<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 15, 1997
REGISTRATION NO. 333-22043
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
ESSEX INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3357 13-3496934
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
KRIS F. HEINZELMAN, ESQ. 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
</TABLE>
--------------------------
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. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(A) PER SHARE(B) PRICE(B) FEE(C)
<S> <C> <C> <C> <C>
Common Stock, $.01 par value................ 8,625,000 $20.00 $172,500,000 $52,273
</TABLE>
(a) Includes 1,125,000 shares of Common Stock that may be sold pursuant to the
Underwriters' over-allotment option.
(b) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) promulgated under the Securities Act of 1933. A
portion of the proposed maximum aggregate offering price represents shares
that are to be offered outside of the United States but that may be resold
from time to time in the United States. Such shares are not being registered
for the purpose of sales outside the United States.
(c) Includes $45,455 previously paid in connection with the original filing on
February 19, 1997 and $6,818 previously paid in connection with Amendment
No. 1 on March 26, 1997.
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>
EXPLANATORY NOTE
On April 10, 1997, BCP/Essex Holdings Inc. amended its corporate charter to
change its name to Essex International Inc. The Registration Statement and
Amendment No. 1 thereto were filed under the former corporate name.
<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.
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 15, 1997
7,500,000 SHARES
[LOGO]
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------
Of the 7,500,000 shares of Common Stock of Essex International Inc. offered,
6,000,000 shares are being offered hereby in the United States and 1,500,000
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".
Of the 7,500,000 shares of Common Stock offered, 3,750,000 shares are being
sold by the Company and 3,750,000 shares 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 being sold by the
Selling Stockholders.
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
per share will be between $17.00 and $20.00. For factors to be considered in
determining the initial public offering price, see "Underwriting".
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
The Company has been approved to list the Common Stock on the New York Stock
Exchange, subject to notice of issuance, under the symbol "SXC".
--------------------
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 PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDERS
---------------- ---------------- ---------------- --------------------
<S> <C> <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) Before deducting estimated expenses of $ payable by the Company.
(3) The Company and the Selling Stockholders have granted the U.S. Underwriters
an option for 30 days to purchase up to an additional 250,000 and 650,000
shares, respectively, at the initial public offering price per share, less
the underwriting discount, solely to cover over-allotments. Additionally,
the Company and the Selling Stockholders have granted the International
Underwriters a similar option with respect to an additional 225,000 shares
as part of a concurrent International Offering. If such options are
exercised in full, the total initial public offering price, underwriting
discount, proceeds to Company 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 intends to furnish to its stockholders 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 PENALTY BIDS, DURING AND AFTER 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, (II) GIVES EFFECT TO A ONE-FOR-TWO REVERSE STOCK SPLIT (THE "STOCK
SPLIT") AND A RECLASSIFICATION OF THE COMPANY'S TWO EXISTING CLASSES OF COMMON
STOCK INTO A SINGLE CLASS OF COMMON STOCK (THE "RECLASSIFICATION"), EACH TO BE
EFFECTED PRIOR TO, OR SIMULTANEOUSLY WITH, THE CONSUMMATION OF THE OFFERINGS,
(III) 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" AND (IV) ASSUMES NO EXERCISE OF
OPTIONS AFTER MARCH 24, 1997. UNLESS THE CONTEXT OTHERWISE INDICATES, THE TERM
"COMPANY" REFERS TO ESSEX INTERNATIONAL INC. ("ESSEX INTERNATIONAL") (FORMERLY
KNOWN AS BCP/ESSEX HOLDINGS INC.), AND ITS CONSOLIDATED SUBSIDIARIES, INCLUDING
ITS WHOLLY OWNED SUBSIDIARY, ESSEX GROUP, INC. ("ESSEX"), AND THEIR RESPECTIVE
PREDECESSORS.
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 48 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 volumes
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 grew from a loss of $14.2
million in 1993 to a profit of $36.3 million in 1996. (With respect to EBITDA,
see footnote (g) in "Selected Consolidated Financial and Operating Data").
