangle (the "Triangle Acquisition") in October 1996 has significantly
expanded the Company's building wire and industrial wire business units. The
Triangle Acquisition has strengthened both the building wire and industrial
wire business, and thus the product mix of the Company has shifted somewhat
toward those two units. The impact of sales and net income from those business
units is thus expected to have a proportionately greater effect on the Company
in the future than in the past.
On May 1, 1997, the Company completed its IPO of 6,546,700 shares of Common
Stock, including 3,546,700 shares sold by certain stockholders. The net
proceeds to the Company, after underwriting commissions and other associated
expenses, were approximately $46.0 million, of which $29.5 million was used to
repay the Essex Term Loan and the remaining proceeds were applied to the Essex
Revolving Credit Agreement.
Although net sales are heavily influenced by the price of copper, the
Company's major raw material, the Company's profitability is generally not
significantly affected by changes in copper prices, because the Company
generally has been able to pass on its cost of copper to its customers, and
the Company attempts to match its copper purchases with its production
requirements, thereby minimizing copper cathode and rod inventories. In the
short term, however, pronounced changes in the price of copper may tend to
affect gross profits within the building wire product line, because such
changes affect cost of goods sold more quickly than those changes can be
reflected in the pricing of building wire products. See "Business--Metals
Operations".
The Company believes that it is only affected by inflation to the extent
that the economy in general is affected. Should inflationary pressures drive
costs higher, the Company believes that general industry price increases would
sustain operating results, although there can be no assurance that this will
be the case. In addition, the Company believes that its sensitivity to
downturns in its primary markets is less significant than it might otherwise
be due to its diverse customer base, broad product line and its strategy of
attempting to match its copper purchases with its needs.
20
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for each of the three years in the period
ended December 31, 1996, and for the six months ended June 30, 1996 and 1997,
the dollar amounts and percentages of sales of each of the Company's major
product lines:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------------------------- ----------------------
1994(A) 1995(A) 1996 1996 1997
------------ ------------ ------------ ---------- ----------
(DOLLARS IN MILLIONS, EXCEPT FOR COPPER PRICE)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Magnet wire............. $ 306.9 30% $ 388.2 32% $ 388.8 29% $197.7 31% $215.1 25%
Building wire........... 390.0 39 406.1 34 487.1 37 214.6 33 385.8 45
Communication wire...... 119.3 12 177.5 15 166.8 13 85.6 13 89.3 10
Automotive wire......... 82.8 8 97.3 8 91.2 7 49.1 8 46.0 5
Industrial wire......... 63.1 6 63.4 5 71.0 5 31.5 5 65.0 8
Other(b)................ 48.0 5 69.2 6 127.1 9 67.4 10 62.9 7
-------- --- -------- --- -------- --- ------ --- ------ ---
Total................. $1,010.1 100% $1,201.7 100% $1,332.0 100% $645.9 100% $864.1 100%
======== === ======== === ======== === ====== === ====== ===
Average COMEX copper
price per pound........ $ 1.07 $ 1.35 $ 1.06 $ 1.17 $ 1.13
</TABLE>
- --------
(a) Due to a reorganization in the third quarter of 1995, certain 1994 and
1995 product line sales have been reclassified.
(b) Includes sales of third-party manufactured products, including electrical
insulating products, electric motors, motor repair parts and pump seals,
sold through the Company's distribution business unit.
The following table sets forth for each of the three years in the period
ended December 31, 1996, and for the six months ended June 30, 1996 and 1997,
the percentage relationship of net sales to certain income statement items:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------- -----------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales.............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold..................... 83.8 85.8 82.8 84.1 80.6
Selling and administrative expense..... 8.4 7.8 9.1 8.9 8.7
Other expense, net..................... 0.1 0.1 0.1 -- --
----- ----- ----- ----- -----
Income from operations................. 7.7 6.3 8.0 7.0 10.7
Interest expense....................... 6.0 4.0 3.0 3.1 2.5
----- ----- ----- ----- -----
Income before income taxes and
extraordinary charge.................. 1.7 2.3 5.0 3.9 8.2
Provision for income taxes............. 1.0 1.2 2.2 1.7 3.3
----- ----- ----- ----- -----
Income before extraordinary charge..... 0.7 1.1 2.8 2.2 4.9
Extraordinary charge-debt retirement,
net of income tax benefit............. -- 0.2 0.1 -- --
----- ----- ----- ----- -----
Net income............................. 0.7% 0.9% 2.7% 2.2% 4.9%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997, COMPARED WITH THE SIX MONTHS ENDED JUNE 30,
1996
Net sales of the first six months of 1997 were $864.1 million or 33.8%
higher than the comparable period in 1996, due to improved sales volume,
primarily attributable to Triangle, and improved product pricing partially
offset by lower copper prices, the Company's principal raw material. During
the first half of 1997, the average price per pound of COMEX copper was $1.13
versus $1.17 for the
21
<PAGE>
comparable period in 1996, a 3.4% decline. Copper costs are generally passed
on to customers through product pricing. First half 1997 sales volume was at
record levels and exceeded the first half of 1996 by 30.5%. The Company's
operating margin improved significantly during the first six months of 1997 to
10.7% from the first six months of 1996 where operating margin was 7.0%. This
improvement was due primarily to a significant improvement in building wire
product pricing, certain lower manufacturing costs resulting from continued
capital improvement programs and further cost reductions and economies of
scale derived from the acquired Triangle operations as well as internal
growth.
Sales of magnet wire during the first six months of 1997 improved from the
comparable 1996 period due primarily to higher sales volume partially offset
by lower copper prices. Sales volume improvements were primarily attributable
to greater magnet wire consumption for devices containing electric motors in
the home and motor vehicles, along with increased consumer and governmental
pressure for higher energy efficiency from these devices. Higher energy
efficiency requires materially more magnet wire. The additional sales volume
coupled with lower production costs provided improved magnet wire operating
margins during the first half of 1997 as compared to the first half of 1996.
Building wire sales for the first six months of 1997 increased 79.8% as
compared to the same period in 1996 due primarily to improved sales volume and
product pricing (without regard to copper costs) partially offset by a decline
in copper prices. A substantial portion of the increased sales volume was
attributable to Triangle while the remaining improvement was the result of
increased demand within the served markets. Building wire demand has exhibited
continued strength during the first half of 1997 resulting from an increase in
non-residential construction and the replacement and upgrade segment of the
market. Building wire operating margins during the first half of 1997 improved
significantly over the comparable period in 1996 due to the above-mentioned
strength of product demand, as well as reduced costs and improved productivity
as a result of Triangle.
Communication wire sales for the first six months of 1997 were above the
comparable period in 1996 due to higher OSP and high bandwidth data
communication wire sales partially offset by reduced copper prices. OSP sales
volume for the first six months of 1997 approximated the comparable period in
1996 although the Company has experienced a recent surge in demand that the
Company believes is attributable to improved business conditions within this
segment of the copper communication cable market. First half 1997 high
bandwidth data communication wire sales increased 11.6% with volume 18.8%
higher as compared to the same period in 1996, reflecting increased product
demand for expanding markets such as LANs, Internet connectivity and other
premise applications. First half 1997 communication wire operating margins
declined from the comparable period in 1996 due to the completion in 1996 of
certain supply contracts that were not repeated in 1997, coupled with
competitive pricing pressure in high end data communication wire.
Automotive wire sales in the first six months of 1997 were below those in
the comparable period in 1996 due primarily to reduced copper prices.
Operating margins improved due to reduced overhead expenses. Although the
Company believes North American automotive and light truck production for 1997
will approximate 1996 levels, it expects growth in sales of its automotive
wire for the remainder of 1997, resulting from several contracts with both new
and existing customers.
Industrial wire sales in the first half of 1997 were more than double those
in the comparable period in 1996 due to an increase in sales volume partially
offset by the decline in copper prices. The increase in sales volume was
primarily due to incremental sales attributable to Triangle. Industrial wire
operating margins for the first half of 1997 improved from the comparable
period in 1996 due to higher sales volume partially offset by incremental
selling and administrative costs associated with Triangle.
Other sales in the first six months of 1997 decreased from the comparable
period in 1996. Distribution business unit sales of third-party manufactured
products, primarily within the motor repair
22
<PAGE>
segment, decreased primarily due to unusually mild seasonal weather conditions
that have necessitated fewer repairs for motors, transformers and pumps.
Cost of goods sold for the first six months of 1997 was 28.2% higher than
the same period in 1996 due primarily to higher sales volume partially offset
by lower copper prices. The Company's cost of goods sold as a percentage of
net sales was 84.1% and 80.6% in the first six months of 1996 and 1997,
respectively. The cost of goods sold percentage decrease resulted primarily
from the impact of improved building wire product pricing as well as certain
lower manufacturing costs attributable to continued capital investments. Also,
the operations of Triangle have been integrated rapidly and effectively, and
have driven substantial improvements in productivity.
Selling and administrative expenses for the first half of 1997 were 31.1%
above the comparable 1996 period due primarily to incremental commission,
selling and warehouse expenses associated with Triangle. However, selling and
administrative expenses, as a percentage of sales, were 8.7% in the first half
of 1997, compared to 8.9% for the same period in 1996, reflecting the
elimination of certain other Triangle general and administrative expenses and
economies of scale benefits resulting from the acquired Triangle operations as
well as internal growth.
Interest expense in the first six months of 1997 was 4.7% higher than the
same period in 1996, as incremental borrowing costs to finance the Triangle
Acquisition were partially offset through reduced debt levels attributable to
the proceeds received from the IPO and lower rates of interest on the
Company's outstanding debt.
Income tax expense was 39.9% of pretax income in the first half of 1997,
compared with 44.0% for the same period in 1996 due to the increase in pretax
income reducing the impact of the amortization of excess cost over net assets
acquired, which is not deductible for income tax purposes.
1996 COMPARED WITH 1995
Net sales for 1996 were $1,332.0 million, or 10.8% greater than in 1995,
resulting primarily from improved sales volumes and increased sales
attributable to the Brownell Acquisition in September 1995 and the Triangle
Acquisition in October 1996, partially offset by lower copper prices. The 1996
daily average COMEX copper price was 21.5% lower than in 1995. Sales volumes
for 1996 exceeded 1995 by 16.9%. Improved sales volumes resulted primarily
from increased demand for the Company's magnet wire, building wire and
industrial wire products.
Sales of magnet wire in 1996 were essentially equal to those in 1995,
reflecting increased sales volumes offset by declining copper prices. Improved
sales volumes were attributable to increased demand for magnet wire in the
electric motor and transformer markets due in part to the increased use of
magnet wire for increased energy efficiency. Sales increases were also a
result of increased sales to distributors.
Building wire sales for 1996 increased as compared to 1995 due primarily to
an increase in sales volumes, product pricing (without regard to copper costs)
and incremental sales attributable to the Triangle Acquisition, partially
offset by a decline in copper prices. Building wire market demand exhibited
continued growth during 1996 on the strength of new non-residential
construction and sustained expansion of the repair and remodeling segment of
the market. The Company believes that this growth in demand was the leading
cause for the improvement in market prices during the second half of 1996 over
the depressed market conditions of 1995 and the first half of 1996. No
assurance, however, can be given that such favorable market conditions will
continue in 1997.
Communication wire sales for 1996 were below those in 1995 due to the
decrease in copper prices, partially offset by increased sales of high
bandwidth data communication wire products. High
23
<PAGE>
bandwidth data communication wire sales were up 21.2% with volume up 31.5% as
compared to 1995, reflecting continued strong growth in this segment of the
communication wire market. OSP sales volumes were 8.6% lower than 1995,
reflecting, in part, a decline in export sales, as the Company focused on
strong domestic markets. The Company believes that decreases in the domestic
OSP copper wire market may lead to reduced margins in the communications wire
business unit in the future.
Automotive wire sales in 1996 were below those in 1995 due to the decrease
in copper prices, partially offset by improved sales volumes as North American
new car and light truck sales volume increased just over 1% in 1996.
Industrial wire sales in 1996 were above those in 1995 by 12.0% due to an
increase in sales volume, partially offset by the decline in copper prices.
The increase in sales volume was partially due to incremental sales
attributable to the Triangle Acquisition. Other sales in 1996 increased
significantly over 1995 due to the effect of inclusion of full-year sales from
the Brownell Acquisition.
Cost of goods sold for 1996 was 7.0% higher than in 1995 due primarily to
higher sales volumes and increased sales attributable to the Brownell
Acquisition and the Triangle Acquisition, partially offset by lower copper
prices. The Company's cost of goods sold as a percentage of net sales was
82.8% and 85.8% in 1996 and 1995, respectively. Cost of goods sold as a
percentage of net sales decreased compared to 1995 due primarily to the marked
decline in copper costs, improved building wire product pricing (without
regard to copper costs), a change in product mix associated with the Brownell
Acquisition, which tends to distribute more value-added products, and higher
manufacturing volumes, leading to increased manufacturing efficiency.
Selling and administrative expenses for 1996 were 29.6% above 1995, due
primarily to increased selling, distribution and administrative expenses
attributable to the Brownell Acquisition, the Triangle Acquisition and
increased distribution and commission expenses due to higher sales volumes
experienced during 1996.
Interest expense in 1996 was 18.5% lower than in 1995 due primarily to the
redemption (the "Debenture Redemption") on May 15, 1995 of all Essex
International's outstanding Senior Discount Debentures due 2004 (the
"Debentures"). The Debentures, which bore interest at 16% per annum, were
refinanced primarily with bank debt carrying significantly lower rates of
interest. See "--Liquidity, Capital Resources and Financial Condition". The
Company's average interest rate decreased from 10.4% in 1995 to 8.6% in 1996
due to the Debenture Redemption.
Income tax expense was 43.6% of pretax income in 1996 compared with 52.0%
for 1995. The effective income tax rate of the Company was higher than the
approximate statutory rate of 40.0% due to the effect of the amortization of
excess of cost over net assets acquired in the Acquisition, which is not
deductible for income tax purposes.
The Company recorded net income of $36.3 million for 1996 compared to net
income of $10.3 million in 1995. The 1996 and 1995 results include
extraordinary charges of $1.2 million and $3.0 million, respectively ($2.0
million and $5.0 million, respectively, before applicable tax benefit), for
the write-off of unamortized deferred debt expense associated with the
Company's former revolving credit agreements. In 1996, a former revolving
credit agreement was terminated in connection with the Triangle Acquisition.
In 1995, a former revolving credit agreement was terminated in connection with
the Debenture Redemption.
1995 COMPARED WITH 1994
Net sales for 1995 were $1,201.7 million, or 19.0% higher than 1994,
reflecting primarily a marked increase in product prices and higher sales from
the Company's distribution business due to the Brownell Acquisition. Sales
volumes in 1995 approximated those experienced in 1994. Higher product
24
<PAGE>
prices were essentially the result of a significant increase in copper costs.
Average COMEX copper prices in 1995 rose approximately 26.2% from 1994 and,
notwithstanding the magnitude of the price increase, was generally passed on
to customers through product pricing.
Sales of magnet wire increased approximately 26.5% over those in 1994,
driven by higher copper prices, improved pricing and growth in sales volumes.
Magnet wire sales volumes and product pricing improved during 1995 due to
increased demand for the Company's magnet wire products by distributors and
original equipment manufacturers.
Building wire sales in 1995 increased approximately 4.1% over 1994,
reflecting a combination of higher copper prices, lower sales volumes and a
steep decline in product pricing. Building wire product pricing (without
regard to copper costs) declined materially, and sales volumes also declined,
although to a lesser extent, due to competitive pricing pressures, excess
capacity and liquidation of inventories by distributors as a result of the
significant increase in copper prices in 1995.
Communication wire sales in 1995 improved approximately 48.8% over those in
1994 due to higher copper prices and domestic sales volumes and strengthening
product prices. High bandwidth data communication wire sales were up 54.1%
with volumes 42.6% higher as compared to 1994 while OSP sales were up 66% with
volume up 11.6%. Export sales were essentially flat between 1995 and 1994. The
Company believes that communication wire pricing strengthened due to
significantly higher demand for copper communication wire products coupled
with a decline in industry manufacturing capacity.
The Company's automotive wire sales volume in 1995 was up over 1994 by
approximately 8.2%, although North American new car and light truck sales
volume increased just over 2% in 1995. This improvement in sales volume was
the result of a marked increase in sales to other automotive accounts and, to
a lesser degree, improved sales to the Company's principal automotive wire
customer. See "Business--Product Lines--Automotive Wire". Other sales
increased approximately 44.2%, attributable to the Brownell Acquisition.
Cost of goods sold increased 21.7% in 1995 compared with 1994 due primarily
to increased copper and other material costs and increased distribution costs
attributable to the Brownell Acquisition. The Company's cost of goods sold as
a percentage of net sales was 85.8% and 83.8% in 1995 and 1994, respectively.
Cost of goods sold as a percentage of net sales in 1995 was higher compared to
1994 due primarily to substantially higher copper prices and declining
building wire product pricing, partially offset by lower manufacturing costs
resulting from continued capital investments and higher manufacturing volumes
in the communication and automotive business units.
Selling and administrative expenses in 1995 were 9.6% higher than 1994 due
primarily to increased overhead expenses attributable to the Brownell
Acquisition in the amount of approximately $5.1 million and to increased sales
commissions associated with higher sales.
Interest expense in 1995 was 18.5% lower than in 1994 due primarily to the
Redemption. The Company's average interest rate decreased from 12.6% in 1994
to 10.4% in 1995 due to the Redemption.
Income tax expense was 52.0% and 55.9% of pretax income in 1995 and 1994,
respectively. The effective income tax rate of the Company was higher than the
approximate statutory rate of 40.0% due to the effect of the amortization of
excess of cost over net assets acquired in the Acquisition, which is not
deductible for income tax purposes.
The Company recorded net income of $10.3 and $7.5 million in 1995 and 1994,
respectively. The 1995 results include an extraordinary charge of $3.0 million
($5.0 million before applicable tax benefit) for the write-off of unamortized
debt issuance costs associated with the Company's former credit agreement
which was terminated in connection with the Redemption.
25
<PAGE>
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
GENERAL
Essex International is a holding company with no operations and virtually no
assets other than its ownership of all the outstanding common stock of Essex.
All such stock is pledged, however, to the lenders under the Restated Credit
Agreement. Accordingly, Essex International's ability to meet its cash
obligations is dependent on Essex' ability to pay dividends, to loan, or to
otherwise advance or transfer funds to Essex International in amounts
sufficient to service Essex International's cash obligations.
Essex International expects that it may receive certain cash payments from
Essex from time to time to the extent cash is available and to the extent it
is permitted under the terms of the Restated Credit Agreement and the Senior
Note Indenture. Such payments may include: (i) an amount necessary under the
tax sharing agreement between Essex and Essex International to enable Essex
International to pay Essex' taxes as if computed on an unconsolidated basis;
(ii) an annual management fee to an affiliate of BHLP of up to $1.0 million;
and (iii) certain other amounts to meet ongoing expenses of Essex
International (such amounts are considered to be immaterial both individually
and in the aggregate, however, because Essex International has no operations,
other than those conducted through Essex, or employees thereof). To the extent
Essex makes any such payments, it will do so out of operating cash flow,
borrowings under the Restated Credit Agreement or other sources of funds it
may obtain in the future subject to the terms of the Restated Credit Agreement
and the Essex Senior Note Indenture.
As of June 30, 1997, the Company's aggregate notes payable to banks plus
long-term debt was $433.6 million, and its stockholders' equity was $248.6
million. The resulting ratio of debt to stockholders' equity improved to 1.7
to 1 at June 30, 1997, from 2.9 to 1 at December 31, 1996. As of June 30,
1997, the Company was in compliance with all covenants under the agreements
governing its outstanding indebtedness.
CREDIT FACILITIES AND LINES OF CREDIT
The Company maintains the following credit facilities: (i) a $370.0 million
revolving credit agreement dated as of October 31, 1996, by and among Essex,
Essex International, the Lenders named therein, and The Chase Manhattan Bank,
as administrative agent (the "Essex Revolving Credit Agreement") that was
amended and restated (the "Restated Credit Agreement") effective April 23,
1997; (ii) a $25.0 million agreement and lease, dated as of April 12, 1995, by
and between Essex and Mellon Financial Services Corporation #3 (the "Essex
Sale and Leaseback Agreement"); (iii) a $12.0 million (Canadian dollar) credit
agreement by and between a subsidiary of Essex, and the Bank of Montreal (the
"Canadian Credit Agreement"); and (iv) bank lines of credit with various
lending banks that provide for unsecured borrowings for working capital of up
to $40.0 million.
The Restated Credit Agreement provides for up to $370.0 million in revolving
loans, subject to specified percentages of eligible assets and reduced by
borrowings under the Canadian Credit Agreement and unsecured bank lines of
credit ($7.6 million and $21.0 million outstanding, at June 30, 1997,
respectively). The Restated Credit Agreement also provides a $25.0 million
letter of credit subfacility. The Restated Credit Agreement will terminate on
October 31, 2001. Outstanding borrowings under the Restated Credit Agreement
bear floating rates of interest, at the Company's option, at bank prime plus
0.50% or a reserve adjusted Eurodollar rate ("LIBOR") plus 1.50%. The spreads
over the prime and LIBOR rates can be reduced to 0% and 0.375%, respectively,
if a certain specified leverage ratio is achieved. Based upon the specified
leverage ratio at June 30, 1997, the Company's floating rate of interest for
borrowings under the Restated Credit Agreement is LIBOR plus 0.5%. As of June
30, 1997, the Company had $109.4 million of undrawn capacity based upon a
borrowing base of $323.0 million, reduced by outstanding borrowings under (i)
the Restated Credit Agreement ($185.0 million), (ii) unsecured bank lines of
credit ($21.0 million) and (iii) the Canadian Credit Agreement ($7.6 million).
During the first six months of 1997 average borrowings under the
26
<PAGE>
Company's revolving credit facilities were $204.0 million compared to $165.8
million during the first six months of 1996.
The Essex Sale and Leaseback Agreement provided $25.0 million for the sale
and leaseback of certain of the Company's fixed assets. The lease obligation
has a seven-year term expiring in May 2002. The principal component of the
rental is paid quarterly, with the amount of each of the first 27 payments
equal to 2.5% of lessor's cost of the equipment, and the balance due at the
final payment. The interest component is paid on the unpaid principal balance
and is calculated by lessor at LIBOR plus 2.5%. The effective interest rate
can be reduced by 0.25% to 1.125% if certain specified financial conditions
are achieved.
As of June 30, 1997, $7.6 million (US dollars) was outstanding under the
Canadian Credit Agreement and denoted as notes payable to banks in the
Company's financial statements. Borrowings are secured by such subsidiary's
accounts receivable. Interest rates for borrowings under the Canadian Credit
Agreement are based upon Canadian market rates for banker's acceptances with
spreads similar to the Restated Credit Agreement. The Canadian Credit
Agreement terminates on May 30, 1998, although it may be extended for
successive one-year periods upon the mutual consent of the subsidiary and the
Bank of Montreal.
The Company had $21.0 million outstanding of unsecured bank lines of credit
as of June 30, 1997. Such amount is denoted as notes payable to banks in the
Company's Consolidated Balance Sheets. These lines of credit bear interest at
rates subject to agreement between the Company and the lending banks.
CASH FLOW AND WORKING CAPITAL
In general, the Company requires liquidity for working capital, capital
expenditures, debt repayments, interest and taxes. Of particular significance
to the Company are its working capital requirements that increase whenever it
experiences strong incremental demand in its business or a significant rise in
copper prices. Historically, the Company has satisfied its liquidity
requirements through a combination of funds generated from operating
activities together with funds available under its credit facilities. Based
upon historical experience and the availability of funds under its credit
facilities, the Company expects that its usual sources of liquidity will be
sufficient to enable it to meet its cash requirements for working capital,
capital expenditures, debt repayments, interest and taxes for the remainder of
1997.
Operating activities. Net cash provided by operating activities in the first
half of 1997 was $0.4 million, compared to $12.6 million used for operating
activities during the same period in 1996. The decrease in cash requirements
was primarily the result of higher net income partially offset by higher
accounts receivable and inventories associated with the Company's sales
growth. Net cash provided by operating activities in 1996 was $64.6 million,
compared to $89.8 million in 1995. The decrease in cash provided by operating
activities was primarily attributable to an increase in inventories to
accommodate higher sales volumes, net of the Triangle Acquisition, and slower
growth in accounts payable partially offset by a reduction in accounts
receivable attributable to a marked decline in copper prices.
Investing activities. Capital expenditures of $14.2 million in the first six
months of 1997 were $4.8 million more than the comparable period in 1996. In
1996, approximately $5.5 million was invested in magnet wire ovens to improve
quality and increase manufacturing productivity. Capital expenditures in 1997
are expected to be approximately 40% above 1996 levels of $25.6 million and
will be used for modernization projects to enhance efficiency, to support the
newly acquired Triangle facilities and equipment, and to expand capacity. At
June 30, 1997, approximately $10.5 million was committed to outside vendors
for capital expenditures. The Restated Credit Agreement imposes limitations on
capital expenditures, business acquisitions and investments. See "Description
of Certain Indebtedness--Restated Credit Agreement".
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The costs of the BICC Canada and Triangle acquisitions, approximately $7.6
million and $71.8 million, respectively, including related expenses, were
financed from proceeds received under the Company's revolving credit
agreements applicable at the time. Future cash requirements of these
operations are expected to be satisfied through the Company's traditional
sources of liquidity, as previously discussed.
Financing activities. On July 15, 1996, the Company redeemed all its
outstanding 15% Series B Cumulative Redeemable Exchangeable Preferred Stock
(the "Series B Preferred Stock") at $27.041 per share, or $59.3 million in the
aggregate, including related redemption expenses. This was financed by the
Company through a private offering of 5,930,000 shares of Common Stock to
certain of its common stockholders and their affiliates at $10 per share. In
December 1996, the private offering (the "1996 Private Offering") was extended
to certain management employees of the Company, who collectively purchased
437,708.5 shares of Common Stock at $10 per share. On May 1, 1997, the net
proceeds to the Company of the IPO, after underwriting commissions and other
associated expenses, were approximately $46.0 million, of which $29.5 million
was used to repay in full, the Essex Term Loan. The remaining proceeds were
applied to repay a portion of the indebtedness under the Essex Revolving
Credit Agreement.
LONG-TERM LIQUIDITY CONSIDERATIONS
Regarding long-term liquidity, the Essex Senior Notes (as defined in
"Description of Certain Indebtedness") mature in 2003 and at the option of the
Company may be redeemed commencing in May 1998, in whole or in part, at
redemption prices ranging from 103.75% of principal in 1998 to 100% in 2001.
The terms of the Essex Sale and Leaseback Agreement include a balloon payment
of $8.1 million in 2002. The Restated Credit Agreement does not require
repayment until its termination in October 2001. The Company expects that its
traditional sources of liquidity will enable it to meet its long-term cash
requirements for working capital, capital expenditures, interest and taxes, as
well as its debt repayment obligations under the Essex Sale and Leaseback
Agreement.
The Company's operations involve the use, disposal and cleanup of certain
substances regulated under environmental protection laws. The Company has
accrued $0.9 million for environmental remediation and restoration costs. The
accrual is based upon management's estimate of the Company's exposure in light
of relevant available information, including the allocations and remedies set
forth in applicable consent decrees, third-party estimates of remediation
costs, the estimated ability of other potentially responsible parties to pay
their proportionate share of remediation costs, the nature of each site and
the number of participating parties. Subject to the difficulty in estimating
future environmental costs, the Company expects that any sum it may have to
pay in connection with environmental matters in excess of the amounts recorded
or disclosed, if any, will not have a material adverse effect on its financial
position, results of operations or cash flows. See "Business--Legal and
Environmental Matters" for further discussion of the Company's environmental
liabilities.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company, to a limited extent, uses forward fixed price contracts and
derivative financial instruments to manage foreign currency exchange and
commodity price risks. To protect the Company's anticipated cash flows from
the risk of adverse foreign currency exchange fluctuations for firm sales and
purchase commitments, the Company enters into foreign currency forward
exchange contracts. Copper, the Company's principal raw material, experiences
marked fluctuations in market prices, thereby subjecting the Company to copper
price risk with respect to copper purchases on fixed customer sales contracts.
Derivative financial instruments in the form of copper futures and forward
contracts are utilized by the Company to reduce those risks. The Company does
not hold or issue financial instruments for investment or trading purposes.
The Company is exposed to credit risk in the event of nonperformance by
counterparties to foreign exchange forward contracts, metal forward price
contracts and metals futures contracts, but the Company does not anticipate
nonperformance by any of these counterparties. The amount of such exposure is
generally the unrealized gains, if any, with respect to the underlying
contracts.
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BUSINESS
The Company is a leading North American developer, manufacturer and
distributor of copper electrical wire and cable products. Founded in 1930, the
Company serves over 11,000 worldwide customers in a wide range of industrial
markets from its 28 manufacturing facilities and 38 service centers located
throughout the United States and Canada. Since 1993, the Company has
significantly strengthened its market positions through expanded sales efforts
and acquisitions and has improved its manufacturing capacity and production
efficiencies through capital expenditure and productivity improvement
programs. As a result of these efforts, from 1993 to 1996, the Company's net
sales volume grew at a CAGR of approximately 8%, generating $1.3 billion in
net sales in 1996, while its EBITDA grew at a CAGR of 22%, from $77 million in
1993 to $140 million in 1996, and its net income improved from a $14.2 million
loss in 1993 to a profit of $36.3 million in 1996. This growth has continued
in the first half of 1997 with EBITDA for the period of $108.8 million, up 75%
from the first half of 1996, while net income in the first half of 1997 was
$42.7 million, an increase of over 200% from the same period in 1996. (With
respect to EBITDA, see footnote (h) in "Selected Consolidated Financial and
Operating Data".)
The Company organizes its operating activities into the following principal
areas:
MAGNET WIRE PRODUCTS (25% of net sales for the six months ended June 30,
1997)--The Company's magnet wire products are used in a wide variety of
motors, coils, relays, generators, solenoids and transformers by the
electrical equipment and electronics industries. Annual industry data since
1991 has shown that the Company's magnet wire products have the highest
quality in the industry (as measured by customer returns). As a result of
significantly increasing its sales volumes of magnet wire products in recent
years while focusing on higher value-added products and controlling costs, the
gross margins of the Company's magnet wire business have increased
substantially.
BUILDING WIRE AND CABLE PRODUCTS (45% of net sales for the six months ended
June 30, 1997)--The Company produces a wide range of copper building wire and
related wire products for the commercial, industrial and residential markets.
These products are marketed primarily to electrical distributors throughout
the United States and Canada for ultimate use by electrical contractors and
"do-it-yourself" consumers. Approximately two-thirds of the Company's net
sales of these products is attributable to remodeling and repair activity and
the balance to new nonresidential and residential construction.
COMMUNICATIONS WIRE AND CABLE PRODUCTS (10% of net sales for the six months
ended June 30, 1997)--The Company's communications wire products consist of
OSP voice communication copper wire and cable products for the "local loop"
segment of the telecommunication system and high bandwidth data communication
copper wire and cable products for LANs, Internet connectivity and other
premise applications. Copper-based wire is the most widely used medium for
voice and data transmission in the local loop and in homes and offices, due in
part to its significant installed base, lower installation cost and ease of
repair.
OTHER PRODUCTS AND ACTIVITIES (20% of net sales for the six months ended
June 30, 1997)--The Company manufactures and markets a wide range of
industrial and automotive electrical wire products and maintains a
distribution business for the sale and distribution of its magnet wire and
related third-party-manufactured products. Industrial wire and cable products
(8% of net sales for the six months ended June 30, 1997) consist of appliance
wire, motor lead wire, submersible pump cable, power cable, flexible cord,
power supply cords, welding cable and recreational vehicle wire. The Company
produces automotive wire and cable products (5% of net sales for the six
months ended June 30, 1997) for sale to suppliers of automotive original
equipment. Such products include primary wire for use in engine and body
harnesses, ignition wire and battery cable. The Company's distribution
business provides a sales channel to both small manufacturers of original
equipment and motor repair shops for some of the Company's magnet wire
products, as well as third-party-manufactured products that complement the
Company's magnet wire products. During the first half of 1997, third-party
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products constituted 7% of net sales, while 19% of the Company's magnet wire
products were sold through this sales channel.
STRATEGY
The Company has established a strategy that is designed to exploit its
competitive strengths and position it to pursue opportunities for future
growth. The key tenets of this strategy are:
. CAPITALIZE ON SIZE AND SCOPE OF OPERATIONS--The Company believes that it
is one of the largest (based on net sales) electrical wire producers in
the United States and has one of the most diverse product lines. The
Company believes that the size and scope of its operations provide it with
efficiencies in manufacturing, purchasing and distribution and with the
resources necessary to meet the increasing technological demands of the
market. The Company intends to enhance these competitive advantages by
continuing to expand its operations through internal growth and
acquisitions. The electrical copper wire and cable industry in North
America has undergone significant consolidation in the past ten years as a
result of increased demand for product quality and lower cost products
that in turn has necessitated substantial capital spending and development
of sophisticated technical capabilities by market participants.
. ENHANCE STRONG MARKET POSITIONS--The Company is focusing on improving its
leading or significant market positions in North America for its major
product categories and capitalizing on the advantages of its size. The
Company believes that it is one of two leading producers in each of the
magnet wire and building wire market based on net sales. Recent
acquisitions in magnet wire distribution, building wire and industrial
wire have enhanced the Company's market positions in these businesses. The
Company intends to maintain and enhance its market positions through
internal growth and continued participation in future industry
consolidation.
. MAINTAIN LEADERSHIP IN QUALITY AND PRODUCTIVITY--The Company employs
advanced technologies in manufacturing processes and product development
and intends to continue investing in manufacturing equipment and
facilities, engineering, research and development, and to expand its
continuous improvement programs in order to maintain its leadership in
quality and productivity. The Company believes that its wire and cable
products, which have earned numerous customer quality awards, are among
the highest in quality in the industry. Since 1992, the Company has
invested approximately $154 million in capital programs and has expanded
its continuous improvement programs in order to improve the quality of its
products and increase the cost efficiency and capacity of its production
facilities. The Company also has lowered cost levels by pursuing a high
level of vertical integration through internal production of its principal
raw materials. In 1996, the Company produced over 85% of its copper rod,
magnet wire enamel and rubber insulation materials and 70% of its PVC
insulation requirements. As a result, the Company believes that it is
among the lowest cost domestic producers in each of its business lines. A
key productivity measure, annual copper equivalent pounds shipped per
employee, increased by 27% from 1991 to 1996.
. CAPITALIZE ON INDUSTRY GROWTH OPPORTUNITIES--The Company believes that,
as the consumer continues to adapt to technological advances in both the
home and the workplace, the technical specifications of the "smart" home
and office will generate increased demand for certain electrical wire and
cable products. The Company believes that it is well positioned to
capitalize on this growth due to its significant market positions, strong
name recognition and size. Growth in the magnet wire business is expected
to be driven by increasing demand for devices containing electric motors
in the home and in automobiles, along with continuing consumer and
government pressure for higher energy efficiency from these devices
(energy-efficient motors utilize materially more magnet wire per unit than
do their traditional counterparts). Growth in the building wire business
is expected to come primarily from increasing repair and remodeling
activity, as well as from new residential, commercial and industrial
construction. Both new construction and remodeling activity is being
affected by the increased number of circuits and
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<PAGE>
amperage handling capacity needed to support the increasing demand for
electrical services. The Company believes that its communications wire and
cable business will benefit from the increasing number of outside
telephone lines into and inside homes and offices and the increasing
quality demands placed on these lines to facilitate escalating data
transmission from the growing demand for high bandwidth data communication
wire for LANs, Internet connectivity and other premise applications. In
the automotive business, the Company believes that the increasing
production of cars and trucks with motorized or electrical options will
translate into increased demand for higher quality, thinner-gauge wire
products to take advantage of their lighter weights and greater
efficiency.
. PURSUE ACQUISITION OPPORTUNITIES--Consistent with its historical emphasis
on vertical integration, breadth of product line and technological
innovation, the Company continuously evaluates opportunities to benefit
further from its manufacturing, purchasing and distribution capabilities,
expand its customer base, reduce costs and enter new markets through
acquisitions, investments, joint ventures and other strategic alliances.
Since the 1995 Refinancing, which provided the Company with substantial
financial and operating flexibility, the Company has acquired three major
businesses: the distribution business of Brownell; the Canadian building
wire business of BICC Canada in March 1996; and the building and
industrial wire businesses of Triangle in October 1996. The Company
believes that each of these businesses provides operating synergy which
complements the Company's existing manufacturing, distribution and
administrative capabilities, and each has met or exceeded financial and
operating expectations since its respective acquisition date. In addition,
in May 1995, the Company entered into a joint venture in India with
Finolex Cable LTD for the development and production of copper rod and
other wire products for the domestic Indian market and recently
established a joint venture with Raychem Corp. for the production and sale
of high performance wire products for the automotive industry. The Company
is currently evaluating several acquisition opportunities consistent with
its business strategy, although it has not reached agreement with any
third parties at this time.
. EXPAND INTERNATIONAL BUSINESS--Historically, the Company's production and
distribution emphasis has focused on North America, primarily the U.S.
market. Management anticipates that while the Company will remain focused
on the U.S. market, it expects to increase efforts to expand its customer
base in Canada and Mexico, where the Company believes demand for
electrical wire and cable products will grow significantly over the next
few years. Management also expects to increase efforts to expand its
customer base in Europe and to establish a preliminary presence in certain
developing economies, particularly in locations that have been targeted by
the Company's customers for their own expansion.
MANAGEMENT AND COMPANY HISTORY
The Company's senior management team, including its business unit managers,
possesses a high level of experience in the wire and cable industry. The eight
most senior officers average 21 years of related industry experience, with an
average of over 17 years with the Company. The equity interest of management of
the Company (9.7% on a fully diluted basis) helps ensure that the interests of
management are aligned with those of the Company's other stockholders.
The Company was founded in 1930. From 1974 until February 1988 it was
operated as a wholly owned subsidiary of United Technologies Corporation
("UTC"). On February 29, 1988, the Company was purchased from UTC by The Morgan
Stanley Leveraged Equity Fund II, L.P., certain directors and members of
management of the Company and others (the "1988 Acquisition"). In October 1992,
the Company was acquired in the Acquisition by certain of its existing
stockholders. On May 1, 1997, the Company completed its IPO of 6,546,700 shares
of Common Stock, including 3,546,700 shares sold by certain stockholders. The
major existing stockholders of the Company and their current equity interests
on a fully diluted basis are BH Group (36.1%), management of the Company
(9.7%), certain
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affiliated investment limited partnerships of The Goldman Sachs Group, L.P.
(collectively, the "GS Partnerships") (6.7%), certain affiliates of Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJSC" and, together with such
affiliates, "DLJ") (2.0%) and Chase Equity Associates ("CEA") (3.5%). After
giving effect to the Offerings (assuming no exercise of the Underwriters'
over-allotment options), BH Group, management of the Company, the GS
Partnerships, DLJ and CEA will beneficially own equity interests of 36.2%,
9.7%, 0.9%, 0.3% and 0.5%, respectively, on a fully diluted basis. In
connection with the Acquisition, the GS Partnerships and DLJ were granted
Warrants at an exercise price of $5.71514 per share. The GS Partnerships sold
all their Warrants in the IPO and DLJ sold all but 392,306.5 of its Warrants
in the IPO. DLJ will sell 341,155 of its remaining Warrants to the
Underwriters at a purchase price of approximately $30.28 per Warrant in
connection with the Offerings. The Company will then redeem these Warrants for
an aggregate of 286,995 shares of Common Stock. If the over-allotment options
are exercised in full there will be no Warrants outstanding after the
consummation of the Offerings. See "Certain Relationships and Related Party
Transactions--The Redemption".
PRODUCT LINES
The following table sets forth for each of the three years in the period
ended December 31, 1996, and for the six months ended June 30, 1996 and 1997,
the dollar amounts and percentages of sales of each of the Company's major
product lines:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
---------------------------------------- ----------------------
1994 (a) 1995 (a) 1996 1996 1997
------------ ------------ ------------ ---------- ----------
(DOLLARS IN MILLIONS, EXCEPT FOR COPPER PRICE)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Magnet wire............. $ 306.9 30% $ 388.2 32% $ 388.8 29% $197.7 31% $215.1 25%
Building wire........... 390.0 39 406.1 34 487.1 37 214.6 33 385.8 45
Communication wire...... 119.3 12 177.5 15 166.8 13 85.6 13 89.3 10
Automotive wire......... 82.8 8 97.3 8 91.2 7 49.1 8 46.0 5
Industrial wire......... 63.1 6 63.4 5 71.0 5 31.5 5 65.0 8
Other(b)................ 48.0 5 69.2 6 127.1 9 67.4 10 62.9 7
-------- --- -------- --- -------- --- ------ --- ------ ---
Total................... $1,010.1 100% $1,201.7 100% $1,332.0 100% $645.9 100% $864.1 100%
======== === ======== === ======== === ====== === ====== ===
Average COMEX copper
price per pound........ $ 1.07 $ 1.35 $ 1.06 $1.17 $1.13
</TABLE>
- --------
(a) Due to a reorganization in the third quarter 1995, certain 1994 and 1995
product line sales have been reclassified.
(b) Includes sales of third-party manufactured products, including electrical
insulating products, electric motors, motor repair parts and pump seals,
sold through the Company's distribution business unit.
The Company classifies its operations into business units based on the
markets served. An overview of each business unit and the product lines
contained therein is set forth below.