The Company organizes its operating activities into the following principal
areas:
MAGNET WIRE PRODUCTS (29% of 1996 net sales)--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 (37% of 1996 net sales)--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 (13% of 1996 net sales)--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 voice and data communication copper wire and cable
products for the premise segment of the telecommunication system. Copper-
3
<PAGE>
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 (21% of 1996 net sales)--The Company
manufactures and markets a wide range of automotive and industrial electrical
wire products and maintains a distribution business for the sale and
distribution of its magnet wire and related third-party-manufactured products.
The Company produces automotive wire and cable products (7% of 1996 net sales)
for sale to suppliers of automotive original equipment. Such products include
primary wire for use in engine harnesses, ignition wire and battery cable.
Industrial wire and cable products (5% of 1996 net sales) 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's
distribution business provides a sales channel to both small manufacturers of
original equipment motors and motor repair markets 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 1996, third-party products
constituted 9% of net sales, while 20% 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 electrical wire and cable producers in the United States
based on net sales. 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 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 $140 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, has increased by 21% from 1991 to 1996.
4
<PAGE>
- 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 number of computers, facsimile machines and
Internet devices. 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 its efforts in expanding 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 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 and
present and former employees in the Company (15.7% on a fully diluted basis
(13.7%
5
<PAGE>
after giving effect to the Offerings)) 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
the existing stockholders. The existing stockholders of the Company and their
equity interests on a fully diluted basis are Bessemer Holdings, L.P. ("BHLP")
and certain affiliated investment partnerships (BHLP and such affiliated
investment partnerships are collectively referred to herein as the "BH Group")
(58.9%), certain present and former employees (15.7%), certain affiliated
investment limited partnerships of The Goldman Sachs Group, L.P. (collectively,
the "GS Partnerships") (12.4%), affiliates of Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJSC" and together with its affiliates, "DLJ") (9.2%)
and Chase Equity Associates ("CEA") (3.7%). After giving effect to the
Offerings, BH Group, present and former employees, the GS Partnerships, DLJ and
CEA will beneficially own equity interests of 53.6%, 13.7%, 6.9%, 1.2% and 1.8%,
respectively, on a fully diluted basis. In connection with the Acquisition, the
GS Partnerships and DLJ were granted warrants (the "Warrants") to purchase up to
1,120,551.5 and 1,712,817.5 shares of Common Stock, respectively, at an exercise
price of $5.71514 per share. The GS Partnerships will sell all their Warrants to
the Underwriters, and DLJ will sell 1,475,658 of its Warrants to the
Underwriters, in each case, at a purchase price of $12.02 per Warrant (assuming
an initial public offering price of $18.50 per share, the mid-point of the range
of initial public offering prices set forth on the cover page of this
Prospectus). The Company will then redeem these Warrants for an aggregate of
1,794,172 shares of Common Stock. The remaining 237,159 Warrants will also be
sold by DLJ to the Underwriters if the Underwriters' over-allotment options are
exercised in full. See "Certain Relationships and Related Party
Transactions--The Redemption".
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
Company(b)................................. 3,750,000 shares
U.S. Offering.............................. 3,000,000 shares
International Offering..................... 750,000 shares
Shares of Common Stock offered by the Selling
Stockholders(c)............................ 3,750,000 shares
U.S. Offering.............................. 3,000,000 shares
International Offering..................... 750,000 shares
Total Common Stock to be outstanding after
the Offerings(d)........................... 29,718,348 shares
Use of Proceeds.............................. The proceeds of the Offerings payable to the
Company will be used to repay approximately
$63.2 million principal amount of outstanding
indebtedness under the Essex Term Loan and
Essex Revolving Credit Agreement (each as
defined herein). The Company will not receive
any proceeds from the sale of Common Stock by
the Selling Stockholders. See "Use of
Proceeds".
Proposed NYSE Stock Symbol................... "SXC"
</TABLE>
- ------------------------
(a) The offering of 6,000,000 shares of Common Stock initially being offered in
the United States (the "U.S. Offering") and the concurrent offering of
1,500,000 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) If the Underwriters' over-allotment options are exercised in full, the
Company will offer and sell an additional 312,500 shares of Common Stock.
(c) Includes 1,794,172 shares of Common Stock to be received upon the redemption
of 2,596,209.5 Warrants. 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, including shares to be received upon redemption of 237,159 Warrants,
an additional 812,500 shares of Common Stock.
(d) Does not include 2,775,072 shares of Common Stock issuable pursuant to
options outstanding prior to the Offerings and up to 237,159 Warrants that
will be outstanding if the Underwriters' over-allotment options are not
exercised in full. See "Management--Aggregated Option/SAR Exercises in Last
Fiscal Year and Year-End Option/SAR Values" and 'Certain Relationships and
Related Party Transactions -- The Redemption.".
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) selected
historical consolidated financial data of the Company for the years ended
December 31, 1993, 1994, 1995 and 1996 and as of December 31, 1996 and (iii) as
adjusted and supplementary pro forma financial data as of and for the year ended
December 31, 1996, assuming the use of the net proceeds of Offerings as
described under "Use of Proceeds". Combined summary financial data presented
below for the 12-month period ended December 31, 1992 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
year ended December 31, 1993, were derived from audited consolidated financial
statements 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. This data should be read
in conjunction with "Use of Proceeds", "Capitalization", "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements included elsewhere herein.
<TABLE>
<CAPTION>
COMBINED(a)
---------------
TWELVE MONTHS
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, ------------------------------------------------------
1992 1993 1994 1995 1996
--------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................. $ 909,351 $ 868,846 $ 1,010,075 $ 1,201,650 $ 1,332,049
Cost of goods sold..................... 780,148 745,875 846,611 1,030,511 1,102,460
Selling and administrative expense..... 80,590 75,748 85,209 93,401 121,054
Other (income) expense, net (b)........ (305) (196) 1,114 1,032 2,045
Unusual items (c)...................... 18,139 -- -- -- --
--------------- ------------ ------------ ------------ ------------
Income from operations................. 30,779 47,419 77,141 76,706 106,490
Interest expense....................... 50,645 56,723 60,155 49,055 39,994
--------------- ------------ ------------ ------------ ------------
Income (loss) before income taxes and
extraordinary charge................. (19,866) (9,304) 16,986 27,651 66,496
Provision (benefit) for income taxes... (4,022) 1,552 9,500 14,380 28,988
--------------- ------------ ------------ ------------ ------------
Income (loss) before extraordinary
charge............................... (15,844) (10,856) 7,486 13,271 37,508
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
---------------
---------------
Preferred stock redemption premium..... -- -- -- (4,185)
Preferred stock dividend requirement... (5,186) (6,008) (6,962) (4,248)
Accretion of preferred stock........... (671) (687) (703) (2,024)
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
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Pro forma income (loss) per share (e):
Pro forma income (loss) before
extraordinary charge............... $ 1.33
Extraordinary charge net of income
tax benefit........................ (.04)
------------
------------
Pro forma net income (loss).......... $ 1.29
------------
------------
Shares used in computing pro forma net
income (loss) per share.............. 28,224,862
------------
------------
Supplementary pro forma income before
extraordinary charge (f)............. $ 41,199
------------
------------
Supplementary pro forma income per
share before extraordinary charge
(e).................................. $ 1.29
------------
------------
Shares used in computing supplementary
pro forma income before extraordinary
charge (f)........................... 31,974,862
------------
------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
--------- ------------
BALANCE SHEET DATA:
Working capital......................................................................... $ 231,707 $ 240,928
Total assets............................................................................ 842,755 842,142
Long-term debt (including current portion).............................................. 432,916 369,704
Stockholders' equity.................................................................... 146,090 221,560
</TABLE>
<TABLE>
<CAPTION>
COMBINED(a)
---------------
TWELVE MONTHS
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, ------------------------------------------
1992 1993 1994 1995 1996
--------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA (g)........................................ $ 74,388 $ 77,028 $ 108,314 $ 110,502 $ 140,224
Capital expenditures.............................. $ 31,180 $ 26,167 $ 30,109 $ 28,555 $ 25,569
Copper equivalent pounds shipped (h).............. 492,350 517,607 553,220 551,447 643,800
Average COMEX copper price per pound.............. $ 1.03 $ 0.85 $ 1.07 $ 1.35 $ 1.06
Net cash provided by operating activities......... 31,326 60,616 41,672 89,754 64,581