MAGNET WIRE
Industry. The independent domestic supply of magnet wire has experienced
continued growth since 1990 and was, by Company estimates, approximately 790
million copper equivalent pounds sold in 1996. Growth in the magnet wire
business is being driven by the increasing demand for electrical devices
containing motors for the home and automobile, along with continuing consumer
and government pressure for higher energy efficiency from these devices
(energy-efficient motors utilize materially more magnet wire per unit than
traditional counterparts). Strong consumer demand for greater numbers of
electrical convenience items in homes, offices and vehicles has resulted in
increased sales of household appliances and increased use of electric motors
in vehicles.
Due to the substantial capital costs associated with magnet wire production,
the importance to original equipment manufacturers of a reputation for quality
and the stringent technological requirements and the cost efficiencies
achieved by larger magnet wire producers, significant industry consolidation
has occurred during the past ten years. In addition, the percentage of U.S.
magnet wire
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produced by independent magnet wire manufacturers such as the Company has
grown as the manufacturing capacity of captive magnet wire producers
(electrical equipment manufacturers who internally produce their own magnet
wire) has been reduced as a result of outsourcing over the last several years.
Consequently, as a result of the Company's efforts to maintain and enhance its
manufacturing capabilities, product development efforts and cost efficiencies
through capital spending and its continuous improvement programs, the Company
believes that it has positioned itself as one of the two leading independent
domestic producers of magnet wire based on sales.
Products. The Company's magnet wire business unit offers a comprehensive
product line, including over 500 types of magnet wire used in a wide variety
of electromagnetic devices, such as motors, transformers, control devices,
relays, generators and solenoids, for household and automotive applications.
Household products requiring magnet wire include major appliances
(dishwashers, dryers, refrigerators and washing machines), small kitchen
appliances (blenders, can openers and mixers), lawn tools (hedge trimmers,
lawn mowers and power tools) and other products such as air conditioning
units, humidifiers, security systems, overhead lighting and pole/pad
distribution transformers. Automotive products requiring magnet wire include
alternators, anti-lock braking systems, dashboard gauges, wiper motors and
power controls (antenna, seat, steering and windows).
The Company has received ISO 9001 and 9002 and QS9000 certification at all
its magnet wire manufacturing facilities.
Sales and Distribution. The Company's magnet wire products are sold to
original equipment manufacturers, motor repair shops, coil manufacturers and
independent distributors. Products are marketed nationally through a direct
sales force and the Company's distribution business unit. During 1996 and the
first half of 1997, approximately three-fourths of the Company's magnet wire
sales were made directly to end users and approximately one-fourth were made
through distributors.
BUILDING WIRE
Industry. The Company estimates that the domestic building wire industry was
approximately 1.3 billion copper equivalent pounds sold in 1996. Increased
industry sales volume in recent years has resulted primarily from
nonresidential construction and the level of repair and remodel activity. For
1996, approximately two-thirds of industry sales volume was attributable to
repair and remodel activity and one-third to new construction. Both new
construction and remodeling activity are being affected by the increased
number of circuits and amperage handling capacity needed to support the
increasing demand for electrical services.
The building wire industry has experienced significant consolidation in
recent years, declining from approximately 28 manufacturers in 1980 to seven
primary manufacturers in 1997. The Company believes this consolidation is due
primarily to cost efficiencies achieved by the larger building wire producers
as they capitalize on the benefits of vertical integration and of
manufacturing, purchasing and distribution economies of scale. The Company has
been an active participant in this industry consolidation with the purchase of
the Canadian assets of BICC Canada in 1996 and the Triangle Acquisition in
1996. See "--Recent Acquisitions". The Company believes that it is one of the
two leading domestic manufacturers of building wire based on sales.
Products. The Company's building wire business unit, which began
manufacturing building wire in 1933, develops, manufactures and markets a
complete line of building wire. These products include a wide variety of
thermoplastic and thermoset insulated wires for the commercial and industrial
building markets and service entrance cable, underground feeder wire and
nonmetallic jacketed wire and cable for the residential market.
Sales and Distribution. The Company sells its building wire products
nationally through a direct sales force and a large network of manufacturers
representatives to a large and diverse customer
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base, consisting primarily of electrical distributors and consumer product
retailers. The Company maintains numerous stocking locations across the United
States and Canada to facilitate distributors' "just-in-time" inventory
practices. The ultimate end users of the Company's building wire products are
electrical contractors and "do-it-yourself" consumers.
COMMUNICATION WIRE
Industry. The Company focuses on two segments in communication wire: (i)
outside plant ("OSP") wire and cable for voice communication in the local loop
segment of telephone networks and (ii) high bandwidth data communication
copper wire and cable products in homes and offices for LANs, Internet
connectivity and other premise applications. The Company believes that the
domestic copper OSP market was approximately $0.6 billion in 1996 and that the
domestic copper data communication wire market was approximately $1.1 billion
in 1996.
The local loop segment of the telecommunication network connects homes and
offices to the nearest telephone company switch or central office. Although
other transmission media, such as fiber optic cable, are extensively used for
long distance and trunk lines, copper wire and cable, with its lower
installation cost and ease of repair, is the most widely used medium for
transmission in the local loop, which comprises approximately 160 million
residential and business access lines across the United States. As a result of
consolidation in the OSP copper wire industry, total industry capacity has
been reduced and the number of manufacturers has declined. Demand for OSP wire
in the local loop should benefit from the increasing demand for multiple
residential access lines, as more households install additional access lines
for multiple telephone lines, facsimile machines, access to the Internet and
for home offices.
High bandwidth communication copper wire and cable products are used within
buildings to connect telecommunication devices (telephones, facsimile machines
and computer modems) to the telecommunications network and to establish LANs.
Rapid technological advances in communication and computer systems have
created increasing demand for greater bandwidth capabilities in data
transmission cable products. The Company expects demand for enhanced data
communication wire products to increase significantly in the future,
particularly as office buildings are upgraded to accommodate advanced network
requirements. In addition, the Company believes that increasing demand for
multiple residential access lines will increase demand for data communication
wire. The demand for product quality and the rapid pace of technological
change have necessitated significant capital investments by manufacturers.
Products. Although the Company continues to have a strong presence in the
OSP market based on sales, it has begun to shift its focus to high bandwidth
data communication copper wire and cable products, which provides potentially
greater growth opportunities than the OSP market. Sales volumes of the
Company's data communication wire products have grown at a CAGR of 50% since
1992. The Company is developing new products in the OSP segment, such as broad
band "extra terrestrial" OSP cable to support new technologies, and in the
data communication segment, such as enhanced category five wire for high-speed
LAN applications.
Sales and Distribution. While a significant amount of OSP wire has
historically been sold directly to domestic telephone companies, recently the
Company has focused its sales of both OSP and data communication wire to
domestic and international distributors and representatives who in turn resell
to contractors, international and domestic telephone companies and private
overseas contractors for installation in the industrial, commercial and
residential markets.
AUTOMOTIVE WIRE
Industry. The automotive primary wire industry has experienced strong growth
over the last decade due to higher production levels of new vehicles and the
significant increase in the installation
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<PAGE>
of electrical options in vehicles, which deliver increased safety, convenience
and engine performance to the consumer. These electrical options include power
windows, supplemental restraint systems, digital displays, keyless entry,
traction control, electronic suspension and anti-lock brakes. According to the
Copper Development Association, the total content of copper wire per vehicle
has grown from approximately 10 pounds in 1982 to approximately 24 pounds in
1992 and is expected to grow to approximately 27 pounds by 1998.
The increasing demand for copper wire content in vehicles has created strong
demand for thinner-gauge wire, which in turn requires significant
manufacturing sophistication. The Company and its major competitors also face
stringent demands by automotive manufacturers to improve cost efficiency.
These factors have resulted in higher levels of capital investment and stable
product pricing, as well as industry consolidation.
Products. The Company's automotive wire products include primary wire for
use in engine and body harnesses, ignition wire, battery cable and specialty
wiring assemblies. Through a joint venture with Raychem Corp., the Company is
developing a high-temperature resistant, thinner-gauge automotive wire
designed to meet future specialized needs of the automotive industry.
Sales and Distribution. The Company sells automotive wire products primarily
to tier one motor vehicle manufacturer suppliers. The Company has diversified
its customer base for automotive wire products through steadily improving
product quality and increased productivity achieved through process
improvements.
Historically, the automotive division of UTC ("UTA") has been the principal
customer for the unit's automotive products, although sales to UTA have
declined in relative terms due to the expansion of the unit's overall customer
base. UTA accounted for approximately 50%, 48% and 40% of the Company's
automotive wire revenues in 1994, 1995 and 1996, respectively. UTA accounted
for approximately 33% of the Company's automotive wire revenues in the first
half of 1997. The loss of UTA as a customer could materially and adversely
affect the Company's automotive wire business unit.
INDUSTRIAL WIRE
Industry. The domestic industrial wire market is estimated by the Company to
be approximately $1.0 billion. Significant factors influencing the growth of
this industry include the construction or expansion of manufacturing plants,
mine expansion and consumer spending for hard goods. Due to the diversity of
product offerings within this industry, the Company's competition is
fragmented across the product lines and markets served by the industrial wire
business unit. The Company's acquisition of Triangle continues the recent
industry trend toward consolidation. See "--Recent Acquisitions".
Products. The Company's industrial wire business unit develops, manufactures
and markets a broad line of industrial wire and cable products, including
appliance wire, motor lead wire, submersible pump cable, power cable, bulk
flexible cord, power supply cord sets, welding cable and recreational vehicle
wire.
Sales and Distribution. The Company sells industrial wire and cable products
on a nationwide basis, primarily to appliance and power tool manufacturers,
suppliers of electrical and electronic original equipment manufacturers,
electrical distributors and welding products distributors. Distribution is
done by a Company sales force and a large network of manufacturers'
representatives.
RECENT ACQUISITIONS
The 1995 Refinancing provided the Company with additional financial
flexibility to pursue an active acquisition strategy. Consequently, the
Company has recently acquired several businesses to
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<PAGE>
consolidate its market position in its core products and realize further
benefits from the Company's extensive manufacturing and distribution
capabilities.
In March 1996, the Company acquired the Canadian building and industrial
wire business of BICC Canada. This acquisition increased the Company's
presence in Canada and expanded its building wire product line.
The Brownell Acquisition in 1995 significantly increased the Company's
distribution business, particularly of magnet wire. Brownell had previously
served markets similar to the Company's existing magnet wire distribution
operations, but had purchased all of its products from third party suppliers.
The acquired assets were absorbed into an existing distribution unit now known
as "Essex Brownell". Products sold through Essex Brownell include magnet wire
and other products manufactured by the Company and items purchased from third-
party manufacturers, including electrical motors, electrical insulation
products, motor repair parts and pump seals. Of particular significance, Essex
Brownell provides the Company with an expanded sales channel to small original
equipment motor manufacturers and the motor repair markets.
The Triangle Acquisition, completed in October 1996, was the most
significant acquisition in the Company's recent history. As a result, the
Company increased the size of its building and industrial wire business units,
added manufacturing capacity and broadened the Company's product offerings.
The Company has realized cost savings through the elimination of duplicative
selling, general and administrative expenses, purchasing economies of scale,
and improvements in manufacturing efficiencies. The integration of the
Triangle manufacturing facilities has proceeded smoothly and the contribution
to the Company's revenues and net income has exceeded the Company's
expectations.
The Company is currently evaluating several acquisition opportunities
consistent with its business strategy, although it has not reached agreement
with any third parties at this time.
MANUFACTURING PROCESS
Copper rod is the base component for most of the Company's wire products.
The Company buys copper cathode from a variety of producers and dealers and
also reclaims and reprocesses high grade scrap copper from its own operations
and those of other copper wire producers. After the rod is manufactured at the
Company's continuous casting facilities, it is shipped to Company
manufacturing facilities where it is processed into the wire and cable
products produced and sold by the Company. See "--Metals Operations" for a
discussion of the Company's copper rod production.
The manufacturing processes for all the Company's wire and cable products
require that the copper rod be drawn and insulated. Certain products also
require that the drawn copper wire be "bunched" or "cabled" prior to being
insulated.
Wire Drawing. Wire drawing is the process of reducing the metal conductor
diameter by pulling it through a converging die until the specified product
size is attained. Since the reduction is limited by the breaking strength of
the metal conductor, this operation is repeated several times internally
within the machine. As the wire becomes smaller, less pulling force is
required. Therefore, machines operating in specific size ranges are required.
Take-up containers or spools are generally large, allowing one person to
operate several machines.
Bunching. Bunching is the process of twisting together single wire strands
to form a concentric construction ranging from seven to over 200 strands. The
major purpose of bunching is to provide improved flexibility while maintaining
current carrying capacity.
Cabling. Cabling is the process of twisting individual bunched conductors to
form a conductor core. Cabling allows for the production of a very flexible
conductor which is useful in the production of
36
<PAGE>
larger products such as welding cable, battery cable and mining cable. Cabling
can also twist together insulated conductors to form a multi-conductor
product.
Insulating. The magnet wire insulating materials (enamels) that are
manufactured by the Company's chemical processing facility are polymeric
materials produced by one of two methods. One method involves the blending of
commercial resins that are dissolved in various solvents and then modified
with catalysts, pigments, cross-linking agents and dyes. The other method
involves synthesizing polymer resins to desired molecular weights in reactor
systems and blending these polymers with solvent, catalysts and additives to
form enamels.
The enameling process used in the manufacture of some magnet wire involves
applying several thin coats of liquid enamel and evaporating the solvent in
baking chambers. Some enamels require a specific chemical reaction in the
baking chamber to fully cure the film. Enamels are generally applied to the
wires in excess and are then metered off with dies or rollers; other
applications apply only the required amount of liquid enamel.
Most other wire products are insulated and jacketed with either
thermoplastic or thermoset compounds that are applied to the metal conductor
through an extrusion process. Extrusion involves the feeding, melting and
pumping of a compound through a die to shape it into final form as it is
applied to the wire. The Company has the capability to manufacture both types
of jacketing and insulating compounds.
Once the wire is fabricated, it is packaged and shipped to regional service
centers, stocking agents or directly to customers.
METALS OPERATIONS
Copper is the primary component of the Company's overall cost structure,
comprising approximately 54% and 58% of the Company's total cost of goods sold
for the year ended December 31, 1996 and the six months ended June 30, 1997.
Due to the critical nature of copper to its business, the Company has
centrally organized its metals operations. Through centralization, the Company
carefully manages its copper procurement, internal distribution, manufacturing
and scrap recycling processes.
The Company's metals operations are vertically integrated in the production
of copper rod. The Company believes that only a few of its competitors are
able to match this capability. The Company manufactures most of its copper rod
requirements and purchases the remainder from various suppliers.
Copper Procurement. The Company's copper procurement activities are
centralized. For the year ended December 31, 1996, and during the six months
ended June 30, 1997, the Company purchased approximately 285,000 and 181,000
tons of copper, respectively, entirely from North American copper producers
and metals merchants.
To ensure a steady supply of copper, the Company contracts with copper
producers and metals merchants. Most contracts have a one-year term. Pricing
provisions vary, but are normally based on the COMEX price, plus a premium.
Premiums cover transportation and payment terms. Additionally, the Company
utilizes COMEX fixed price futures contracts to manage its commodity price
risk. The Company does not hold or issue such contracts for trading purposes.
Historically, the Company has had adequate supplies of copper available to
it from producers and merchants, both foreign and domestic. Competition from
other users of copper has not affected the Company's ability to meet its
copper procurement requirements. However, no assurance can be given that the
Company will be able to procure adequate supplies of copper to meet its future
needs.
37
<PAGE>
Copper Rod Production. The production of copper rod is an essential part of
the Company's manufacturing process and strategy. By manufacturing its own
rod, the Company is able to maintain greater control over the cost and quality
of this critical raw material.
Copper rod is manufactured in a continuous casting process in which high
quality copper cathodes are melted in a shaft furnace. The resultant molten
copper is transferred to a holding furnace and then transferred directly onto
a casting wheel, where it is cooled and subsequently rolled into copper rod.
The rod is subjected to numerous quality control tests to assure that it meets
the high quality standards of the Company's products. Finally, the rod is
packaged for shipment via an automatic in-line coiling and packaging device.
The Company's rod production facilities are strategically located near its
major wire producing plants to minimize freight costs. From its five
continuous casting units, the Company has the capability to produce
approximately 85% of its rod requirements, while purchasing the balance from
external sources. External rod purchases are used to cover rod requirements at
manufacturing locations where shipping the Company-produced rod is not cost
effective and when the Company's rod requirements exceed its production
capacity.
Copper Scrap Reclamation. The Company's Metals Processing Center receives
clean, high quality copper scrap from the Company's magnet wire plants. Copper
scrap is processed in rotary furnaces, which also have refining capability to
remove impurities. The Company uses a continuous casting process to convert
scrap material directly into copper rod. Manufacturing cost economies,
particularly in the form of energy savings, result from this direct conversion
technique. Additionally, management believes that internal reclamation of
scrap copper provides greater control over the cost to recover the Company's
principal manufacturing by-product. The Company also, from time to time,
obtains magnet wire scrap from other copper wire producers and processes it
along with the internally generated scrap.
EXPORTS
Sales of exported goods approximated $52.7 million, $55.5 million and $85.8
million for the years ended December 31, 1994, 1995 and 1996, respectively.
Building wire, magnet wire and communication cables are the Company's primary
exports. Canada and Mexico are the primary export destinations.
BACKLOG; RETURNS
The Company has no significant order backlog, because it follows the
industry practice of producing its products on an ongoing basis to meet
customer demand without significant delay. The Company believes that the
ability to supply orders in a timely fashion is a competitive factor in the
markets in which it operates. Historically, returns have had no material
adverse effect on the Company's results of operations.
COMPETITION
In each of the Company's businesses, the Company experiences competition
from at least one major competitor. However, due to the diversity of the
Company's product lines as a whole, no single competitor competes with the
Company across the entire spectrum of the Company's product lines. Thus, the
Company's diversity of products and diversity of end users insulate it from
adverse conditions in any one business unit or any one product line. Many of
the Company's competitors do not have such diversity.
As a result of consolidation in the magnet wire industry, the Company
estimates that the three largest independent magnet wire producers represented
over 85% of copper equivalent pounds
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<PAGE>
shipped in 1996. The building wire industry also has experienced significant
consolidation, from approximately 28 manufacturers in 1980 to approximately
seven in 1996. The Company has been an active participant in this industry
consolidation with the purchase of the Canadian building wire assets of BICC
Canada and the Triangle Acquisition in 1996. The Company believes that it is
one of two leading producers in each of the magnet wire and building wire
markets based on sales.
Many of the Company's products are made to industry specifications, and are
therefore essentially fungible with those of competitors. Accordingly, in
these markets the Company is subject to competition on the basis of price,
delivery time, customer service and its ability to meet specialty needs. The
Company believes that it enjoys strong customer relations resulting from its
long participation in the industry, its emphasis on customer service, its
commitment to quality control, its reliability and its substantial production
resources. The Company's distribution networks enable it to compete
effectively with respect to delivery time. From time to time the Company has
experienced reduced margins in certain markets due to unfavorable market
conditions. During 1995 and the first half of 1996, building wire product
pricing (without regard to copper costs) declined materially, and sales
volumes also declined, although to a lesser extent, due to competitive pricing
pressures, excess capacity and liquidation of inventories by distributors as a
result of the significant increase in copper prices in 1995 and early 1996.
The communication wire business unit also experienced reduced margins in 1994.
Expected decreases in the domestic OSP copper wire market demand may lead to
reduced margins in the communication wire business over the next few years.
ENVIRONMENTAL COMPLIANCE
The Company does not believe that compliance with environmental laws and
regulations will have a material effect on the level of capital expenditures
of the Company or its business, financial condition, cash flows or results of
operations. The Company does not currently anticipate material capital
expenditures for environmental control facilities. No material expenditures
relating to these matters were made in 1994, 1995, 1996 or the first half of
1997. In connection with the 1988 Acquisition and associated stock purchase
agreement with UTC dated January 15, 1988, UTC indemnified the Company with
respect to certain environmental liabilities. See "--Legal and Environmental
Matters".
EMPLOYEES
As of June 30, 1997, the Company employed approximately 1,700 salaried and
3,300 hourly employees in 35 states. Labor unions represent approximately 49%
of the Company's work force. Collective bargaining agreements expire at
various times between 1997 and 2000. Contracts covering approximately one-
third of the Company's unionized work force will expire at various times
during 1997. The Company believes that it will be able to renegotiate its
contracts covering such unionized employees on terms that will not be
materially adverse to it. However, no assurance can be given to that effect.
The Company believes that its relations with both unionized and nonunionized
employees have been satisfactory.
PROPERTIES
At June 30, 1997 the Company operated 28 manufacturing facilities in 16
states. Except as indicated below, all of the facilities are owned by the
Company and are subject to certain liens granted to the lenders pursuant to
the Restated Credit Agreement. The Company believes that its facilities and
equipment are reasonably suited to its needs and are properly maintained and
adequately insured.
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<PAGE>
The following table sets forth certain information with respect to the
manufacturing facilities of the Company at June 30, 1997:
<TABLE>
<CAPTION>
SQUARE
OPERATION LOCATION FEET
- --------- ----------------- -------
<S> <C> <C> <C>
Magnet Wire............................... Charlotte, NC 26,000 (Leased)
Fort Wayne, IN 181,000
Franklin, IN 35,000(a)
Franklin, TN 289,000 (Leased)
Kendallville, IN 88,000
Rockford, IL 319,000
Vincennes, IN 267,000
Building Wire............................. Anaheim, CA 174,000
Columbia City, IN 400,000
Lithonia, GA 144,000
Pauline, KS 501,000
Sikeston, MO 189,000
Tiffin, OH 260,000
Communication Wire........................ Chester, SC 218,000
Hoisington, KS 239,000
Automotive Wire........................... Kosciusko, MS 90,000(b)
Marion, IN 50,000
Orleans, IN 425,000
Industrial Wire........................... Florence, AL 129,000
Lafayette, IN 350,000
Pana, IL 110,000
Pawtucket, RI 412,000
Phoenix, AZ 34,000
Insulation................................ Newmarket, NH 132,000
(2 facilities)
Rutland, VT 61,000
Metals Processing......................... Columbia City, IN 75,000
Jonesboro, IN 56,000
</TABLE>
- --------
(a) The total square footage of the Franklin, IN, facility is approximately
70,000, of which 35,000 square feet is leased to Femco (as described
below).
(b) Approximately 30,000 square feet is leased.
In addition to the facilities described in the table above, the Company owns
or leases 38 service centers throughout the United States and Canada to
facilitate the sale and distribution of its products. The Company owns and
maintains executive and administrative offices in Fort Wayne, Indiana.
The Company believes that its plants are generally adequate to service the
requirements of its customers. Overall, the Company's plants are substantially
utilized. The extent of current utilization is generally consistent with
historical patterns, and, in the view of management, is satisfactory. The
Company does not view any of its plants as being underutilized, except for
Lafayette, Indiana, which just completed a major capacity expansion to make it
the focus plant for industrial wire products. Most plants operate on 24 hour-
a-day schedules, on either a five day or seven day per week basis. During 1996
and the first half of 1997, the Company's facilities operated in excess of 90%
capacity.
The property in Franklin, Indiana, is a magnet wire manufacturing facility
occupied by both the Company and a joint venture ("Femco") between the Company
and the Furukawa Electric Company, LTD., Tokyo, Japan. Half of the Franklin,
Indiana, building is leased to Femco, which manufactures and
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<PAGE>
markets magnet wire with special emphasis on products required by Japanese
manufacturers with production facilities in the United States.
LEGAL AND ENVIRONMENTAL MATTERS
The Company is engaged in certain routine litigation arising in the ordinary
course of business. While the outcome of litigation can never be predicted
with certainty, the Company does not believe that any of its existing
litigation, either individually or in the aggregate, will have a material
adverse effect upon its business, financial condition, cash flows or results
of operations.
The Company's operations are subject to environmental laws and regulations
in each of the jurisdictions in which it operates governing, among other
things, emissions into the air, discharges to waters, the use, handling and
disposal of hazardous substances and the investigation and remediation of soil
and groundwater contamination, both on-site at Company facilities and at off-
site disposal locations. On-site contamination at certain Company facilities
is the result of historic disposal activities, including activities
attributable to Company operations and those occurring prior to the use of a
facility by the Company. Off-site liability includes cleanup responsibilities
at various sites, to be remedied under federal or state statutes, for which
the Company has been identified by the United States Environmental Protection
Agency (the "EPA") (or the equivalent state agency) as a Potentially
Responsible Party ("PRP"). Certain environmental laws have been construed to
impose liability for the entire cost of remediation at a site upon a PRP
without regard to fault or the lawfulness of the disposal activity.
Once the Company has been named as a PRP, it estimates the extent of its
potential liability based upon its past experience with similar sites and a
number of factors, including, among other things, the number and financial
viability of other identified PRPs, the total anticipated cost of the
remediation and the relative contribution by the Company, in volume and type,
of waste at the site. Most of the sites for which the Company is currently
named as a PRP are covered by an indemnity (the "general indemnity") from UTC
that was granted in connection with the 1988 Acquisition. Pursuant to the
general indemnity, UTC agreed to indemnify the Company against losses incurred
under any environmental protection and pollution control laws or resulting
from or in connection with damage or pollution to the environment arising from
events, operations or activities of the Company prior to February 29, 1988, or
from conditions or circumstances existing at or prior to February 29, 1988. In
order to be covered by the general indemnity, the condition, event, and
circumstance must have been known to UTC prior to February 29, 1988. The sites
covered by the general indemnity are handled directly by UTC, and all payments
required to be made are paid directly by UTC. These sites are all mature sites
where allocations have been settled and remediation is well underway or has
been completed. The Company is not aware of any inability or refusal on the
part of UTC to pay amounts that are owing under the general indemnity or any
disputes between the Company and UTC concerning matters covered by the general
indemnity.
UTC also provided an additional environmental indemnity, referred to as the
"basket indemnity". This indemnity relates to liabilities arising from
environmental events, conditions or circumstances existing at or prior to
February 29, 1988, that only became known to UTC in the five-year period
commencing February 29, 1988. As to such liabilities, the Company is
responsible for the first $4.0 million incurred. Thereafter, UTC has agreed to
indemnify the Company fully for any liabilities in excess of $4.0 million. The
Company is currently named as a PRP at three sites which meet the criteria for
the basket indemnity. Those sites are Fisher Calo Chemical and Solvents
Corporation, Kingsbury, IN ("Fisher Calo"); Organic Chemicals, Inc.,
Grandville, MI; and USS Lead Refinery Inc., East Chicago, IL. Based on records
showing very small quantities of material shipped to Organic Chemicals Inc.
and USS Lead Refinery Inc., the Company has determined that its liability, if
any, for these sites will be de minimis. At Fisher Calo, the Company entered
into a consent decree that defined its share as 0.25%
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<PAGE>
and established an expected liability of $0.1 million, which has been accrued.
Expenses at these three sites, up to $4.0 million, will be incurred by the
Company rather than UTC, as the basket has not been exhausted under the basket
indemnity.
In addition, there are six sites where the Company is either named as a PRP
or a defendant in a civil lawsuit which are not covered by the general
indemnity or the basket indemnity. They are Ascon Landfill, Huntington Beach,
CA; A-1 Disposal Corp., Allegan County, MI; Angola Soya Co., Angola, IN;
Milford Mill, Beaver County, UT; Uniontown Landfill, Uniontown, IN; and Daley
Drum, Rockford, IL. Ascon Landfill was an oil percolation refining center. The
Company received a request for information from the California Department of
Toxic Substance Control in 1994 and replied that it has no records linking the
Company to the site. A-1 Disposal Corp. stored and treated hazardous waste.
The Company was one of a number of PRPs who entered into a consent decree with
the Michigan Department of Natural Resources to clean the site. The Company
has paid its assessment for the remediation. Although the shares and sources
of funding for five-year monitoring expenses have not been established, the
Company believes that its share will be minimal. Angola Soya was a solvent
reclamation facility in the 1950s and 1960s. After receiving notice in 1994
alleging that its spent solvent drums had been identified at the site, the
Company cooperated with the Indiana Department of Environmental Management to
conduct a limited removal of certain of these drums. No further activity by
the Company is expected to be required there. The Milford Mill site was a
copper mill used by the Company in the early 1970s. The Company is one of four
PRPs notified by the EPA. The EPA conducted a removal action at the site and
incurred $0.2 million in costs, for which it is currently seeking
reimbursement from the PRPs. The Uniontown Landfill is the subject of a civil
lawsuit in which the Company is one of several defendants sued by the owner of
the landfill to recover alleged site investigation and groundwater remediation
costs. The Company does not believe that it is responsible for any disposal at
this site and is vigorously defending itself. In May 1997 the Company
responded to a request for information from the EPA regarding Daley Drum, a
drum disposal and reconditioning site in operation from 1971 to 1988. The
Company responded that it had no records showing use of the site but that a
few employees at the Company's Rockford, IL plant recall sending empty drums
to the site for reconditioning. The extent of the EPA's inquiry and the scope
of any potential remediation at the site is unknown at this time. The Company
has provided a reserve in the amount of $0.9 million to cover environmental
contingencies. This accrual is based on management's best estimate of the
Company's exposure in light of relevant available information, including the
allocations and remedies set forth in applicable consent degrees, third party
estimates of remediation costs, actual remediation costs incurred, the
probable ability of other PRPs to pay their proportionate share of remediation
costs, the conditions at each site and the number of participating parties.
The Company currently does not believe that any of the environmental
proceedings in which it is involved and for which it may be liable will
individually or in the aggregate have a material adverse effect upon its
business, financial condition, cash flows or results of operations. There can
be no assurance that future developments will not alter this conclusion. None
of the cases described above involves sanctions, fines or administrative
penalties against the Company.
Since approximately 1990, the Company has been named as a defendant in a
number of product liability lawsuits brought by electricians and other skilled
tradesmen claiming injury from exposure to asbestos found in electrical wire
products produced a number of years ago. At June 30, 1997, the number of such
cases outstanding against the Company was 97, involving approximately 410
claims. The Company's strategy is to defend these cases vigorously. In April
1997, a jury sitting in state court in Philadelphia, PA found that the
Company's product claimed to be used by the plaintiff electrician was not
defective and had not subjected the plaintiff to harmful asbestos exposure.
The Company believes that its liability, if any, in asbestos-related matters
and the related defense costs will not have a material adverse effect either
individually or in the aggregate upon its business, financial condition, cash
flows or results of operations. There can be no assurance, however, that
future developments will not alter this conclusion.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the directors and
executive officers of the Company (ages as of June 30, 1997):
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
EXECUTIVE OFFICERS:
President and Chief Executive Officer;
Steven R. Abbott................. 49 Director
Robert J. Faucher................ 53 Executive Vice President
Dominic A. Lucenta............... 43 Senior Vice President
Charles W. McGregor.............. 55 Executive Vice President
Senior Vice President, General Counsel
Debra F. Minott.................. 41 and Secretary
Curtis A. Norton................. 51 Senior Vice President
David A. Owen.................... 51 Executive Vice President, Treasurer and
Chief Financial Officer
Gregory R. Schriefer............. 45 Executive Vice President
DIRECTORS:
William Lee Lyons Brown, Jr...... 60 Director
Rodney A. Cohen.................. 35 Director
Edward O. Gaylord................ 65 Director
Stuart S. Janney, III............ 48 Director
Robert D. Lindsay................ 42 Director
Ward W. Woods.................... 55 Director; Chairman of the Board
</TABLE>
The Restated Certificate provides for a Board of Directors divided into
three classes (Class A, B or C), with one class to be elected each year to
serve for a three-year term. Mr. Cohen and Mr. Janney are Class A directors,
Mr. Lindsay and Mr. Woods are Class B directors and Mr. Abbott, Mr. Brown and
Mr. Gaylord are Class C directors. The term of the Class A directors will
expire at the Company's 1998 annual meeting of stockholders. The term of the
Class B directors will expire at the Company's 1999 annual meeting of
stockholders, while the term of the initial Class C directors will expire at
the Company's annual meeting of stockholders in the year 2000.
Each executive officer of the Company serves at the pleasure of the Board of
Directors.
Steven R. Abbott was appointed President and Chief Executive Officer of the
Company and Essex on February 26, 1996, and has been a director since February
1996. He was President of the Wire and Cable Sector of Essex from September
1995 to February 1996 and President of the Wire and Cable Division of Essex
from September 1993 to September 1995. He was President of the Magnet Wire and
Insulation Division from 1987 to 1993. Mr. Abbott has been employed by the
Company since 1967.
Robert J. Faucher was appointed Executive Vice President of the Company in
March 1997. He was appointed Executive Vice President of Essex in September
1995. He was President of the Engineered Products Division of Essex from
January 1992 to September 1995 and Vice President, Operations in the
Industrial Products Division of Essex from June 1988 to January 1992. Mr.
Faucher joined the Company in 1985 as Vice President, Planning.
Dominic A. Lucenta was appointed Senior Vice President of the Company in
March 1997. He was appointed Senior Vice President in charge of Human
Resources of Essex in April 1994. From October 1992 to April 1994 he was Vice
President of Human Resources and from 1990 to 1992 he was Director
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<PAGE>
of Human Resources for various divisions of Essex. He was director of Risk
Management from 1988 to 1990. He joined the Company in 1979.
Charles W. McGregor was appointed Executive Vice President of the Company in
March 1997. He was appointed Executive Vice President of Essex in October
1996. He was President of the Magnet Wire and Insulation Sector of Essex from
September 1995 to October 1996. He was President of the Magnet Wire and
Insulation Division of Essex from September 1993 to September 1995 and prior
to that was Director of Manufacturing for the Division from 1987 to 1993. Mr.
McGregor has been employed by Essex since 1970.
Debra F. Minott was appointed Senior Vice President of the Company in March
1997 and was appointed Vice President, General Counsel and Secretary of the
Company in April 1995. She was appointed Senior Vice President and General
Counsel of Essex in October 1994 and was appointed Secretary of Essex in April
1995. She has been employed by the Company since October 1994. From September
1983 to October 1994, Ms. Minott held various legal positions at Eli Lilly &
Company.
Curtis A. Norton was appointed Senior Vice President of the Company in March
1997. He was appointed Senior Vice President in charge of Corporate Support
Operations of Essex in April 1996. He was Vice President of Corporate Support
Operations from September 1995 to April 1996. He was Vice President of
Purchasing from April 1994 to September 1995 and Director of Purchasing from
1989 to 1994. Mr. Norton has been employed by the Company since 1981.
David A. Owen was appointed Executive Vice President of the Company in March
1997. He was appointed Vice President, Treasurer and Chief Financial Officer
of the Company in March 1993. He was appointed Executive Vice President and
Chief Financial Officer of Essex in March 1994. He had been appointed Vice
President--Finance and Chief Financial Officer of Essex in March 1993, and
Treasurer of Essex in April 1992. Prior to that time, Mr. Owen was Director,
Treasury and Financial Services for Essex. Mr. Owen has been employed by the
Company since 1976.
Gregory R. Schriefer was appointed Executive Vice President of the Company
in March 1997. He was appointed Executive Vice President of Essex in October
1996. He was Vice President and General Manager of Building Wire Products from
September 1995 to October 1996 and was Vice President, Manufacturing of the
Wire and Cable Division from April 1994 to September 1995. Mr. Schriefer has
been employed in various positions with the Company since 1981.
William Lee Lyons Brown, Jr. has been a director of the Company since May
1997. Mr. Brown served as Chairman of the Board of Brown-Forman Corporation
("Brown-Forman"), a diversified producer and marketer of fine consumer
products, until his retirement in 1995 and remained a director thereof until
1996. He also served as Chief Executive Officer of Brown-Forman from 1975
until 1993. Mr. Brown is a director of the Pennzoil Company and Westvaco
Corporation. He is also a member of the Board of Trustees of the Winterthur
Museum as well as the World Monument Fund and a member of the Trustees'
Council of the Council of the National Gallery of Art. Mr. Brown from time to
time consults with BH Group, for which he does not receive any consideration,
with respect to potential investment opportunities and is also a shareholder
of other companies controlled by BH Group.
Rodney A. Cohen has been a director of the Company since March 1996. Mr.
Cohen is the sole shareholder of a corporation that is a member of the limited
liability company that is the general partner of the partnerships comprising
BH Group and certain affiliated investment partnerships. Since July 1993, Mr.
Cohen has been a principal of a partnership affiliated with BHLP, to which
Essex and the Company paid the fees described in "Certain Relationships and
Related Party Transactions". From September 1991 to July 1993, he was a
principal of Bessemer Securities Corporation ("BSC"), a principal limited
partner in the partnerships comprising BH Group. Prior to joining BSC, Mr.
Cohen was an associate in the Mergers and Acquisitions Department of Morgan
Stanley & Co. Incorporated. Mr. Cohen is also a director of a number of
private companies. Mr. Cohen was nominated to the Board by BH Group.
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<PAGE>
Edward O. Gaylord has been a director of the Company since May 1997. Mr.
Gaylord has served as the Chairman of the Board of EOTT Energy Corp., an oil
trading and transportation firm, since January 1993 and also operates Gaylord
& Company, a private venture capital firm based in Houston, Texas. He served
as Chairman and Chief Executive Officer of Presto Industries, Inc., a plastics
manufacturer, from 1985 to 1988, and prior thereto served as President and
Chief Executive Officer of Distributions Systems Inc., a petroleum and
chemical trucking and storage terminal firm in Houston. Mr. Gaylord is a
director of the Houston Branch of the Federal Reserve Bank of Dallas, Imperial
Holly Corporation, Kinder Morgan G.P. Inc., Seneca Foods Corporation and the
National Museum of Natural History, Smithsonian Institution, and a trustee of
MD Anderson Hospital, Baylor College of Medicine and the Houston Ballet.
Stuart S. Janney, III was elected a director of the Company in March 1997.
Mr. Janney was elected in January 1995 as Chairman of the Board of Directors
of BSC, the Bessemer Group Incorporated, Bessemer Trust Company, N.A. and
Bessemer Trust Company of Florida. Mr. Janney was elected to the Board of
Managers of Bessemer Securities LLC ("BSLLC") in June 1996. BSLLC is a
principal limited partner in one of, and BSC is a principal limited partner
in, the partnerships comprising the BH Group. Prior to January 1995, Mr.
Janney was with Alex. Brown & Sons Incorporated, where he spent nine years,
most recently as Managing Director and head of asset management. Mr. Janney is
a director of Graphic Controls Corporation and a number of private companies,
foundations and institutions. Mr. Janney was nominated to the Board by BH
Group.
Robert D. Lindsay is the sole shareholder and president of a corporation
that is a manager of the limited liability company that is the general partner
of the partnerships comprising BH Group and certain affiliated investment
partnerships. He is also the sole shareholder of a corporation that is a
general partner of the partnership affiliated with BHLP to which the Company
paid the fees described in "Certain Relationships and Related Party
Transactions". Mr. Lindsay was a Managing Director of BSC from January 1991 to
June 1993. Prior to joining BSC, Mr. Lindsay was a Managing Director in the
Merchant Banking Division of Morgan Stanley & Co. Incorporated. He is a
director of several private companies. Mr. Lindsay has been a director of the
Company since October 1992. Mr. Lindsay was nominated to the Board by BH
Group.
Ward W. Woods is Chairman of the Board of Directors of Essex International.
Mr. Woods is the sole shareholder and president of a corporation that is the
principal manager of the limited liability company that is the general partner
of each of the partnerships comprising BH Group and certain affiliated
investment partnerships. He is also the sole shareholder of a corporation that
is the managing general partner of the partnership affiliated with BHLP to
which the Company paid the fees described in "Certain Relationships and
Related Party Transactions". Mr. Woods is President and Chief Executive
Officer of BSLLC and BSC. Mr. Woods joined BSC in 1989. For ten years prior to
joining BSC, Mr. Woods was a senior partner of Lazard Freres & Co. LLC, an
investment banking firm. He is a director of Boise Cascade Corporation,
Graphic Controls Corporation, Kelley Oil & Gas Corporation and several private
companies. Mr. Woods has been a director of the Company since October 1992.
Mr. Woods was nominated to the Board by BH Group.
Each of the current executive officers of the Company is listed above.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has established an Executive Committee consisting of Messrs.
Abbott, Lindsay and Woods, a Compensation Committee consisting of Messrs.
Brown, Cohen, Lindsay and Woods, a Stock Option Committee consisting of
Messrs. Brown, Gaylord and Janney and an Audit Committee consisting of Messrs.
Brown, Gaylord and Janney.
The Executive Committee has all powers and rights necessary to exercise the
full authority of the Board of Directors in the management of the business and
affairs of the Company when necessary in between meetings of the Board of
Directors.
45
<PAGE>
The Compensation Committee has the responsibility of reviewing the
performance of the executive officers of the Company and recommending to the
Board of Directors of the Company annual salary and bonus amounts for all
executive officers of the Company, based in part on the recommendation of the
Chief Executive Officer.
The Stock Option Committee has the responsibility of (i) reviewing
recommendations of the Compensation Committee to award options to purchase
Common Stock ("Options") to employees of the Company, including awards to
executive officers and (ii) making recommendations to the Board of Directors
for the award of Options. The Stock Option Committee also reviews the
performance of the Chief Executive Officer and recommends to the Board of
Directors annual salary and bonus amounts for the Chief Executive Officer. The
Stock Option Committee consists of at least two directors who are "outside
directors" within the meaning of Section 162(m) of the Internal Revenue Code
of 1986, as amended.