Net cash used for investing activities (i)........ (152,010) (30,785) (30,118) (50,466) (104,716)
Net cash provided by (used for) financing
activities (j).................................. 132,662 (28,569) (5,120) (53,031) 41,369
</TABLE>
- ------------------------
(a) Represents a combination of the Company's three month period ended December
31, 1992 and Predecessor's nine month period 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 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 are as follows:
(i) $2,595, net of tax, representing reduced interest expense due to the
assumed repayment of the Essex Term Loan ($29,497) and a portion of the
indebtedness under the Essex Revolving Credit Agreement ($33,716) from the
net proceeds of the Offerings; (ii) $677, 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, 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 3,750,000 shares of common stock offered by the Company in the
Offerings.
(g) 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.
(h) Copper equivalent pounds include aluminum pounds which have been converted
to a copper pound basis.
(i) 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.
(j) Includes the redemption of the Company's Senior Discount Debentures due
2004 in 1995 at a total cost of $272,850.
9
<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.
SUBSTANTIAL LEVERAGE
The Company has, and after giving effect to the Offerings and the
application of the proceeds therefrom will continue to have, on a consolidated
basis, substantial indebtedness and significant debt service obligations. After
giving pro forma effect to the Offerings and the application of the proceeds
therefrom, the Company's aggregate notes payable to banks plus long-term debt
would have been $400.6 million as of December 31, 1996. The Company's ratio of
debt to total capital would have been approximately 0.64 to 1 at December 31,
1996, after giving pro forma effect to the Offerings and the application of the
proceeds therefrom.
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 that following the Offerings
will be 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.
INTEGRATING ACQUISITIONS AND MANAGING GROWTH
The Company has recently completed several acquisitions of complementary
businesses, and its 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, including its recent acquisitions of Brownell,
BICC Canada and Triangle, 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.
10
<PAGE>
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 lighter and smaller products, is
necessitating the engineering of more efficient and lighter components,
including wire and cable components included in 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 superceded by new technological breakthroughs introduced
by competitors. The commercial development of fiber optics has had and is
expected to 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.
COMPETITION
The manufacture and sale of 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 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 do not presently constitute an important source
of competition, there can be no assurance that this will continue to be the case
in the future.
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 intends, however, to pursue international
opportunities for growth. 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 not traditionally
been encountered, 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 to international markets will not have any adverse consequences for
the Company's results of operations, cash flows or financial condition.
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 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
11
<PAGE>
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.
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.
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 will be pledged to the
lenders under the Restated Credit Agreement (as defined herein)) 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.
At present, Essex International's cash requirements are not significant. The
Essex Revolving Credit Agreement, the Essex Senior Note Indenture (as defined in
"Description of Certain Indebtedness"), and the Restated Credit Agreement will,
after the consummation of the Offerings, 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
Essex Revolving Credit Agreement does, and the Restated Credit Agreement will,
after consummation of the Offerings, prohibit 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 59.0% ((53.6% on a
fully diluted basis), and 58.1% (53.2% on a fully diluted basis) if the
Underwriters' over-allotment option is exercised in full) of the outstanding
Common Stock. In addition, after consummation of the Offerings, members of the
Company's Board of Directors will be 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
12
<PAGE>
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".
BENEFITS OF THE OFFERINGS TO CURRENT SECURITYHOLDERS
The Offerings will provide significant benefits to the current
securityholders of the Company, including the creation of a public market for
the Common Stock and the receipt of $ in proceeds by the GS
Partnerships, $ in proceeds by DLJ and $ in proceeds by CEA.