The Audit Committee has the responsibility of reviewing and supervising the
financial controls of the Company. The Audit Committee's responsibilities
include (i) making recommendations to the Board of Directors of the Company
with respect to the Company's financial statements and the appointment of
independent auditors, (ii) reviewing significant audit and accounting policies
and practices of the Company, (iii) meeting with the Company's independent
public accountants concerning, among other things, the scope of audits and
reports and (iv) reviewing the performance of overall accounting and financial
controls of the Company.
COMPENSATION OF DIRECTORS
Non-employee directors are paid an annual stipend of $25,000 per director
per year plus $1,000 for attendance at each meeting of the Board of Directors
or any committee thereof (which payments may be payable, in whole or in part,
in options to purchase shares of Common Stock), plus reimbursement of
reasonable out-of-pocket expenses incidental to attendance at such meetings.
See "--Stock Option Plan for Nonemployee Directors".
EXECUTIVE COMPENSATION
Essex International, as a holding company with no business operations of its
own, conducts its business through Essex. The executive officers of Essex
International receive no compensation for their services to Essex
International. Accordingly, the following table presents certain information
concerning compensation paid or accrued for services rendered to Essex in all
capacities during the three years ended December 31, 1996 for the Chief
Executive Officer and the four other most highly compensated executive
officers of Essex whose total annual salary and bonus in the last fiscal year
exceeded $100,000.
46
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION AWARDS
--------------- -------------------
NUMBER OF
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL SALARY BONUS OPTIONS/SARS COMPENSATION
POSITION YEAR ($) ($) (#) ($)(A)
- ------------------ ---- ------- ------- ------------------- ------------
<S> <C> <C> <C> <C> <C>
Steven R. Abbott......... 1996 287,993 600,000 125,000 27,531
President and Chief 1995 193,757 250,000 37,500 12,999
Executive Officer(b) 1994 182,502 200,000 60,000 8,306
Stanley C. Craft(c)...... 1996 325,008 0 0 15,155
1995 310,004 450,000 50,000 27,905
1994 293,763 400,000 75,000 22,174
Charles W. McGregor...... 1996 167,001 275,000 40,000 11,356
Executive Vice President 1995 157,503 210,000 32,500 9,684
1994 132,504 165,000 50,000 7,787
David A. Owen............ 1996 167,001 250,000 37,500 9,195
Executive Vice President
and 1995 157,503 185,000 25,000 8,120
Chief Financial Officer 1994 145,257 165,000 50,000 6,894
Robert J. Faucher........ 1996 167,001 250,000 50,000 11,972
Executive Vice President 1995 157,503 175,000 25,000 11,356
1994 149,379 145,000 50,000 8,568
Gregory R. Schriefer..... 1996 129,510 225,000 57,500 11,062
Executive Vice President
</TABLE>
- --------
(a) All Other Compensation in 1996 consists of Company contributions to the
defined contribution and deferred compensation plans on behalf of the
executive officer and imputed income on excess Company-paid life insurance
premiums. The following table identifies and quantifies these amounts for
the named executive officers:
<TABLE>
<CAPTION>
S.R. S.C. C.W. D.A. R.J. G.R.
ABBOTT CRAFT MCGREGOR OWEN FAUCHER SCHRIEFER
------- ------- -------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Company matching under the
defined contribution and
deferred compensation
plans.................... $25,700 $ 9,750 $ 8,498 $7,478 $10,335 $10,635
Imputed income on excess
life insurance premiums.. 1,831 5,405 2,858 1,717 1,637 427
------- ------- ------- ------ ------- -------
Total..................... $27,531 $15,155 $11,356 $9,195 $11,972 $11,062
======= ======= ======= ====== ======= =======
</TABLE>
(b) Mr. Abbott was appointed President and Chief Executive Officer of the
Company and Essex on February 26, 1996.
(c) Mr. Craft served as President and Chief Executive Officer of the Company
from October 1992 until February 26, 1996, and also of Essex from March
1992 until February 26, 1996.
47
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT
ASSUMED ANNUAL
RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (A)
--------------------------------------------------- ---------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OR
GRANTED RESPECT OF LAST BASE PRICE EXPIRATION
NAME (#)(B) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ---- ------------ --------------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Steven R. Abbott........ 125,000 15.3 10.00 1/30/07 786,118 1,992,178
Stanley C. Craft........ 0 0 -- -- 0 0
Charles W. McGregor..... 40,000 4.9 10.00 1/30/07 251,558 637,497
David A. Owen........... 37,500 4.6 10.00 1/30/07 235,835 597,653
Robert J. Faucher....... 50,000 6.1 10.00 1/30/07 314,447 796,871
Gregory R. Schriefer.... 57,500 7.0 10.00 (c) 361,614 916,402
</TABLE>
- --------
(a) The potential realizable value assumes a per-share market price at the
time of the grant to be approximately $10.00 with an assumed rate of
appreciation of 5% and 10%, respectively, compounded annually for 10
years. These values are provided pursuant to the rules and regulations of
the Commission. No assurance can be given as to the appreciation, if any,
of the Common Stock.
(b) In October 1996 options to purchase 87,500 shares of Common Stock were
granted. Such options become exercisable on October 1, 1999. In January
1997 options to purchase 730,000 shares of Common Stock were granted to
maintain management's equity interest in the Company as a result of the
increase in total Common Stock outstanding following the 1996 Private
Offering and in respect of performance for the year ended December 31,
1996 (see "--Stock Option Plan"). Such options become exercisable on
January 30, 1998.
(c) Options to purchase 25,000 and 32,500 shares of Common Stock granted in
October 1996 and January 1997, respectively, expire on October 1, 2006 and
January 30, 2007, respectively.
48
<PAGE>
The following table details the December 31, 1996, year-end estimated value
of each named executive officer's unexercised stock options. All unexercised
options are to purchase the number of shares of Common Stock indicated,
although the Board of Directors may require that, in lieu of the exercise of
any Roll-over Options (as defined under "--Stock Option Plan"), such options
be surrendered without payment of the exercise price, in which case the number
of shares issuable upon exercise of such Roll-over Options shall be reduced by
the quotient of (A) the aggregate exercise price otherwise payable upon such
exercise and (B) the amount paid for each share of the Company's common stock
in the Acquisition, in each case as adjusted for any stock splits or other
similar corporate transactions. See "--Stock Option Plan".
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS/SARS AT
ACQUIRED ON YEAR-END (#) YEAR-END ($)
EXERCISE VALUE EXERCISABLE (E)/ EXERCISABLE (E)/
NAME (#) REALIZED ($) UNEXERCISABLE (U)(A) UNEXERCISABLE (U)(B)
- ---- ----------- ------------ ---------------------- --------------------
<S> <C> <C> <C> <C>
Steven R. Abbott........ -- -- 149,000(E) 1,141,811(E)
222,500(U) 417,774(U)
Stanley C. Craft........ -- -- 311,500(E) 2,413,197(E)
125,000(U) 535,608(U)
Charles W. McGregor..... -- -- 35,250(E) 233,561(E)
122,500(U) 353,501(U)
David A. Owen........... -- -- 38,500(E) 258,811(E)
112,500(U) 321,365(U)
Robert J. Faucher....... -- -- 85,000(E) 624,811(E)
125,000(U) 321,365(U)
Gregory R. Schriefer.... -- -- 10,225(E) 80,550(E)
67,500(U) 42,840(U)
</TABLE>
- --------
(a) The options to purchase Common Stock granted in 1997 with respect to the
1996 Private Offering and 1996 performance become exercisable on January
30, 1998. The options to purchase Common Stock granted in 1995 and 1996
become exercisable three years from the date of grant. All other options
granted prior to those issued in 1995 are currently exercisable.
(b) The estimated value of in-the-money stock options held at the end of 1996
assumes a per-share fair market value of approximately $10.00 and per-
share exercise prices of $2.00, $2.50 and $5.72, as applicable.
49
<PAGE>
Pension Plans. The Company provides benefits under a defined benefit pension
plan (the "Pension Plan") and a supplemental executive retirement plan (the
"SERP"). The following table illustrates the estimated annual normal
retirement benefits at age 65 that will be payable under the Pension Plan and
SERP.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------
REMUNERATION 15 20 25 30 35
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
125,000......................... $ 28,125 $ 37,500 $ 46,875 $ 56,250 $ 65,625
150,000......................... 33,750 45,000 56,250 67,500 78,750
175,000......................... 39,375 52,500 65,625 78,750 91,875
200,000......................... 45,000 60,000 75,000 90,000 105,000
225,000......................... 50,625 67,500 84,375 101,250 118,125
250,000......................... 56,250 75,000 93,750 112,500 131,250
300,000......................... 67,500 90,000 112,500 135,000 157,500
400,000......................... 90,000 120,000 150,000 180,000 210,000
450,000......................... 101,250 135,000 168,750 202,500 236,250
500,000......................... 112,500 150,000 187,500 225,000 262,500
</TABLE>
The remuneration utilized in calculating the benefits payable under the
Pension Plan and the SERP is the compensation reported in the Summary
Compensation Table under the captions Salary and Bonus. The formula utilizes
the remuneration for the five consecutive plan years within the ten completed
calendar years preceding the participant's retirement date that produces the
highest final average earnings.
As of June 30, 1997, the years of credited service under the Pension Plan
for each of the executive officers named in the Summary Compensation Table
were as follows: Mr. Abbott, twenty-eight years and one month; Mr. Craft,
twenty-seven years and eleven months; Mr. Owen, twenty-one years and two
months; Mr. McGregor, twenty-seven years and five months; Mr. Faucher, twenty-
five years; and Mr. Schriefer, fifteen years and nine months.
The benefits listed in the Pension Plan Table are based on the formula in
the Pension Plan using a straight-life annuity and are subject to an offset of
50% of the participant's annual unreduced Primary Insurance Amount under
Social Security. In addition, benefits for credited service for years prior to
1974 are calculated using the formula in effect at that time and would reflect
a lesser benefit than outlined in the Pension Plan Table for those years.
Benefits under the Pension Plan are also offset by benefits to which the
participant is entitled under any defined benefit plan of UTC (other than
accrued benefits transferred to the Pension Plan).
STOCK OPTION PLAN
Grants of options to purchase Common Stock have been made to management and
employees of the Company pursuant to, and are subject to the provisions of, an
Amended and Restated Stock Option Plan, as amended (the "Stock Option Plan"),
and individual stock option agreements. Options granted prior to January 1,
1997 are exercisable: (i) in full, upon the third anniversary of the grant of
the options; (ii) in full, upon the death, retirement or disability of the
optionee; (iii) in part, upon the occurrence of a Company Sale (as defined
below), in which case the option becomes exercisable in a portion equal to the
percentage of the Company's then outstanding voting stock transferred pursuant
to the transactions constituting the Company Sale; and (iv) in part, upon the
sale by BH Group or its affiliates of 25% or more of the then outstanding
Common Stock, in which case the option becomes exercisable in a portion equal
to the percentage of the Company's then outstanding common stock sold by BH
Group or its affiliates pursuant to the sale. Options granted on January 30,
1997, in
50
<PAGE>
connection with the Company's 1996 performance and to maintain management's
equity interest in the Company as a result of the increase in total Common
Stock outstanding following the 1996 Private Offering are exercisable: (i) in
full, upon the first anniversary of the grant of the options and (ii) in full
or in part, as described in clauses (ii), (iii) and (iv) of the prior
sentence. Options granted after January 30, 1997, will be exercisable: (i) in
full, upon the third anniversary of the grant of the options, provided that
during the second year the option is outstanding they may be exercised as to
not more than one-third (1/3) of the total number of shares covered by the
option and during the third year the option is outstanding they may be
exercised as to, cumulatively, not more than two-thirds (2/3) of the total
number of shares covered by the option, (ii) in full, upon the death,
retirement or disability of the optionee and (iii) in full upon the occurrence
of a Change-in-Control (as defined below).
Such options are generally not transferable. For the purposes of the Stock
Option Plan, a "Company Sale" is deemed to have occurred if any person (other
than BH Group and its affiliates) becomes the beneficial owner of 50% or more
of the combined voting power of the Company's securities or acquires
substantially all the assets of Essex International or Essex. For the purposes
of the Stock Option Plan, "Change-in-Control" has the same meaning as under
the Termination Benefits Agreement (as defined under "--Termination Benefits
Agreement").
The Board of Directors of the Company may require that certain options
granted in connection with the Acquisition (the "Roll-over Options") be
surrendered and cancelled without payment of the exercise price. In this
event, the optionee is entitled to receive a number of shares of Common Stock
equal to the number specified in the grant, reduced by the quotient of (A) the
aggregate exercise price otherwise payable upon such exercise divided by (B)
the amount paid for each share of the Company's common stock in the
Acquisition, in each case as adjusted for any stock splits or other similar
corporate transactions.
STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS
Grants of options to purchase Common Stock will be made to nonemployee
directors of the Company pursuant to, and are subject to the provisions of,
the Essex International 1997 Stock Option Plan for Nonemployee Directors (the
"Stock Option Plan for Nonemployee Directors") and individual stock option
agreements. The Stock Option Plan for Nonemployee Directors has not yet been
approved by the stockholders of the Company, and a registration statement
covering the shares of Common Stock to be issued upon the exercise of the
options covered by such plan has not been filed and declared effective by the
Commission. The Stock Option Plan for Nonemployee Directors is administered by
the Stock Option Committee of the Board of Directors of the Company and will
remain in effect until all shares of Common Stock subject to options have been
purchased or all unexercised options have expired.
Options granted on or after August 31, 1997, will be exercisable in full
upon grant of the options. Such options will generally not be transferable.
Upon a "Change-in-Control" (which has the same meaning as under the
Termination Benefits Agreement), any amounts earned for the year in which such
event occurs that would otherwise have been paid in the form of options
granted under the Stock Option Plan for Nonemployee Directors shall be paid to
each participating director in cash.
The maximum number of shares that may be issued pursuant to options granted
under the Stock Option Plan for Nonemployee Directors is 100,000, subject to
adjustment due to stock splits, stock dividends, recapitalizations and similar
events. Such shares may consist in whole or in part of authorized and unissued
shares or treasury shares. If options granted under the Stock Option Plan for
Nonemployee Directors expire or are terminated without having been exercised
in full, shares underlying such options will be available for future grants
under the Stock Option Plan for Nonemployee Directors. As of the date of this
Prospectus, no options have been granted pursuant to the Stock Option Plan for
Nonemployee Directors.
51
<PAGE>
TERMINATION BENEFITS AGREEMENT
The Company has entered into agreements dated as of April 11, 1997 (each a
"Termination Benefits Agreement"), with each of Messrs. Abbott, Faucher,
Lucenta, McGregor, Norton, Owen and Schriefer and with Mrs. Minott (each an
"Executive") providing for certain benefits (the "Termination Benefits") if
the Executive's employment is terminated by the Company or by the Company's
successor following a Change-in-Control (as defined therein) other than
termination (a) by reason of the Executive's death, (b) by reason of the
Executive's "disability" (as defined therein), (c) as a result of reaching the
retirement age of 65 or (d) for "cause" (as defined therein).
The Company is also obligated to pay Termination Benefits if, following a
Change-in-Control during the term of the agreement, the Executive terminates
his or her employment for "good reason". Good reason includes: (i) the
assignment of duties that are materially inconsistent with the Executive's
duties prior to the Change-in-Control; (ii) a reduction in the Executive's
annual salary from that in effect immediately prior to the Change-in-Control;
(iii) failure to maintain incentive compensation programs for such Executive;
(iv) failure to maintain benefit programs for such Executive; (v) the
relocation of the Executive's place of employment to a place other than the
metropolitan area of the Company office where the Executive was located
immediately prior to the Change-in-Control, except for required travel on the
Company's business in accordance with past practice; (vi) the failure by the
Company to obtain an agreement from any successor to assume and agree to
perform the Termination Benefits Agreement; (vii) failure to reappoint the
Executive to the corporate offices held immediately prior to the Change-in-
Control; (viii) a request by the Company or the person obtaining control of
the Company in a Change-in-Control for the resignation of the Executive; (ix)
if terminated, failure to terminate the Executive's employment in accordance
with the Termination Benefits Agreement; (x) any request by the Company for
the Executive to participate in an unlawful act and (xi) breach by the Company
of any provision of the Termination Benefits Agreement.
The Termination Benefits consist of a payment from the Company to the
Executive of a multiple of the Executive's current annual base salary and
incentive compensation bonus paid within the 12 months preceding the Change-
in-Control. The multiples are as follows: Mr. Abbott three times; and for the
remaining named Executives, two times. The Termination Benefits Agreements run
for a two-year term that automatically extends for one additional year prior
to the start of the second year of the term until notice that the term will
not be extended is provided to the other party. Notwithstanding the prior
sentence, the term of the Termination Benefits Agreement will run for two
years from the time of any Change-in-Control during the term of the Agreement.
The Termination Benefits Agreement also provides that the applicable
Executive will keep confidential all confidential information of the Company
and will not, during the two years following the Executive's termination,
solicit any employee of the Company to leave the Company's employment.
For the purposes of the Termination Benefits Agreements, "Change-in-Control"
means the occurrence of any of the following during the term of the agreement:
(a) any person other than the BH Group and its affiliates acquires 35% or more
of the voting power or common stock of the Company (other than by an
acquisition from or by the Company or any employee benefit plan sponsored by
the Company or any Permitted Reorganization (as defined below)) and owns a
greater percentage of the voting power or common stock of the Company than
does the BH Group and its affiliates; (b) a change in the Company's Board of
Directors occurs with the result that the members of the Board on the
Effective Date (the "Incumbent Directors") no longer constitute a majority of
such Board of Directors, provided that any person becoming a director (other
than a director whose initial assumption of office occurs as a result of
either an actual or threatened election contest or other threatened
solicitation of proxies or consents by or on behalf of a person other than the
Board of Directors) whose election or nomination for election was supported by
a majority of the then Incumbent Directors shall be considered an Incumbent
Director for purposes hereof; (c) the stockholders of the Company approve
52
<PAGE>
a reorganization, merger or consolidation of the Company, unless following
such transaction, (i) more than 50% of the voting power and common stock of
the surviving entity is beneficially owned by the prior stockholders of the
Company, in substantially the same proportions as before the transaction, (ii)
at least a majority of the Board of Directors of the surviving entity were
members of the Incumbent Board prior to such transaction and (iii) no person
other than the BH Group and its affiliates acquires 35% or more of the voting
power or common stock of the Company and a greater percentage of the voting
power or common stock of the Company than has the BH Group and its affiliates
(a transaction complying with the requirements of this clause (c) is referred
to herein as a "Permitted Reorganization"); or (d) the stockholders of the
Company approve the sale of all or substantially all of the property or assets
of the Company other than in a Permitted Reorganization. A Change-in-Control
will not occur as a result of the Offerings.
53
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth (as of August 26, 1997) certain information
regarding the beneficial ownership of Common Stock (i) immediately prior to
the Offerings and (ii) as adjusted to reflect the sale of shares in the
Offerings (assuming the full exercise of the Underwriters' over-allotment
options) by (a) each person known by the Company to be the beneficial owner of
more than 5% of the outstanding shares of Common Stock, (b) each of the
Company's directors, (c) each named executive officer, (d) all directors and
executive officers of the Company as a group and (e) each Selling Stockholder.
Unless otherwise noted in the footnotes to the table, the persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock indicated as being beneficially owned by them.
<TABLE>
<CAPTION>
PRIOR TO OFFERINGS (A) AFTER THE OFFERINGS
---------------------- ------------ ----------------------
SHARES TO BE
NUMBER OF PERCENT SOLD IN THE NUMBER OF PERCENT
NAME SHARES OWNERSHIP OFFERINGS SHARES OWNERSHIP
- ---- ------------ --------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
DIRECTORS, EXECUTIVE OFFICERS AND
PRINCIPAL STOCKHOLDERS:
Steven R. Abbott(b)(c)(d)............... 306,000 1.0 0 306,000 1.0
William Lee Lyons Brown, Jr.(e)......... 8,602 * 0 8,602 *
Rodney A. Cohen(f)(g)................... 71,171 * 0 71,171 *
Robert J. Faucher(b)(c)(h).............. 191,488.5 * 0 191,488.5 *
Edward O. Gaylord(i).................... 2,000 * 0 2,000 *
Stuart S. Janney, III(f)................ 0 * 0 0 *
Robert D. Lindsay(f)(j)................. 690,482 2.4 0 690,482 2.4
Charles W. McGregor(b)(c)(k)............ 73,623 * 0 73,623 *
David A. Owen(b)(c)(l).................. 80,914 * 0 80,914 *
Gregory R. Schriefer(b)(c).............. 37,796.5 * 0 37,796.5 *
Ward W. Woods(f)(m)..................... 1,134,805 3.9 0 1,134,805 3.9
All directors and executive officers as
a group (14 persons(n))................ 14,262,123.5 48.3 0 14,262,123.5 48.3
Bessemer Holdings, L.P.(o)(p)(q)........ 11,547,231 39.6 0 11,547,231 39.6
SELLING STOCKHOLDERS:
The Goldman Sachs Group, L.P.(r)(s)..... 2,153,127 7.4 2,153,127 0 0
DLJ International Partners, C.V.(t)(u).. 628,481.5 2.1 628,481.5 0 0
Chase Equity Associates(v).............. 1,114,631 3.8 1,114,631 0 0
WCEP Pte Ltd(w)......................... 967,029 3.3 967,029 0 0
</TABLE>
- --------
* Represents holdings of less than one percent.
(a) At August 26, 1997 there were 29,151,911 shares of Common Stock
outstanding, excluding 392,306.5 shares of Common Stock issuable upon
exercise of the Warrants and 2,802,346.5 shares underlying Options.
Percentages have been calculated assuming, in the case of each person or
group listed, the exercise of all Warrants and Options owned (that are
exercisable within sixty days following the date of this Prospectus) by
each such person or group, respectively, but not the exercise of any
warrants or options owned by any other person or group listed.
(b) Pursuant to the terms of certain option agreements, the aggregate number
of shares issuable upon exercise of certain options can be reduced. See
"Management--Stock Option Plan".
(c) The address for each of these beneficial owners is c/o Essex International
Inc., 1601 Wall Street, Fort Wayne, IN 46802.
(d) Includes 149,000 shares issuable upon exercise of options held by Mr.
Abbott, 136,500 of which, pursuant to the applicable option agreement, may
be reduced to 88,076 shares.
(e) The address for Mr. Brown is 501 Fourth Avenue, Louisville, KY 40202.
(f) The address for each of these directors is c/o BHLP, 630 Fifth Avenue, New
York, NY 10111.
(g) All these shares are held for the benefit of Mr. Cohen and his family by
entities controlled by Mr. Cohen.
(h) Includes 85,000 shares issuable upon exercise of options held by Mr.
Faucher, 72,500 of which, pursuant to the applicable option agreement, may
be reduced to 45,598 shares.
(i) The address for Mr. Gaylord is 5851 San Felipe, Suite 900, Houston, TX
77057.
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(j) Includes 545,040 shares held for the benefit of Mr. Lindsay and his family
by entities controlled by Mr. Lindsay.
(k) Includes 35,250 shares issuable upon exercise of options held by Mr.
McGregor, 22,750 of which, pursuant to the applicable option agreement,
may be reduced to 14,438.5 shares.
(l) Includes 38,500 shares issuable upon exercise of options held by Mr. Owen,
26,000 of which, pursuant to the applicable option agreement, may be
reduced to 16,420 shares.
(m) Includes 874,234 shares held for the benefit of Mr. Woods and his family
by entities controlled by Mr. Woods.
(n) Consists of the 11,547,231 shares of Common Stock owned by BH Group, that,
together with the shares described below, may be deemed to be beneficially
owned by Messrs. Woods, Lindsay and Cohen (which beneficial ownership is
disclaimed by Messrs. Woods, Lindsay and Cohen--see footnote (o) below),
455,807.5 shares of Common Stock owned by the executive officers of Essex
International included in this group, 1,907,060 shares of Common Stock
owned by the directors of Essex International included in this group
(other than Mr. Abbott) and 352,025 shares of Common Stock issuable to the
executive officers of Essex International included in this group upon
exercise of Options that, pursuant to the applicable option agreements,
may be reduced to 242,701 shares.
(o) BHLP is a limited partnership the only activity of which is to make
private structured investments. The primary limited partner of BHLP is
BSC. Each of Messrs. Woods and Lindsay, directors of the Company, and Mr.
Michael B. Rothfeld, is a sole shareholder of a corporation that is a
manager and controls a family partnership that is a member of the limited
liability company that is the sole general partner of BHLP. Mr. Cohen, a
director of the Company, is the sole shareholder of a corporation that is
also a member of that limited liability company. That limited liability
company is also the sole general partner of Bessec Holdings, L.P.
("Bessec"), a limited partnership that holds 230,328 additional shares of
Common Stock. Mr. Janney is a director of BSC and a manager of BSLLC. BSC
is a principal limited partner of BHLP and Bessec. BSLLC is a principal
limited partner of Bessec. In addition, Messrs. Woods, Lindsay and
Rothfeld are the sole shareholders of corporations that are the general
partners of, and Mr. Cohen is a principal of, the partnership affiliated
with BHLP to which the Company paid the fees described in "Certain
Relationships and Related Party Transactions". Mr. Woods is the President
and Chief Executive Officer of BSLLC and BSC. Each of Messrs. Woods,
Lindsay, Rothfeld and Cohen disclaims beneficial ownership of the shares
of Common Stock owned or controlled by BHLP and Bessec.
(p) The share ownership figure for BHLP includes 230,328 shares held by
Bessec.
(q) The address for BHLP and Bessec is 630 Fifth Avenue, New York, NY 10111.
(r) Represents in the aggregate 2,153,127 shares of Common Stock owned by the
GS Partnerships, of which affiliates of The Goldman Sachs Group, L.P. ("GS
Group") are the general partner or managing general partner, including (i)
2,107,621 shares of Common Stock owned by GS Capital Partners, L.P., (ii)
28,396 shares of Common Stock owned by Stone Street Fund 1992, L.P. and
(iii) 17,110 shares of Common Stock owned by Bridge Street Fund 1992, L.P.
The GS Partnerships share voting and investment authority with certain of
their affiliates. In addition, Goldman Sachs, and GS Group indirectly, may
be deemed to own beneficially, as of August 26, 1997, 103,164 shares of
Common Stock held in client accounts with respect to which Goldman Sachs
or employees of Goldman Sachs have voting or investment discretion, or
both ("GS Managed Accounts") and 20,300 shares of Common Stock held as a
result of ordinary course activities. Goldman Sachs and GS Group each
disclaims beneficial ownership of the shares of Common Stock (i) owned by
the GS Partnerships to the extent interests in such partnerships are owned
by persons other than GS Group and its affiliates and (ii) held in GS
Managed Accounts.
(s) The address for GS Group and the GS Partnerships is 85 Broad Street, New
York, NY 10004.
(t) Represents in the aggregate 236,175 shares of Common Stock and Warrants to
purchase 392,306.5 shares of Common Stock (which may be reduced to 330,026
shares of Common Stock as a result of the Redemption) owned by DLJ
International Partners, C.V. and its affiliates, including (i) 236,175
shares of Common Stock owned by DLJ International Partners, C.V., (ii)
Warrants to purchase 215,857 shares of Common Stock owned by DLJ Merchant
Banking Partners, L.P., (iii) Warrants to purchase 104,870.5 shares of
Common Stock owned by DLJ Merchant Banking Funding, Inc. and (iv) Warrants
to purchase 71,579 shares of Common Stock owned by DLJ First ESC, LLC.
(u) The address for DLJ International Partners, C.V. is c/o John P. Gorsiraweg
6, Willemstad, Curacao, Netherlands Antilles, and the address for the
other affiliates of DLJSC is 277 Park Avenue, New York, NY 10172.
(v) The address for CEA is 380 Madison Avenue, New York, NY 10017.
(w) The address of WCEP Pte Ltd (a wholly-owned subsidiary of the Government
of Singapore Investment Corporation) is 250 North Bridge Road #38-00,
Raffles City Tower, Singapore 179101.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
ADVISORY SERVICES
The Company incurred advisory fees of approximately $1.0 million for each
year during the three-year period ending December 31, 1996, payable to an
advisory partnership that is an affiliate of BHLP. Pursuant to an advisory
services agreement among Essex International, Essex and the advisory
partnership, Essex agreed to pay such affiliate an annual advisory fee of $1.0
million. The agreement is terminable by any party on 30 days prior notice to
the other parties. See footnote (o) of "Principal and Selling Stockholders"
for a description of the relationship of Messrs. Woods, Lindsay and Cohen,
directors of the Company, to such BHLP affiliate.
Pursuant to an engagement letter dated July 22, 1992, as amended by a letter
agreement dated October 9, 1992 (collectively, the "Engagement Letter"), DLJSC
and Goldman Sachs acted as underwriters in the offering of the Essex Senior
Notes in 1993, and in such capacity received aggregate underwriting discounts
and commissions of $5.3 million. Pursuant to the Engagement Letter, DLJSC and
Goldman Sachs acted as underwriters in the IPO; the aggregate gross
underwriting discounts received by such underwriters in the IPO were $4.4
million. The Engagement Letter, other than the indemnification and
contribution obligations thereunder, terminated on April 17, 1997.
WARRANT AGREEMENT
In connection with the Acquisition, the Company (as successor to B E
Acquisition Corporation), the GS Partnerships and DLJ entered into a Warrant
Agreement (the "Warrant Agreement"), dated as of October 9, 1992. Set forth
below is a summary of certain terms of the Warrant Agreement. This summary
does not purport to be complete and is subject to, and is qualified in its
entirety by, the Warrant Agreement, which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. Capitalized terms
used under this caption but not defined have the meanings given to them in the
Warrant Agreement.
Number. Following the Offerings, there will be 51,152 Warrants outstanding
to purchase an equal number of shares of Common Stock (no Warrants will be
outstanding if the Underwriters' over-allotment options are exercised in
full).
Exercise Price. The Warrants are exercisable for a cash payment of $5.72 per
share.
Exercisability. The Warrants are exercisable at any time prior to their
expiration date.
Anti-dilution provisions. The Warrant Agreement contains customary anti-
dilution provisions, including upon the occurrence of stock dividends or stock
splits and stock issuances at less than the Current Market Price (as defined
in the Warrant Agreement) or less than the Exercise Price.
Expiration. The Warrants expire on October 9, 2004.
THE INITIAL PUBLIC OFFERING
On May 1, 1997, the Company completed the IPO consisting of 6,546,700 shares
of Common Stock sold at the initial offering price of $17.00 per share,
including 3,546,700 shares sold by certain stockholders (including the GS
Partnerships, DLJ and CEA). The net proceeds to the Company, after
underwriting commissions and other associated expenses, were approximately
$46.0 million, of which $29.5 million was used to repay the Essex Term Loan,
and the remaining proceeds were applied to reduce the outstanding indebtedness
under the Essex Revolving Credit Agreement.
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THE REDEMPTION
At or prior to the closing of the Offerings, DLJ will sell 341,155 of its
Warrants to the Underwriters. DLJ may also sell up to 51,152 Warrants to the
Underwriters in connection with the exercise of the Underwriters' over-
allotment options. The Warrants obtained by the Underwriters from DLJ will be
redeemed by the Company at or prior to the closing of the Offerings for an
aggregate of 286,995 shares of Common Stock (or 330,026 shares of Common Stock
if the Underwriters' over-allotment option is exercised in full) (assuming in
each case an initial public offering price of $36 per share of Common Stock).
All shares of Common Stock obtained by the Underwriters as a result of the
redemption of the Warrants will be offered by the Underwriters in the
Offerings. Unless the context otherwise requires, shares of Common Stock sold
in the Offerings by the Underwriters as a result of the redemption of Warrants
are treated as if the corresponding number of shares of Common Stock were sold
by DLJ. The redemption of the Warrants by the Company as described in this
paragraph is referred to herein as the "Redemption".
REGISTRATION RIGHTS
BH Group, the GS Partnerships, DLJ and CEA have various rights to require
the registration of their shares of Common Stock. See "Shares Eligible for
Future Sale--Registration Rights".
MANAGEMENT STOCKHOLDERS AGREEMENT
The members of Essex' management who are stockholders of the Company (each a
"Management Stockholder") are each parties to the Management Stockholders and
Registration Rights Agreement dated as of October 9, 1992, as amended (the
"Management Stockholders Agreement"), which relates to the ownership of their
Common Stock. All Common Stock held by a Management Stockholder, whether
obtained before, as a result of, or subsequent to, the Offerings, is subject
to the Management Stockholders Agreement.
Set forth below is a summary of certain terms of the Management Stockholders
Agreement. The summary does not purport to be complete and is subject to, and
is qualified in its entirety by, the Management Stockholders Agreement, which
is filed as an exhibit to the Registration Statement of which this Prospectus
is a part.
Tag-along Rights. Subject to certain exceptions, if at any time BH Group or
its affiliates proposes to sell to a third party or parties, directly or
indirectly (other than in a registered public offering), any shares of Common
Stock, then provision will be made whereby each Management Stockholder will be
given the right to sell an equal proportion of his or her Common Stock to such
third party or parties on terms identical to those applicable to such proposed
sale.
Registration Rights. Management Stockholders have the right to "piggyback"
or include their Common Stock in any registration of Common Stock (i) demanded
by BH Group or its affiliates or any other stockholder (unless the Company is
contractually prohibited from granting such piggyback rights) or (ii) for a
primary offering by the Company (other than any registration relating to
employee benefit or similar plans or acquisitions of companies by the
Company), subject to the right of the managing underwriter to restrict the
size of the registration if the number of shares requested to be sold by
Management Stockholders would have an adverse effect on the offering. BH Group
may demand registration of Common Stock held by it at any time.
Termination. The Management Stockholders Agreement (other than with respect
to pending purchases and sales) will terminate thirty days following BH Group
and its affiliates ceasing to have beneficial ownership of at least 7,000,000
shares of Common Stock.
LIMITATIONS ON LIABILITY OF OFFICERS AND DIRECTORS
The Restated Certificate and the By-laws provide broadly for indemnification
of the officers and directors of the Company. The Restated Certificate
provides that no director shall be personally liable
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to the Company or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware
General Corporation Law or (iv) for any transaction from which the director
derived an improper personal benefit. The effect of the provision in the
Restated Certificate is to eliminate the right of the Company and its
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of the fiduciary
duty of care as a director (including breaches resulting from negligent or
grossly negligent behavior) except in the situations described in clauses (i)
through (iv) above. This provision does not limit or eliminate the rights of
the Company or any stockholder to seek nonmonetary relief such as an
injunction or recession in the event of a breach of a director's duty of care.
The By-laws also provide a broad right of indemnification to the directors,
officers, employees and agents of the Company. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors or
officers pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 150,000,000 shares
of Common Stock, par value $0.01 per share, and 5,000,000 shares of preferred
stock, par value $0.01 per share ("Preferred Stock"). The number of shares of
authorized Common Stock or Preferred Stock may, however, at any time be
increased or reduced (but not below the number of shares of Common Stock or
Preferred Stock outstanding) by the holders of a majority of voting power of
the stock of the Company.
PREFERRED STOCK
No shares of Preferred Stock are currently outstanding and no shares of
Preferred Stock will be outstanding immediately after the closing of the
Offerings. The Board of Directors has the authority, without further action by
the stockholders, to issue up to 5,000,000 shares of Preferred Stock in one or
more series and to fix the rights, preferences, qualifications, limitations
and restrictions of each such series. Although it presently has no intention
to do so, the Board of Directors, without stockholder approval, could issue
Preferred Stock with voting, conversion or other rights that could adversely
affect the voting power of the holders of Common Stock and that could have
certain anti-takeover effects.
COMMON STOCK
As of June 30, 1997, there were 29,027,762 shares of Common Stock
outstanding and held of record by approximately 133 stockholders.
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Such
stockholders have no right to cumulate their votes in the election of
directors. Subject to preferences that may be applicable to any outstanding
shares of Preferred Stock, holders of Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of
funds legally available therefor. In the event of a liquidation, dissolution
or winding up of the Company, holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities and liquidation
preferences of any outstanding shares of Preferred Stock. Holders of Common
Stock have no right to convert their Common Stock into any other securities.
There are no redemption or sinking fund provisions applicable to the Common
Stock. All outstanding shares of Common Stock are, and all shares of Common
Stock to be outstanding upon completion of the Offerings will be, duly
authorized, validly issued, fully paid and nonassessable.
After the consummation of the Offerings, BH Group will beneficially own
approximately 39.2% of the Common Stock (36.2% on a fully diluted basis). As
long as BH Group continues to own in the aggregate a large percentage of the
outstanding shares of Common Stock, BH Group will have the power to elect the
entire Board of Directors of the Company and, in general, to determine the
outcome of any corporate transaction or other matter submitted to the
stockholders for approval, including mergers, consolidations and the sale of
all or substantially all of the Company's assets, to prevent or cause a change
in control of the Company, and to approve substantially all amendments to the
Restated Certificate. See "Risk Factors--Principal Stockholders".
CERTAIN ANTI-TAKEOVER MATTERS
The Restated Certificate and By-laws include a number of provisions that may
have the effect of encouraging persons considering unsolicited tender offers
or other unilateral takeover proposals to negotiate with the Board of
Directors rather than pursue non-negotiated takeover attempts. These
provisions include:
Classified Board of Directors. The Restated Certificate provides for a Board
of Directors divided into three classes, with one class to be elected each
year to serve for a three-year term. As a
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result, at least two annual meetings of stockholders may be required for the
stockholders to change a majority of the Board of Directors. In addition, the
stockholders of the Company can only remove directors for cause. The
classification of directors and the inability of stockholders to remove
directors without cause will make it more difficult to change the composition
of the Board of Directors, but will promote a continuity of existing
management.
Advance Notice Requirements. The By-laws establish advance notice procedures
with regard to stockholder proposals relating to the nomination of candidates
for election as directors or new business to be brought before meetings of
stockholders of the Company. These procedures provide that notice of such
stockholder proposals must be timely given in writing to the Secretary of the
Company prior to the meeting at which the action is to be taken. Generally, to
be timely, notice must be received at the principal executive offices of the
Company not less than 60 days nor more than 90 days prior to the meeting. The
notice must contain certain information specified in the By-laws.
Special Meetings of Stockholders. The By-laws deny stockholders the right to
call a special meeting of stockholders. The By-laws provide that special
meetings of the stockholders may be called only by the Company's Chief
Executive Officer or a majority of the Board of Directors.
Written Consent of Stockholders. The Restated Certificate requires all
stockholder actions to be taken by a vote of the stockholders at an annual or
special meeting, unless the action is approved by a majority of the Board of
Directors. In case of such approval, the action may be taken by written
consent of the number of stockholders otherwise required for approval of such
action, subject to compliance with the notice and other requirements of the
Restated Certificate and By-laws.
Amendment of By-laws and Charter. The By-laws and the Restated Certificate
require the approval of 66 2/3% of the voting shares for amending any By-law
or those provisions of the Restated Certificate described in this section.
These provisions will make it more difficult to dilute the anti-takeover
effects of the By-laws and Restated Certificate.
Blank Check Preferred Stock. The Restated Certificate provides for 5,000,000
authorized shares of Preferred Stock, none of which has been issued. The
existence of authorized but unissued Preferred Stock may enable the Board of
Directors to render more difficult or to discourage an attempt to obtain
control of the Company by means of a merger, tender offer, proxy contest or
otherwise. For example, if in the due exercise of its fiduciary obligations,
the Board of Directors were to determine that a takeover proposal is not in
the Company's best interests, the Board of Directors could cause shares of
Preferred Stock to be issued without stockholder approval in one or more
private offerings or other transactions that might dilute the voting or other
rights of the proposed acquirer or insurgent stockholder or stockholder group.
In this regard, the Restated Certificate grants the Board of Directors broad
power to establish the rights and preferences of authorized and unissued
Preferred Stock. The issuance of shares of Preferred Stock pursuant to the
Board of Directors' authority described above could decrease the amount of
earnings and assets available for distribution to holders of Common Stock and
adversely affect the rights and powers, including voting rights, of such
holders and may have the effect of delaying, deferring or preventing a change
in control of the Company. The Board of Directors currently does not intend to
seek stockholder approval prior to any issuance of Preferred Stock, unless
otherwise required by law.
LISTING
The Common Stock is listed on the NYSE under the trading symbol "SXC".
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is The Bank of New
York. Its address is 101 Barclay Street, New York, NY 10286, and its telephone
number is (212) 815-2454.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
RESTATED CREDIT AGREEMENT
In October 1996, Essex International and Essex entered into the Essex
Revolving Credit Agreement with the lenders named therein and The Chase
Manhattan Bank, as Administrative Agent. The Essex Revolving Credit Agreement
was amended and restated as the Restated Credit Agreement, effective as of
April 23, 1997.
Set forth below is a summary of certain terms of the Restated Credit
Agreement. The summary does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, the Restated Credit Agreement,
which is included as an exhibit to the Registration Statement of which this
Prospectus is part. For the purposes of the following discussion, capitalized
terms used therein and not otherwise defined have the meanings given to them
in the Restated Credit Agreement.
General. The Restated Credit Agreement provides for up to $370.0 million in
revolving loans, subject to specified percentages of eligible assets and
reduced by outstanding borrowings under the Company's Canadian Credit
Agreement and unsecured bank lines of credit. The Restated Credit Agreement
also provides a $25.0 million letter of credit subfacility and terminates on
October 31, 2001. As of June 30, 1997, the Company had $109.4 million of
undrawn capacity based upon a Borrowing Base of $323.0 million, reduced by
outstanding borrowings under (i) the Restated Credit Agreement ($185.0
million), (ii) unsecured bank lines of credit ($21.0 million) and (iii) the
Canadian Credit Agreement ($7.6 million).