ANTI-TAKEOVER PROVISIONS
The Company's Second Amended and Restated Certificate of Incorporation (the
"Restated Certificate"), which will be effective upon consummation of the
Offerings, 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 a substantial number of shares of Common Stock after the Offerings
could adversely affect the market price of the Common Stock and could impair the
Company's ability to raise capital through the sale of equity securities. Upon
completion of the Offerings, the Company will have 29,718,348 shares of Common
Stock outstanding. Of these shares, the 7,500,000 shares sold in the Offerings
will be freely transferable without restriction under the Securities Act of 1933
(the "Securities Act"), unless they are held by "affiliates" of the Company as
that term is used under the Securities Act.
The remaining 22,218,348 outstanding shares were sold by the Company in
reliance on exemptions from the registration requirements of the Securities Act,
are restricted securities within the meaning of Rule 144 under the Securities
Act ("Rule 144") and may not be resold in the absence of registration under the
Securities Act or an available exemption therefrom. The Company, each of the
Company's directors and executive officers, BH Group, each Selling Stockholder
and certain other stockholders of the Company have agreed not to sell or
otherwise dispose of any shares of Common Stock for the 180-day period after the
date of this Prospectus without the prior written consent of Goldman, Sachs & Co
("Goldman Sachs"). Any shares subject to such lock-up agreements may be released
at any time without notice by Goldman Sachs. See "Underwriting". Additionally,
each stockholder (other than BHLP and certain of its affiliates) has agreed not
to sell any of its Common Stock for 90 days after the effective date of the
Registration Statement of which this Prospectus is a part (the "Effective Date")
pursuant to either the Management Stockholders Agreement or the Registration
Rights Agreement (as defined in "Certain Relationships and Related Party
Transactions" and "Shares Eligible for Future Sale-Other Initial Shareholders"
respectively). Thus none of these shares of Common Stock will be eligible for
sale in the public market immediately upon the Effective Date. Beginning 90 days
after the Effective Date, approximately 1,836,936 of these shares (including
shares subject to vested options) will become eligible for sale subject to the
provisions of Rule 144 and Rule 701 (all of which will be eligible, under Rule
144(k), for sale without limitation as to volume and manner of sale). Beginning
180 days after the date of this Prospectus, approximately 15,995,933 additional
shares, shares subject to vested options and Warrants will become eligible for
sale subject to the provisions of Rule 144 or Rule 701 (3,747,768.5 of which
will
13
<PAGE>
be eligible, under Rule 144(k), for sale without limitation as to volume and
manner of sale). See "Shares Eligible for Future Sale".
Additionally, the Company intends to file a registration statement covering
all shares of Common Stock issuable in the future under the Stock Option Plan
(as defined herein) (an aggregate of 1,034,844 shares). Any shares issued upon
exercise of such options will be eligible for sale in the public market after
the effective date of such registration statement, subject to any contractual
restrictions.
BH Group has the right, pursuant to the Management Stockholders Agreement,
to require that the Company register, pursuant to the Securities Act, any or all
of its shares of Common Stock. 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 BH Group Registration Rights Agreement (as defined in "Shares Eligible for
Future Sale--BH Group"), BH Group will also have the right to require the
Company to prepare and file with the Securities and Exchange Commission (the
"SEC"), a "shelf" registration statement covering offers and sales in accordance
with Rule 415 under the Securities Act of some or all of the Common Stock held
by BH Group. Pursuant to the Registration Rights Agreement, the GS Partnerships
and DLJ each have the ability to require the Company to register any or all of
the shares of Common Stock or Warrants held by them pursuant to the Securities
Act. The GS Partnerships and DLJ each have the unqualified right to make two
such demands and a qualified right to make one additional demand. The GS
Partnerships, DLJ and CEA also have the right to "piggyback", or include their
Common Stock and, as of October 9, 1997 their Warrants, if any, in any
registration of Common Stock made by the Company. Pursuant to the Management
Stockholders Agreement, certain employee stockholders have the right to
"piggyback" onto certain registrations of Common Stock (i) demanded by BH Group
or (ii) for primary offerings by the Company. The existence of the registration
rights described above could have an adverse effect on the market price of the
Common Stock, could impair the Company's ability to raise capital through the
sale of equity securities and may involve added costs and complexity in the
event the Company or any holder of registration rights desires to register
shares of Common Stock in the future. See "Certain Relationships and Related
Party Transactions--Management Stockholders Agreement" and "Shares Eligible for
Future Sale--Piggyback Registration Rights".
DILUTION
Persons purchasing shares of Common Stock in the Offerings will incur
immediate and substantial dilution in net tangible book value per share.
Assuming an initial public offering price of $18.50 per share (the midpoint of
the range of initial public offering prices set forth on the cover page of this
Prospectus), purchasers of shares in the Offerings will experience dilution of
$15.55 per share. See "Dilution".
NO PRIOR MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF SHARE PRICE
Prior to the Offerings there has been no public market for the Common Stock
and there can be no assurance that an active trading market will develop upon
completion of the Offerings or, if it does develop, that such market will be
sustained. The initial public offering price of the Common Stock will be
determined by negotiation among the Company, the Selling Stockholders and the
representatives of the Underwriters, and may not be representative of the price
that will prevail in the open market. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price.
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 and general market conditions specific to particular industries.
Such fluctuations may adversely affect the market price of the Common Stock.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
by the Company hereby are estimated to be approximately $63.2 million, after
deducting the estimated underwriting discount, transaction fees and expenses of
the Offerings payable by the Company. The Company will not receive any proceeds
from the sale of Common Stock by the Selling Stockholders. The net proceeds to
the Company of the Offerings will be used to repay in full the Essex Term Loan
($29.5 million) and repay a portion of the indebtedness under the Essex
Revolving Credit Agreement ($33.7 million). The Essex Term Loan and the Essex
Revolving Credit Agreement mature in May 2000 and October 2001, respectively,
and currently bear interest at average per annum rates of 9.31% and 6.85%,
respectively. Borrowings under the Essex Term Loan were used to redeem other
indebtedness as part of the 1995 Refinancing. Borrowings under the Essex
Revolving Credit Agreement were used to refinance the Company's prior revolving
credit agreement ($127.5 million) and to finance the acquisition of Triangle
($71.8 million). See "Description of Certain Indebtedness--Restated Credit
Agreement".
DIVIDEND POLICY
No dividends have been paid by the Company on the Common Stock in the prior
two fiscal years 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".
15
<PAGE>
DILUTION
Dilution is the amount by which the offering price paid by the purchasers of
the Common Stock offered hereby will exceed the net tangible book value per
share of Common Stock after the Offerings. Net tangible book value per share is
determined at any date by subtracting the total liabilities of the Company from
the total book value of the tangible assets of the Company and dividing the
difference by the number of shares of Common Stock deemed to be outstanding at
such date.
The net tangible book value of the Company on December 31, 1996, was
approximately $24.7 million. Net tangible book value per share represents the
amount of total tangible assets less the amount of total liabilities divided by
the total number of shares of Common Stock outstanding. After giving effect to
the receipt of approximately $63.2 million of estimated net proceeds of the sale
by the Company of 3,750,000 shares of Common Stock pursuant to the Offerings
(assuming a public offering price of $18.50 per share, the midpoint of the range
of initial public offering prices set forth on the cover page of this
Prospectus), the pro forma net tangible book value of the Company at December
31, 1996, would have been approximately $88.0 million or $2.95 per share. This
change represents an immediate increase in pro forma net tangible book value of
$2.00 per share to the existing stockholders and an immediate dilution of $15.55
per share to new investors purchasing shares of Common Stock in the Offerings.