The Restated Credit Agreement is secured by all the capital stock of Essex
and substantially all the Company's assets and real property.
Prepayments. The Restated Credit Agreement may be repaid by the Company at
any time without penalty. The Restated Credit Agreement is subject to
mandatory prepayment if certain amounts outstanding under the Restated Credit
Agreement exceed the Borrowing Base or the Senior Note Indenture Revolving
Credit Incurrence Limit. At June 30, 1997, the Borrowing Base was $323.0
million and the Senior Note Indenture Revolving Credit Incurrence Limit was
$314.5 million.
Interest Rate. Loans under the Restated Credit Agreement bear interest at
rates, depending on the type of loan incurred, of (i) adjusted LIBOR plus a
spread based on a specified leverage ratio, which spread ranges from 0.375% to
1.500% or (ii) bank prime plus a spread based on a specified leverage ratio,
which spread ranges from 0% to 0.500%. The spread over the LIBOR and prime
rates can be reduced to 0.375 and 0%, respectively, if a certain specified
leverage ratio is achieved.
Fees. Commitment fees during the revolving loan period are 0.125%, 0.150%,
0.200%, 0.250%, 0.300%, or 0.375% of the average daily unused portion of the
available credit based upon the Company's Leverage Ratio. The Company's
Leverage Ratio as of June 30, 1997, was 2.20 to 1.00.
Negative Covenants. The Company is required to maintain a ratio of
Consolidated Current Assets to Consolidated Current Liabilities of 2.00 to
1.00. As of June 30, 1997, this ratio was 2.97 to 1.00. The Company is
required to maintain Consolidated Net Worth of not less than the sum of,
subject to certain adjustments, (a) $80 million, (b) 50% of the Company's
Consolidated Net Income, (c) 100% of the Net Cash Proceeds of any Common
Equity Offering by the Company and (d) 100% of any capital contribution made
to the Company by one of its stockholders. As of June 30, 1997, the Company's
Consolidated Net Worth was $248.6 million or 141% of that required to be
maintained.
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The Restated Credit Agreement also requires the maintenance of an Interest
Coverage Ratio of not less than 2.00 to 1.00, a Leverage Ratio prior to March
31, 1998, of not more than 5.00 to 1.00 decreasing to 4.00 to 1.00 by March
31, 2000, and a Senior Secured Leverage Ratio prior to March 31, 1998, of not
more than 3.00 to 1.00 decreasing to 2.25 to 1.00 by March 31, 2000. As of
June 30, 1997, the Company's Interest Coverage Ratio, Leverage Ratio and
Senior Secured Leverage Ratio were 4.87 to 1.00, 2.20 to 1.00 and 1.08 to
1.00, respectively.
The Restated Credit Agreement contains other customary covenants, including
covenants on the incurrence of indebtedness, liens and guarantees, mergers,
sales of assets, lease obligations, investments and, with certain exceptions,
prepayment of indebtedness and transactions with affiliates. Capital
Expenditures are generally limited to $40.0 million per year plus any unspent
carry over from prior years and the incurrence of unsecured indebtedness is
limited to $50 million. The Restated Credit Agreement also restricts the
payment of dividends by Essex to the Company and prohibits the payment of
dividends by Essex International to its stockholders.
Events of Default. The Restated Credit Agreement contains customary events
of default, including a failure to pay principal or interest, a material
inaccuracy of a representation or warranty, a failure to comply with certain
covenants, a default on other indebtedness in excess of $5.0 million, any
Security Document ceasing to be in full force and effect and the entry of
certain unbonded or unstayed judgments or decrees against the Company of $2.0
million or more. In addition, it is an event of default (i) if BH Group and
its affiliates beneficially own less than 20%, on a fully diluted basis, of
the voting power for the election of directors of the Company, (ii) if any
person or group (other than BH Group and its affiliates), has the power to
vote a greater percentage of the voting power for the election of directors of
the Company than does the BH Group and its affiliates, (iii) if any person or
group, other than a group consisting solely of BH Group and its affiliates,
DLJ, the GS Partnerships and certain officers or employees of the Company have
acquired the power to exercise a controlling influence over the management of
policies of the Company or (iv) if a Change of Control (as defined in the
Essex Senior Note Indenture) occurs. In the case of an event of default, all
revolving credit commitments may terminate and all amounts outstanding under
the Essex Revolving Credit Agreement may become due and payable. The Offerings
will not trigger an event of default.
SENIOR NOTES
In May 1993, Essex issued $200 million aggregate principal amount of notes
(the "Essex Senior Notes") pursuant to an indenture (the "Essex Senior Note
Indenture") between Essex and NBD Bank, National Association, as trustee. Set
forth below is a summary of certain terms of the Essex Senior Note Indenture.
The summary does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the Essex Senior Note Indenture,
which is included as an exhibit to the Registration Statement of which this
Prospectus is part. For the purposes of the following discussion, capitalized
terms used therein and not otherwise defined have the meanings given to them
in the Essex Senior Note Indenture.
General. The Essex Senior Notes bear interest at 10% per annum, payable
semiannually and are due in May 2003. The Essex Senior Notes are general
unsecured obligations of Essex limited to $200 million aggregate principal
amount.
Redemption. At the option of the Company, the Essex Senior Notes may be
redeemed, commencing in May 1998, in whole or in part, at redemption prices
ranging from 103.75% in 1998 to 100% in 2001, in each case plus accrued and
unpaid interest.
Covenants. The Essex Senior Note Indenture contains customary covenants. The
Essex Senior Note Indenture restricts the incurrence of Debt by the Company
unless the Company has an EBITDA Coverage Ratio of greater than 2.0 to 1.0 or
unless another exemption is available. At June 30, 1997, the Company had a
4.87 to 1.0 EBITDA Coverage Ratio. The Essex Senior Note Indenture also
restricts the issuance of Debt by each of the Company's subsidiaries to the
sum of (i) 50% of the
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book value of such subsidiary's inventory (before giving effect to any LIFO
Reserve) and (ii) 80% of the book value of such subsidiary's accounts
receivable (subject to certain exceptions). At June 30, 1997, Essex could have
incurred $314.5 million of Debt under such provision. Dividends, distributions
and repurchases of capital stock also are limited under the Essex Senior Note
Indenture to 50% of the Company's Consolidated Net Income plus the Net Cash
Proceeds of certain equity issuances. At June 30, 1997, the Company could not
have paid any dividends due to the Limitation on Restricted Payments
provision. The Essex Senior Note Indenture also restricts the incurrence of
secured debt, sale and leaseback transactions, sales of assets and
transactions with affiliates.
Events of Default. The Essex Senior Note Indenture contains customary events
of default, including a failure to pay principal or interest, a payment
default with respect to, or the acceleration of, other indebtedness in excess
of $10.0 million, the entry of certain unstayed judgments in excess of $10.0
million and certain events of bankruptcy or insolvency.
Change of Control. Upon a Change in Control (as defined below), each holder
of the Essex Senior Notes will have the right to require Essex to repurchase
all or any part of such holder's Senior Notes at a repurchase price equal to
101% of the principal amount thereof, plus accrued and unpaid interest.
"Change of Control" is defined in the Essex Senior Note Indenture as (i) the
acquisition by any person (other than BH Group and its affiliates, the GS
Partnerships, DLJ and certain other stockholders) of more than 35% of the
Company's Voting Stock or (ii) during any two-year period, the directors who
were on the Company's Board of Directors at the beginning of such period (and
any directors elected by, or whose nomination was approved by, the Board)
ceasing for any reason to constitute a majority of the Board then in office.
The Offerings will not cause a Change of Control (as defined in the Essex
Senior Note Indenture).
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, the Company will have outstanding
29,438,906 shares of Common Stock. In addition, the Company will have
outstanding options to purchase up to 2,802,346.5 shares of Common Stock
(which pursuant to the applicable option agreements may be reduced to
2,407,749 shares). Of such outstanding shares, 29,001,197 will be freely
transferable without restriction or further registration under the Securities
Act (pursuant to Rule 144(k) or otherwise), except those shares owned by
"affiliates" of the Company (as such term is defined in Rule 144). Upon
completion of the Offerings, the BH Group will own 11,547,231 shares of Common
Stock. The BH Group is an affiliate of the Company for the purposes of Rule
144 and thus may not transfer such shares in the absence of registration under
the Securities Act or pursuant to the restrictions of Rule 144. The remaining
437,709 shares of Common Stock will be "restricted shares" within the meaning
of Rule 144 and may not be sold in the absence of registration under the
Securities Act or an available exemption therefrom (such as Rule 144).
The Company, the Selling Stockholders, BH Group, each of the directors of
the Company and each of Messrs. Abbott, Faucher, McGregor, Owen and Schriefer
have agreed not to sell or otherwise dispose of any shares of Common Stock
(subject to certain exceptions) for a period of 90 days after the date of this
Prospectus without the prior written consent of Goldman Sachs. See
"Underwriting". Following the 90-day period, the 17,156,280 shares of Common
Stock held by the BH Group and such other stockholders will be eligible for
resale pursuant to Rule 144, including 16,246,181 shares of Common Stock
subject to the volume and other resale limitations thereof. Sales of
substantial amounts of Common Stock in the public market, under Rule 144, or
otherwise, after the Offerings, or the perception that such sales could occur,
may adversely affect prevailing market prices of the Common Stock.
In addition, after the 90-day period the BH Group has the right to demand
registration under the Securities Act of shares of Common Stock and has the
right to have shares of Common Stock included in future registered public
offerings of securities by the Company. See "--Registration Rights--BH Group".
In addition, the GS Partnerships and DLJ also have certain rights to demand
the registration of their shares under the Securities Act (see "--Registration
Rights--Other Initial Shareholders--Demand Registration Rights") and certain
stockholders have the right to have shares of Common Stock included in future
registered public offerings of securities by the Company (see""--Other Initial
Shareholders--Piggyback Registration Rights" and "--Registration Rights--
Piggyback Registration Rights"). The registration rights of certain
stockholders, particularly the BH Group, could adversely affect the future
market price of the Common Stock and could impair the Company's future ability
to raise capital through an offering of its equity securities.
REGISTRATION RIGHTS
BH GROUP
Pursuant to the Management Stockholders Agreement, BH Group and certain
related parties have the right to require that the Company register any or all
of its shares of Common Stock in a registered offering pursuant to the
Securities Act. Expenses, other than underwriters discounts and commissions,
incurred in connection with such registration are to be paid by the Company.
The Company also is required to indemnify BH Group and such related parties
against certain liabilities, including liabilities arising under the
Securities Act. BH Group is not restricted in the number of times it may
require the Company to register its shares of Common Stock.
Pursuant to the Registration Rights Agreement dated April 14, 1997 (the "BH
Group Registration Rights Agreement"), between BH Group, certain related
parties and the Company, BH Group has the
64
<PAGE>
right to require the Company, at the Company's expense, to prepare and file
with the SEC and keep continuously effective, a "shelf" registration statement
covering offers and sales in accordance with Rule 415 of the Securities Act,
or any similar rule that may be adopted by the SEC, that covers some or all of
the Common Stock owned by BH Group and its affiliates, including any shares of
Common Stock subsequently acquired by BH Group and its affiliates. While the
Company is required under the BH Group Registration Rights Agreement to
maintain the shelf registration statement in effect until 90 days after the BH
Group and its affiliates ceases to beneficially own more than 10% of the
outstanding Common Stock, the Company may for good business reasons impose a
30-day "black-out" period on sales under the registration statement, but no
black-out period may occur within 90 days of a prior black-out period and the
aggregate of all such black-out periods may not exceed 90 days in any one
year. The Company is required to pay all expenses in connection with the
registration and is required to indemnify BH Group and its affiliates against
certain liabilities, including liabilities arising under the Securities Act.
After the Offerings, the BH Group Registration Rights Agreement will cover
16,198,937 shares of Common Stock.
OTHER INITIAL SHAREHOLDERS
In connection with the Acquisition, DLJ, the GS Partnerships and CEA
(together with certain transferees, the "Other Initial Shareholders") entered
into a Registration Rights Agreement with the Company (the "Registration
Rights Agreement"). Set forth below is a summary of certain terms of the
Registration Rights Agreement. The summary does not purport to be complete and
is subject to, and is qualified in its entirety by reference to, the
Registration Rights Agreement, which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
Demand Registration Rights. Pursuant to the Registration Rights Agreement,
the GS Partnerships and DLJ each have the ability to require (a "Demand") the
Company to register any or all of the shares of Common Stock or Warrants held
by it in a public offering pursuant to the Securities Act. The GS Partnerships
(collectively) and DLJ each have the right to make two Demands plus an
additional Demand where the offering includes 10% of the Common Shares
outstanding immediately after the Acquisition having an aggregate offering
price of at least $35 million. Under certain circumstances, the number of
shares and aggregate price requirements discussed in the immediately preceding
sentence can be reduced to 7.5% of the Common Stock outstanding immediately
after the Acquisition having an aggregate offering price of at least $26.25
million. Demand registrations are subject to the right of the managing
underwriter to restrict the size of the registration if the number of shares
and, if applicable, Warrants, requested to be sold could not be sold within a
price range acceptable to the selling stockholders.
Piggyback Registration Rights. Pursuant to the Registration Rights
Agreement, the Other Initial Shareholders have the right to "piggyback" or
include their Common Stock in any registration of Common Stock made by the
Company, subject to the right of the managing underwriter to restrict the size
of the registration if the number of shares requested to be sold by the
piggyback stockholders would have an adverse effect on the offering.
The Registration Rights Agreement also provides that the Other Initial
Shareholders have the right to piggyback or include their Warrants in any
registration made by the Company of warrants to purchase Common Stock, and as
of October 9, 1997, the right to piggyback their Warrants in any registration
of Common Stock made by the Company, subject in each case to the right of the
managing underwriter to restrict the size of the registration if the number of
Warrants and shares requested to be sold by the piggyback stockholders would
have an adverse effect on the offering.
Expenses. Expenses, other than underwriters discounts and commissions,
incurred in connection with such Demand or piggyback registration pursuant to
the Registration Rights Agreement
65
<PAGE>
are to be paid by the Company. The Company also has agreed to indemnify the
Other Initial Shareholders against certain liabilities, including those
arising under the Securities Act.
Shares Covered. After the consummation of the Offerings, the Demand
registration rights in the Registration Rights Agreement will cover 311,535
shares of Common Stock and Warrants to purchase 51,152 shares of Common Stock
and the "piggyback" rights in such agreement will cover such shares plus an
additional 145,334 shares of Common Stock.
PIGGYBACK REGISTRATION RIGHTS
Pursuant to the Management Stockholders Agreement, Management Stockholders
have the right to "piggyback" or include certain of their Common Stock in any
registration of Common Stock (i) demanded by BH Group (unless the Company is
contractually prohibited from granting such piggyback rights) or (ii) for a
primary offering by the Company (other than any registration relating to
employee benefit or similar plans or acquisitions of companies by the
Company), subject to the right of the managing underwriter to restrict the
size of the registration if the number of shares requested to be sold by
Management Stockholders would have an adverse effect on the offering.
Expenses, other than underwriters discounts and commissions, incurred in
connection with the piggyback registration are to be paid by the Company.
66
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS OF COMMON STOCK
GENERAL
The following is a general discussion of United States Federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
holder who is not a United States person (a "Non-U.S. Holder"), as defined
below. This discussion does not address all aspects of United States Federal
income and estate taxes and does not address any foreign, state or local tax
consequences. Furthermore, this discussion is based on provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), existing, temporary
and proposed regulations promulgated thereunder and administrative and
judicial interpretations thereof, all as in effect or proposed on the date
hereof and all of which are subject to change, possibly with retroactive
effect, or different interpretations. Each prospective purchaser of Common
Stock is advised to consult a tax advisor with respect to current and possible
future United States Federal income and estate tax consequences of holding and
disposing of Common Stock as well as any tax consequences that may arise under
the laws of any state, local, foreign or other taxing jurisdiction. For
purposes of this summary, a "U.S. Holder" with respect to Common Stock is (i)
an individual who is a citizen or resident of the United States, (ii) a
corporation or other entity taxable as a corporation created or organized in
the United States or under the laws of the United States or of any state
thereof (including the District of Columbia), or (iii) an estate or trust the
income of which is includable in gross income for United States Federal income
tax purposes regardless of its source; and a "Non-U.S. Holder" is any person
other than a U.S. Holder.
DISTRIBUTIONS
Distributions on the shares of Common Stock (other than distributions in
redemption of the shares of Common Stock subject to section 302(b) of the
Code) will constitute dividends for United States Federal income tax purposes
to the extent paid from current or accumulated earnings and profits of the
Company (as determined under United States Federal income tax principles).
Dividends paid to a Non-U.S. Holder of Common Stock that are not effectively
connected with a U.S. trade or business of the Non-U.S. Holder will be subject
to United States withholding tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty. Moreover, under United States
Treasury regulations which are currently in effect, withholding is generally
imposed on the gross amount of the distribution, without regard to whether the
corporation has sufficient earnings and profits to cause the distribution to
be a dividend for Federal income tax purposes. Dividends that are effectively
connected with the conduct of a trade or business within the United States or,
if a tax treaty applies, are attributable to a U.S. permanent establishment of
the non-U.S. Holder, are exempt from United States Federal withholding tax but
are subject to United States Federal income tax on a net income basis at
applicable graduated individual or corporate rates. Any such dividends
effectively connected with the conduct of a trade or business within the
United States or attributable to a U.S. permanent establishment received by a
foreign corporation may, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty. Certain certification and
disclosure requirements must be complied with in order to be exempt from
withholding under the effectively connected income or permanent establishment
exemptions.
Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of
such country for purposes of the withholding discussed above, and, under the
current interpretation of United States Treasury regulations, for purposes of
determining the applicability of a tax treaty rate. Under proposed United
States Treasury regulations (the "Proposed Regulations") not currently in
effect, however, a Non-U.S. Holder of Common Stock would be required to
satisfy applicable certification and other requirements to qualify for
withholding at an applicable treaty rate. The Proposed Regulations would
require a Non-U.S. Holder to file a beneficial owner withholding certificate,
e.g., a Form W-8, to obtain the lower treaty rate. In addition,
67
<PAGE>
under the Proposed Regulations, in the case of Common Stock held by a foreign
partnership, (x) the certification requirement would generally be applied to
the partners of the partnership and (y) the partnership would be required to
provide certain information, including a United States taxpayer identification
number. The Proposed Regulations also provide look-through rules for tiered
partnerships. The Proposed Regulations would apply to dividends paid after
December 31, 1997, subject to certain transitional rules. It is not certain
whether, or in what form, the Proposed Regulations will be adopted as final
regulations.
A Non-U.S. Holder of Common Stock may obtain a refund of any excess amounts
withheld by filing an appropriate claim for refund with the Internal Revenue
Service (the "IRS").
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder will generally not be subject to United States Federal
income tax with respect to gain recognized on a sale or other disposition of
Common Stock unless (i) the gain is effectively connected with a trade or
business of the Non-U.S. Holder in the United States, (ii) in the case of a
Non-U.S. Holder who is an individual and holds Common Stock as a capital
asset, such holder is present in the United States for 183 or more days in the
taxable year of the sale or other disposition and certain other conditions are
met, or (iii) the Company is or has been a "U.S. real property holding
corporation" for United States Federal income tax purposes at any time during
the five-year period ending on the date of the disposition, or, if shorter,
the period during which the Non-U.S. Holder held the Common Stock (the
"applicable period"), and the Non-U.S. Holder owns, actually or
constructively, at any time during the applicable period more than five
percent of the Common Stock. The Company believes that it is not currently a
"U.S. real property holding corporation" for United States Federal income tax
purposes.
FEDERAL ESTATE TAX
Common Stock held by an individual Non-U.S. Holder at the time of death will
be included in such holder's gross estate for United States Federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Under Treasury regulations, the Company must report annually to the IRS and
to each Non-U.S. Holder the amount of dividends paid to such holder and the
tax withheld with respect to such dividends. These information reporting
requirements apply even if withholding was not required because the dividends
were effectively connected with a U.S. trade or business in the United States
of the Non-U.S. Holder or withholding was reduced or eliminated by an
applicable income tax treaty. Copies of the information returns reporting such
dividends and withholding may also be made available to the tax authorities in
the country in which the Non-U.S. Holder resides under the provisions of an
applicable income tax treaty.
Backup withholding (which generally is a withholding tax imposed at the rate
of 31% on certain payments to persons that fail to furnish certain information
under the United States information reporting requirements) will generally not
apply to dividends paid to Non-U.S. Holders that either are subject to the
U.S. withholding tax, whether at 30% or a reduced treaty rate, or that are
exempt from such withholding because such dividends constitute effectively
connected income. See discussion under "Distributions" above for rules
regarding Proposed Regulations reporting requirements to avoid backup
withholding. As a general matter, information reporting and backup withholding
will not apply to a payment by or through a foreign office of a foreign broker
of the proceeds of a sale of Common Stock effected outside the United States.
However, information reporting requirements (but not backup withholding) will
apply to a payment by or through a foreign office of a broker of the proceeds
of a sale
68
<PAGE>
of Common Stock effected outside the United States where that broker (i) is a
United States person, (ii) is a foreign person that derives 50% or more of its
gross income for certain periods from the conduct of a trade or business in
the United States or (iii) is a "controlled foreign corporation" as defined in
the Code (generally, a foreign corporation controlled by certain United States
shareholders), unless the broker has documentary evidence in its records that
the holder is a Non-U.S. Holder and certain conditions are met or the holder
otherwise establishes an exemption. Payment by a United States office of a
broker of the proceeds of a sale of Common Stock is subject to both backup
withholding and information reporting unless the holder certifies to the payor
in the manner required as to its non-United States status under penalties of
perjury or otherwise establishes an exemption.
Amounts withheld under the backup withholding rules do not constitute a
separate United States Federal income tax. Rather, any amounts withheld under
the backup withholding rules will be refunded or allowed as a credit against
the holder's United States Federal income tax liability, if any, provided the
required information or appropriate claim for refund is filed with the IRS.
THE FOREGOING DISCUSSION IS A SUMMARY OF THE PRINCIPAL UNITED STATES FEDERAL
INCOME AND ESTATE TAX CONSEQUENCES OF THE OWNERSHIP, SALE OR OTHER DISPOSITION
OF THE COMMON STOCK BY NON-UNITED STATES HOLDERS. ACCORDINGLY, INVESTORS ARE
URGED TO CONSULT WITH THEIR TAX ADVISORS WITH RESPECT TO THE UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF COMMON
STOCK INCLUDING THE APPLICATION AND EFFECT OF THE LAWS OF ANY STATE, LOCAL,
FOREIGN OR OTHER TAXING JURISDICTION.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This Prospectus, and the Registration Statement of which this Prospectus is
a part, contains various forward-looking statements and information that are
based on Company management's belief as well as assumptions made by and
information currently available to Company management. Although the Company
believes that the expectations reflected in such forward-looking statements
are reasonable, it can give no assurance that such expectations will prove to
have been correct. Such statements are subject to certain risks, uncertainties
and assumptions. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those expected. Among the key factors that may be
have a direct bearing on the Company's operating results are fluctuations in
the economy, successful integration of future acquisitions, demand for the
Company's products, the impact of price competition, including the continued
strength of building wire pricing and fluctuations in the price of copper and
the Company's ability to pass on copper price increases in a timely manner.
VALIDITY OF COMMON STOCK
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Cravath, Swaine & Moore, New York, New York, and for
the Underwriters by Sullivan & Cromwell, New York, New York.
EXPERTS
The consolidated financial statements of the Company at December 31, 1995
and 1996, and for each of the three years in the period ended December 31,
1996, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
69
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a registration statement on Form S-1
(the "Registration Statement") pursuant to the Securities Act of 1933 (the
"Securities Act"), covering the Common Stock offered hereby. This Prospectus
does not contain all of the information set forth in the Registration
Statement. Certain parts are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules filed as a part thereof.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document are summaries of the material terms of such
contract, agreement or document. With respect to each such contract, agreement
or other document filed as an exhibit to the Registration Statement, reference
is made to the exhibit for a more complete description of the matter involved.
The Registration Statement (including the exhibits and schedules thereto)
filed with the Commission by the Company may be inspected and copied (as
prescribed rates) at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at the regional offices of the Commission maintained at Seven World Trade
Center, 13th Floor, New York, New York 10048, and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. The Commission maintains
a web site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, and, in accordance therewith, files reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information filed by the Company may be inspected without
charge at the public reference facilities maintained by the Commission at the
addresses set forth above and may also be viewed at the Commission's web site.
In addition, the Company will furnish its stockholders with annual reports
containing audited financial statements certified by its independent public
accountants and quarterly reports for the first three quarters of each fiscal
year containing unaudited summary financial information.
70
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
ESSEX INTERNATIONAL INC.
Report of Independent Auditors........................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995 and as of
June 30, 1997 (unaudited)............................................... F-3
Consolidated Statements of Income for each of the three years in the
period
ended December 31, 1996 and for the six months ended June 30, 1997 and
1996 (unaudited)........................................................ F-4
Consolidated Statements of Cash Flows for each of the three years in the
period
ended December 31, 1996 and for the six months ended June 30, 1997 and
1996 (unaudited)........................................................ F-5
Notes to Consolidated Financial Statements............................... F-6
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors Essex International Inc.
We have audited the accompanying consolidated balance sheets of Essex
International Inc. (formerly known as BCP/Essex Holdings Inc.) as of December
31, 1996 and 1995 and the related consolidated statements of income and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Essex
International Inc. at December 31, 1996 and 1995 and the consolidated 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.
Ernst & Young LLP
Indianapolis, Indiana
January 28, 1997, except
for Note 13, as to which
the date is February 19,
1997.
F-2
<PAGE>
ESSEX INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS OF DOLLARS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 3,195 $ 4,429 $ 8,497
Accounts receivable (net of allowance of
$3,930, $5,239 and $5,872)................... 154,584 189,717 229,457
Inventories................................... 166,076 217,643 234,135
Other current assets.......................... 10,545 12,147 9,404
-------- -------- --------
Total current assets........................ 334,400 423,936 481,493
Property, plant and equipment, net............. 270,546 280,489 276,895
Excess of cost over net assets acquired (net of
accumulated
amortization of $13,221, $17,388 and
$19,491)...................................... 129,943 126,619 125,044
Other intangible assets and deferred costs (net
of accumulated amortization of $3,102, $4,501
and $4,003)................................... 9,187 7,417 6,134
Other assets................................... 1,987 4,294 6,150
-------- -------- --------
$746,063 $842,755 $895,716
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank......................... $ 11,760 $ 30,913 $ 28,607
Current portion of long-term debt............. 24,734 11,576 2,500
Accounts payable.............................. 66,797 71,243 64,345
Accrued liabilities........................... 44,598 63,346 67,361
Deferred income taxes......................... 15,345 15,151 14,080
-------- -------- --------
Total current liabilities................... 163,234 192,229 176,893
Long-term debt................................. 388,016 421,340 402,500
Deferred income taxes.......................... 66,809 58,043 52,900
Other long-term liabilities.................... 10,081 12,427 14,800
Redeemable preferred stock ($0.01 par value,
shares outstanding,
1995--2,033,782 and 1996--none)............... 48,820 -- --
Common stock subject to put ($0.01 par value,
shares outstanding, 1995--840,393 and 1996--
1,262,602).................................... 4,803 12,626 --
Stockholders' equity:
Common stock ($0.01 par value, shares
outstanding,
1995--16,818,707, 1996--22,793,955.5, and
1997--29,027,762, respectively).............. 168 228 290
Additional paid-in capital................... 85,779 139,145 199,160
Carry-over of Predecessor basis.............. (15,259) (15,259) (15,259)
Retained earnings (deficit).................. (6,388) 21,976 64,432
-------- -------- --------
Total stockholders' equity..................... 64,300 146,090 248,623
-------- -------- --------
$746,063 $842,755 $895,716
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
ESSEX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME
IN THOUSANDS OF DOLLARS, EXCEPT FOR SHARE DATA
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30
---------------------------------- -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $1,010,075 $1,201,650 $1,332,049 $645,943 $864,109
Cost of goods sold...... 846,611 1,030,511 1,102,460 543,293 696,528
Selling and
administrative
expenses............... 85,209 93,401 121,054 57,537 75,411
Other expense (income),
net.................... 1,114 1,032 2,045 (197) (74)
---------- ---------- ---------- -------- --------
Income from operations.. 77,141 76,706 106,490 45,310 92,244
Interest expense........ 60,155 49,055 39,994 20,324 21,274
---------- ---------- ---------- -------- --------
Income before income
taxes and extraordinary
charge................. 16,986 27,651 66,496 24,986 70,970
Provision for income
taxes.................. 9,500 14,380 28,988 11,000 28,300
---------- ---------- ---------- -------- --------
Income before
extraordinary charge... 7,486 13,271 37,508 13,986 42,670
Extraordinary charge--
debt retirement, net of
income tax benefit..... -- 2,971 1,183 -- --
---------- ---------- ---------- -------- --------
Net income.............. $ 7,486 $ 10,300 $ 36,325 $ 13,986 $ 42,670
========== ========== ========== ======== ========
Net income.............. $ 7,486 $ 10,300 $ 36,325 $ 13,986 $ 42,670
Preferred stock
redemption premium..... -- -- (4,185) -- --
Preferred stock dividend
requirement............ (6,008) (6,962) (4,248) (3,885) --
Accretion of preferred
stock.................. (687) (703) (2,024) (358) --
Increase in fair value
of common stock subject
to put................. -- -- (3,547) -- --
---------- ---------- ---------- -------- --------
Net income applicable to
common stock........... $ 791 $ 2,635 $ 22,321 $ 9,743 $ 42,670
========== ========== ========== ======== ========
Pro forma income per
share:
Pro forma income before
extraordinary charge... $ 1.34 $ .50 $ 1.46
Extraordinary charge.... .04 -- --
---------- -------- --------
Pro forma net income.... $ 1.30 $ .50 $ 1.46
========== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
ESSEX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS OF DOLLARS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- ---------------------------
1994 1995 1996 1996 1997
--------- --------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income............. $ 7,486 $ 10,300 $ 36,325 $ 13,986 $ 42,670
Adjustments to
reconcile net income
to cash provided by
(used for) operating
activities:
Depreciation and
amortization......... 31,420 34,205 33,944 16,942 16,699
Noncash interest
expense.............. 38,813 16,466 1,935 1,171 1,211
Noncash pension
expense.............. 2,328 1,947 3,021 1,387 1,899
Provision for losses
on accounts
receivable........... 1,332 676 1,175 673 846
Provision (benefit)
for deferred income
taxes................ (8,388) 486 (7,417) (1,675) (6,214)
Loss on disposal of
property, plant and
equipment............ 1,354 2,610 1,679 243 454
Loss on repurchase of
debt................. 187 4,951 1,971 -- --
Changes in operating
assets and
liabilities:
(Increase) decrease
in accounts
receivable.......... (27,160) (10,665) 6,288 (21,036) (40,586)
(Increase) decrease
in inventories...... (4,515) 3,762 (16,109) (9,768) (16,492)
Increase (decrease)
in accounts payable
and accrued
liabilities......... 6,837 15,193 6,531 (6,197) (1,366)
Net (increase)
decrease in other
assets and
liabilities......... (8,022) 9,823 (4,762) (8,340) 1,319
--------- --------- --------- --------- ---------
NET CASH PROVIDED BY
(USED FOR) OPERATING
ACTIVITIES.......... 41,672 89,754 64,581 (12,614) 440
--------- --------- --------- --------- ---------
INVESTING ACTIVITIES
Additions to property,
plant and equipment.. (30,109) (28,555) (25,569) (9,342) (14,156)
Proceeds from disposal
of property, plant
and equipment........ 227 2,419 533 337 3,198
Acquisitions.......... -- (24,934) (79,395) (7,631) --
Other investments..... (236) (459) (285) (362) (900)
Issuance of equity
interest in a
subsidiary........... -- 1,063 -- -- --
--------- --------- --------- --------- ---------
NET CASH USED FOR
INVESTING
ACTIVITIES.......... (30,118) (50,466) (104,716) (16,998) (11,858)
--------- --------- --------- --------- ---------
FINANCING ACTIVITIES
Proceeds from long-
term debt............ 106,000 428,390 493,900 90,200 291,400
Repayment of long-term
debt................. (106,396) (215,640) (473,734) (72,146) (319,316)
Proceeds from notes
payable to banks..... -- 160,030 537,550 265,688 309,634
Repayment of notes
payable to banks..... -- (148,270) (518,397) (257,325) (311,940)
Repurchase of
debentures........... (4,745) (272,850) -- -- --
Debt issuance costs... -- (4,691) (2,350) -- --
Proceeds from
exercised stock
options.............. 21 -- -- -- 186
Preferred stock
redemption........... -- -- (59,277) -- --
Proceeds from issuance
of common stock...... -- -- 63,677 -- 46,022
Common stock
repurchase........... -- -- -- -- (500)
--------- --------- --------- --------- ---------
NET CASH PROVIDED BY
(USED FOR) FINANCING
ACTIVITIES.......... (5,120) (53,031) 41,369 26,417 15,486
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ 6,434 (13,743) 1,234 (3,195) 4,068
Cash and cash
equivalents at
beginning of period.... 10,504 16,938 3,195 3,195 4,429
--------- --------- --------- --------- ---------
Cash and cash
equivalents at end of
period................. $ 16,938 $ 3,195 $ 4,429 $ -- $ 8,497
========= ========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA; UNAUDITED WITH RESPECT TO
INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
1997)
NOTE 1 ACQUISITIONS AND SIGNIFICANT ACCOUNTING POLICIES
Acquisition of Essex and the Company
On February 29, 1988, MS/Essex Holdings Inc. ("Predecessor" or the
"Company"), acquired Essex Group, Inc. ("Essex") from United Technologies
Corporation ("UTC") (the "1988 Acquisition"). The outstanding common stock of
the Company was beneficially owned by The Morgan Stanley Leveraged Equity Fund
II, L.P., certain directors and members of management of the Company and
Essex, and others.
On October 9, 1992, the Company was acquired (the "Acquisition") by merger
(the "Merger") of BE Acquisition Corporation ("BE") with and into the Company
with the Company surviving under the name BCP/Essex Holdings Inc. which
subsequently changed its name to Essex International Inc. ("Successor" or the
"Company"). BE was a newly organized Delaware corporation formed for the
purpose of effecting the Acquisition. Shareholders of BE included Bessemer
Holdings, L.P. (an affiliate and successor in interest to Bessemer Capital
Partners, L.P. ("BHLP")), management and other employees of Essex and certain
other investors. As a result of the Merger, the stockholders of BE became
stockholders of the Company. The effects of the Acquisition and Merger
resulted in a new basis of accounting reflecting estimated fair values for
assets and liabilities as of October 1, 1992. However, to the extent that the
Company's management had a continuing investment interest in the Company's
common stock, such fair values and contributed stockholders' equity (denoted
as carryover of Predecessor basis on the Consolidated Balance Sheets) were
reduced proportionately to reflect the continuing interest (approximately 10%)
at the prior historical cost basis.
Acquisition of Business
On October 31, 1996, Essex acquired substantially all of the assets and
certain liabilities of Triangle Wire and Cable, Inc. of Lincoln, Rhode Island
and its Canadian affiliate, FLI Royal Wire and Cable ("Triangle"), related to
the sales, marketing, manufacturing and distribution of electrical wire and
cable. The acquisition included four manufacturing facilities which produce a
broad range of building and industrial wire and cable. The total purchase
price for the net assets of Triangle, including acquisition costs, was
$71,764. The acquisition was financed from proceeds received under Essex'
revolving credit agreement.
The acquisition was recorded under the purchase method of accounting, and
accordingly, the results of operations of Triangle for the two months ended
December 31, 1996 and six months ended June 30, 1997 are included in the
accompanying consolidated financial statements. The purchase price has been
allocated to assets acquired and liabilities assumed based on their respective
fair values at the date of acquisition. The allocation of the purchase price,
which is preliminary, is summarized as follows:
<TABLE>
<S> <C>
Current assets.................................................. $ 73,343
Property, plant and equipment................................... 14,181
Current liabilities............................................. (17,304)
Deferred taxes.................................................. 1,544
--------
$ 71,764
========
</TABLE>
F-6
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 ACQUISITIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following unaudited pro forma consolidated financial information for the
Company for 1995 and 1996 is presented assuming the acquisition had occurred
on January 1, 1995:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Net sales........................................... $1,505,196 $1,561,224
Income before extraordinary charge.................. 11,809 40,049
Net income.......................................... 8,838 38,866
Net income per share................................ $ .32 $ 1.38
</TABLE>
The pro forma consolidated financial information does not purport to present
what the Company's consolidated results of operations would actually have been
if the acquisition had occurred on January 1, 1995 and is not intended to
project future results of operations.
Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary Essex and Essex' majority-owned subsidiaries.
All intercompany accounts and transactions have been eliminated. The Company
is a holding company with no operations and has virtually no assets other than
its ownership of all the outstanding stock of Essex.
Use of Estimates
The consolidated financial statements were prepared in conformity with
generally accepted accounting principles thereby requiring management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates.
Nature of Operations
The Company, through Essex, operates in one industry segment. Essex
develops, manufactures and markets electrical wire and cable and insulation
products. Essex' principal products in order of revenue are: building wire for
the construction industry; magnet wire for electromechanical devices such as
motors, transformers and electrical controls; voice and data communication
wire and cable; automotive wire and specialty wiring assemblies for
automobiles and trucks; and industrial wire for applications in construction,
appliances and recreational vehicles. Essex' customers are principally located
throughout the United States, without significant concentration in any one
region or any one customer. Essex performs periodic credit evaluations of its
customers' financial condition and generally does not require collateral.
Cash and Cash Equivalents
All highly liquid investments with a maturity of three months or less at the
date of purchase are considered to be cash equivalents.
Inventories
Inventories are stated at cost, determined principally on the last-in,
first-out ("LIFO") method, which is not in excess of market.
F-7
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 ACQUISITIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and depreciated over
estimated useful lives using the straight-line method.
Investments in Joint Venture
Investments in joint ventures are stated at cost adjusted for the Company's
share of undistributed earnings or losses.
Excess of Cost Over Net Assets Acquired
Excess of cost over net assets acquired primarily represents the excess of
the Company's purchase price over the fair value of the net assets acquired in
the Acquisition, and is being amortized by the straight-line method over 35
years. The Company's excess of cost over net assets acquired is assessed for
potential impairment whenever existing facts and circumstances indicate the
carrying value of those assets may not be recoverable. The assessment process
consists of estimating the future undiscounted cash flows of the businesses
for which the excess of cost over net assets acquired relates and comparing
the resultant amount to their carrying value to determine if an impairment has
occurred. If an impairment has occurred, an impairment loss would be
recognized for the excess of the carrying value over the fair value, as
measured on a discounted cash flow basis, of the excess of cost over net
assets acquired.
Other Intangible Assets and Deferred Costs
Other intangible assets and deferred costs consist primarily of deferred
debt issuance costs and are being amortized over the lives of the applicable
debt instruments using the straight line or bonds outstanding method and
charged to operations as additional interest expense.
Other Long-Term Liabilities
Other long-term liabilities consist primarily of accrued liabilities under
the Essex sponsored defined benefit pension plans for salaried and hourly
employees and the supplemental executive retirement plan.
Recognition of Revenue
Substantially all revenue is recognized at the time the product is shipped.
Pro forma Net Income Per Share
Pro forma per share data is computed based upon the weighted average number
of common and common equivalent shares, including common stock subject to put
outstanding for all periods presented. Common equivalent shares include
outstanding stock options and warrants. Common equivalent shares are not
included in the per share calculation where the effect of their inclusion
would be antidilutive, except that, in accordance with the Securities and
Exchange Commission requirements, common and common equivalent shares issued
during the twelve-month period immediately preceding the filing of the initial
public offering ("IPO") have been included in the calculation of pro forma
F-8
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 ACQUISITIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
income per common and common equivalent share as if they were outstanding for
all periods, using the treasury stock method and the initial public offering
price. Additionally, because the proceeds of the common stock issued in July
1996 were used to redeem all outstanding preferred stock, the preferred stock
dividend requirement and accretion of preferred stock that appear on the
income statement as reductions to net income have been excluded.
Reclassification
Certain 1994 and 1995 amounts have been reclassified to conform with the
current year presentation.
Unaudited Interim Financial Statements
The unaudited interim consolidated financial statements contain all
adjustments, consisting of normal recurring adjustments, which are, in the
opinion of Company management necessary to present fairly the consolidated
financial position of the Company as of June 30, 1997, and the consolidated
results of operations and cash flows for the six months ended June 30, 1996
and 1997, respectively. Results of operations for the interim periods
presented are not necessarily indicative of the results for the full fiscal
year.
Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share ("FAS 128"), which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary (basic) earnings
per share, the dilutive effect of stock options and warrants will be excluded.
The impact is expected to result in an increase in pro forma primary (basic)
earnings per share for the six months ended June 30, 1996 and 1997 of $.08 and
$.19, respectively. The impact of FAS 128 on the calculation of fully diluted
earnings per share for these quarters is not expected to be material.
NOTE 2 INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Finished goods............................. $146,821 $171,213 $200,784
Raw materials and work in process.......... 52,366 56,840 56,760
-------- -------- --------
199,187 228,053 257,544
LIFO reserve............................... (33,111) (10,410) (23,409)
-------- -------- --------
$166,076 $217,643 $234,135
======== ======== ========
</TABLE>
Principal elements of cost included in inventories are copper, other
purchased materials, direct labor and manufacturing overhead. Inventories
valued using the LIFO method amounted to $161,449, $210,454 and $223,820 at
December 31, 1995 and 1996 and June 30, 1997, respectively.