The following table illustrates the substantial and immediate dilution to new
investors:
<TABLE>
<CAPTION>
PER SHARE
--------------------
<S> <C> <C>
Initial public offering price per share (a)............................. $ 18.50
Net tangible book value per share before the Offerings.............. $ .95
Increase per share attributable to new
investors......................................................... 2.00
---------
Pro forma net tangible book value per share after the Offerings......... 2.95
---------
Dilution per share to new investors (b)(c).............................. $ 15.55
---------
---------
</TABLE>
- ------------------------
(a) Before deducting underwriting discounts and estimated transaction fees and
expenses of $6.2 million to be paid by the Company in connection with the
Offerings.
(b) Dilution is determined by subtracting net tangible book value per share
after the Offerings from the amount assumed paid by a new investor per share
of Common Stock.
(c) Assuming the Underwriters' over-allotment options are exercised in full, pro
forma net tangible book value of the Company after the Offerings would be
$3.10 per share, the immediate increase in pro forma net tangible book value
of shares owned by the existing stockholders would be $2.15 per share and
the immediate dilution to new investors would be $15.40 per share.
The following table summarizes the difference between existing stockholders
(determined as if the Offerings had occurred on December 31, 1996 and including
in their holdings the total number (1,958,066) of shares of Common Stock
issuable upon redemption of Warrants) and new investors with respect to the
number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price paid per share (assuming
the Underwriters' over-allotment
16
<PAGE>
options are not exercised and an initial public offering price of $18.50 per
share, the midpoint of the range of initial public offering prices set forth on
the cover page of this Prospectus).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------------- -------------------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------------- -------------- ---------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
New investors (a)................... 3,750,000 12.6% $ 69,375,000 30.0% $ 18.50
Existing stockholders (a)(b)........ 26,014,623 87.4 162,173,000 70.0 6.23
------------- ------- ---------------- -------
Total............................... 29,764,623 100.0% $ 231,548,000 100.0%
------------- ------- ---------------- -------
------------- ------- ---------------- -------
</TABLE>
- ------------------------
(a) Sales by the Selling Stockholders in the Offerings will reduce the number of
shares held by existing stockholders, and shares issuable upon redemption of
Warrants, to 22,264,623 shares, and will increase the number of shares held
by new investors to 7,500,000 shares. See "Principal and Selling
Stockholders".
(b) Does not include 961,105 shares of Common Stock that the Underwriters have
the option to purchase from the Company and the Selling Shareholders to
cover over-allotments, if any, or 1,034,844 shares of Common Stock reserved
for issuance under the Company's Stock Option Plan (as defined herein). See
"Management--Stock Option Plan" and "Underwriting".
The foregoing tables and discussion assume no exercise of options after
December 31, 1996 and exclude (i) 2,870,975 shares issuable upon exercise of
options outstanding as of December 31, 1996 having a weighted average exercise
price of $3.52 per share under the Company's Stock Option Plan, (ii) 730,000
shares issuable upon exercise of options granted on January 30, 1997 in
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, (iii) 1,034,844 additional
shares authorized for issuance under the Company's Stock Option Plan and (iv)
237,159 shares issuable upon the Warrants at an exercise price of $5.72 per
share that may be sold to the Underwriters pursuant to the Underwriters'
over-allotment options. To the extent that outstanding options are exercised,
there will be further dilution to new investors. See "Capitalization",
"Management-- Compensation of Directors and Executive Officers",
"Management--Stock Option Plan", and Note 8 to the Consolidated Financial
Statements.