F-9
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land......................................... $ 8,877 $ 9,386 $ 9,342
Buildings and improvements................... 87,704 95,600 92,910
Machinery and equipment...................... 240,257 272,621 279,206
Construction in process...................... 18,049 14,990 18,669
-------- -------- --------
354,887 392,597 400,127
Less accumulated depreciation................ 84,341 112,108 123,232
-------- -------- --------
$270,546 $280,489 $276,895
======== ======== ========
</TABLE>
NOTE 4 ACCRUED LIABILITIES
Accrued liabilities include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Salaries, wages and employee benefits.......... $15,566 $20,271 $20,330
Amounts due customers.......................... 5,860 11,381 9,390
Other.......................................... 23,172 31,694 37,641
------- ------- -------
$44,598 $63,346 $67,361
======= ======= =======
</TABLE>
NOTE 5 LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
10% Senior notes............................. $200,000 $200,000 $200,000
Revolving loan............................... 135,000 179,900 185,000
Term loan.................................... 54,000 31,766 --
Lease obligation............................. 23,750 21,250 20,000
-------- -------- --------
412,750 432,916 405,000
Less current portion......................... 24,734 11,576 2,500
-------- -------- --------
$388,016 $421,340 $402,500
======== ======== ========
</TABLE>
Essex Bank Financing
In connection with the Triangle acquisition, Essex terminated its former
revolving credit agreement dated as of April 12, 1995 (the "Former Essex
Revolving Credit Agreement") and entered into a new revolving credit
agreement, dated October 31, 1996, by and among Essex, the Company, the
Lenders named therein, and The Chase Manhattan Bank, as administrative agent
(the "Essex Revolving Credit Agreement"). The Essex Revolving Credit Agreement
expires in 2001 and provides for up to $370,000 in revolving loans, subject to
specified percentages of eligible assets, reduced by outstanding
F-10
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 LONG-TERM DEBT (CONTINUED)
borrowings under Essex' Canadian credit agreement and unsecured bank lines of
credit ($5,913 and $25,000, respectively, at December 31, 1996), as described
below. Essex recognized an extraordinary charge of $1,183 ($1,971 before
applicable income tax benefit) in 1996 for the write-off of unamortized
deferred debt expense associated with the termination of the Former Essex
Revolving Credit Agreement. Essex Revolving Credit Agreement loans bear
floating rates of interest, at Essex' option, at bank prime plus 1.25% or a
reserve adjusted Eurodollar rate ("LIBOR") plus 2.25%. The effective interest
rate can be reduced by 0.25% to 1.50%, in 0.25% increments, if certain
specified financial conditions are achieved. Commitment fees during the
revolving loan period are .250%, .375% or .5% of the average daily unused
portion of the available credit based upon certain specified financial
conditions. At December 31, 1995 and 1996, the incremental borrowing rate
under the Former Essex Revolving Credit Agreement and the Essex Revolving
Credit Agreement, including applicable margins, approximated 9.00% and 8.75%,
respectively. Indebtedness under the Essex Revolving Credit Agreement is
guaranteed by the Company and all of Essex' subsidiaries, and is secured by a
pledge of the capital stock of Essex and its subsidiaries and by a first lien
on substantially all assets.
The Essex Revolving Credit Agreement also provides a $25,000 letter of
credit subfacility. Essex' ability to borrow under the Essex Revolving Credit
Agreement is restricted by the financial covenants contained therein as well
as those contained in the Essex Term Loan, as defined in the second succeeding
paragraph, and by certain debt limitation covenants contained in the indenture
under which the 10% Senior Notes due 2003 (the "Essex Senior Notes") were
issued (the "Essex Senior Note Indenture").
The Essex Revolving Credit Agreement contains various covenants which
include, among other things: (a) the maintenance of certain financial ratios
and compliance with certain financial tests and limitations; (b) limitations
on investments and capital expenditures; (c) limitations on cash dividends
paid; and (d) limitations on leases and the sale of assets. Through December
31, 1996 Essex fully complied with all of the financial ratios and covenants
contained in the Essex Revolving Credit Agreement.
Essex and its subsidiaries also maintain three additional credit facilities
consisting of: (i) a $60.0 million senior unsecured note agreement, dated as
of April 12, 1995 by and among Essex, the Company, as guarantor, the lenders
named therein and The Chase Manhattan Bank, as administrative agent the
("Essex Term Loan"); (ii) a $25.0 million agreement and lease dated as of
April 12, 1995 by and between Essex and Mellon Financial Services Corporation
#3 (the "Essex Sale and Leaseback Agreement"); and (iii) a $12.0 million
(Canadian dollar) credit agreement by and between an Essex subsidiary and a
Canadian chartered bank (the "Canadian Credit Agreement").
On May 12, 1995 Essex borrowed the full amount available under the Essex
Term Loan and the Essex Sale and Leaseback Agreement. These funds, together
with available cash and borrowings under the Former Essex Revolving Credit
Agreement, were paid to the Company in the form of a cash dividend ($238,748)
and repayment of a portion of an intercompany liability ($34,102) totaling
$272,850. The Company applied such funds to redeem all of its outstanding 16%
Senior Discount Debentures due 2004 (the "Debentures") at 100% of their
principal amount of $272,850 on May 15, 1995. In connection with the Debenture
redemption, Essex terminated its previous credit agreement and recognized an
extraordinary charge of $2,971 ($4,951 before applicable income tax benefit)
in the second quarter 1995 for the write-off of unamortized deferred debt
expense.
The Essex Term Loan provides an aggregate $60.0 million in term loans, and
is to be repaid in 20 equal quarterly installments, subject to the loan's
excess cash provision, through May 15, 2000. The Essex Term Loan bears
floating rates of interest at bank prime plus 2.75% or LIBOR plus 3.75%. The
F-11
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 LONG-TERM DEBT (CONTINUED)
Essex Term Loan requires 50% of excess cash, as defined, to be applied against
the outstanding term loan balance. The 1996 excess cash repayment of $12.4
million, based on 1995 results, resulted in remaining principal payments of 17
equal quarterly installments of $2.3 million. Amounts repaid with respect to
the excess cash provisions may not be reborrowed. There are no requirements
for an excess cash payment to be made for 1996 results.
The Essex Sale and Leaseback Agreement provides $25,000 for the sale and
leaseback of certain of Essex' fixed assets. The Essex Sale and Leaseback
Agreement has a seven-year term expiring in May 2002. The principal component
of the rental is paid quarterly, with the amount of each of the first 27
payments equal to 2.5% of lessor's cost of the equipment, and the balance is
due at the final payment. The interest component is paid on the unpaid
principal balance and is calculated by lessor at LIBOR plus 2.5%. The
effective interest rate can be reduced by 0.25% to 1.125% if certain specified
financial conditions are achieved. The fixed assets subject to the Essex Sale
and Leaseback Agreement (all of which are machinery and equipment) are
included in property, plant and equipment in the Consolidated Balance Sheets
and have a gross cost of $30,882 and accumulated amortization of $4,139 at
December 31, 1996.
Borrowings under the Canadian Credit Agreement are restricted to meeting the
working capital requirements of the subsidiary and are collateralized by the
subsidiary's accounts receivable. As of December 31, 1996 and June 30, 1997,
$5.9 million and $7.6 million, respectively, was outstanding under the
Canadian Credit Agreement and denoted as notes payable to banks in the
Consolidated Balance Sheets. The Canadian Credit Agreement bears interest at
rates similar to the Essex Revolving Credit Agreement and terminates one year
from its effective date of May 30, 1996, although it may be extended for
successive one-year periods upon the mutual consent of the subsidiary and
lending bank.
Essex also has bank lines of credit which provide unsecured borrowings for
working capital of up to $25,000 of which $11,760, $25,000 and $21,000 were
outstanding at December 31, 1995 and 1996 and June 30, 1997, respectively, and
denoted as notes payable to banks in the Consolidated Balance Sheets. These
lines of credit bear interest at rates subject to agreement between Essex and
the lending banks. At December 31, 1995 and 1996 such rates of interest
averaged 6.7% and 7.6%, respectively.
Essex Senior Notes
At December 31, 1995 and 1996 and June 30, 1997, $200,000 aggregate
principal amount of the Essex Senior Notes was outstanding. The Essex Senior
Notes bear interest at 10% per annum payable semiannually and are due in May
2003. The Essex Senior Notes rank pari passu in right of payment with all
other senior indebtedness of Essex. To the extent that any other senior
indebtedness of Essex is secured by liens on the assets of Essex, the holders
of such senior indebtedness will have a claim prior to any claim of the
holders of the Essex Senior Notes as to those assets.
At the option of Essex, the Essex Senior Notes may be redeemed, commencing
in May 1998, in whole or in part, at redemption prices ranging from 103.75% in
1998 to 100% in 2001. Upon a Change in Control, as defined in the Essex Senior
Note Indenture, each holder of Essex Senior Notes will have the right to
require Essex to repurchase all or any part of such holder's Essex Senior
Notes at a repurchase price equal to 101% of the principal amount thereof. The
Essex Senior Note Indenture contains various covenants which include, among
other things, limitations on debt, on the sale of assets, and on cash
dividends paid. Through December 31, 1996, Essex fully complied with all of
the financial ratios and covenants contained in the Essex Senior Note
Indenture.
F-12
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
The Company's Senior Discount Debentures
In May 1989, the Company issued $342,000 aggregate principal amount
($135,117 aggregate proceeds amount) of its Debentures. In connection with the
Acquisition and Merger, the Debentures were valued at an effective annual
interest rate of 14.25% through May 1995. The Debentures accreted to their
full face value (an aggregate principal amount of $272,850) on May 15, 1995.
On May 15, 1995 the Company redeemed all of its outstanding Debentures at 100%
of their principal amount with cash received from Essex in the form of a cash
dividend and repayment of a portion of an intercompany liability totalling
$272,850.
Other
Essex capitalized interest costs of $132, $565, $558 and $67 in 1994, 1995,
1996 and the six months ended June 30, 1997, respectively, with respect to
qualifying assets.
Total interest paid was $20,826, $32,312, $38,284 and $19,273 in 1994, 1995,
1996 and the six months ended June 30, 1997, respectively.
Aggregate annual maturities of long-term debt for the next five years are:
<TABLE>
<S> <C>
1997............................................................... $11,576
1998............................................................... 11,576
1999............................................................... 11,576
2000............................................................... 7,038
2001............................................................... 182,400
</TABLE>
The year 2001 includes repayment of the Essex Revolving Credit Agreement in
the amount of $179,900.
NOTE 6 INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
-------- -------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment........................... $ 68,553 $60,519
Inventory............................................... 28,485 30,114
Other................................................... 3,844 4,502
-------- -------
Total deferred tax liabilities......................... 100,882 95,135
Deferred tax assets:
Accrued liabilities..................................... 6,650 8,252
Alternative minimum tax credit carryforward............. 1,384 --
Other................................................... 10,694 13,689
-------- -------
Total deferred tax assets.............................. 18,728 21,941
-------- -------
Net deferred tax liabilities........................... $ 82,154 $73,194
======== =======
</TABLE>
F-13
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 INCOME TAXES (CONTINUED)
The components of income tax expense are:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Current:
Federal....................................... $14,542 $ 8,560 $29,468
State......................................... 3,346 5,334 6,937
Deferred (Credit):
Federal....................................... (7,887) 2,382 (5,805)
State......................................... (501) (1,896) (1,612)
------- ------- -------
$ 9,500 $14,380 $28,988
======= ======= =======
</TABLE>
Total income taxes paid were $11,712, $15,989, $32,656 and $27,461 in 1994,
1995, 1996 and the six months ended June 30, 1997, respectively.
Principal differences between the effective income tax rate and the
statutory federal income tax rate are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
SIX MONTHS
ENDED
JUNE 30,
1994 1995 1996 1997
------- ------- ------- ----------
<S> <C> <C> <C> <C>
Statutory federal income tax rate.. 35.0% 35.0% 35.0% 35.0%
State and local taxes, net of
federal benefit................... 10.9 7.9 5.2 4.6
Excess of cost over net assets
acquired amortization............. 8.4 5.1 2.1 1.0
Other, net......................... 1.6 4.0 1.3 (0.7)
------- ------- ------- ----
Effective income tax rate.......... 55.9% 52.0% 43.6% 39.9%
======= ======= ======= ====
</TABLE>
In connection with the Acquisition and Merger in 1992, The Company elected
not to step up its tax bases in the assets acquired. Accordingly, the income
tax bases in the assets acquired have not been changed from pre-1988
Acquisition values. Depreciation and amortization of the higher allocated
financial statement bases are not deductible for income tax purposes, thus
increasing the effective income tax rate reflected in the consolidated
financial statements.
NOTE 7 RETIREMENT BENEFITS
Essex sponsors two defined benefit retirement plans for substantially all
salaried and hourly employees. Essex also has a supplemental executive
retirement plan which provides retirement benefits based on the same formula
as in effect under the salaried employees' plan, but which only takes into
account compensation in excess of amounts that can be recognized under the
salaried employees' plan. Salaried plan retirement benefits are generally
based on years of service and the employee's compensation during the last
several years of employment. Hourly plan retirement benefits are based on
hours worked and years of service with a fixed dollar benefit level. Essex'
funding policy is based on an actuarially determined cost method allowable
under Internal Revenue Service regulations, the projected unit credit method.
Pension plan assets consist principally of fixed income and equity securities
and cash and cash equivalents.
F-14
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 RETIREMENT BENEFITS (CONTINUED)
The components of net periodic pension cost for the plans are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995 1996
------- -------- -------
<S> <C> <C> <C>
Service cost--benefits earned during the
period..................................... $ 2,964 $ 2,365 $ 3,377
Interest costs on projected benefit
obligation................................. 3,643 3,923 4,715
Actual return on plan assets................ 2,409 (13,597) (5,123)
Net amortization and deferral............... (6,458) 9,751 268
------- -------- -------
Net periodic pension cost................... $ 2,558 $ 2,442 $ 3,237
======= ======== =======
</TABLE>
The following table summarizes the funded status of these pension plans and
the related amounts that are recognized in the Consolidated Balance Sheets:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
------- --------
<S> <C> <C> <C>
Actuarial present value of benefit obligation:
Vested............................................ $42,052 $ 44,726
Nonvested......................................... 3,656 3,804
------- --------
Accumulated benefit obligation.................... 45,708 48,530
Effect of projected future salary increases....... 17,195 17,690
------- --------
Projected benefit obligation...................... 62,903 66,220
Plan assets at fair value.......................... 55,447 60,131
------- --------
Projected benefit obligation in excess of fair
value
of plan assets.................................... (7,456) (6,089)
Unrecognized net gain.............................. (1,312) (5,131)
Unrecognized prior service cost.................... (326) (299)
------- --------
Pension liability recognized in balance sheets..... $(9,094) $(11,519)
======= ========
</TABLE>
Certain actuarial assumptions were revised in 1995 and 1996 resulting in an
increase of $13,262 and a decrease of $5,345, respectively, in the projected
benefit obligation.
Following is a summary of significant actuarial assumptions used:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Discount rates........................................... 8.5% 7.0% 7.5%
Rates of increase in compensation levels................. 5.0% 5.0% 5.0%
Expected long-term rate of return on assets.............. 9.0% 9.0% 9.0%
</TABLE>
In addition to the defined benefit retirement plans as detailed above, Essex
also sponsors defined contribution savings plans which cover substantially all
salaried and nonunion hourly employees of Essex and certain other hourly
employees, represented by collective bargaining agreements, who negotiate this
benefit into their contract. The purpose of these savings plans is generally
to provide
F-15
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 RETIREMENT BENEFITS (CONTINUED)
additional financial security during retirement by providing employees with an
incentive to make regular savings. Essex, contributions to the defined
contribution plans totalled $1,088, $1,123, and $1,194 in 1994, 1995 and 1996,
respectively.
Essex also sponsors an unfunded, nonqualified deferred compensation plan
which permits certain key management employees to annually elect to defer a
portion of their compensation and earn a guaranteed interest rate on the
deferred amounts. The total amount of participant deferrals and accrued
interest, which is reflected in other long-term liabilities, was $609 and
$1,234 at December 31, 1995 and 1996, respectively.
NOTE 8 REDEEMABLE PREFERRED STOCK, COMMON STOCK SUBJECT TO PUT AND
STOCKHOLDERS' EQUITY
Following is an analysis of redeemable preferred stock, common stock subject
to put and stockholders' equity:
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
----------------------------------------------------------------
COMMON STOCK CARRY-OVER
REDEEMABLE SUBJECT TO PUT COMMON STOCK ADDITIONAL OF RETAINED
PREFERRED ------------------- --------------------- PAID-IN PREDECESSOR EARNINGS
STOCK SHARES AMOUNT SHARES AMOUNT CAPITAL BASIS (DEFICIT) TOTAL
---------- ---------- ------- ------------- ------ ---------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... $34,460 1,016,189 $ 5,808 16,559,793.5 $165 $ 98,935 $(15,259) $(24,174) $ 59,667
Net income.............. -- -- -- -- -- -- -- 7,486 7,486
Preferred stock
dividend............... 6,008 -- -- -- -- (6,008) -- -- (6,008)
Accretion of preferred
stock.................. 687 -- -- -- -- (687) -- -- (687)
Expiration of put
rights................. -- (58,444) (334) 58,444 1 333 -- -- 334
Stock options
exercised.............. -- -- -- 10,250 -- 36 -- -- 36
------- ---------- ------- ------------- ---- -------- -------- -------- --------
Balance at December 31,
1994................... 41,155 957,745 5,474 16,628,487.5 166 92,609 (15,259) (16,688) 60,828
Net income.............. -- -- -- -- -- -- -- 10,300 10,300
Preferred stock
dividend............... 6,962 -- -- -- -- (6,962) -- -- (6,962)
Accretion of preferred
stock.................. 703 -- -- -- -- (703) -- -- (703)
Expiration of put
rights................. -- (117,352) (671) 117,352 1 670 -- -- 671
Stock options
exercised.............. -- -- -- 72,868 1 165 -- -- 166
------- ---------- ------- ------------- ---- -------- -------- -------- --------
Balance at December 31,
1995................... 48,820 840,393 4,803 16,818, 707.5 168 85,779 (15,259) (6,388) 64,300
Net income.............. -- -- -- -- -- -- -- 36,325 36,325
Issuance of common
stock.................. -- 437,709 4,377 5,930,000 59 59,241 -- -- 59,300
Preferred stock
dividend............... 4,248 -- -- -- -- (1,906) -- (2,342) (4,248)
Accretion of preferred
stock.................. 2,024 -- -- -- -- (179) -- (1,845) (2,024)
Preferred stock
redemption............. (55,092) -- -- -- -- (411) -- (3,774 ) (4,185)
Expiration of put
rights................. -- (15,500) (101) 15,500 -- 101 -- -- 101
Stock options
exercised.............. -- -- -- 29,748 1 67 -- -- 68
Increase in fair value.. -- -- 3,547 -- -- (3,547) -- -- (3,547)
------- ---------- ------- ------------- ---- -------- -------- -------- --------
Balance at December 31,
1996................... -- 1,262,602 12,626 22,793, 955.5 228 139,145 (15,259) 21,976 146,090
Net income.............. -- -- -- -- -- -- -- 42,670 42,670
Common stock
repurchase............. -- -- -- (50,000) (1) (285) -- (214) (500)
Expiration of put
rights................. -- (1,262,602) (12,626) 1,262,602 13 12,613 -- -- 12,626
Issuance of common
stock.................. -- -- -- 3,000,000 30 45,992 -- -- 46,022
Stock options
exercised.............. -- -- -- 400,790.5 4 1,711 -- -- 1,715
Warrants exercised...... -- -- -- 1,620,414 16 (16) -- -- --
------- ---------- ------- ------------- ---- -------- -------- -------- --------
Balance at June 30,
1997................... $ -- -- $ -- 29,027,762 $290 $199,160 $(15,259) $ 64,432 $248,623
======= ========== ======= ============= ==== ======== ======== ======== ========
</TABLE>
F-16
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 REDEEMABLE PREFERRED STOCK, COMMON STOCK SUBJECT TO PUT AND
STOCKHOLDERS' EQUITY (CONTINUED)
The authorized capital stock of the Company consists of (i) 150,000,000
shares of common stock divided into two classes consisting of Class A Common
Stock, par value $.01 per share (the "Class A Stock"), and Class B Common
Stock, par value $.01 per share (the "Class B Stock"), and (ii) 5,000,000
shares of preferred stock, par value $.01 per share of which 3,100,000 shares
have been designated Series A Cumulative Redeemable Exchangeable Preferred
Stock due 2004 (the "Series A Preferred Stock") and Series B Cumulative
Redeemable Exchangeable Preferred Stock due 2004 (the "Series B Preferred
Stock" collectively the "Redeemable Preferred Stock"). The aggregate number of
Redeemable Preferred Stock that may be issued and outstanding at any one time
is 3,100,000 shares. As of December 31, 1996, there were 23,457,057.5 shares
of Class A Stock outstanding, 599,500 shares of Class B Stock outstanding and
no shares of Series B Preferred Stock or Series A Preferred Stock outstanding.
As of June 30, 1997, there were 29,027,762 shares of Common Stock outstanding
and no shares of Preferred Stock outstanding.
Common Stock and Options
All shares of Class A common stock and Class B common stock are identical
and entitle holders of each to the same rights and privileges, except that
holders of Class B common stock have no voting rights other than to vote on
any amendment, repeal or modification of any provision of the certificate of
incorporation that adversely affects the powers, preferences or special rights
of holders of Class B common stock. The conversion ratio between Class B
common stock and Class A common stock and vice versa is one to one. The rights
and terms of the Class A common stock and the Class B common stock are more
fully described in the Company's certificate of incorporation. Upon the
consummation of the IPO (see Note 13), there will only be one class of common
stock outstanding as a result of a reclassification in which each share of
Class A common stock and each share of Class B common stock will be
reclassified into one share of common stock.
The members of Essex management who are stockholders of the Company
("Management Stockholders") are subject to agreements that impose certain
restrictions and grant rights on their ownership and transfer of the Company's
stock. Management Stockholders are generally prohibited from transferring
shares of common stock of the Company owned by them before an initial public
offering by the Company (or any successor thereto). Such shares are subject to
the right of first refusal by the Company or BHLP. Any Management Stockholder
who terminates employment with Essex for reasons other than retirement,
disability or death has a limited right, for one year from the date of
termination, to require the Company to repurchase all the stockholder's shares
of common stock of the Company at the lesser of the purchase price paid by
such stockholder or fair market value, as defined. Any Management Stockholder
who retires from Essex, dies or becomes disabled has a limited right, for one
year from the date of termination, to require the Company to repurchase all
the stockholder's shares of common stock of the Company at fair market value,
as defined. The shares of Common Stock that are subject to these repurchase
requirements have been classified as common stock subject to put at their
estimated fair value in the accompanying balance sheet. Changes to the fair
value of common stock subject to put are recorded as adjustments to additional
paid-in capital. The Company has a right to repurchase such shares at fair
market value, as defined, for one year following employment for any reason.
Such rights of both the Company and the stockholder expire upon an initial
public offering. Management Stockholders also have certain "piggyback"
registration rights in the event that the Company registers shares of its
common stock for sale under the Securities Act of 1933.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("FAS 123") encourages, but does not require companies to
record compensation cost
F-17
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 REDEEMABLE PREFERRED STOCK, COMMON STOCK SUBJECT TO PUT AND
STOCKHOLDERS' EQUITY (CONTINUED)
for stock-based employee compensation plans at fair value. The Company has
chosen to continue to account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and related
Interpretations. Under APB 25, because the exercise prices of the Company's
stock options are based upon fair value of the stock at the date of each
grant, no compensation expense has been recorded in connection with the
issuance of stock options. A public market does not exist for the Company's
common stock; therefore, the fair value, as approved by the Board of Directors
of the Company, was based upon factors such as sales prices in the most recent
transactions and appropriate earnings multiples.
Grants of options to purchase common stock of the Company have been made to
management and employees of Essex pursuant to, and are subject to the
provisions of, an Amended and Restated Stock Option Plan and individual stock
option agreements. The Amended and Restated Stock Option Plan provides for the
issuance of up to 4,798,144 shares of the Company's common stock. All options
granted have ten-year terms and vest and become fully exercisable over periods
of one to three years of continued employment. The number of shares for which
all options are exercisable and the exercise price, therefore, may be reduced
by the Board of Directors of the Company in accordance with a specified
formula.
Pro forma information regarding net income and earnings per share is
required by FAS 123, and has been determined as if the Company had accounted
for its stock options issued in 1995 and 1996 under the fair value method of
that Statement. The fair value for these options was estimated as of the date
of grant using a "minimum value" method acceptable for nonpublic companies.
The effect of applying FAS 123's fair value method to the Company's stock-
based awards results in net income and earnings per share that are not
materially different from amounts reported. Because FAS 123 is applicable only
to options granted subsequent to December 31, 1994, its effect will not be
fully reflected until 1997.
Option valuation models require the input of highly subjective assumptions.
Because the Company's stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
A summary of the Company's stock option activity, and related information
follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------------------- -------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of
year................... 1,998,300 $2.06 2,153,800 $2.34 2,464,175 $2.94
Granted................. 165,750 5.72 432,500 5.72 462,500 6.52
Exercised............... (10,250) 2.10 (113,375) 2.04 (46,200) 2.04
Forfeited............... -- -- (8,750) 5.72 (9,500) 5.72
--------- ----- --------- ----- --------- -----
Outstanding-end of
year................... 2,153,800 $2.34 2,464,175 $2.94 2,870,975 $3.52
========= ===== ========= ===== ========= =====
Exercisable at end of
year................... 1,988,050 $2.06 1,874,675 $2.06 1,828,475 $2.06
</TABLE>
F-18
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 REDEEMABLE PREFERRED STOCK, COMMON STOCK SUBJECT TO PUT AND
STOCKHOLDERS' EQUITY (CONTINUED)
As of December 31, 1996 there were 1,618,000 options at $2.00 per share
exercise price, 210,475 options at $2.50 exercise price, 955,000 options at
$5.72 per share exercise price and 87,500 options at $10.00 per share exercise
price outstanding to purchase shares of the Company's common stock. The
weighted-average remaining contractual life of those options is 6.7 years. In
January 1997 the Company issued options to purchase 730,000 shares of the
Company's common stock at a $10.00 exercise price. Such options were granted
in connection with the 1996 private offering to certain management employees
and with regard to the Company's 1996 performance. For the six months ended
June 30, 1997, options to purchase 606,053.5 shares of the Company's common
stock were exercised.
Preferred Stock and Warrants
On July 3, 1996, the Company called for redemption of all of its outstanding
Redeemable Preferred Stock. The Redeemable Preferred Stock was redeemed at the
close of business on July 15, 1996, at a redemption price of $26.875 per
share, plus accrued and unpaid dividends through the redemption date of $0.166
per share, for a total redemption price of $27.041 per share or $59,277 in the
aggregate including redemption expenses.
The redemption of the outstanding Redeemable Preferred Stock was financed by
the Company through a private offering of 5,930,000 shares of its common stock
to certain of its current common stockholders and their affiliates. In
December 1996, the private offering was extended to certain management
employees of Essex who, collectively, purchased 437,708.5 shares of common
stock. These offerings were not registered under the Securities Act of 1933,
and such common stock may not be offered or sold in the United States absent
such registration or an applicable exemption from registration.
In connection with the Acquisition and Merger in 1992 and related issuance
of the Series A Preferred Stock, 2,833,369 warrants to purchase the Company's
common stock (the "Warrants") were issued. The Series A Preferred Stock and
Warrants were recorded at their estimated fair values of which $4,250 was
assigned to the Warrants. The excess of the liquidation preference value over
the carrying value of the Series A Preferred Stock of $4,250, was being
accreted by periodic charges to paid-in capital. Such liquidation preference
became fully accreted upon the redemption of the redeemable preferred stock.
The Warrants, of which there were 2,833,369 outstanding at December 31,
1996, are presently exercisable and represent the right to purchase an
aggregate of approximately 10% of the fully diluted common stock of the
Company (based on the common equity, warrants and options outstanding as of
December 31, 1996). The Warrants are exercisable at $5.72 per share and expire
on October 9, 2004.
NOTE 9 RELATED PARTY TRANSACTIONS
Advisory services fees of $1,000 were paid to an affiliate of BHLP for 1994,
1995 and 1996, respectively and $500 for the six months ended June 30, 1997.
It is expected that financial advisory fees to an affiliate of BHLP will
continue to be paid for such services in the future.
NOTE 10 DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE INFORMATION
Essex, to a limited extent, uses forward fixed price contracts and
derivative financial instruments to manage foreign currency exchange and
commodity price risks. Essex does not hold or issue financial instruments for
investment or trading purposes. Essex is exposed to credit risk in the event
of
F-19
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 DERIVATIVE FINANCIAL INSTRUMENTS ANDFAIR VALUE INFORMATION (CONTINUED)
nonperformance by counterparties for foreign exchange forward contracts, metal
forward price contracts and metals futures contracts, but Essex does not
anticipate nonperformance by any of these counterparties. The amount of such
exposure is generally the unrealized gains within the underlying contracts.
Foreign exchange risk management
Essex engages in the sale and purchase of goods and services which
periodically require payment or receipt of amounts denominated in foreign
currencies. To protect Essex' related anticipated cash flows from the risk of
adverse foreign currency exchange fluctuations for firm sales and purchase
commitments, Essex enters into foreign currency forward exchange contracts. At
December 31, 1995, Essex had Deutschemark forward exchange sales contracts of
$1,145 and purchase contracts of $886. At December 31, 1996, Essex had no
Deutschemark forward exchange sales contracts but did have $138 of purchase
contracts. The fair value of such contracts approximated the contract amount.
Foreign currency gains or losses resulting from Essex' operating and hedging
activities are recognized in earnings in the period in which the hedged
currency is collected or paid. The related amounts due to or from
counterparties are included in other liabilities or other assets.
Commodity price risk management
Copper, Essex' principal raw material, experiences marked fluctuations in
market prices, thereby subjecting Essex to copper price risk with respect to
copper purchases and to firm and anticipated customer sales contracts.
Derivative financial instruments in the form of copper futures contracts are
utilized by Essex to reduce those risks.
Purchase or "long" contracts are utilized by Essex to hedge firm and
anticipated sales contracts while sales or "short" contracts are employed with
respect to "carryover" copper purchases. Copper carryover purchases represent
that portion of Essex' current month's copper purchase commitments priced at
the current month's average New York Commodity Exchange, Inc. ("COMEX") price,
but not delivered until the following month. Short contracts are utilized to
mitigate risk that copper prices, at the time of copper receipt, are likely to
be below the average COMEX price of the incoming copper carryover.
Purchase contracts at December 31, 1995 and 1996 totalled 14.7 and 42.5
million copper pounds, respectively, with contract amounts of $17,100 and
$42,000 and estimated fair values of $16,900 and $41,300, respectively. There
are no sales contracts at December 31, 1996. Sales contracts at December 31,
1995 totalled 13.5 million copper pounds, with a contract amount of $16,600
and a fair value of $16,300. Deferred and unrealized gains or losses on these
futures contracts ($100 gain and $700 loss at December 31, 1995 and 1996,
respectively) are included within other assets and will be recognized in
earnings in the period in which the hedged copper is sold to customers and the
underlying contracts are liquidated, when a sale is no longer expected to
occur or when the carryover copper is received.
Fair value of financial instruments
The Company's financial instruments, exclusive of certain forward contracts
and futures contracts as discussed above, generally consist of cash and cash
equivalents and long-term debt. The carrying amounts of the Company's cash and
cash equivalents approximated fair value at December 31, 1995
F-20
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE INFORMATION
(CONTINUED)
and 1996 while the carrying amount of the Essex Senior Notes exceeded fair
value by approximately $4,000 at December 31, 1995 and was less than fair
value by approximately $8,000 at December 31, 1996. Fair values with respect
to the Company's foreign currency forward exchange contracts and copper
futures contracts are determined based on quoted market prices.
NOTE 11 CONTINGENT LIABILITIES AND COMMITMENTS
There are various claims and pending legal proceedings against Essex
including environmental matters and other matters arising out of the ordinary
course of its business. Pursuant to the 1988 Acquisition, UTC agreed to
indemnify Essex against all losses (as defined) resulting from or in
connection with damage or pollution to the environment and arising from
events, operations, or activities of Essex prior to February 29, 1988 or from
conditions or circumstances existing at February 29, 1988. Except for certain
matters relating to permit compliance, Essex is fully indemnified with respect
to conditions, events or circumstances known to UTC prior to February 29,
1988. The sites covered by this indemnity are handled directly by UTC and all
payments required to be made are paid directly by UTC. The amounts related to
this environmental contingency are not material to Holding's consolidated
financial statements. UTC also provided a second environmental indemnity which
deals with losses related to environmental events, conditions or circumstances
existing at or prior to February 29, 1988, which only became known in the
five-year period commencing February 29, 1988. As to any such losses, Essex is
responsible for the first $4,000 incurred. Management and its legal counsel
periodically review the probable outcome of pending proceedings and the costs
reasonably expected to be incurred. Essex accrues for these costs when it is
probable that a liability has been incurred and the amount of the loss can be
reasonably estimated. After consultation with counsel, in the opinion of
management, the ultimate cost to Essex, exceeding amounts provided, will not
materially affect its consolidated financial position, cash flows or results
of operations. There can be no assurance, however, that future developments
will not alter this conclusion.
Since approximately 1990, Essex has been named as a defendant in a limited
number of product liability lawsuits brought by electricians and other skilled
tradesmen claiming injury from exposure to asbestos found in electrical wire
products produced a number of years ago. During 1996, the number of cases
filed against Essex increased to 95 involving approximately 400 claims. At
June 30, 1997, the number of cases filed against Essex was 97 involving
approximately 410 claims. Essex' strategy is to defend these cases vigorously.
Essex believes that its liability, if any, in these matters and the related
defense costs will not have a material adverse effect either individually or
in the aggregate upon its business, financial condition, cash flows or results
of operations. There can be no assurance, however, that future developments
will not alter this conclusion.
At December 31, 1996, Essex had purchased commitments of 747.6 million
pounds of copper. This is not expected to be either a quantity in excess of
needs or at prices in excess of amounts that can be recovered upon sale of the
related copper products. The commitments are to be priced based on the COMEX
price in the contractual month of shipment except for 26.6 million pounds of
copper that have been priced at fixed amounts through forward purchase
contracts covered by customer sales agreements at copper prices at least equal
to Essex' copper commitment.
At December 31, 1996 and June 30, 1997, Essex had committed $5,547 and
$10,500, respectively, to outside vendors for certain capital projects.
F-21
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 CONTINGENT LIABILITIES AND COMMITMENTS (CONTINUED)
Essex occupies space and uses certain equipment under lease arrangements.
Rent expense was $6,912, $7,478 and $8,941 under such arrangements for 1994,
1995 and 1996, respectively. Rental commitments at December 31, 1996 under
long-term noncancellable operating leases were as follows:
<TABLE>
<CAPTION>
REAL ESTATE EQUIPMENT TOTAL
----------- --------- -------
<S> <C> <C> <C>
1997......................................... $ 3,096 $2,730 $ 5,826
1998......................................... 2,962 2,514 5,476
1999......................................... 3,003 1,866 4,869
2000......................................... 2,704 996 3,700
2001......................................... 2,562 681 3,243
After 2001................................... 10,696 683 11,379
------- ------ -------
$25,023 $9,470 $34,493
======= ====== =======
</TABLE>
NOTE 12 QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1995 1ST QTR 2ND QTR 3RD QTR 4TH QTR
---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales............................ $289,649 $288,534 $308,288 $315,179
Gross margin......................... 42,426 37,598 44,765 46,350
Income before extraordinary charge... 3,071 1,015 6,086 3,099
Net income (loss)(a)................. $ 3,071 $ (1,956) $ 6,086 $ 3,099
<CAPTION>
1996 1ST QTR 2ND QTR 3RD QTR 4TH QTR
---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales............................ $308,410 $337,533 $328,777 $357,329
Gross margin......................... 49,759 52,891 58,964 67,975
Income before extraordinary charge... 6,390 7,596 11,582 11,940
Net income (b)....................... 6,390 7,596 11,582 10,757
Pro forma income per share (see Note
1):
Pro forma income before
extraordinary charge.............. $ .23 $ .27 $ .41 $ .43
Extraordinary charge............... -- -- -- (.04)
-------- -------- -------- --------
Pro forma net income............... $ .23 $ .27 $ .41 $ .39
======== ======== ======== ========
<CAPTION>
1997 1ST QTR 2ND QTR
---- -------- --------
<S> <C> <C> <C> <C>
Net sales............................ $410,778 $453,331
Gross margin......................... 79,871 87,710
Net income........................... 19,243 23,427
Pro forma net income per share
(see Note 1)........................ $ .69 $ .77
</TABLE>
- --------
(a) In the second quarter 1995, Essex recognized an extraordinary charge of
$2,971, net of applicable income tax benefit of $1,980, representing the
write-off of unamortized deferred debt expense in connection with the
termination of its former credit agreement.
(b) In the fourth quarter 1996, Essex recognized an extraordinary charge of
$1,183 ($.04 per share), net of applicable income tax benefit of $788,
representing the write-off of unamortized deferred debt expense in
connection with the termination of its former credit agreement.
F-22
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 INITIAL PUBLIC OFFERING
On February 19, 1997, the Company filed a Registration Statement with the
Securities and Exchange Commission for an IPO of its common stock. The
proceeds to the Company from the IPO will be used to repay, in full, the
remaining amounts outstanding under the Essex Term Loan and repay a portion of
borrowings outstanding under the Essex Revolving Credit Agreement. Prior to,
or simultaneous with, the consummation of the IPO, the Company will effect a
one-for-two reverse stock split. All common shares and per share amounts have
been adjusted retroactively to give effect to the reverse stock split.
NOTE 14 EVENTS SUBSEQUENT TO THE DATE OF THE ACCOUNTANTS' REPORT (UNAUDITED)
IPO
The Company completed its IPO of 6,546,700 shares of common stock, including
3,546,700 shares sold by existing shareholders on May 1, 1997. Of the
3,546,700 shares of common stock sold by the selling shareholders, 1,620,414
common shares were received upon the redemption of 2,441,062.5 warrants to
purchase common stock of the Company. The number of warrants remaining
outstanding after the IPO to purchase an equivalent number of common shares of
the Company were 392,306.5 with a per share exercise price of approximately
$5.72. Of the $46,022 net proceeds received by the Company from the IPO, the
Essex Term Loan was repaid in full in the amount of $29,497. The remaining net
proceeds were applied to the Essex Revolving Credit Agreement. Additionally,
in connection with the IPO, a one-for-two reverse stock split and a
reclassification of the Company's two existing classes of common stock into a
single class of common stock occurred. Also, Management Stockholders' put
right with respect to common stock owned expired.
Long-Term Debt
In April 1997, in connection with the IPO, the Essex Revolving Credit
Agreement was amended and restated (the "Restated Credit Agreement"). The
Restated Credit Agreement continues to provide up to $370,000 in revolving
loans and maintains existing terms and conditions except that revolving loans
bear floating rates of interest, at the Company's option, at bank prime plus
0.50% or LIBOR plus 1.50%. The spreads over the prime and LIBOR rates can be
reduced to 0% and .375%, respectively, if a certain specified leverage ratio
is achieved. The average commitment fees during the revolving loan period are
between 0.125% to 0.375% of the average daily unused portion of the average
daily unused portion of the available credit based upon certain financial
ratios. The Restated Credit Agreement increased the provision for unsecured
borrowings to $50,000. Through June 30, 1997, Essex fully complied with all of
the financial ratios and covenants contained in the Restated Credit Agreement
and Essex Senior Note Indenture.
F-23
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Selling Stockholders have agreed to sell to each of the U.S. Underwriters
named below (the "U.S. Underwriters"), and each of such U.S. Underwriters, for
whom Goldman, Sachs & Co., Smith Barney Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and Lehman Brothers Inc. are acting as representatives,
has severally agreed to purchase from the Selling Stockholders, the respective
number of shares of Common Stock and Warrants set forth opposite its name
below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF NUMBER OF
UNDERWRITER COMMON STOCK WARRANTS
----------- ------------ ---------
<S> <C> <C>
Goldman, Sachs & Co. .............................
Smith Barney Inc. ................................
Donaldson, Lufkin & Jenrette Securities
Corporation......................................
Lehman Brothers Inc. .............................
--------- -------
Total........................................... 3,110,402 272,923
========= =======
</TABLE>
The Warrants will not be sold to the public; rather, the Company will redeem
the Warrants for shares of Common Stock and such shares will be sold to the
public. See "Certain Relationships and Related Party Transactions--The
Redemption".
Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares of Common
Stock and Warrants, if any are taken.
The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at
such price less a concession of $[ ] per share. The U.S. Underwriters may
allow, and such dealers may re-allow, a concession not in excess of $[ ]
per share to certain brokers and dealers. After the shares of Common Stock are
released for sale to the public, the offering price and other selling terms
may from time to time be varied by the representatives.
The Company and the Selling Stockholders have entered into an underwriting
agreement (the "International Underwriting Agreement") with the Underwriters
of the international offering (the "International Underwriters") providing for
the concurrent offer and sale of 835,000 shares of
U-1
<PAGE>
Common Stock in an international offering outside the United States. The
offering price and aggregate underwriting discounts and commissions per share
for the two offerings are identical. The closing of the offering made hereby
is a condition to the closing of the international offering, and vice versa.
The representatives of the International Underwriters are Goldman Sachs
International, Smith Barney Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and Lehman Brothers International (Europe).
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the Offerings, each of the
U.S. Underwriters named herein has agreed that, as a part of the distribution
of the shares offered hereby and subject to certain exceptions, it will offer,
sell or deliver the shares of Common Stock, directly or indirectly, only in
the United States of America (including the States and the District of
Columbia), its territories, its possessions and other areas subject to its
jurisdiction (the "United States") and to U.S. persons, which term shall mean,
for purposes of this paragraph: (a) any individual who is a resident of the
United States or (b) any corporation, partnership or other entity organized in
or under the laws of the United States or any political subdivision thereof
and whose office most directly involved with the purchase is located in the
United States. Each of the International Underwriters has agreed or will agree
pursuant to the Agreement Between that, as a part of the distribution of the
shares offered as a part of the international offering, and subject to certain
exceptions, it will (i) not, directly or indirectly, offer, sell or deliver
shares of Common Stock (a) in the United States or to any U.S. persons or (b)
to any person whom it believes intends to reoffer, resell or deliver the
shares in the United States or to any U.S. persons and (ii) cause any dealer
to whom it may sell such shares at any concession to agree to observe a
similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall
be the initial public offering price, less an amount not greater than the
selling concession.
Certain Selling Stockholders have granted the U.S. Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to
466,368 additional shares of Common Stock, and up to 40,922.5 additional
Warrants, solely to cover over-allotments, if any. If the U.S. Underwriters
exercise their over-allotment option, the U.S. Underwriters have severally
agreed, subject to certain conditions, to purchase approximately the same
percentage thereof that the number of shares and Warrants to be purchased by
each of them, as shown in the foregoing table, bears to 3,110,402 shares of
Common Stock and 272,923 Warrants. The Common Stock and Warrants will be sold
in the same proportion as the total number of shares of Common Stock bears to
the total number of shares of Common Stock to be received upon redemption of
the Warrants. The Selling Stockholders have granted the International
Underwriters a similar option to purchase up to 116,592 additional shares of
Common Stock and up to 10,230 additional Warrants.
Certain holders of shares of Common Stock and Warrants, including the
Selling Stockholders, have agreed that, during the period beginning from the
date of this Prospectus and continuing to and including the date 90 days after
the date of the Prospectus, they will not offer, sell, contract to sell, grant
any option to sell, transfer or otherwise dispose of, directly or indirectly,
shares of Common Stock, securities substantially similar to the Common Stock,
or securities exchangeable for or convertible into shares of Common Stock or
any substantially similar security without the prior written consent of
Goldman, Sachs & Co., except for the shares of Common Stock and Warrants
offered in connection with the Offerings. The Company has agreed that, during
the period beginning from the date of this Prospectus and continuing to and
including the date 90 days after the date of the Prospectus, it will not
offer, sell, contract to sell, grant any option to sell, transfer or otherwise
dispose of, directly or indirectly, or file a registration statement relating
to, shares of Common Stock, securities substantially similar to the Common
Stock, or securities exchangeable for or convertible into shares of
U-2
<PAGE>
Common Stock or any substantially similar security (other than up to 1,300,000
shares of Common Stock that may be issued in connection with acquisitions and
other than pursuant to employee stock option plans existing, or upon the
conversion or exchange of convertible or exchangeable securities outstanding,
on the date of this Prospectus) without the prior written consent of Goldman,
Sachs & Co., except for the shares of Common Stock and Warrants offered in
connection with the Offerings.
In connection with the Offerings, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offerings. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Common Stock; and syndicate short positions involve
the sale by the Underwriters of a greater number of shares of Common Stock
than they are required to purchase from the Selling Stockholders (including
the shares received from the Company upon the redemption of the Warrants
purchased from the Selling Stockholders) in the Offerings. The Underwriters
also may impose a penalty bid, whereby selling concessions allowed to
syndicate members or other broker-dealers in respect of the Common Stock sold
in the Offerings for their account may be reclaimed by the syndicate if such
shares of Common Stock are repurchased by the syndicate in stabilizing or
covering transactions. These activities may stabilize, maintain or otherwise
affect the market price of the Common Stock which may be higher than the price
that might otherwise prevail in the open market. These transactions may be
effected on the New York Stock Exchange, in the over-the-counter market or
otherwise.
The Company, Essex and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act. The Company has also agreed to pay all registration
expenses (not including underwriting discounts and commissions) of the Selling
Stockholders (including those of the GS Partnerships and DLJ) in connection
with the Offerings.
Affiliates of Goldman, Sachs & Co. (the GS Partnerships) and of Donaldson,
Lufkin & Jenrette Securities Corporation (DLJ) are participating in the
Offerings as Selling Stockholders. See "Principal and Selling Stockholders".
This Prospectus may be used by underwriters and dealers in connection with
offers and sales of the Common Stock, including shares initially sold in the
International Offering, to persons located in the United States.
U-3
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 11
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Price Range of Common Stock.............................................. 15
Capitalization........................................................... 16
Selected Consolidated Financial and Operating Data....................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 29
Management............................................................... 43
Principal and Selling Stockholders....................................... 54
Certain Relationships and Related Party Transactions..................... 56
Description of Capital Stock............................................. 59
Description of Certain Indebtedness...................................... 61
Shares Eligible for Future Sale.......................................... 64
Certain United States Federal Tax Consequences to Non-United States
Holders of Common Stock................................................. 67
Information Regarding Forward Looking Statements......................... 69
Validity of Common Stock................................................. 69
Experts.................................................................. 69
Available Information.................................................... 70
Index to Financial Statements............................................ F-1
Underwriting............................................................. U-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,175,000 SHARES
ESSEX INTERNATIONAL INC.
COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
-----------------
ESSEX
-----------------
GOLDMAN, SACHS & CO.
SMITH BARNEY INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEHMAN BROTHERS
REPRESENTATIVES OF THE UNDERWRITERS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is a table of the registration fee for the Securities and
Exchange Commission, the filing fee for the National Association of Securities
Dealers, Inc. and estimates of all other expenses to be incurred in connection
with the issuance and distribution of the securities described in this
Registration Statement, other than underwriting discounts and commissions:
<TABLE>
<S> <C>
SEC registration fee............................................ $ 52,375.00
NASD filing fee................................................. 17,783.56
Printing and engraving expenses................................. 150,000.00
Legal fees and expenses......................................... 100,000.00
Accounting fees and expenses.................................... 75,000.00
Miscellaneous................................................... 4,841.44
-----------
Total........................................................... $400,000.00
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant is empowered by Section 145 of the General Corporation Law of
the State of Delaware (the "Delaware Corporation Law"), subject to the
procedures and limitations therein, to indemnify any person against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with any
threatened, pending or completed action, suit or proceeding in which such
person is made a party by reason of such person being or having been a
director, officer, employee or agent of the Registrant. The statute provides
that indemnification pursuant to its provisions is not exclusive of other
rights of indemnification to which a person may be entitled under any By-law,
agreement, vote of stockholders or disinterested directors, or otherwise. The
By-laws of the Registrant provide for indemnification by the Registrant of its
directors and officers to the fullest extent permitted by the Delaware
Corporation Law.
The foregoing statements are subject to the detailed provisions of the
Delaware Corporation Law, the Registrant's Amended and Restated Certificate of
Incorporation and the Registrant's By-laws.
Article X of the Registrant's By-laws allows the Registrant to maintain
director and officer liability insurance on behalf of any person who is or was
a director or officer of the Registrant or is or was serving, serves or served
as a director, partner, officer, agent or employee at another corporation,
partnership, joint venture, trust or other enterprise at the request of the
Registrant.
Pursuant to Section 102(b)(7) of the Delaware Corporation Law, Article X of
the Second Amended and Restated Certificate of Incorporation of the Registrant
provides that no director shall be personally liable to the Registrant or any
of its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not
in good faith or that involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the Delaware General Corporation Law or
(iv) for any transaction from which the director derived an improper personal
benefit.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On July 3, 1996, the Registrant issued an aggregate of 5,930,000 shares of
Common Stock to certain of its current stockholders and their affiliates
(including 1,362,298 shares of Common Stock to Bessemer Holdings, L.P.,
400,000 shares of Common Stock to an affiliate of Goldman, Sachs & Co. and
230,000 shares of Common Stock to Chase Equity Associates, a California
Limited Partnership) at the price of $10.00 per share (after adjusting for a
reverse stock split). On December 27, 1996, in connection with this offering,
the Registrant issued an additional 437,708.5 shares of Common Stock to
certain management employees of the Registrant at the price of $10.00 per
share (after adjusting for a reverse stock split). The integrated offering,
with an aggregate offering price of $63,677,080, was made pursuant to Rule 506
of Regulation D of the Securities Act, being an offering made by an issuer to
no more than 35 purchasers (as defined) without any general solicitation and
otherwise pursuant to the requirements of Rule 506.
In January 1996, the Registrant granted to employees, in connection with
1995 performance, options to purchase up to 375,000 shares of Common Stock at
an exercise price of $5.72 per share. In October 1996, the Registrant granted
to employees options to purchase up to 87,500 shares of Common Stock at an
exercise price of $10.00 per share. In January 1997, the Registrant granted to
employees, in connection with 1996 performance and the 1996 private stock
offering described in the preceding paragraph, options to purchase up to
730,000 shares of Common Stock at an exercise price of $10.00 per share.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 --Form of U.S. Underwriting Agreement
1.2 --Form of International Underwriting Agreement
2.1 --Agreement and Plan of Merger, dated as of July 24, 1992, between B E
Acquisition Corporation and the Registrant (then known as MS/Essex
Holdings, Inc.), incorporated by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K, filed with the Securities
and Exchange Commission (the "Commission") on August 10, 1992
(Commission File No. 1-10211)
2.2 --Amendment dated as of October 1, 1992, to the Agreement and Plan of
Merger between B E Acquisition Corporation and the Registrant,
incorporated by reference to Exhibit 2.2 to the Registrant's Current
Report on Form 8-K, filed with the Commission on October 26, 1992
(Commission File No. 1-10211)
2.3 --Stock Purchase Agreement, dated January 15, 1988, between the
Registrant (then known as MS/Essex Holdings Inc.) and United
Technologies Corporation, incorporated by reference to Exhibit 2.02
to Essex Group, Inc.'s Registration Statement on Form S-1, filed with
the Commission on March 24, 1988 (Commission File No. 33-20825)
*3.1 --Second Amended and Restated Certificate of Incorporation of the
Registrant
*3.2 --By-laws of the Registrant
4.1 --Stock and Warrant Subscription Agreement dated as of October 9, 1992
(the "Stock and Warrant Subscription Agreement"), among B E
Acquisition Corporation, certain affiliates of Donaldson, Lufkin &
Jenrette, Inc., certain affiliates of Goldman, Sachs & Co. and
Chemical Equity Associates, A California Limited Partnership,
incorporated by reference to Exhibit 4.3 to the Registrant's Current
Report on Form 8-K, filed with the Commission on October 26, 1992
(Commission File No. 1-10211)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
*4.2 --Amendment No. 1 dated as of April 1, 1993, to the Stock and Warrant
Subscription Agreement
4.3 --Amendment No. 2 dated as of June 5, 1995, to the Stock and Warrant
Subscription Agreement, incorporated by reference to Exhibit 4.04 of
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, filed with the Commission on February 19, 1997
(Commission File No. 1-10211)
4.4 --Warrant Agreement dated as of October 9, 1992, among B E Acquisition
Corporation, certain affiliates of Donaldson, Lufkin & Jenrette, Inc.
and certain affiliates of Goldman, Sachs & Co., incorporated by
reference to Exhibit 4.5 to the Registrant's Current Report on Form
8-K, filed with the Commission on October 26, 1992 (Commission File
No. 1-10211)
4.5 --Indenture dated as of May 7, 1993, among Essex Group, Inc. and NBD
Bank, National Association, as trustee under which the 10% Senior
Notes Due 2003 are outstanding, incorporated by reference to Exhibit
4.1 to the Essex Registration Statement on Pre-Effective Amendment
No. 1 to Form S-2 (Commission File No. 33-59488)
4.6 --Amended and Restated Credit Agreement, dated as of October 31, 1996,
among the Registrant, Essex Group, Inc., the lenders named therein
and The Chase Manhattan Bank, as administrative agent, incorporated
by reference to Exhibit 4.5 to Amendment No. 2 of the Registrant's
Registration Statement on Form S-1, filed with the Commission on
April 10, 1997 (Commission File No. 333-22043)
4.7 --Credit Agreement dated as of October 31, 1996, among the Registrant,
Essex Group, Inc., the lenders named therein and The Chase Manhattan
Bank, as administrative agent, incorporated by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q, filed with
the Commission on November 13, 1996 (Commission File No. 1-10211)
4.8 --Agreement and Lease dated as of April 12, 1995, between Mellon
Financial Services Corporation #3 and Essex Group, Inc., incorporated
by reference to Exhibit 10.3 to the Registrant's Quarterly Report on
Form 10-Q, filed with the Commission on May 12, 1995 (Commission File
No. 1-10211)
5 --Opinion of Cravath, Swaine & Moore
9.1 --Management Stockholders and Registration Rights Agreement dated as
of October 9, 1992 (the "Management Stockholders Agreement"), among B
E Acquisition Corporation, Bessemer Capital Partners, L.P. and
certain employees of the Registrant's subsidiaries, incorporated by
reference to Exhibit 28.3 to the registrant's Current Report on Form
8-K, filed with the Commission on October 26, 1992 (Commission File
No. 1-10211)
9.2 --Form of Irrevocable Proxy dated as of October 9, 1992, granted to
Bessemer Capital Partners, L.P. by certain employees of the
Registrant's subsidiaries, incorporated by reference to Exhibit 28.4
to the Registrant's Current Report on Form 8-K, filed with the
Commission on October 26, 1992 (Commission File No. 1-10211)
9.3 --Form of Irrevocable Proxy dated December 1996, granted to Bessemer
Holdings, L.P. by certain employees of the Registrant's subsidiaries,
incorporated by reference to Exhibit 9.06 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996,
filed with the Commission on February 19, 1997 (Commission File No.
1-10211)
9.4 --Amendment No. 1 dated as of July 3, 1996, to the Management
Stockholders Agreement, incorporated by reference to Exhibit 9.04 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, filed with the Commission on February 19, 1997
(Commission File No. 1-10211)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
9.5 --Amendment No. 2 dated as of December 11, 1996, to the Management
Stockholders Agreement, incorporated by reference to Exhibit 9.05 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, filed with the Commission on February 19, 1997
(Commission File No. 1-10211)
9.6 --Termination, Amendment and Approval Agreement, incorporated by
reference to Exhibit 9.6 to Amendment No. 2 of the Registrant's
Registration Statement on Form S-1, filed with the Commission on
April 10, 1997 (Commission File No. 333-22043)
10.1 --Engagement Letter dated July 22, 1992 between Bessemer Capital
Partners, L.P. and Donaldson, Lufkin & Jenrette Securities
Corporation, incorporated by reference to Exhibit 10.10 to the Essex
Annual Report on Form 10-K for the fiscal year ended December 31,
1992 (Commission File No. 1-7418)
10.2 --Amendment dated October 9, 1992 among Bessemer Capital Partners,
L.P., B E Acquisition Corporation, Donaldson, Lufkin & Jenrette
Securities Corporation and Goldman, Sachs & Co., to Engagement Letter
dated July 22, 1992 among Bessemer Capital Partners, L.P. and
Donaldson, Lufkin & Jenrette Securities Corporation, incorporated by
reference to Exhibit 10.11 to the Essex Annual Report on Form 10-K
for the fiscal year ended December 31, 1992 (Commission file No. 1-
74181)
10.3 --Advisory Services Agreement dated as of December 15, 1992, among
Bessemer Capital Partners, L.P., the Registrant and Essex Group, Inc.
incorporated by reference to Exhibit 10.15 to the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992
(Commission File No. 1-10211)
*10.4 --Registration Rights Agreement among Bessemer Holdings, L.P., certain
affiliates thereof and the Registrant
10.5 --Form of Termination Benefits Agreement, incorporated by reference to
Exhibit 10.5 to Amendment No. 2 of the Registrant's Registration
Statement on Form S-1, filed with the Commission on April 10, 1997
(Commission File No. 333-22043)
10.6 --Registration Rights Agreement ("Registration Rights Agreement")
dated as of October 9, 1992, among B E Acquisition Corporation,
certain affiliates of Donaldson, Lufkin & Jenrette, Inc., certain
affiliates of Goldman, Sachs & Co., and Chemical Equity Associates, A
California Limited Partnership, incorporated by reference to Exhibit
28.2 to the Registrant's Current Report on Form 8-K, filed with the
Commission on October 26, 1992 (Commission File No. 1-10211)
10.7 --Amendment No. 1 dated as of June 5, 1995, to the Registration Rights
Agreement incorporated by reference to Exhibit 99.02 of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, filed with the Commission on February 19, 1997
(Commission File No. 1-10211)
10.8 --Amendment and Restated Stock Option Plan ("Stock Option Plan") of
the Registrant, incorporated by reference to Exhibit 4.7 to the
Registrant's Current Report on Form 8-K, filed with the Commission on
October 26, 1992 (Commission File No. 1-10211)
10.9 --Amendment No. 1 to the Stock Option Plan, incorporated by reference
to Exhibit 99.04 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996, filed with the Commission on
February 19, 1997 (Commission File No. 1-10211)
*10.10 --Amendment No. 2 to the Stock Option Plan
*10.11 --Stock Option Plan for Nonemployee Directors of the Registrant
*11 --Pro forma earnings per share
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
*21 --Subsidiaries of the Registrant
23.1 --Consent of Ernst & Young LLP
23.2 --Consent of Cravath, Swaine & Moore (included in Exhibit 5)
*24 --Powers of Attorney (included in signature page of previous filing)
</TABLE>
- --------
* Previously filed
(b) Schedule(s):
Schedule I--Parent Company Only Condensed Financial Statements
Schedule II--Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing of the Offerings, certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Fort
Wayne, State of Indiana, on August 28, 1997.
Essex International Inc.,
(Registrant)
/s/ David A. Owen
By: _________________________________
David A. Owen
Executive Vice President, Chief
Financial Officer and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
SIGNATURE TITLE DATE
President, Chief
* Executive Officer and August 28,
- ------------------------------------- Director (Principal 1997 [/R]
STEVEN R. ABBOTT Executive Officer)
Executive Vice
/s/ David A. Owen President, Chief August 28,
- ------------------------------------- Financial Officer and 1997 [/R]
DAVID A. OWEN Treasurer (Principal
Financial and
Accounting Officer)
Director
* August 28,
- ------------------------------------- 1997 [/R]
WILLIAM LEE LYONS BROWN, JR.
Director
* August 28,
- ------------------------------------- 1997 [/R]
RODNEY A. COHEN
Director
* August 28,
- ------------------------------------- 1997 [/R]
EDWARD O. GAYLORD
Director
* August 28,
- ------------------------------------- 1997 [/R]
STUART S. JANNEY, III
Director
* August 28,
- ------------------------------------- 1997 [/R]
ROBERT D. LINDSAY
II-6
<PAGE>
SIGNATURE TITLE DATE
Director
* August 28,
1997 [/R]
- -------------------------------------
*By: WARD W. WOODS
/s/ David A. Owen
-------------------------------------
DAVID A. OWEN ATTORNEY-IN-FACT
II-7
<PAGE>
SCHEDULE I
ESSEX INTERNATIONAL INC.
PARENT COMPANY ONLY CONDENSED BALANCE SHEETS
IN THOUSANDS OF DOLLARS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents....................... $ 38 $ 1,530 $ 38
Refundable income taxes......................... 3,062 1,211 --
Due from Essex Group, Inc....................... 384 5,153 60,204
Investment in Essex Group, Inc.................. 114,678 151,066 193,836
-------- -------- --------
$118,162 $158,960 $254,078
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued liabilities............................. $ 239 $ 244 $ 5,455
Redeemable preferred stock...................... 48,820 -- --
Common stock subject to put..................... 4,803 12,626 --
Stockholders' equity:
Common stock.................................. 168 228 290
Additional paid in capital.................... 85,779 139,145 199,160
Carryover of Predecessor basis................ (15,259) (15,259) (15,259)
Retained earnings (deficit)................... (6,388) 21,976 64,432
-------- -------- --------
64,300 146,090 248,623
-------- -------- --------
$118,162 $158,960 $254,078
======== ======== ========
</TABLE>
See Note to Condensed Financial Statements
S-1
<PAGE>
SCHEDULE I
(CONTINUED)
ESSEX INTERNATIONAL INC.
PARENT COMPANY ONLY CONDENSED STATEMENTS OF INCOME
IN THOUSANDS OF DOLLARS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------------
1994 1995 1996 1996 1997
-------- -------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Costs and Expenses:
Interest expense....... $ 36,165 $ 14,476 $ -- $ -- $ --
Other expense, net..... (280) 47 63 87 100
-------- -------- ------- ------- -------
Loss before income taxes,
equity in earnings of
subsidiary, and
extraordinary charge.... (35,885) (14,523) (63) (87) (100)
Income tax benefit....... (13,200) (5,300) -- -- --
-------- -------- ------- ------- -------
Loss before equity in
earnings of subsidiary
and extraordinary
charge.................. (22,685) (9,223) (63) (87) (100)
Equity in earnings of
Essex Group, Inc. before
extraordinary charge.... 30,171 22,494 37,571 14,073 42,770
-------- -------- ------- ------- -------
Income before
extraordinary charge.... 7,486 13,271 37,508 13,986 42,670
Equity in Essex Group,
Inc. extraordinary
charge-net of income tax
benefit................. -- 2,971 1,183 -- --
-------- -------- ------- ------- -------
Net income............... $ 7,486 $ 10,300 $36,325 $13,986 $42,670
======== ======== ======= ======= =======
</TABLE>
See Note to Condensed Financial Statements
S-2
<PAGE>
SCHEDULE I
(CONTINUED)
ESSEX INTERNATIONAL INC.
PARENT COMPANY ONLY CONDENSED STATEMENTS OF CASH FLOWS
IN THOUSANDS OF DOLLARS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- -----------------------
1994 1995 1996 1996 1997
-------- --------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income............ $ 7,486 $ 10,300 $ 36,325 $ 13,986 $ 42,670
Adjustments to
reconcile net income
to cash provided by
operating activities:
Equity in earnings
of Essex Group,
Inc................ (30,171) (19,523) (36,388) (14,073) (42,770)
Non cash interest
expense............ 36,183 14,476 -- -- --
Provision for
deferred income
taxes.............. 575 1,511 -- -- --
Loss on repurchase
of debt............ 187 -- -- -- --
Changes in operating
assets and
liabilities:
Increase (decrease)
in accounts payable
and accrued
liabilities........ 2,262 (3,708) 73 3 6,740
(Increase) decrease
in amount due from
Essex Group, Inc... (14,616) 32,595 (4,769) (1,738) (9,029)
(Increase) decrease
in other assets.... 2,704 (1,555) 1,851 1,788 1,211
-------- --------- -------- -------- --------
NET CASH PROVIDED BY
(USED FOR)
OPERATING
ACTIVITIES......... 4,610 34,096 (2,908) (34) (1,178)
-------- --------- -------- -------- --------
FINANCING ACTIVITIES
Preferred stock
redemption........... -- -- (59,277) -- --
Proceeds from issuance
of common stock...... -- -- 63,677 -- 46,022
IPO proceeds to Essex
Group, Inc. ......... -- -- -- -- (46,022)
Common stock
repurchase........... -- -- -- -- (500)
Dividend received from
Essex Group, Inc..... -- 238,748 -- -- --
Proceeds from
exercised stock
options.............. 21 -- -- -- 186
Repurchase of senior
discount debentures.. (4,745) (272,850) -- -- --
-------- --------- -------- -------- --------
NET CASH PROVIDED BY
(USED FOR)
FINANCING
ACTIVITIES......... (4,724) (34,102) 4,400 -- (314)
-------- --------- -------- -------- --------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ (114) (6) 1,492 (34) (1,492)
Cash and cash
equivalents at
beginning of period.. 158 44 38 38 1,530
-------- --------- -------- -------- --------
Cash and cash
equivalents at end of
period............... $ 44 $ 38 $ 1,530 $ 4 $ 38
======== ========= ======== ======== ========
</TABLE>
See Note to Condensed Financial Statements
S-3
<PAGE>
SCHEDULE I
(CONTINUED)
ESSEX INTERNATIONAL INC.
PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS
NOTE TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO INFORMATION AS OF JUNE 30, 1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997)
Detailed notes to consolidated financial statements of Essex International
Inc. (formerly known as BCP/Essex Holdings Inc.) ("Essex International") are
included beginning on page F-6.
Essex International is beneficially owned by Bessemer Holdings, L.P.,
members of management, her current and former employees of Essex Group, Inc.
("Essex") and certain other investors. Essex International is the holding
company for Essex. The principal asset of Essex International is all of the
outstanding common stock of Essex. The investment in Essex is accounted for
using the equity method for this presentation. All of such stock is pledged to
the lenders of Essex under bank financing agreements. Generally, Essex
International has no source of income other than the earnings, if any, of
Essex.
Essex International and Essex file a consolidated U.S. federal income tax
return. Under a tax sharing agreement, Essex' aggregate income tax liability
is calculated as if it were to file a separate return with its subsidiaries.
S-4
<PAGE>
SCHEDULE II
ESSEX INTERNATIONAL INC.
VALUATION AND QUALIFYING ACCOUNTS
IN THOUSANDS OF DOLLARS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------- JUNE 30,
1994 1995 1996 1997
------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Balance at beginning of year........... $ 2,811 $ 3,537 $ 3,930 $5,239
Provision.............................. 1,332 676 1,782 846
Write-offs............................. (900) (476) (738) (518)
Recoveries............................. 294 193 265 305
------- ------- ------- ------
Balance at end of year................. $ 3,537 $ 3,930 $ 5,239 $5,872
======= ======= ======= ======
</TABLE>
S-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
1.1 --Form of U.S. Underwriting Agreement
1.2 --Form of International Underwriting Agreement
2.1 --Agreement and Plan of Merger, dated as of July 24, 1992, between B E
Acquisition Corporation and the Registrant (then known as MS/Essex
Holdings, Inc.), incorporated by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K, filed with the Securities
and Exchange Commission (the "Commission") on August 10, 1992
(Commission File No. 1-10211)
2.2 --Amendment dated as of October 1, 1992, to the Agreement and Plan of
Merger between
B E Acquisition Corporation and the Registrant, incorporated by
reference to Exhibit 2.2 to the Registrant's Current Report on Form
8-K, filed with the Commission on October 26, 1992 (Commission File
No. 1-10211)
2.3 --Stock Purchase Agreement, dated January 15, 1988 between the
Registrant (then known as MS/Essex Holdings Inc.) and United
Technologies Corporation, incorporated by reference to Exhibit 2.02
to Essex Group, Inc.'s Registration Statement on Form S-1, filed with
the Commission on March 24, 1988 (Commission File No. 33-20825)
*3.1 --Second Amended and Restated Certificate of Incorporation of the
Registrant
*3.2 --By-laws of the Registrant
4.1 --Stock and Warrant Subscription Agreement dated as of October 9, 1992
(the "Stock and Warrant Subscription Agreement"), among B E
Acquisition Corporation, certain affiliates of Donaldson, Lufkin &
Jenrette, Inc., certain affiliates of Goldman, Sachs & Co. and
Chemical Equity Associates, A California Limited Partnership,
incorporated by reference to Exhibit 4.3 to the Registrant's Current
Report on Form 8-K, filed with the Commission on October 26, 1992
(Commission File No. 1-10211)
*4.2 --Amendment No. 1 dated as of April 1, 1993, to the Stock and Warrant
Subscription Agreement
4.3 --Amendment No. 2 dated as of June 5, 1995, to the Stock and Warrant
Subscription Agreement, incorporated by reference to Exhibit 4.04 of
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, filed with the Commission on February 19, 1997
(Commission File No. 1-10211)
4.4 --Warrant Agreement dated as of October 9, 1992, among B E Acquisition
Corporation, certain affiliates of Donaldson, Lufkin & Jenrette, Inc.
and certain affiliates of Goldman, Sachs & Co., incorporated by
reference to Exhibit 4.5 to the Registrant's Current Report on Form
8-K, filed with the Commission on October 26, 1992 (Commission File
No. 1-10211)
4.5 --Indenture dated as of May 7, 1993, among Essex Group, Inc. and NBD
Bank, National Association, as trustee under which the 10% Senior
Notes Due 2003 are outstanding, incorporated by reference to Exhibit
4.1 to the Essex Registration Statement on Pre-Effective Amendment
No. 1 to Form S-2 (Commission File No. 33-59488)
4.6 --Amended and Restated Credit Agreement, dated as of October 31, 1996,
among the Registrant, Essex Group, Inc., the lenders named therein
and The Chase Manhattan Bank, as administrative agent, incorporated
by reference to Exhibit 4.5 to Amendment No. 2 of the Registrant's
Registration Statement on Form S-1, filed with the Commission on
April 10, 1997 (Commission File No. 333-22043)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
4.7 --Credit Agreement dated as of October 31, 1996, among the Registrant,
Essex Group, Inc., the lenders named therein and The Chase Manhattan
Bank, as administrative agent, incorporated by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q, filed with
the Commission on November 13, 1996 (Commission File No. 1-10211)
4.8 --Agreement and Lease dated as of April 12, 1995, between Mellon
Financial Services Corporation #3 and Essex Group, Inc., incorporated
by reference to Exhibit 10.3 to the Registrant's Quarterly Report on
Form 10-Q, filed with the Commission on May 12, 1995 (Commission File
No. 1-10211)
5 --Opinion of Cravath, Swaine & Moore
9.1 --Management Stockholders and Registration Rights Agreement dated as
of October 9, 1992 (the "Management Stockholders Agreement"), among B
E Acquisition Corporation, Bessemer Capital Partners, L.P. and
certain employees of the Registrant's subsidiaries, incorporated by
reference to Exhibit 28.3 to the registrant's Current Report on Form
8-K, filed with the Commission on October 26, 1992 (Commission File
No. 1-10211)
9.2 --Form of Irrevocable Proxy dated as of October 9, 1992, granted to
Bessemer Capital Partners, L.P. by certain employees of the
Registrant's subsidiaries, incorporated by reference to Exhibit 28.4
to the Registrant's Current Report on Form 8-K, filed with the
Commission on October 26, 1992 (Commission File No. 1-10211)
9.3 --Form of Irrevocable Proxy dated December 1996, granted to Bessemer
Holdings, L.P. by certain employees of the Registrant's subsidiaries,
incorporated by reference to Exhibit 9.06 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996,
filed with the Commission on February 19, 1997 (Commission File
No. 1-10211)
9.4 --Amendment No. 1 dated as of July 3, 1996, to the Management
Stockholders Agreement, incorporated by reference to Exhibit 9.04 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, filed with the Commission on February 19, 1997
(Commission File No. 1-10211)
9.5 --Amendment No. 2 dated as of December 11, 1996, to the Management
Stockholders Agreement, incorporated by reference to Exhibit 9.05 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, filed with the Commission on February 19, 1997
(Commission File No. 1-10211)
9.6 --Termination, Amendment and Approval Agreement, incorporated by
reference to Exhibit 9.6 to Amendment No. 2 of the Registrant's
Registration Statement on Form S-1, filed with the Commission on
April 10, 1997 (Commission File No. 333-22043)
10.1 --Engagement Letter dated July 22, 1992 between Bessemer Capital
Partners, L.P. and Donaldson, Lufkin & Jenrette Securities
Corporation, incorporated by reference to Exhibit 10.10 to the Essex
Annual Report on Form 10-K for the fiscal year ended December 31,
1992 (Commission File No. 1-7418)
10.2 --Amendment dated October 9, 1992 among Bessemer Capital Partners,
L.P., B E Acquisition Corporation, Donaldson, Lufkin & Jenrette
Securities Corporation and Goldman, Sachs & Co., to Engagement Letter
dated July 22, 1992 among Bessemer Capital Partners, L.P. and
Donaldson, Lufkin & Jenrette Securities Corporation, incorporated by
reference to Exhibit 10.11 to the Essex Annual Report on Form 10-K
for the fiscal year ended December 31, 1992 (Commission file No. 1-
74181)
10.3 --Advisory Services Agreement dated as of December 15, 1992, among
Bessemer Capital Partners, L.P., the Registrant and Essex Group, Inc.
incorporated by reference to Exhibit 10.15 to the registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992
(Commission File No. 1-10211)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
*10.4 --Registration Rights Agreement among Bessemer Holdings, L.P., certain
affiliates thereof and the Registrant
10.5 --Form of Termination Benefits Agreement, incorporated by reference to
Exhibit 10.5 to Amendment No. 2 of the Registrant's Registration
Statement on Form S-1, filed with the Commission on April 10, 1997
(Commission File No. 333-22043)
10.6 --Registration Rights Agreement ("Registration Rights Agreement")
dated as of October 9, 1992, among B E Acquisition Corporation,
certain affiliates of Donaldson, Lufkin & Jenrette, Inc., certain
affiliates of Goldman, Sachs & Co., and Chemical Equity Associates, A
California Limited Partnership, incorporated by reference to Exhibit
28.2 to the Registrant's Current Report on Form 8-K, filed with the
Commission on October 26, 1992 (Commission File No. 1-10211)
10.7 --Amendment No. 1 dated as of June 5, 1995, to the Registration Rights
Agreement incorporated by reference to Exhibit 99.02 of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, filed with the Commission on February 19, 1997
(Commission File No. 1-10211)
10.8 --Amended and Restated Stock Option Plan ("Stock Option Plan") of the
Registrant, incorporated by reference to Exhibit 4.7 to the
Registrant's Current Report on Form 8-K, filed with the Commission on
October 26, 1992 (Commission File No. 1-10211)
10.9 --Amendment No. 1 to the Stock Option Plan, incorporated by reference
to Exhibit 99.04 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996, filed with the Commission on
February 19, 1997 (Commission File No. 1-10211)
*10.10 --Amendment No. 2 to the Stock Option Plan
*10.11 --Stock Option Plan for Nonemployee Directors of the Registrant
*11 --Pro forma earnings per share
*21 --Subsidiaries of the Registrant
23.1 --Consent of Ernst & Young LLP
23.2 --Consent of Cravath, Swaine & Moore (included in Exhibit 5)
*24 --Powers of Attorney (included in signature page of previous filing)
</TABLE>
- --------
*Previously filed.
<PAGE>
S&C Draft of August 28, 1997
EXHIBIT 1.1
ESSEX INTERNATIONAL INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
UNDERWRITING AGREEMENT
(U.S. VERSION)
--------------
[ ], 1997
Goldman, Sachs & Co.,
Smith Barney Inc.,
Donaldson, Lufkin & Jenrette
Securities Corporation,
Lehman Brothers Inc.,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
Certain stockholders named in Schedule II hereto (the "Selling
Stockholders") of Essex International Inc., a Delaware corporation (the
"Company"), propose, subject to the terms and conditions stated herein, to sell
to the Underwriters named in Schedule I hereto (the "Underwriters") (a) an
aggregate of .................... shares (the "Firm Shares") of Common Stock,
par value $.01 per share ("Stock") of the Company and (b) an aggregate of
.................... warrants to purchase shares of Stock (the "Firm Warrants")
and, at the election of the Underwriters, up to (a) ..................
additional shares of Stock (the "Optional Shares") and (b) ..................
additional warrants to purchase shares of Stock (the "Optional Warrants"). The
Firm Warrants and the Optional Warrants that the Underwriters elect to purchase
pursuant to Section 2 hereof are herein collectively called the "Warrants", and
the Firm Shares, the Optional Shares that the Underwriters elect to purchase
pursuant to Section 2 hereof and the shares of Stock to be issued upon
redemption of the Warrants by the Company as hereinafter provided are herein
collectively called the "Shares".
It is understood and agreed to by all parties that the Company and the
Selling Stockholders are concurrently entering into an agreement (the
"International Underwriting Agreement") providing for (a) the sale by certain
Selling Stockholders of up to a total of ........ shares of Stock and (b) the
sale by certain Selling Stockholders of up to a total of ........ warrants
(the shares of Stock referred to in (a), together with the shares of Stock to be
issued upon the redemption of the warrants by the Company, are herein
collectively referred to as the "International Shares"), including the
overallotment option thereunder, through arrangements with certain underwriters
outside the United States (the "International Underwriters"), for whom ........
are acting as lead managers. Anything herein or therein
<PAGE>
to the contrary notwithstanding, the respective closings under this Agreement
and the International Underwriting Agreement are hereby expressly made
conditional on one another. The Underwriters hereunder and the International
Underwriters are simultaneously entering into an Agreement between U.S. and
International Underwriting Syndicates (the "Agreement between Syndicates") which
provides, among other things, for the transfer of shares of Stock between the
two syndicates. Two forms of prospectus are to be used in connection with the
offering and sale of shares of Stock contemplated by the foregoing, one relating
to the Shares hereunder and the other relating to the International Shares. The
latter form of prospectus will be identical to the former except for certain
substitute pages. Except as used in Sections 2, 3, 4, 9 and 11 herein, and
except as the context may otherwise require, references hereinafter to the
Shares shall include all the shares of Stock which may be sold pursuant to
either this Agreement or the International Underwriting Agreement, including any
shares of Stock to be issued by the Company upon the redemption of the Warrants,
references hereinafter to the Warrants shall include all the warrants which may
be sold pursuant to either this Agreement or the International Underwriting
Agreement and references herein to any prospectus, whether in preliminary or
final form, and whether as amended or supplemented, shall include both the U.S.
and the international versions thereof.
1. (a) The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-33591) (the
"Initial Registration Statement") in respect of the Shares has been filed
with the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in
the form heretofore delivered to you, and, excluding exhibits thereto,
delivered to you for each of the other Underwriters, have been declared
effective by the Commission in such form; other than a registration
statement, if any, increasing the size of the offering (a "Rule 462(b)
Registration Statement"), filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended (the "Act"), which became effective upon
filing, no other document with respect to the Initial Registration
Statement has heretofore been filed with the Commission; and no stop order
suspending the effectiveness of the Initial Registration Statement, any
post-effective amendment thereto or the Rule 462(b) Registration Statement,
if any, has been issued and no proceeding for that purpose has been
initiated or threatened by the Commission (any preliminary prospectus
included in the Initial Registration Statement or filed with the Commission
pursuant to Rule 424(a) of the rules and regulations of the Commission
under the Act is hereinafter called a "Preliminary Prospectus"; the
various parts of the Initial Registration Statement and the Rule 462(b)
Registration Statement, if any, including all exhibits thereto and
including the information contained in the form of final prospectus filed
with the Commission pursuant to Rule 424(b) under the Act in accordance
with Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to
be part of the Registration Statement, if any, at the time it became or
hereafter becomes effective, each as amended as of such effective date, are
hereinafter collectively called the "Registration Statement"; and such
final prospectus, in the form first filed pursuant to Rule 424(b) under the
Act, is hereinafter called the "Prospectus");
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
-2-
<PAGE>
provided, however, that this representation and warranty shall not apply to
any statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein or by a Selling Stockholder
expressly for use in the preparation of the answers therein to Items 7 and
11(l) of Form S-1;
(iii) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the Company
by an Underwriter through Goldman, Sachs & Co. expressly for use therein or
by a Selling Stockholder expressly for use in the preparation of the
answers therein to Items 7 and 11(l) of Form S-1;
(iv ) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in the
Prospectus any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus; and, since
the respective dates as of which information is given in the Registration
Statement and the Prospectus, there has not been any change in the capital
stock (other than changes resulting from the exercise of options
outstanding as of the date of this Agreement) or long-term debt of the
Company or any of its subsidiaries or any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the
Prospectus;
(v) The Company and its subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all
personal property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any real property and buildings held
under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries;
(vi) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each other jurisdiction in which it owns
or leases properties or conducts any business so as to require such
qualification, or is subject to no material liability or disability by
reason of the failure to be so qualified in any such jurisdiction; each
"Material Subsidiary" (as hereinafter defined") has been duly incorporated
and is validly existing as a
-3-
<PAGE>
corporation in good standing under the laws of its jurisdiction of
incorporation; each Material Subsidiary has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties or conducts any business so as to require such qualification, or
is subject to no material liability or disability by reason of the failure
to be so qualified in any such jurisdiction; and "Material Subsidiary"
means each entity that would constitute a "significant subsidiary" of the
Company for purposes of Rule 1-02(w) of Regulation S-X under the Act;
(vii) The Company has an authorized capitalization as set forth in
the Company's Annual Report on Form 10-K for the year ended December 31,
1996, as filed with the Commission, and all of the issued shares of capital
stock of the Company have been duly and validly authorized and issued and
are fully paid and non-assessable; at each Time of Delivery (as defined in
Section 4 below), the Company will have the authorized capitalization as
set forth in the Prospectus, and at each Time of Delivery all of the issued
shares of capital stock of the Company will have been duly and validly
authorized and issued and will be fully paid and non-assessable, will be
free of preemptive and other preferential rights to subscribe for or
purchase shares of Stock granted by the Company or pursuant to an agreement
to which the Company is a party and will conform to the description of
Stock contained in the Prospectus; and all of the issued shares of capital
stock of each Material Subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and (except for
directors' qualifying shares) are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or claims,
except as disclosed in the Prospectus;
(viii) No holder of securities of the Company has rights, pursuant
to any agreement with the Company or otherwise, to register such securities
under any registration statement filed with the Commission except as
disclosed in the Prospectus;
(ix) The unissued shares of Stock issuable upon the redemption of the
Warrants have been duly and validly authorized and reserved for issuance,
and at the Time of Delivery with respect to such shares, such shares will
be delivered in accordance with the provisions of this Agreement and will
be duly and validly issued, fully paid and non-assessable, will be free of
preemptive and other preferential rights to subscribe for or purchase
shares of Stock granted by the Company or pursuant to an agreement to which
the Company is a party and will conform to the description of the Stock
contained in the Prospectus;
(x) The compliance by the Company with all of the provisions of this
Agreement and the International Underwriting Agreement and the consummation
of the transactions herein and therein contemplated will not conflict with
or result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such action result
in any violation of the provisions of the Certificate of Incorporation or
By-laws of the Company or any statute or any order, rule or regulation of
any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties; and no
consent, approval, authorization, order, registration or qualification of
or with any such court or governmental agency or body is required for the
sale of the Shares or the consummation by the Company of the transactions
contemplated by this Agreement and the International Underwriting
Agreement, except the registration under the Act of the Shares,
registration of the Stock under the Securities Exchange Act of 1934, as
amended (the
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"Exchange Act") and the listing of the Shares on the New York Stock
Exchange, Inc. (the "Exchange");
(xi) Neither the Company nor any of its subsidiaries is (A) in
violation of its Certificate of Incorporation or By-laws or (B) in default
in the performance or observance of any material obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument to which it is a
party or by which it or any of its properties may be bound except, in the
case of this clause (B), for such defaults that would not, individually or
in the aggregate, have, or a reasonably be expected to have in the future,
a material adverse effect on the general affairs, management, financial
position, stockholders' equity or results of operations of the Company and
its subsidiaries, taken as a whole;
(xii) The statements set forth in the Prospectus, under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock and the Warrants will be at each Time of
Delivery, and under the captions "Certain United States Federal Tax
Consequences To Non-United States Holders of Common Stock", "Certain
Relationships and Related Party Transactions", "Description of Certain
Indebtedness", "Shares Eligible for Future Sale" and "Underwriting",
insofar as they purport to describe the provisions of the laws and
documents referred to therein are, accurate, complete and fair;
(xiii) Other than as set forth in the Prospectus, there are no legal
or governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any of
its subsidiaries is the subject which have a reasonable possibility of
success and which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material
adverse effect on the current or future consolidated financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries; and, to the best of the Company's knowledge, no such
proceedings are threatened or contemplated by governmental authorities or
threatened by others;
(xiv) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act");
and
(xv) Ernst & Young LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder.
(b) Each of the Selling Stockholders, severally and not jointly, represents
and warrants to, and agrees with, each of the Underwriters and the Company that:
(i) All consents, approvals, authorizations and orders necessary for
the execution and delivery by such Selling Stockholder of this Agreement,
the International Underwriting Agreement, the Power of Attorney and the
Custody Agreement hereinafter referred to, and for the sale and delivery of
the Shares or Warrants to be sold by such Selling Stockholder hereunder and
under the International Underwriting Agreement, have been obtained; and
such Selling Stockholder has full right, power and authority to enter into
this Agreement, the International Underwriting Agreement, the Power of
Attorney and the Custody Agreement and
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to sell, assign, transfer and deliver the Shares or Warrants to be sold by
such Selling Stockholder hereunder and under the International Underwriting
Agreement;
(ii) The sale of the Shares or Warrants to be sold by such Selling
Stockholder hereunder and under the International Underwriting Agreement
and the compliance by such Selling Stockholder with all of the provisions
of this Agreement, the International Underwriting Agreement, the Power of
Attorney and the Custody Agreement and the consummation of the transactions
herein and therein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any statute or any material indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which such
Selling Stockholder is a party or by which such Selling Stockholder is
bound, or to which any of the property or assets of such Selling
Stockholder is subject, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws of such Selling
Stockholder if such Selling Stockholder is a corporation, the Partnership
Agreement of such Selling Stockholder if such Selling Stockholder is a
partnership, any other constituent documents of such Selling Stockholder or
any order to which such Selling Stockholder is bound or any rule or
regulation of any court or governmental agency or body having jurisdiction
over such Selling Stockholder or the property of such Selling Stockholder;
(iii) Such Selling Stockholder has, and immediately prior to each
Time of Delivery such Selling Stockholder will have, good and valid title
to the Shares or Warrants to be sold by such Selling Stockholder hereunder
and under the International Underwriting Agreement, free and clear of all
liens, encumbrances, equities or claims; and, upon delivery of any such
Shares or Warrants and payment therefor pursuant hereto and to the
International Underwriting Agreement, good and valid title to such Shares
or Warrants, free and clear of all liens, encumbrances, equities or claims,
will pass to the several Underwriters or the International Underwriters, as
the case may be;
(iv) During the period beginning from the date hereof and continuing
to and including the date 90 days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, including, without
limitation, through the entry into a cash-settled derivative instrument,
except as provided hereunder or under the International Underwriting
Agreement, any shares of Stock, any securities of the Company that are
substantially similar to the Shares, including but not limited to any
securities that are convertible into or exchangeable for, or that represent
the right to receive, Stock or any such substantially similar securities
(other than upon the conversion or exchange of convertible or exchangeable
securities outstanding as of the date of this Agreement), without the prior
written consent of Goldman, Sachs & Co.;
(v) Such Selling Stockholder has not taken and will not take, directly
or indirectly, any action which is designed to or which has constituted or
which might reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Shares;
(vi) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto are made in reliance upon and in conformity
with written information relating to such Selling Stockholder furnished to
the Company by such Selling Stockholder expressly for use therein, such
Preliminary Prospectus and the Registration Statement did, and the
Prospectus and any further amendments or supplements to the Registration
Statement and the Prospectus,
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<PAGE>
when they become effective or are filed with the Commission, as the case
may be, will conform in all material respects to the requirements of the
Act and the rules and regulations of the Commission thereunder and will not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading;
(vii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Stockholder will deliver to you prior to or at
the First Time of Delivery (as hereinafter defined) a properly completed
and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations
in lieu thereof);
(viii) Certificates in negotiable form representing all of the Shares
and Warrants to be sold by such Selling Stockholder hereunder and under the
International Underwriting Agreement have been placed in custody under a
Custody Agreement, in the form heretofore furnished to you (the "Custody
Agreement"), duly executed and delivered by such Selling Stockholder to The
Bank of New York, as custodian (the "Custodian"), and such Selling
Stockholder has duly executed and delivered a Power of Attorney, in the
form heretofore furnished to you (the "Power of Attorney"), appointing the
persons indicated in Schedule II hereto, and each of them, as such Selling
Stockholder's attorneys-in-fact (the "Attorneys-in-Fact") with authority to
execute and deliver this Agreement and the International Underwriting
Agreement on behalf of such Selling Stockholder, to determine the purchase
price to be paid by the Underwriters and the International Underwriters to
the Selling Stockholders as provided in Section 2 hereof, to authorize the
delivery of the Shares or Warrants to be sold by such Selling Stockholder
hereunder and otherwise to act on behalf of such Selling Stockholder in
connection with the transactions contemplated by this Agreement, the
International Underwriting Agreement and the Custody Agreement; and
(ix) The Shares or Warrants represented by the certificates held in
custody for such Selling Stockholder under the Custody Agreement are
subject to the interests of the Underwriters hereunder and the
International Underwriters under the International Underwriting Agreement;
the arrangements made by such Selling Stockholder for such custody, and the
appointment by such Selling Stockholder of the Attorneys-in-Fact by the
Power of Attorney, are to that extent irrevocable; the obligations of the
Selling Stockholders hereunder shall not be terminated by operation of law,
whether by the death or incapacity of any individual Selling Stockholder
or, in the case of an estate or trust, by the death or incapacity of any
executor or trustee or the termination of such estate or trust, or in the
case of a partnership or corporation, by the dissolution of such
partnership or corporation, or by the occurrence of any other event; if any
individual Selling Stockholder or any such executor or trustee should die
or become incapacitated, or if any such estate or trust should be
terminated, or if any such partnership or corporation should be dissolved,
or if any other such event should occur, before the delivery of the Shares
or Warrants hereunder, certificates representing the Shares or Warrants
shall be delivered by or on behalf of such Selling Stockholder in
accordance with the terms and conditions of this Agreement, the
International Underwriting Agreement and of the Custody Agreements, and
actions taken by the Attorneys-in-Fact pursuant to the Powers of Attorney
shall be as valid as if such death, incapacity, termination, dissolution or
other event had not occurred, regardless of whether or not the Custodian,
the Attorneys-in-Fact, or any of them, shall have received notice of such
death, incapacity, termination, dissolution or other event.
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<PAGE>
2. Subject to the terms and conditions herein set forth, (a) each of the
Selling Stockholders agrees, severally and not jointly, to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from each of the Selling Stockholders, at a purchase price per share of
$ ........, the number of Firm Shares (to be adjusted by you so as to eliminate
fractional shares) determined by multiplying the aggregate number of Firm Shares
to be sold by each of the Selling Stockholders as set forth opposite their
respective names in Schedule II hereto by a fraction, the numerator of which is
the aggregate number of Firm Shares to be purchased by such Underwriter as set
forth opposite the name of such Underwriter in Schedule I hereto and the
denominator of which is the aggregate number of Firm Shares to be purchased by
all of the Underwriters from all of the Selling Stockholders hereunder, (b)
certain Selling Stockholders agree, severally and not jointly, to sell to each
of the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from such Selling Stockholders, at a purchase price of $
........ per Warrant, the number of Firm Warrants (to be adjusted by you so as
to eliminate the redemption of a Warrant for a fractional share) determined by
multiplying the aggregate number of Firm Warrants to be sold by such Selling
Stockholders as set forth opposite their respective names in Schedule II hereto
by a fraction, the numerator of which is the aggregate number of Firm Warrants
to be purchased by such Underwriter as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the aggregate
number of all Firm Warrants to be purchased by all the Underwriters from such
Selling Stockholders and (c) in the event and to the extent that the
Underwriters shall exercise the election to purchase Optional Shares and
Optional Warrants as provided below, each of the Selling Stockholders agrees,
severally and not jointly, to sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from each of the
Selling Stockholders, at the purchase price per share set forth in clause (a) of
this Section 2 or at the purchase price per Warrant set forth in clause (b) of
this Section 2, as the case may be, that portion of the number of Optional
Shares and Optional Warrants as to which such election shall have been exercised
(to be adjusted by you so as to eliminate fractional shares and the redemption
of a Warrant for a fractional share) determined (i) in the case of Optional
Shares, by multiplying such number of Optional Shares by a fraction the
numerator of which is the maximum number of Optional Shares which such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of Optional Shares that all of the Underwriters are entitled to purchase
hereunder and (ii) in the case of Optional Warrants, by multiplying such number
of Optional Warrants by a fraction the numerator of which is the maximum number
of Optional Warrants which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Warrants that all of the Underwriters
are entitled to purchase hereunder.
Each of the Selling Stockholders, as and to the extent indicated in
Schedule II hereto, hereby grants, severally and not jointly, to the
Underwriters the right to purchase at their election up to ........ Optional
Shares and up to ........ Optional Warrants, as the case may be, at the
purchase price per share or per Warrant set forth in the paragraph above, as the
case may be, for the sole purpose of covering overallotments in the sale of the
Firm Shares (including for this purpose all of the shares of Stock to be
received upon redemption of the Firm Warrants). Any such election to purchase
Optional Shares shall be made in proportion to the maximum number
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of Optional Shares to be sold by each Selling Stockholder as set forth in
Schedule II hereto, it being understood that for the purpose of this calculation
the Optional Warrants shall be treated as if they had been redeemed for shares
of Stock and that the Optional Shares and the Optional Warrants shall be
purchased in the same proportion as the total number of Optional Shares bears to
the total number of shares of Stock to be received upon redemption of all the
Optional Warrants. Any such election to purchase Optional Shares and Optional
Warrants may be exercised only by written notice from you to the Attorneys-in-
Fact, given within a period of 30 calendar days after the date of this Agreement
and setting forth the aggregate number of Optional Shares and Optional Warrants
to be purchased and the date on which such Optional Shares and Optional Warrants
are to be delivered, as determined by you but in no event earlier than the First
Time of Delivery (as defined in Section 4 hereof) or, unless you and the
Attorneys-in-Fact otherwise agree in writing, earlier than one or later than ten
business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares
(including for this purpose all the shares of Stock to be received upon
redemption of the Firm Warrants), the several Underwriters propose to offer the
Firm Shares (including for this purpose all the shares of Stock to be received
upon redemption of the Firm Warrants) for sale upon the terms and conditions set
forth in the Prospectus.
4. (a) The Shares and Warrants to be purchased by each Underwriter
hereunder, in definitive form, and in such authorized denominations and
registered in such names as Goldman, Sachs & Co. may request upon at least
forty-eight hours' prior notice to the Selling Stockholders shall be delivered
by or on behalf of the Selling Stockholders to Goldman, Sachs & Co., for the
account of such Underwriter, against payment by or on behalf of such Underwriter
of the purchase price therefor by certified or official bank check or checks or
by wire transfer, payable to the order of the Custodian in Federal Funds (same
day). The delivery of the Shares to Goldman, Sachs & Co. pursuant to the prior
sentence may be made, at the option of Goldman, Sachs & Co., through the
facilities of The Depository Trust Company ("DTC"). The Company will cause the
certificates representing the Shares to be made available for checking and
packaging at least twenty-four hours prior to the Time of Delivery (as defined
below) with respect thereto at the office of Goldman, Sachs & Co., 85 Broad
Street, New York, New York 10004, or at the office of DTC or its designated
custodian, as the case may be (the "Designated Office"). The time and date of
such delivery and payment shall be, with respect to the Firm Shares and the Firm
Warrants, 9:30 a.m., New York City time, on ........, 1997 or such other time
and date as Goldman, Sachs & Co. and the Selling Stockholders may agree upon in
writing, and, with respect to the Optional Shares and the Optional Warrants,
9:30 a.m., New York City time, on the date specified by Goldman, Sachs & Co. in
the written notice given by Goldman, Sachs & Co. of the Underwriters' election
to purchase such Optional Shares and the Optional Warrants, or such other time
and date as Goldman, Sachs & Co. and the Attorneys-in-Fact may agree upon in
writing. Such time and date for delivery of the Firm Shares and the Firm
Warrants is herein called the "First Time of Delivery", such time and date for
delivery of the Optional Shares and the Optional Warrants, if not the First Time
of Delivery, is herein called the "Second Time of Delivery", and each such time
and date for delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on behalf
of the parties hereto pursuant to Section 7 hereof, including the cross-receipt
for the Shares and the Warrants and any additional documents requested by the
Underwriters pursuant to Section 7(l) hereof will be delivered at the offices of
Sullivan & Cromwell, 125 Broad Street, New York, New York 10004 (the "Closing
Location"), and the Shares will be delivered at the Designated Office, all at
each Time of Delivery. A meeting will be held at the Closing Location at 2:00
p.m., New York City time, on the New York Business Day next preceding each Time
of Delivery, at which meeting the final drafts of the documents to be delivered
pursuant to the preceding sentence will be available for review by the parties
hereto. For the purposes of this Section 4, "New York Business Day" shall mean
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in New York are generally authorized or obligated by law or
executive order to close.
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<PAGE>
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act and, if the
Company elects to rely upon Rule 462(b) under the Act, to file a Rule
462(b) Registration Statement with the Commission in compliance with Rule
462(b) by 10:00 p.m., Washington, D.C. time on the date of this Agreement
and to pay to the Commission at such time of filing the filing fee for the
Rule 462(b) Registration Statement or give irrevocable instructions for the
payment of such fee pursuant to Rule 111(b) under the Act; to make no
further amendment or any supplement to the Registration Statement or
Prospectus which shall be disapproved by you promptly after reasonable
notice thereof; to advise you, promptly after it receives notice thereof,
of the time when any amendment to the Registration Statement has been filed
or becomes effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish you copies thereof; to advise you,
promptly after it receives notice thereof, of the issuance by the
Commission of any stop order or of any order preventing or suspending the
use of any Preliminary Prospectus or prospectus, of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction, of
the initiation or threatening of any proceeding for any such purpose, or of
any request by the Commission for the amending or supplementing of the
Registration Statement or Prospectus or for additional information; and, in
the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, promptly to use its best efforts to
obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with
such laws so as to permit the continuance of sales and dealings therein in
such jurisdictions for as long as may be necessary to complete the
distribution of the Shares, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to
furnish the Underwriters with copies of the Prospectus in New York City in
such quantities as you may reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine months
after the time of issue of the Prospectus in connection with the offering
or sale of the Shares and if at such time any events shall have occurred as
a result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made when such Prospectus
is delivered, not misleading, or, if for any other reason it shall be
necessary during such period to amend or supplement the Prospectus in order
to comply with the Act, to notify you and upon your request to prepare and
furnish without charge to each Underwriter and to any dealer in securities
as many copies as you may from time to time reasonably request of an
amended Prospectus or a supplement to the Prospectus which will correct
such statement or omission or effect such compliance, and in case any
Underwriter is required to deliver a prospectus in connection with sales of
any of the Shares at any time nine months or more after the time of issue
of the Prospectus, upon your request but at the expense of such
Underwriter, to prepare and deliver to such
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<PAGE>
Underwriter as many copies as you may request of an amended or supplemented
Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)
under the Act), an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Act and the
rules and regulations of the Commission thereunder (including, at the
option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing
to and including the date 90 days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, including, without
limitation, through the entry into a cash-settled derivative instrument,
except as provided hereunder and under the International Underwriting
Agreement, any shares of Stock, any securities of the Company that are
substantially similar to the Shares, including but not limited to any
securities that are convertible into or exchangeable for, or that represent
the right to receive, Stock or any such substantially similar securities
(other than (i) pursuant to acquisitions or other business transactions
where the Company uses shares of Stock as all or a portion of the
consideration for the transactions provided that if the aggregate number of
shares of Stock issued in any such acquisitions or transactions exceeds
[1.3 million], or if the number of shares of Stock issued in any
acquisition or transaction, together with the number of shares of Stock
issued in any other acquisitions or transactions after the date of this
Agreement exceeds [1.3 million], the Company shall cause the person or
persons acquiring such shares of Stock to comply with this Section 5(e), or
(ii) pursuant to employee stock option plans existing on, or upon the
conversion or exchange of convertible or exchangeable securities
outstanding as of, the date of this Agreement), without the prior written
consent of Goldman, Sachs & Co.; and to enforce its rights under Section
6.04 of the Management Stockholders Agreement and Section 3(a) of the
Registration Rights Agreement (each as defined in the Prospectus), to use
its reasonable best efforts to cause each other party to such agreements to
comply therewith and not to grant any waivers or consents to non-compliance
with such agreements insofar as such agreements relate to registration
under the Act, in each case unless and to the extent that it shall have
obtained the prior written consent of Goldman, Sachs & Co.;
(f) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company
and its consolidated subsidiaries certified by independent public
accountants) and, as soon as practicable after the end of each of the first
three quarters of each fiscal year (beginning with the fiscal quarter
ending after the effective date of the Registration Statement),
consolidated summary financial information of the Company and its
subsidiaries for such quarter in reasonable detail;
(g) During a period of three years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to
deliver to you (i) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission or any
national securities exchange on which any class of securities of the
Company is listed; and (ii) such additional information concerning the
business and financial condition of the Company as you may from time to
time reasonably request (such financial statements to be on a consolidated
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basis to the extent the accounts of the Company and its subsidiaries are
consolidated in reports furnished to its stockholders generally or to the
Commission);
(h) If the Company elects to rely upon Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance
with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this
Agreement, and the Company shall at the time of filing either pay to the
Commission the filing fee for the Rule 462(b) Registration Statement or
give irrevocable instructions for the payment of such fee pursuant to Rule
111(b) under the Act; and
(i) On or prior to any Time of Delivery, to redeem each Warrant to be
sold to the Underwriters at such Time of Delivery for [ ] shares
of Stock; each share of Stock to be duly authorized, validly issued, fully
paid and non-assessable and free and clear of all liens, encumbrances,
equities or claims; and to deliver such shares of Stock to the Underwriters
as provided in Section 4 hereof.
6. The Company covenants and agrees with each of the Selling Stockholders
and with the several Underwriters and each of the Selling Stockholders,
severally, covenants and agrees with the Company and the Underwriters that the
Company will pay or cause to be paid the following: (i) the fees, disbursements
and expenses of the Company's counsel and accountants in connection with the
registration of the Shares under the Act and all other expenses in connection
with the preparation, printing and filing of the Registration Statement, any
Preliminary Prospectus and the Prospectus and amendments and supplements thereto
and the mailing and delivering of copies thereof to the Underwriters and
dealers; (ii) all expenses in connection with the qualification of the Shares
for offering and sale under state securities laws as provided in Section 5(b)
hereof, including the fees and disbursements of counsel for the Underwriters in
connection with such qualification; (iii) all fees and expenses in connection
with listing the Shares on the Exchange; (iv) the filing fees incident to, and
the fees and disbursements of counsel for the Underwriters in connection with,
securing any required review by the NASD of the terms of the sale of the Shares;
(v) the cost of preparing stock certificates; (vi) the cost and charges of any
transfer agent or registrar; (vii) all other costs and expenses incident to the
performance of its obligations hereunder (not including the fees and expenses of
counsel to the Selling Stockholders) which are not otherwise specifically
provided for in this Section; (viii) fees and expenses of the Attorneys-in-Fact
and the Custodian; (ix) all expenses and taxes incident to the sale and delivery
of the Shares and Warrants to be sold to the Underwriters; and (x) all other
costs and expenses incident to the performance by the Selling Stockholders of
their obligations hereunder (other than underwriting commissions and discounts).
In connection with Clause (ix) of the preceding sentence, Goldman, Sachs & Co.
agrees to pay New York State stock transfer tax, and the Company agrees to
reimburse Goldman, Sachs & Co. for associated carrying costs if such tax payment
is not rebated on the day of payment and for any portion of such tax payment not
rebated. It is understood, however, that the Company shall bear, and the Selling
Stockholders shall not be required to pay or to reimburse the Company for, the
cost of any other matters not directly relating to the sale and purchase of the
Shares pursuant to this Agreement, and that, except as provided in this Section,
and Sections 8 and 11 hereof, the Underwriters will pay all of their own costs
and expenses, including the fees of their counsel, stock transfer taxes on
resale of any of the Shares by them, and any advertising expenses connected with
any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares and
the Warrants to be delivered at each Time of Delivery, shall be subject, in
their discretion, to the condition that all representations and warranties and
other statements of the Company and of the Selling Stockholders herein are, at
and as of such Time of Delivery, true and correct, the condition that the
Company and
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the Selling Stockholders shall have performed all of its and their obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing
by the rules and regulations under the Act and in accordance with Section
5(a) hereof; if the Selling Shareholders have elected to rely upon Rule
462(b), the Rule 462(b) Registration Statement shall have become effective
by 10:00 P.M., Washington, D.C. time, on the date of this Agreement; no
stop order suspending the effectiveness of the Registration Statement or
any part thereof shall have been issued and no proceeding for that purpose
shall have been initiated or threatened by the Commission; and all requests
for additional information on the part of the Commission shall have been
complied with to your reasonable satisfaction;
(b) Sullivan & Cromwell, counsel for the Underwriters, shall have
furnished to you such opinion or opinions, dated such Time of Delivery,
with respect to the matters covered in paragraphs (i), (ii) and (vii) of
subsection (c) below and the final paragraph of subsection (d) below as
well as such other related matters as you may reasonably request, and such
counsel shall have received such papers and information as they may
reasonably request to enable them to pass upon such matters;
(c) Debra F. Minott, General Counsel for the Company, shall have
furnished to you her written opinion (a draft of such opinion is attached
as Annex II(a) hereto), dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of the
Company (including the Shares being delivered at such Time of Delivery)
have been duly and validly authorized and issued and are fully paid and
non-assessable; the Shares are free of preemptive and other preferential
rights to subscribe for or purchase shares of Stock granted by the Company
or pursuant to an agreement to which the Company is a party and the Shares
conform to the description of the Stock contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing under
the laws of each other jurisdiction in which it owns or leases properties
or conducts any business so as to require such qualification, or is subject
to no material liability or disability by reason of failure to be so
qualified in any such jurisdiction (such counsel being entitled to rely in
respect of the opinion in this clause upon opinions of local counsel and in
respect of matters of fact upon certificates of officers of the Company,
provided that such counsel shall state that she believes that both you and
she are justified in relying upon such opinions and certificates);
(iv) Each Material Subsidiary is duly incorporated and is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation; and all of the issued shares of capital
stock of each Material Subsidiary have been duly and
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validly authorized and issued, are fully paid and non-assessable, and
(except for directors' qualifying shares) are owned directly by the
Company, free and clear of all liens, encumbrances, equities or claims,
other than as described in the Prospectus, including the liens resulting
from the Restated Credit Agreement (as defined in the Prospectus);
(v) Essex Group, Inc. ("Essex") has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each jurisdiction in which it owns or leases properties
or conducts any business so as to require such qualification, or is subject
to no material liability or disability by reason of failure to be so
qualified in any such jurisdiction (such counsel being entitled to rely in
respect of the opinion in this clause upon opinions of local counsel and in
respect of matters of fact upon certificates of officers of the Company or
Essex, provided that such counsel shall state that they believe that both
you and they are justified in relying upon such opinions and certificates);
(vi) To such counsel's knowledge and other than as set forth in
the Prospectus, there are no legal or governmental proceedings pending to
which the Company or any of its subsidiaries is a party or of which any
property of the Company or any of its subsidiaries is the subject which
have a reasonable possibility of success and which, if determined adversely
to the Company or any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the current or future
consolidated financial position, stockholders' equity, cash flows or
results of operations of the Company and its subsidiaries; and, to such
counsel's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(vii) This Agreement and the International Underwriting
Agreement have been duly authorized, executed and delivered by the Company;
(viii) The compliance by the Company with all of the provisions
of this Agreement and the International Underwriting Agreement and the
consummation of the transactions herein and therein contemplated will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument known to such
counsel to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound or to which any of
the property or assets of the Company or any of its subsidiaries is
subject, nor will such action result in any violation of the provisions of
the Certificate of Incorporation or By-laws of the Company or any statute
or any order, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over the Company or any of
its subsidiaries or any of their properties; and
(ix) Neither the Company nor any of its subsidiaries is (A) in
violation of its Certificate of Incorporation or By-laws or (B) in default
in the performance or observance of any material obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument to which it is a
party or by which it or any of its properties may be bound except, in the
case of this clause (B), for such defaults that would not, individually or
in the aggregate, have a Material Adverse Effect.
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<PAGE>
Such counsel shall also state that the Registration Statement and any
amendment made thereto prior to such Time of Delivery, at the time it became
effective, and the Prospectus and any amendment or supplement made thereto prior
to such Time of Delivery, as of its date, the date of such amendment or
supplement and the date the statement is made by such counsel (except the
financial statements and other information of an accounting or financial nature
included therein, as to which such counsel will express no view), appeared on
their face to be appropriately responsive in all material respects to the
requirements of the Act and the applicable rules and regulations thereunder;
although such counsel will not assume responsibility for the accuracy or
completeness of the statements made in the Registration Statement and
Prospectus, except and provided in subsection (ii) of this Section 7(c) and
except insofar as such statements relate to such counsel; and that the work of
such counsel in connection with such matters and as General Counsel of the
Company did not disclose any information that gave such counsel reason to
believe that the Registration Statement or any amendment made thereto prior to
such Time of Delivery, at the time the Registration Statement or such amendment
became effective, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus or any amendment or
supplement made thereto prior to such Time of Delivery, at its date, the date of
such amendment or supplement and the date of such counsel's statement, included
an untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading (in each case except
for the financial statements and other information of an accounting or financial
nature included therein, as to which such counsel will express no view). Such
counsel shall further state that such counsel does not know of any contracts or
other documents of a character required to be filed as an exhibit to the
Registration Statement or required to be described in the Registration Statement
or the Prospectus which are not filed or described as required.
(d) Cravath, Swaine & Moore, counsel for the Company, shall have furnished
to you their written opinion (a draft of such opinion is attached as Annex II(b)
hereto), dated such Time of Delivery, in form and substance satisfactory to you,
to the effect of paragraphs (i) (except indicating current due incorporation),
(ii) (excluding the validity of any Shares not being delivered at such Time of
Delivery) and (viii) of subsection (c) of this Section 7, and to the effect
that;
(i) No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body
referred to in clause (viii) of Section 7(c) is required for the sale of
the Shares or the Warrants or the consummation by the Company of the
transactions contemplated by this Agreement and the International
Underwriting Agreement, except the registration under the Act of the
Shares, the registration of the Stock under the Exchange Act and the
listing of the Shares on the Exchange, each of which has been made or
obtained;
(ii) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Stock and the Warrants, and under
the captions "Certain United States Federal Tax Consequences To Non-United
States Holders of Common Stock", "Certain Relationships and Related Party
Transactions", "Description of Certain Indebtedness",
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<PAGE>
and "Shares Eligible for Future Sale", insofar as they purport to describe
the provisions of the laws and documents referred to therein, are accurate,
complete and fair; and
(iii) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act.
Such counsel shall also state that the Registration Statement and any
amendment made thereto prior to such Time of Delivery, at the time it became
effective, and the Prospectus and any amendment or supplement made thereto prior
to such Time of Delivery, as of its date, the date of such amendment or
supplement and the date the statement is made by such counsel (except the
financial statements and other information of an accounting or financial nature
included therein, as to which such counsel will express no view), appeared on
their face to be appropriately responsive in all material respects to the
requirements of the Act and the applicable rules and regulations thereunder;
although such counsel will not assume responsibility for the accuracy or
completeness of the statements made in the Registration Statement and
Prospectus, except insofar as such statements relate to such counsel and except
as provided in subsection (ii) of this Section 7(d); and that the work of such
counsel in connection with such matters did not disclose any information that
gave such counsel reason to believe that the Registration Statement or any
amendment made thereto prior to such Time of Delivery, at the time the
Registration Statement or such amendment became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
that the Prospectus or any amendment or supplement made thereto prior to such
Time of Delivery, at its date, the date of any amendment or supplement or at the
date of such counsel's statement, included an untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading (in each case except for the financial statements and
information of an accounting or financial nature included therein, as to which
such counsel will express no view).
(e) The respective counsel for the Selling Stockholders indicated with an
asterisk in Schedule II hereto each shall have furnished to you their written
opinion (drafts of such opinions are attached as Annex II(c) hereto) with
respect to each of the Selling Stockholders for whom they are acting as counsel,
dated such Time of Delivery, in form and substance satisfactory to you, to the
effect that:
(i) A Power of Attorney and a Custody Agreement have been duly
executed and delivered by such Selling Stockholder and constitute valid and
binding agreements of such Selling Stockholder in accordance with their
terms;
(ii) This Agreement and the International Underwriting Agreement have
been duly executed and delivered by or on behalf of such Selling
Stockholder; and the sale of the Shares or Warrants to be sold by such
Selling Stockholder hereunder and thereunder and the compliance by such
Selling Stockholder with all of the provisions of this Agreement and the
International Underwriting Agreement, the Power of Attorney and the Custody
Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation of
any terms or provisions of, or constitute a default under, any statute,
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument known to such counsel to which such Selling Stockholder is a
party or by which such Selling Stockholder is bound, or to which any of the
property or assets of such Selling Stockholder is subject, nor will such
action result in any violation of the provisions of the Certificate of
Incorporation or By-laws of such Selling Stockholder if such Selling
Stockholder is a corporation, the Partnership Agreement of such Selling
Stockholder if such Selling
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Stockholder is a partnership, any other constituent documents of such
Selling Stockholder or any order, rule or regulation known to such counsel
of any court or governmental agency or body having jurisdiction over such
Selling Stockholder or the property of such Selling Stockholder;
(iii) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the
transactions contemplated by this Agreement and the International
Underwriting Agreement in connection with the Shares or Warrants to be sold
by such Selling Stockholder hereunder or thereunder, except such as have
been obtained under the Act, registration of the Stock under the Exchange
Act and listing of the Shares on the Exchange;
(iv) Immediately prior to such Time of Delivery such Selling
Stockholder had good and valid title to the Shares to be sold at such Time
of Delivery by such Selling Stockholder under this Agreement and the
International Underwriting Agreement, free and clear of all liens,
encumbrances, equities or claims, and full right, power and authority to
sell, assign, transfer and deliver the Shares to be sold by such Selling
Stockholder hereunder and thereunder;
(v) Immediately prior to such Time of Delivery such Selling
Stockholder had good and valid title to the Warrants to be sold at such
Time of Delivery by such Selling Stockholder under this Agreement and the
International Underwriting Agreement, free and clear of all liens,
encumbrances, equities and claims, and full right, power and authority to
sell, assign, transfer and deliver the Warrants to be sold by such Selling
Stockholder hereunder and thereunder; and
(vi) Good and valid title to the Shares referred to in (iv) above and
the Warrants referred to in (v) above, free and clear of all liens,
encumbrances, equities or claims, has been transferred to each of the
several Underwriters or International Underwriters, as the case may be.
In rendering the opinion in subparagraphs (iv), (v) and (vi) such counsel
may rely upon a certificate of such Selling Stockholder in respect of matters of
fact as to ownership of, and liens, encumbrances, equities or claims on the
Shares or Warrants sold by such Selling Stockholder, provided that such counsel
shall state that they believe that both you and they are justified in relying
upon such certificate;
(f) On the date of the Prospectus at a time prior to the execution of this
Agreement, at 9:30 a.m., New York City time, on the effective date of any post-
effective amendment to the Registration Statement filed subsequent to the date
of this Agreement and prior to the last Time of Delivery, and also at each Time
of Delivery, Ernst & Young LLP shall have furnished to you a letter or letters,
dated the respective dates of delivery thereof, in form and substance
satisfactory to you, to the effect set forth in Annex I hereto (the executed
copy of the letter delivered prior to the execution of this Agreement is
attached as Annex I(a) hereto and a draft of the form of letter to be delivered
on the effective date of any post-effective amendment to the Registration
Statement and as of each Time of Delivery is attached as Annex I(b) hereto);
(g)(i) Neither the Company nor any of its subsidiaries shall have sustained
since the date of the latest audited financial statements included in the
Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus, and (ii) since the respective dates as
of which information is given in
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the Prospectus there shall not have been any change in the capital stock (other
than changes resulting from the exercise of options outstanding as of the date
of this Agreement) or long-term debt of the Company or any of its subsidiaries
or any change, or any development involving a prospective change, in or
affecting the general affairs, management, financial position, stockholders'
equity or results of operations of the Company and its subsidiaries, otherwise
than as set forth or contemplated in the Prospectus, the effect of which, in any
such case described in Clause (i) or (ii), is in the judgment of the
Representatives so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the Shares
being delivered at such Time of Delivery on the terms and in the manner
contemplated in the Prospectus;
(h) On or after the date hereof (i) no downgrading shall have occurred in
the rating accorded the Company's or Essex's debt securities or Essex's bank
debt by any "nationally recognized statistical rating organization", as that
term is defined by the Commission for purposes of Rule 436(g)(2) under the Act,
and (ii) no such organization shall have publicly announced that it has under
surveillance or review, with possible negative implications, its rating of any
of the Company's or Essex's debt securities or Essex's bank debt;
(i) On or after the date hereof there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in securities
generally on the Exchange; (ii) a suspension or material limitation in trading
in the Company's securities on the Exchange or in trading in Essex's securities
on the Pacific Stock Exchange; (iii) a general moratorium on commercial banking
activities declared by either Federal or New York State authorities; or (iv) the
outbreak or escalation of hostilities involving the United States or the
declaration by the United States of a national emergency or war, if the effect
of any such event specified in this Clause (iv) in the judgment of the
Representatives makes it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares being delivered at such Time of Delivery
on the terms and in the manner contemplated in the Prospectus;
(j) The Company shall have obtained and delivered to the Underwriters
executed copies of an agreement from Bessemer Holdings, L.P., Bessec Holdings,
L.P., Steven R. Abbott, Robert J. Faucher, Charles W. McGregor, David A. Owen
and Gregory R. Schriefer to the effect set forth in subsection 1(b)(iv) hereof
in form and substance satisfactory to you;
(k) The Company and the Selling Stockholders shall have furnished or caused
to be furnished to you at such Time of Delivery certificates of officers of the
Company and of the Selling Stockholders, respectively, satisfactory to you as to
the accuracy of the representations and warranties of the Company and the
Selling Stockholders, respectively, herein at and as of such Time of Delivery,
as to the performance by the Company and the Selling Stockholders of all of
their respective obligations hereunder to be performed at or prior to such Time
of Delivery, and as to such other matters as you may reasonably request, and the
Company shall have furnished or caused to be furnished certificates as to the
matters set forth in subsections (a) and (g) of this Section, and as to such
other matters as you may reasonably request;
(l) The Company shall have complied with the provisions of Section 5(c)
hereof with respect to the furnishing of prospectuses on the New York Business
Day next succeeding the date of this Agreement; and
(m) The Company shall have complied with the provisions of Section 5(l)
with respect to the redemption of the Warrants to be sold at such Time of
Delivery for shares of Stock.
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8. (a) The Company and Essex, jointly and severally, will indemnify and
hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse each Underwriter for any legal or other expenses reasonably incurred
by such Underwriter in connection with investigating or defending any such
action or claim as such expenses are incurred; provided, however, that the
Company and Essex shall not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through Goldman, Sachs &
Co. expressly for use therein.
(b) Each of the Selling Stockholders, severally and not jointly, will
indemnify and hold harmless each Underwriter against any losses, claims, damages
or liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Selling Stockholder expressly for use therein;
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, that such
Selling Stockholder shall not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through Goldman, Sachs &
Co. expressly for use therein.
(c) Each Underwriter will indemnify and hold harmless the Company and each
Selling Stockholder against any losses, claims, damages or liabilities to which
the Company or such Selling Stockholder may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by such
Underwriter through Goldman, Sachs & Co. expressly for use therein; and will
reimburse the Company and each Selling Stockholder for any legal or other
expenses reasonably incurred by the
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Company or such Selling Stockholder in connection with investigating or
defending any such action or claim as such expenses are incurred.
(d) Promptly after receipt by an indemnified party under subsection (a),
(b), or (c) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against an indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (which shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party and, if
the Company or Essex is an indemnifying party, counsel to the Company or Essex),
and, after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the written consent
of the indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or potential party
to such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all liability
arising out of such action or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act, by or on behalf of
any indemnified party.
(e) If the indemnification provided for in this Section 8 is unavailable to
or insufficient to hold harmless an indemnified party under subsection (a), (b)
or (c) above in respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative benefits
received by the Company, Essex and the Selling Stockholders on the one hand and
the Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (d) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropri ate to reflect not only such relative benefits but also the relative
fault of the Company, Essex and the Selling Stockholders on the one hand and the
Underwriters on the other in connection with the state ments or omissions which
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company, Essex and the Selling Stockholders on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Shares purchased
under this Agreement (before deducting expenses) received by the Company, Essex
and the Selling Stockholders bear to the total underwriting discounts and
commissions received by the Underwriters with respect to the Shares purchased
under this Agreement, in each case as set forth in the table on the cover page
of the Prospectus. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company, Essex or the Selling Stockholders on the
one hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or
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omission. The Company, Essex, each of the Selling Stockholders and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this subsection (e) were determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to above in this subsection (e). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this subsection (e) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in con nection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (e), no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this subsection
(e) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company, Essex and the Selling Stockholders
under this Section 8 shall be in addition to any liability which the Company,
Essex and the respective Selling Stockholders may otherwise have, including,
without limitation, under the Registration Rights Agreement and the Management
Stockholders Agreement, and shall extend, upon the same terms and conditions, to
each person, if any, who controls any Underwriter within the meaning of the Act;
and the obligations of the Underwriters under this Section 8 shall be in
addition to any liability which the respective Underwriters may otherwise have
and shall extend, upon the same terms and conditions, to each officer and
director of the Company (including any person who, with his or her consent, is
named in the Registration Statement as about to become a director of the
Company) and to each person, if any, who controls the Company or any Selling
Stockholder within the meaning of the Act.
(g) Notwithstanding the other provisions of this Section 8, the liability
or required contribution of any Selling Stockholder pursuant to this Section 8
shall not exceed the sum of (i) the product of the number of Shares (excluding
any shares of Stock underlying the Warrants) sold by such Selling Stockholder,
including any Optional Shares, and the initial public offering price of the
Shares as set forth in the Prospectus and (ii) the product of the number of
Warrants sold by such Selling Stockholder, including any Optional Warrants, to
the Underwriters and the purchase price per Warrant set forth in Section 2(b).
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Selling Stockholders shall be entitled to a further period
of thirty-six hours within which to procure another party or other parties
satisfactory to you to purchase such Shares on such terms. In the event that,
within the respective prescribed periods, you notify the Selling Stockholders
that you have so arranged for the purchase of such Shares, or the Selling
Stockholders notify you that they have so arranged for the purchase of such
Shares, you or the Selling Stockholders shall have the right to postpone such
Time of Delivery for a period of not more than seven days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other documents or arrangements, and the Company
agrees to file promptly any amendments to the Registration Statement or the
Prospectus which in your opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this
-21-
<PAGE>
Section with like effect as if such person had originally been a party to this
Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Selling
Stockholders as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased does not exceed one-eleventh of the aggregate
number of all of the Shares to be purchased at such Time of Delivery, then the
Selling Stockholders shall have the right to require each non-defaulting
Underwriter to purchase the number of Shares which such Underwriter agreed to
purchase hereunder at such Time of Delivery and, in addition, to require each
non-defaulting Underwriter to purchase its pro rata share (based on the number
of Shares which such Underwriter agreed to purchase hereunder) of the Shares of
such defaulting Underwriter or Underwriters for which such arrangements have not
been made; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Selling
Stockholders as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased exceeds one-eleventh of the aggregate number of
all of the Shares to be purchased at such Time of Delivery, or if the Selling
Stockholders shall not exercise the right described in subsection (b) above to
require non-defaulting Underwriters to purchase Shares of a defaulting
Underwriter or Underwriters, then this Agreement (or, with respect to the Second
Time of Delivery, the obligations of the Underwriters to purchase and of the
Selling Stockholders to sell the Optional Shares) shall thereupon terminate,
without liability on the part of any non-defaulting Underwriter or the Company
or the Selling Stockholders, except for the expenses to be borne by the Company
and the Selling Stockholders and the Underwriters as provided in Section 6
hereof and the indemnity and contribution agreements in Section 8 hereof; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(d) For the purposes of clarity, all references in this Section 9 to the
Shares shall be deemed to refer to and include the shares of Stock underlying
any Warrants to be purchased.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company, Essex, the Selling Stockholders and the
several Underwriters, as set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement, shall remain in full force and
effect, regardless of any investigation (or any statement as to the results
thereof) made by or on behalf of any Underwriter or any controlling person of
any Underwriter, or the Company, or any of the Selling Stockholders, or any
officer or director or controlling person of the Company, or any controlling
person of any Selling Stockholder, and shall survive delivery of and payment for
the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company, Essex nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Sections 6 and 8 hereof; but,
if for any other reason any Shares or Warrants are not delivered by or on behalf
of the Selling Stockholders as provided herein, the Company will reimburse the
Underwriters through you for all out-of-pocket expenses approved in writing by
you, including fees and disbursements of counsel, reasonably incurred by the
Underwriters in making preparations for the purchase, sale and delivery of the
Shares and Warrants not so delivered, but the Company and the Selling
Stockholders shall then be under no further liability to any Underwriter in
respect of the Shares and Warrants not so delivered except as provided in
Sections 6 and 8 hereof.
-22-
<PAGE>
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives; and in all dealings with any Selling Stockholder hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of such Selling Stockholder made or given by any
or all of the Attorneys-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department; if to any Selling Stockholder shall be delivered or sent by mail,
telex or facsimile transmission to counsel for such Selling Stockholder at its
address set forth in Schedule II hereto; and if to the Company or Essex, shall
be delivered or sent by mail, telex or facsimile transmission to the address of
the Company set forth in the Registration Statement, Attention: Secretary;
provided, however, that any notice to an Underwriter pursuant to Section 8(d)
hereof shall be delivered or sent by mail, telex or facsimile transmission to
such Underwriter at its address set forth in its Underwriters' Questionnaire or
telex constituting such Questionnaire, which address will be supplied to the
Company, Essex or the Selling Stockholders by you upon request. Any such
statements, requests, notices or agreements shall take effect upon receipt
thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Under writers, the Company, Essex and the Selling Stockholders and, to
the extent provided in Sections 8 and 10 hereof, the officers and directors of
the Company or Essex and each person who controls the Company, Essex, any
Selling Stockholder or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us 7 counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement among each of the Underwriters, the Company,
Essex and each of the Selling Stockholders. It is understood that your
acceptance of this letter on behalf of each of the Underwriters is pursuant to
the authority set forth in a form of Agreement among Underwriters (U.S.
Version), the form of which shall be submitted to the Company and the Selling
Stockholders for examination upon request, but without warranty on your part as
to the authority of the signers thereof.
-23-
<PAGE>
Any person executing and delivering this Agreement as Attorney-in-Fact for
a Selling Stockholder represents by so doing that he has been duly appointed as
Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing and
binding Power of Attorney which authorizes such Attorney-in-Fact to take such
action.
Very truly yours,
Essex International Inc.
By:
---------------------------------------------
Name: Debra F. Minott
Title: Senior Vice President, General
Counsel and Secretary
Essex Group, Inc.
By:
---------------------------------------------
Name: Debra F. Minott
Title: Senior Vice President, General
Counsel and Secretary
GS Capital Partners, L.P.
Stone Street Fund 1992, L.P.
Bridge Street Fund 1992, L.P.
By:
---------------------------------------------
Name: Richard A. Friedman
Title: Attorney-in-Fact
DLJ International Partners, C.V.
DLJ Merchant Banking Partners, L.P.
DLJ Merchant Banking Funding, Inc.
DLJ First ESC LLC
By:
---------------------------------------------
Name: Claire M. Power
Title: Assistant Secretary
-24-
<PAGE>
Chase Equity Associates
By:
---------------------------------------------
Name: Brian J. Richmand
Title: Attorney-in-Fact
WCEP Pte Ltd.
By:
---------------------------------------------
Name:
Title: Attorney-in-Fact
Accepted as of the date hereof:
Goldman, Sachs & Co.
Smith Barney Inc.
Donaldson, Lufkin & Jenrette
Securities Corporation
Lehman Brothers Inc.
By:
-----------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
-25-
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
OPTIONAL OPTIONAL
SHARES TO BE WARRANTS TO
TOTAL NUMBER TOTAL NUMBER PURCHASED IF BE PURCHASED
OF FIRM OF FIRM MAXIMUM IF MAXIMUM
SHARES TO BE WARRANTS TO OPTION OPTION
UNDERWRITER PURCHASED BE PURCHASED EXERCISED EXERCISED
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GOLDMAN, SACHS & CO. ..........
SMITH BARNEY INC. .............
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION.......
LEHMAN BROTHERS INC. ..........
[OTHER UNDERWRITERS]...........
----------------- ------------- ------------ ---------------------
TOTAL ....................
================= ============== ============ ====================
</TABLE>
-26-
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
OPTIONAL OPTIONAL
TOTAL SHARES TO BE WARRANTS TO
NUMBER SOLD IF BE SOLD IF
TOTAL NUMBER OF FIRM MAXIMUM MAXIMUM
OF FIRM SHARES WARRANTS OPTION OPTION
TO BE SOLD TO BE SOLD EXERCISED EXERCISED
--------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
THE SELLING STOCKHOLDERS:
GS CAPITAL PARTNERS, L.P.(a)*..............
STONE STREET FUND 1992,
L.P.(a)*................................
BRIDGE STREET FUND 1992,
L.P.(a)*................................
DLJ INTERNATIONAL PARTNERS,
C.V.(b)*................................
DLJ MERCHANT BANKING PARTNERS,
L.P.(c)*................................
DLJ MERCHANT BANKING FUNDING,
INC.(c)*................................
DLJ FIRST ESC LLC(c)*......................
CHASE EQUITY ASSOCIATES(d)*................
WCEP PTE LTD.(e)*..........................
--------------- ------------ ------------ -------------
TOTAL...................................
=============== ============ ============ =============
</TABLE>
(a) This Selling Stockholder is represented by David J. Greenwald, 85
Broad Street, New York, NY 10004 and has appointed Richard A. Friedman and
Joseph 1H. Gleberman, and each of them, as the Attorneys-in-Fact for such
Selling Stockholder.
(b) This Selling Stockholder is represented by Michael A. Boyd, 277 Park
Avenue, New York, NY and DeBrauw Blackstone Westbroik, 712 Fifth Avenue, New
York, NY 10019 and has appointed Ivy B. Dodes and Nichole Arnaboldi, and each
of them, as the Attorneys-in-Fact for such Selling Stockholder.
(c) This Selling Stockholder is represented by Michael A. Boyd, 277 Park
Avenue, New York, NY 10172 and has appointed Ivy Dodes and Nichole Arnaboldi,
and each of them, as the Attorneys-in-Fact for such Selling Stockholder.
(d) This Selling Stockholder is represented by White & Case, 1155 Avenue
of the Americas, New York, NY 10036 and has appointed Brian J. Richmand and John
M.B. O'Connor, and each of them, as Attorneys-in-Fact for such Selling
Stockholder.
(e) This Selling Stockholder has appointed [ ],
and each of them, as the Attorneys-in-Fact for such Selling Stockholder.
-27-
<PAGE>
ANNEX I
FORM OF DESCRIPTION OF COMFORT LETTER
Pursuant to Section 7(f) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to
the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial
forecasts and/or pro forma financial information) examined by them and
included in the Prospectus or the Registration Statement comply as to form
in all material respects with the applicable accounting requirements of the
Act and the related published rules and regulations thereunder; and, if
applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited consolidated interim financial statements, selected financial
data, pro forma financial information, financial forecasts and/or condensed
financial statements derived from audited financial statements of the
Company for the periods specified in such letter, as indicated in their
reports thereon, copies of which have been furnished to the representatives
of the Underwriters (the "Representatives") and are attached hereto;
(iii) They have made a review in accordance with standards established
by the American Institute of Certified Public Accountants of the unaudited
condensed consolidated statements of income, consolidated balance sheets
and consolidated statements of cash flows included in the Prospectus as
indicated in their reports thereon copies of which attached hereto; and on
the basis of specified procedures including inquiries of officials of the
Company who have responsibility for financial and accounting matters
regarding whether the unaudited condensed consolidated financial statements
referred to in paragraph (vi)(A)(i) below comply as to form in all material
respects with the applicable accounting requirements of the Act and the
related published rules and regulations, nothing came to their attention
that caused them to believe that the unaudited condensed consolidated
financial statements do not comply as to form in all material respects with
the applicable accounting requirements of the Act and the related published
rules and regulations;
(iv) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company
for the five most recent fiscal years included in the Prospectus agrees
with the corresponding amounts (after restatements where applicable) in the
audited consolidated financial statements for such five fiscal years which
were included or incorporated by reference in the Company's Annual Reports
on Form 10-K for such fiscal years;
(v) They have compared the information in the Prospectus under selected
captions with the disclosure requirements of Regulation S-K and on the
basis of limited procedures specified in such letter nothing came to their
attention as a result of the foregoing procedures that caused them to
believe that this information does not conform in all material respects
with the disclosure requirements of Items 301, 302, 402 and 503(d),
respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of the
minute books of the Company and its subsidiaries since the date of the
latest audited financial statements included in the Prospectus, inquiries
of officials of the Company and its subsidiaries responsible for financial
and accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:
(A) (i) the unaudited consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the related published rules
and regulations, or (ii) any material modifications should be made to the
unaudited condensed consolidated statements of income, consolidated balance
sheets and consolidated statements of cash flows included in the Prospectus for
them to be in conformity with generally accepted accounting principles;
-1-
<PAGE>
(B) any other unaudited income statement data and balance sheet items
included in the Prospectus do not agree with the corresponding items in the
unaudited consolidated financial statements from which such data and items were
derived, and any such unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding amounts in the
audited consolidated financial statements included in the Prospectus;
(C) the unaudited financial statements which were not included in the
Prospectus but from which were derived any unaudited condensed financial
statements referred to in Clause (A) and any unaudited income statement data
and balance sheet items included in the Prospectus and referred to in Clause
(B) were not determined on a basis substantially consistent with the basis for
the audited consolidated financial statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial statements
included in the Prospectus do not comply as to form in all material respects
with the applicable accounting requirements of the Act and the published rules
and regulations thereunder or the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to the date of
such letter, there have been any changes in the consolidated capital stock
(other than issuances of capital stock upon exercise of options and stock
appreciation rights, upon earn-outs of performance shares and upon conversions
of convertible securities, in each case which were outstanding on the date of
the latest financial statements included in the Prospectus) or any increase in
the consolidated long-term debt of the Company and its subsidiaries, or any
decreases in consolidated net current assets or stockholders' equity or other
items specified by the Representatives, or any increases in any items specified
by the Representatives, in each case as compared with amounts shown in the
latest balance sheet included in the Prospectus, except in each case for
changes, increases or decreases which the Prospectus discloses have occurred or
may occur or which are described in such letter; and
(F) for the period from the date of the latest financial statements
included in the Prospectus to the specified date referred to in Clause (E)
there were any decreases in consolidated net revenues or operating profit or
the total or per share amounts of consolidated net income or other items
specified by the Representatives, or any increases in any items specified by
the Representatives, in each case as compared with the comparable period of the
preceding year and with any other period of corresponding length specified by
the Representatives, except in each case for decreases or increases which the
Prospectus discloses have occurred or may occur or which are described in such
letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and
(vi) above, they have carried out certain specified procedures, not
constituting an examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representatives, which are derived from the
general accounting records of the Company and its subsidiaries, which
appear in the Prospectus, or in Part II of, or in exhibits and schedules
to, the Registration Statement specified by the Representatives, and have
compared certain of such amounts, percentages and financial information
with the accounting records of the Company and its subsidiaries and have
found them to be in agreement.
-2-
<PAGE>
Draft of August 28, 1997
EXHIBIT 1.2
ESSEX INTERNATIONAL INC.
COMMON STOCK
(PAR VALUE OF $.01 PER SHARE)
UNDERWRITING AGREEMENT
(INTERNATIONAL VERSION)
-----------------------
[ ], 1997
Goldman Sachs International,
Smith Barney Inc.,
Donaldson, Lufkin & Jenrette
Securities Corporation,
Lehman Brothers International (Europe),
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman Sachs International,
Peterborough Court,
133 Fleet Street,
London EC4A 2BB, England.
Ladies and Gentlemen:
Certain stockholders named in Schedule II hereto (the "Selling
Stockholders") of Essex International Inc., a Delaware corporation (the
"Company"), propose, subject to the terms and conditions stated herein, to sell
to the Underwriters named in Schedule I hereto (the "Underwriters") (a) an
aggregate of .................... shares (the "Firm Shares") of Common Stock,
par value $.01 per share ("Stock") of the Company and (b) an aggregate of
.................... warrants to purchase shares of Stock (the "Firm Warrants")
and, at the election of the Underwriters, up to (a) ..................
additional shares of Stock (the "Optional Shares") and (b) ..................
additional warrants to purchase shares of Stock (the "Optional Warrants"). The
Firm Warrants and the Optional Warrants that the Underwriters elect to purchase
pursuant to Section 2 hereof are herein collectively called the "Warrants", and
the Firm Shares, the Optional Shares that the Underwriters elect to purchase
pursuant to Section 2 hereof and the shares of Stock to be issued upon
redemption of the Warrants by the Company as hereinafter provided are herein
collectively called the "Shares".
It is understood and agreed to by all parties that the Company and the
Selling Stockholders are concurrently entering into an agreement, a copy of
which is attached hereto (the "U.S. Underwriting Agreement"), providing for (a)
the sale by certain Selling Stockholders of up to a total of ..................
shares of Stock and (b) the sale by certain Selling Stockholders of up to a
total of .................. warrants (the shares of Stock referred to in (a),
together with the Shares of Stock to be issued upon redemption of the warrants
by the Company, are herein collectively referred to as the "U.S. Shares"),
including the overallotment option thereunder, through arrangements with certain
underwriters in the United States (the "U.S. Underwriters"), for whom Goldman,
Sachs & Co., [Smith Barney Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and Lehman Brothers Inc.] are acting as representatives. Anything
herein or therein to the contrary notwithstanding, the respective closings under
this Agreement and the U.S. Underwriting Agreement are hereby expressly made
conditional on one another. The Underwriters hereunder and the U.S.
Underwriters are simultaneously entering into an Agreement between U.S. and
International Underwriting Syndicates (the "Agreement between
<PAGE>
Syndicates") which provides, among other things, for the transfer of shares of
Stock between the two syndicates and for consultation by Goldman Sachs
International, [Smith Barney Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and Lehman Brothers International (Europe),] the Lead Managers
hereunder, with Goldman, Sachs & Co. prior to exercising the rights of the
Underwriters under Sec tion 7 hereof. Two forms of prospectus are to be used in
connection with the offering and sale of shares of Stock contemplated by the
foregoing, one relating to the Shares hereunder and the other relating to the
U.S. Shares. The latter form of prospectus will be identical to the former
except for certain substitute pages. Except as used in Sections 2, 3, 4, 9 and
11 herein, and except as context may otherwise require, references hereinafter
to the Shares shall include all of the shares of Stock which may be sold
pursuant to either this Agreement or the U.S. Underwriting Agreement, including
any shares of Stock to be issued by the Company upon the redemption of the
Warrants, references hereinafter to the Warrants shall include all the warrants
which may be sold pursuant to either this Agreement or the U.S. Underwriting
Agreement and references herein to any prospectus, whether in preliminary or
final form, and whether as amended or supplemented, shall include both the U.S.
and the international versions thereof.
In addition, this Agreement incorporates by reference certain provisions
from the U.S. Underwriting Agreement (including the related definitions of
terms, which are also used elsewhere herein) and, for purposes of applying the
same, references (whether in these precise words or their equivalent) in the
incorporated provisions to the "Underwriters" shall be to the Underwriters
hereunder, to the "Shares" shall be to the Shares hereunder as just defined, to
the "Warrants" shall be to the Warrants hereunder as just defined, to "this
Agreement" (meaning therein the U.S. Underwriting Agreement) shall be to this
Agreement (except where this Agreement is already referred to or as the context
may otherwise require) and to the representatives of the Underwriters or to
Goldman, Sachs & Co. shall be to the addressees of this Agreement and to Goldman
Sachs International ("GSI"), and, in general, all such provisions and defined
terms shall be applied mutatis mutandis as if the incorporated provisions were
set forth in full herein having regard to their context in this Agreement as
opposed to the U.S. Underwriting Agreement.
1. The Company and each of the several Selling Stockholders hereby make to
the Underwriters the same respective representations, warranties and agreements
as are set forth in Section 1 of the U.S. Underwriting Agreement, which Section
is incorporated herein by this reference.
2. Subject to the terms and conditions herein set forth, (a) each of the
Selling Stockholders agrees, severally and not jointly, to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from each of the Selling Stockholders, at a purchase price per share of
$ ............, the number of Firm Shares (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying the aggregate number of
Firm Shares to be sold by each of the Selling Stockholders as set forth opposite
their respective names in Schedule II hereto by a fraction, the numerator of
which is the aggregate number of Firm Shares to be purchased by such Underwriter
as set forth opposite the name of such Underwriter in Schedule I hereto and the
denominator of which is the aggregate number of Firm Shares to be purchased by
all the Underwriters from all the Selling Stockholders hereunder, (b) certain
Selling Stockholders agree, severally and not jointly, to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from such Selling Stockholders, at a purchase price of $
.................. per Warrant, the number of Firm Warrants (to be adjusted by
you so as to eliminate the redemption of a Warrant for a fractional share)
determined by multiplying the aggregate number of Firm Warrants to be sold by
such Selling Stockholders as set forth opposite their respective names in
Schedule II hereto by a fraction, the numerator of which is the aggregate number
of Firm Warrants to be purchased by such Underwriter as set forth opposite the
name of such Underwriter in Schedule I hereto and the denominator of which is
the aggregate number of all Firm Warrants to be purchased by all the
Underwriters from such Selling
-2-
<PAGE>
Stockholders and (c) in the event and to the extent that the Underwriters shall
exercise the election to purchase Optional Shares and Optional Warrants as
provided below, each of the Selling Stockholders agrees, severally and not
jointly, to sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from each of the Selling
Stockholders, at the purchase price per share set forth in clause (a) of this
Section 2 or at the purchase price per Warrant set forth in clause (b) of this
Section 2, as the case may be, that portion of the number of Optional Shares and
Optional Warrants as to which such election shall have been exercised (to be
adjusted by you so as to eliminate fractional shares and the redemption of a
Warrant for a fractional share) determined (i) in the case of Optional Shares,
by multiplying such number of Optional Shares by a fraction the numerator of
which is the maximum number of Optional Shares which such Underwriter is
entitled to purchase as set forth opposite the name of such Underwriter in
Schedule I hereto and the denominator of which is the maximum number of Optional
Shares that all of the Underwriters are entitled to purchase hereunder and (ii)
in the case of Optional Warrants, by multiplying such number of Optional
Warrants by a fraction the numerator of which is the maximum number of Optional
Warrants which such Underwriter is entitled to purchase as set forth opposite
the name of such Underwriter in Schedule I hereto and the denominator of which
is the maximum number of Optional Warrants that all of the Underwriters are
entitled to purchase hereunder.
Each of the Selling Stockholders, as and to the extent indicated in
Schedule II hereto, hereby grant, severally and not jointly, to the Underwriters
the right to purchase at their election up to .................. Optional
Shares and up to .................. Optional Warrants, as the case may be, at
the purchase price per share or per Warrant set forth in the paragraph above, as
the case may be, for the sole purpose of covering overallotments in the sale of
the Firm Shares (including for this purpose all of the shares of Stock to be
received upon redemption of the Firm Warrants). Any such election to purchase
Optional Shares shall be made in proportion to the maximum number of Optional
Shares to be sold by each Selling Stockholder as set forth in Schedule II
hereto, it being understood that for the purpose of this calculation the
Optional Warrants shall be treated as if they had been redeemed for shares of
Stock and that the Optional Shares and the Optional Warrants shall be purchased
in the same proportion as the total number of Optional Shares bears to the total
number of shares of Stock to be received upon redemption of all the Optional
Warrants. Any such election to purchase Optional Shares and Optional Warrants
may be exercised only by written notice from you to the Attorneys-in-Fact, given
within a period of 30 calendar days after the date of this Agreement and setting
forth the aggregate number of Optional Shares and Optional Warrants to be
purchased and the date on which such Optional Shares and Optional Warrants are
to be delivered, as determined by you but in no event earlier than the First
Time of Delivery (as defined in Section 4 hereof) or, unless you and the
Attorneys-in-Fact otherwise agree in writing, earlier than one or later than ten
business days after the date of such notice.
3. Upon the authorization by GSI of the release of the Firm Shares
(including for this purpose all the shares of Stock to be received upon
redemption of the Firm Warrants), the several Underwriters propose to offer the
Firm Shares (including for this purpose all the shares of Stock to be received
upon redemption of the Firm Warrants) for sale upon the terms and conditions set
forth in the Prospectus and in the forms of Agreement among Underwriters
(International Version) and Selling Agreements, which have been previously
submitted to the Company by you. Each Underwriter hereby makes to and with the
Company and the Selling Stockholders the representations and agreements of such
Underwriter as a member of the selling group contained in Sections 3(d) and 3(e)
of the form of Selling Agreements.
4. (a) The Shares and Warrants to be purchased by each Underwriter
hereunder, in definitive form, and in such authorized denominations and
registered in such names as Goldman, Sachs & Co. may request upon at least
forty-eight hours' prior notice to the Selling Stockholders shall be delivered
-3-
<PAGE>
by or on behalf of the Selling Stockholders to Goldman, Sachs & Co., for the
account of such Underwriter, against payment by or on behalf of such Underwriter
of the purchase price therefor by certified or official bank check or checks or
by wire transfer, payable to the order of the Custodian in Federal Funds (same
day). The delivery of the Shares to Goldman, Sachs & Co. pursuant to the prior
sentence may be made, at the option of Goldman, Sachs & Co., through the
facilities of The Depository Trust Company ("DTC"). The Company will cause the
certificates representing the Shares to be made available for checking and
packaging at least twenty-four hours prior to the Time of Delivery (as defined
below) with respect thereto at the office of Goldman, Sachs & Co., 85 Broad
Street, New York, New York 10004, or at the office of DTC or its designated
custodian, as the case may be (the "Designated Office"). The time and date of
such delivery and payment shall be, with respect to the Firm Shares and the Firm
Warrants, 9:30 a.m., New York City time, on .................., 1997 or such
other time and date as Goldman, Sachs & Co. and the Attorneys-in-Fact may agree
upon in writing, and, with respect to the Optional Shares and the Optional
Warrants, 9:30 a.m., New York time, on the date specified by Goldman, Sachs &
Co. in the written notice given by Goldman, Sachs & Co. of the Underwriters'
election to purchase such Optional Shares and the Optional Warrants, or such
other time and date as Goldman, Sachs & Co. and the Attorneys-in-Fact may agree
upon in writing. Such time and date for delivery of the Firm Shares and the
Firm Warrants is herein called the "First Time of Delivery", such time and date
for delivery of the Optional Shares and the Optional Warrants, if not the First
Time of Delivery, is herein called the "Second Time of Delivery", and each such
time and date for delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on behalf
of the parties hereto pursuant to Section 7 of the U.S. Underwriting Agreement,
including the cross-receipt for the Shares and the Warrants and any additional
documents requested by the Underwriters pursuant to Section 7(l) of the U.S.
Underwriting Agreement will be delivered at the offices of Sullivan & Cromwell,
125 Broad Street, New York, New York 10004 (the "Closing Location"), and the
Shares will be delivered at the Designated Office, all at each Time of Delivery.
A meeting will be held at the Closing Location at 2:00 p.m., New York City time,
on the New York Business Day next preceding each Time of Delivery, at which
meeting the final drafts of the documents to be delivered pursuant to the
preceding sentence will be available for review by the parties hereto. For the
purposes of this Section 4, "New York Business Day" shall mean each Monday,
Tuesday, Wednesday, Thursday and Friday which is not a day on which banking
institutions in New York are generally authorized or obligated by law or
executive order to close.
5. The Company hereby makes with the Underwriters the same agreements as
are set forth in Section 5 of the U.S. Underwriting Agreement, which Section is
incorporated herein by this reference.
6. The Company, each of the Selling Stockholders, and the Underwriters
hereby agree with respect to certain expenses on the same terms as are set forth
in Section 6 of the U.S. Underwriting Agreement, which Section is incorporated
herein by this reference.
7. Subject to the provisions of the Agreement between Syndicates, the
obligations of the Underwriters hereunder shall be subject, in their discretion,
at each Time of Delivery to the condition that all representations and
warranties and other statements of the Company, and the Selling Stock holders
herein are, at and as of such Time of Delivery, true and correct, the condition
that the Company and the Selling Stockholders shall have performed all of their
respective obligations hereunder theretofore to be performed, and additional
conditions identical to those set forth in Section 7 of the U.S. Underwriting
Agreement, which Section is incorporated herein by this reference.
-4-
<PAGE>
8. (a) The Company and Essex Group, Inc. ("Essex"), jointly and
severally, will indemnify and hold harmless each Underwriter against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, that the
Company and Essex shall not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through GSI expressly
for use therein.
(b) Each of the Selling Stockholders, severally and not jointly, will
indemnify and hold harmless each Underwriter against any losses, claims, damages
or liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Selling Stockholder expressly for use therein;
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, that such
Selling Stockholder shall not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through GSI expressly
for use therein.
(c) Each Underwriter will indemnify and hold harmless the Company and each
Selling Stockholder against any losses, claims, damages or liabilities to which
the Company or such Selling Stockholder may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by such
Underwriter through GSI expressly for use therein; and will reimburse the
Company and each Selling Stockholder for any legal or other expenses reasonably
incurred by the Company or such Selling
-5-
<PAGE>
Stockholder in connection with investigating or defending any such action or
claim as such expenses are incurred.
(d) Promptly after receipt by an indemnified party under subsection (a),
(b) or (c) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against an indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party and, if
the Company or Essex is an indemnifying party, counsel to the Company or Essex),
and, after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the written consent
of the indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or potential party
to such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all liability
arising out of such action or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act, by or on behalf of
any indemnified party.
(e) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection
(a),(b) or (c) above in respect of any losses, claims, damages or liabilities
(or actions in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to reflect the relative
benefits received by the Company, Essex and the Selling Stockholders on the one
hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (d) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropri ate to reflect not only such relative benefits but
also the relative fault of the Company, Essex and the Selling Stockholders on
the one hand and the Underwriters on the other in connection with the state
ments or omissions which resulted in such losses, claims, damages or liabilities
(or actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company, Essex and the
Selling Stockholders on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
of the Shares purchased under this Agreement (before deducting expenses)
received by the Company, Essex and the Selling Stockholders bear to the total
underwriting discounts and commissions received by the Underwriters with respect
to the Shares purchased under this Agreement, in each case as set forth in the
table on the cover page of the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, Essex or the
Selling Stockholders on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company, Essex, each of the
Selling Stockholders and the Underwriters agree that it
-6-
<PAGE>
would not be just and equitable if contributions pursuant to this subsection (e)
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (e). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (e) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in con nection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (e), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company, Essex and the Selling Stockholders
under this Section 8 shall be in addition to any liability which the Company,
Essex and the respective Selling Stockholders may otherwise have, including,
without limitation, under the Registration Rights Agreement and the Management
Stockholders Agreement, and shall extend, upon the same terms and conditions,
to each person, if any, who controls any Underwriter within the meaning of the
Act; and the obligations of the Underwriters under this Section 8 shall be in
addition to any liability which the respective Underwriters may otherwise have
and shall extend, upon the same terms and conditions, to each officer and
director of the Company (including any person who, with his or her consent, is
named in the Registration Statement as about to become a director of the
Company) and to each person, if any, who controls the Company or any Selling
Stockholder within the meaning of the Act.
(g) Notwithstanding the other provisions of this Section 8, the liability
or required contribution of any Selling Stockholder pursuant to this Section 8
shall not exceed the sum of (i) the product of the number of Shares (excluding
any shares of Stock underlying the Warrants) sold by such Selling Stockholder,
including any Optional Shares, and the initial public offering price of the
Shares as set forth in the Prospectus and (ii) the product of the number of
Warrants sold by such Selling Stockholder, including any Optional Warrants, to
the Underwriters and the purchase price per Warrant set forth in Section 2(b).
9. (a) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder at a Time of Delivery, you may
in your discretion arrange for you or another party or other parties to purchase
such Shares on the terms contained herein. If within thirty-six hours after
such default by any Underwriter you do not arrange for the purchase of such
Shares, then the Selling Stockholders shall be entitled to a further period of
thirty-six hours within which to procure another party or other parties
satisfactory to you to purchase such Shares on such terms. In the event that,
within the respective prescribed periods, you notify the Selling Stockholders
that you have so arranged for the purchase of such Shares, or the Selling
Stockholders notify you that they have so arranged for the purchase of such
Shares, you or the Selling Stockholders shall have the right to postpone such
Time of Delivery for a period of not more than seven days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other documents or arrangements, and the Company
agrees to file promptly any amendments to the Registration Statement or the
Prospectus which in your opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
-7-
<PAGE>
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Selling
Stockholders as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased does not exceed one-eleventh of the aggregate
number of all the Shares to be purchased at such Time of Delivery, then the
Selling Stockholders shall have the right to require each non-defaulting
Underwriter to purchase the number of shares which such Underwriter agreed to
purchase hereunder at such Time of Delivery and, in addition, to require each
non-defaulting Underwriter to purchase its pro rata share (based on the number
of Shares which such Underwriter agreed to purchase hereunder) of the Shares of
such defaulting Underwriter or Underwriters for which such arrangements have not
been made; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Selling
Stockholders as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased exceeds one-eleventh of the aggregate number of
all the Shares to be purchased at such Time of Delivery, or if the Selling
Stockholders shall not exercise the right described in subsection (b) above to
require non-defaulting Underwriters to purchase Shares of a defaulting
Underwriter or Underwriters, then this Agreement (or, with respect to the Second
Time of Delivery, the obligations of the Underwriters to purchase and of the
Selling Stockholders to sell the Optional Shares) shall thereupon terminate,
without liability on the part of any non-defaulting Underwriter or the Company
or the Selling Stockholders, except for the expenses to be borne by the Company
and the Selling Stockholders and the Underwriters as provided in Section 6
hereof and the indemnity and contribution agreements in Section 8 hereof; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(d) For the purposes of clarity, all references in this Section 9 to the
Shares shall be deemed to refer to and include the shares of Stock underlying
any Warrants to be purchased.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company, Essex, the Selling Stockholders and the
several Underwriters, as set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement, shall remain in full force and
effect, regardless of any investigation (or any statement as to the results
thereof) made by or on behalf of any Underwriter or any controlling person of
any Underwriter, or the Company or any of the Selling Stockholders, or any
officer or director or controlling person of the Company or any controlling
person of any Selling Stockholders, and shall survive delivery of and payment
for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company, Essex nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Section 6 and Section 8
hereof; but, if for any other reason, any Shares or Warrants are not delivered
by or on behalf of the Company and the Selling Stockholders as provided herein,
the Company will reimburse the Underwriters through GSI for all out-of-pocket
expenses approved in writing by GSI, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Shares and Warrants not so delivered, but the
Company and the Selling Stockholders shall then be under no further liability to
any Underwriter in respect of the Shares and Warrants not so delivered except as
provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by GSI on behalf of you as the representatives of the
Underwriters; and in all dealings with any Selling Stockholder hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on
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<PAGE>
behalf of such Selling Stockholder made or given by any or all of the Attorneys-
in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to the Underwriters in care of GSI, Peterborough Court,
133 Fleet Street, London EC4A 2BB, England, Attention: Equity Capital Markets,
Telex No. 94012165, facsimile transmission No. (071) 774-1550; if to any Selling
Stockholder shall be delivered or sent by mail, telex or facsimile transmission
to counsel for such Selling Stockholder at its address set forth in Schedule II
hereto; and if to the Company or Essex, shall be delivered or sent by mail,
telex or facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Secretary; provided, however, that any notice
to an Underwriter pursuant to Section 8(d) hereof shall be delivered or sent by
mail, telex or facsimile transmission to such Underwriter at its address set
forth in its Underwriters' Questionnaire, or telex constituting such
Questionnaire, which address will be supplied to the Company, Essex or the
Selling Stockholders by GSI upon request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company, Essex and the Selling Stockholders and, to
the extent provided in Sections 8 and 10 hereof, the officers and directors of
the Company or Essex and each person who controls the Company, Essex, any
Selling Stockholder or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
14. Time shall be of the essence of this Agreement.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us 7 counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement among each of the Underwriters, the Company,
Essex and each of the Selling Stockholders. It is understood that your
acceptance of this letter on behalf of each of the Underwriters is pursuant to
the authority set forth in a form of Agreement among Underwriters (International
Version), the form of which shall be furnished to the Company and the Selling
Stockholders for examination upon request, but without warranty on your part as
to the authority of the signers thereof.
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<PAGE>
Any person executing and delivering this Agreement as Attorney-in-Fact for
a Selling Stockholder represents by so doing that he has been duly appointed as
Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing and
binding Power of Attorney which authorizes such Attorney-in-Fact to take such
action.
Very truly yours,
Essex International Inc.
By:
------------------------------------------
Name: Debra F. Minott
Title: Senior Vice President, General Counsel
and Secretary
Essex Group, Inc.
By:
------------------------------------------
Name: Debra F. Minott
Title: Senior Vice President, General Counsel
and Secretary
GS Capital Partners, L.P.
Stone Street Fund 1992, L.P.
Bridge Street Fund 1992, L.P.
By:
------------------------------------------
Name: Richard A. Friedman
Title: Attorney-in-Fact
DLJ International Partners, C.V.
DLJ Merchant Banking Partners, L.P.
DLJ Merchant Banking Funding, Inc.
DLJ First ESC LLC
By:
------------------------------------------
Name: Claire M. Power
Title: Assistant Secretary
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<PAGE>
Chase Equity Associates
By:
------------------------------------------
Name: Brian J. Richmand
Title: Attorney-in-Fact
WCEP Pte Ltd.
By:
------------------------------------------
Name:
Title: Attorney-in-Fact
Accepted as of the date hereof:
Goldman Sachs International
Smith Barney Inc.
Donaldson, Lufkin & Jenrette
Securities Corporation
Lehman Brothers International (Europe)
By: Goldman Sachs International
By:
------------------------------------------
(Attorney-in-Fact)
On behalf of each of the Underwriters
-11-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
NUMBER OF
NUMBER OF OPTIONAL
TOTAL NUMBER TOTAL NUMBER OPTIONAL SHARES WARRANTS TO BE
OF OF FIRM TO BE PURCHASED PURCHASED IF
FIRM SHARES TO WARRANTS TO BE IF MAXIMUM MAXIMUM OPTION
Underwriter BE PURCHASED PURCHASED OPTION EXERCISED EXERCISED
- ----------- --------------- -------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Goldman Sachs International....
Smith Barney Inc...............
Donaldson, Lufkin & Jenrette
Securities Corporation.........
Lehman Brothers International
(Europe)........................
--------------- -------------- ----------------- ----------------
Total..................
=============== ============== ================= ================
</TABLE>
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<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
OPTIONAL SHARES TO OPTIONAL
TOTAL NUMBER TOTAL NUMBER OF BE SOLD IF WARRANTS TO BE
OF FIRM SHARES FIRM WARRANTS TO MAXIMUM OPTION SOLD IF MAXIMUM
TO BE SOLD BE SOLD EXERCISED OPTION EXERCISED
--------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
The Selling Stockholders:
GS Capital Partners, L.P.(a)*.....
Stone Street Fund 1992, L.P.(a)*...
Bridge Street Fund 1992, L.P.(a)*..
DLJ International Partners,
C.V.(b)*........................
DLJ Merchant Banking Partners,
L.P.(c)*........................
DLJ Merchant Banking Funding,
Inc.(c)*........................
DLJ First ESC LLC(c)*..............
Chase Equity Associates(d)*........
WCEP Pte Ltd.(e)[*]................
--------------- ---------------- ----------------- -----------------
TOTAL..............
=============== ================ ================= =================
</TABLE>
(a) This Selling Stockholder is represented by David J. Greenwald, 85
Broad Street, New York, NY 10004 and has appointed Richard A. Friedman and
Joseph H. Gleberman, and each of them, as the Attorneys-in-Fact for such Selling
Stockholder.
(b) This Selling Stockholder is represented by Michael A. Boyd, 277 Park
Avenue, New York, NY 10172 and De Brauw Blackstone Westbroek, 712 Fifth Avenue,
New York, NY 10019 and has appointed Ivy B. Dodes and Nichole Arnaboldi, and
each of them, as the Attorneys-in-Fact for such Selling Stockholder.
(c) This Selling Stockholder is represented by Michael A. Boyd, 277 Park
Avenue, New York, NY 10172 and has appointed Ivy Dodes and Nichole Arnaboldi,
and each of them, as the Attorneys-in-Fact for such Selling Stockholder.
(d) This Selling Stockholder is represented by White & Case, 1155 Avenue
of the Americas, New York, NY 10036 and has appointed Brian J. Richmand and John
M.B. O'Connor, and each of them, as the Attorneys-in-Fact for such Selling
Stockholder.
(e) This Selling Stockholder is represented by [
] and has appointed [ ], and each of
them, as the Attorneys-in-Fact for such Selling Stockholder.
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<PAGE>
EXHIBIT 5
[Letterhead of Cravath, Swaine & Moore]
August 28, 1997
Essex International Inc.
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Public Offering of approximately 4,800,989 Shares of
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Common Stock, Par Value $0.01 Per Share,
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Registration Statement on Form S-1
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Ladies and Gentlemen:
We have acted as counsel for Essex International Inc., a Delaware
corporation (the "Company"), in connection with a Registration Statement on Form
S-1 (File No. 333-33591) (the "Registration Statement"), filed with the
Securities and Exchange Commission under the Securities Act of 1933 (the "Act"),
for the registration under the Act of the public offering of approximately
4,800,989 shares of Common Stock, par value $0.01 per share (the "Shares"), of
the Company, including the Shares issuable upon exercise of the overallotment
options. The Shares are to be sold pursuant to a U.S. Underwriting Agreement
(the "U.S. Underwriting Agreement") to be entered into among the Company, Essex
Group, Inc. ("Essex"), certain selling stockholders listed therein (the "Selling
Stockholders"), and Goldman, Sachs & Co., Smith Barney Inc., Donaldson, Lufkin &
Jenrette Securities Corporation and Lehman Brothers Inc., as representatives of
the several U.S. Underwriters named therein (collectively, the "U.S.
Underwriters") and an International Underwriting Agreement (the "International
Underwriting Agreement") to be entered into among the Company, Essex, the
Selling Stockholders, and Goldman Sachs International, Smith Barney Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation and Lehman Brothers
International (Europe), as representatives of the several International
Underwriters named therein (the "International Underwriters").
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary or appropriate for the
purposes of this opinion.
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2
Based on the foregoing, we are of opinion that the Shares have been
duly and validly authorized, and when issued and delivered to and paid for by
the U.S. Underwriters pursuant to the U.S. Underwriting Agreement and the
International Underwriters pursuant to the International Underwriting Agreement,
will be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as part of the
Registration Statement and to the use of our name therein and in the related
Prospectus under the caption "Validity of Common Stock". This consent is not to
be construed as an admission that we are a person whose consent is required to
be filed with the Registration Statement under the provisions of the Securities
Act of 1933.
Very truly yours,
/s/ Cravath, Swaine & Moore
Essex International Inc.
1601 Wall Street
Fort Wayne, IN 46802
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EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 28, 1997 (except for Note 13, as to which
the date is February 19, 1997) in Amendment No. 1 to the Registration
Statement on Form S-1 (File No. 333-33591) and the related Prospectus of Essex
International Inc. (formerly known as BCP/Essex Holdings Inc.) for the
registration of 4,800,989 shares of its common stock.
We have audited the consolidated financial statements of Essex International
Inc. as of December 31, 1996 and 1995 and for each of the three years in the
period ended December 31, 1996 and have issued our report thereon dated
January 28, 1997 (except Note 13, as to which the date is February 19, 1997).
Our audits also included the financial statement schedules listed in Item
16(b) of this Registration Statement. These schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
Ernst & Young LLP
Indianapolis, Indiana
August 27, 1997