17
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of December 31, 1996, and on an as-adjusted basis after giving effect
to the Offerings and the application of the net proceeds of the Company
therefrom. The table should be read in conjunction with "Use of Proceeds",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
----------- ---------------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash................................................................................ $ 4,429 $ 4,329
----------- ---------------
----------- ---------------
Notes payable and current portion of long-term debt................................. $ 42,489 $ 33,413
Long-term debt:
Essex Revolving Credit Agreement.................................................. 179,900 148,454
Essex Term Loan(a)................................................................ 31,766 --
Essex Senior Notes................................................................ 200,000 200,000
Essex Sale and Leaseback Agreement................................................ 21,250 21,250
----------- ---------------
432,916 369,704
Less: current portion......................................................... 11,576 2,500
----------- ---------------
Total long-term debt................................................................ 421,340 367,204
Common stock subject to put:(b)
1,262,602 shares issued and outstanding........................................... 12,626 --
Stockholders' equity:
Common Stock, par value $.01 per share; 150,000,000 shares authorized, 22,793,955
shares issued and outstanding, actual; 29,600,729 shares issued and outstanding,
as adjusted (c)................................................................. 228 296
Additional paid-in capital........................................................ 139,145 214,915
Carryover of predecessor basis (d)................................................ (15,259) (15,259)
Retained earnings................................................................. 21,976 21,608
----------- ---------------
Total stockholders' equity.......................................................... 146,090 221,560
----------- ---------------
Total capitalization.......................................................... $ 622,545 $ 622,177
----------- ---------------
----------- ---------------
</TABLE>
- ------------------------
(a) As of February 28, 1997, the outstanding balance of the Essex Term Loan was
$29,497. Such amount is expected to be repaid upon receipt of the net
proceeds of the Offerings.
(b) Following the Offerings, it is expected that shares of Common Stock subject
to put, if any, will not be material.
(c) Excludes 2,870,975 shares of Common Stock reserved for issuance pursuant to
the exercise of options outstanding as of January 1, 1997, at a weighted
average exercise price of $3.52 per share, of which options to purchase
1,828,475 shares of Common Stock were then exercisable, and 237,159 shares
of Common Stock issuable upon exercise of the Warrants, at an exercise price
of $5.72 per share, that may be sold to the Underwriters pursuant to the
Underwriters' over-allotment options. On January 30, 1997, the Company
granted 730,000 additional options at an exercise price of $10.00 per share
in respect of 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. From December 31, 1996, to and
including March 24, 1997, 167,619 shares have been issued upon exercise of
outstanding options. See "Management--Stock Option Plan".
(d) Reflects effect of Predecessor's cost basis carried forward from time of
Acquisition.
18
<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 (iii) supplementary pro forma
financial data for the year ended December 31, 1996, assuming the use of the net
proceeds of the Offerings as described under "Use of Proceeds". Combined
selected financial data presented below as of and for the 12-month period ended
December 31, 1992 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, 1993 and 1994 and
for the year ended December 31, 1993 were derived from audited consolidated
financial statements 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. This
data should be read in conjunction with "Use of Proceeds", "Capitalization",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements included elsewhere herein.
<TABLE>
<CAPTION>
COMBINED(a)
---------------
TWELVE MONTHS
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, ------------------------------------------------------
1992 1993 1994 1995 1996
--------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................................... $ 909,351 $ 868,846 $ 1,010,075 $ 1,201,650 $ 1,332,049
Cost of goods sold.............................. 780,148 745,875 846,611 1,030,511 1,102,460
Selling and administrative expense.............. 80,590 75,748 85,209 93,401 121,054
Other (income) expense, net (b)................. (305) (196) 1,114 1,032 2,045
Unusual items (c)............................... 18,139 -- -- -- --
--------------- ------------ ------------ ------------ ------------
Income from operations.......................... 30,779 47,419 77,141 76,706 106,490
Interest expense................................ 50,645 56,723 60,155 49,055 39,994
--------------- ------------ ------------ ------------ ------------
Income (loss) before income taxes and
extraordinary charge.......................... (19,866) (9,304) 16,986 27,651 66,496
Provision (benefit) for income taxes............ (4,022) 1,552 9,500 14,380 28,988
--------------- ------------ ------------ ------------ ------------
Income (loss) before extraordinary charge....... (15,844) (10,856) 7,486 13,271 37,508
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
---------------
---------------
Preferred stock redemption premium.............. -- -- -- (4,185)
Preferred stock dividend requirement............ (5,186) (6,008) (6,962) (4,248)
Accretion of preferred stock.................... (671) (687) (703) (2,024)
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
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Pro forma income (loss) per share (e):
Pro forma income (loss) before extraordinary
charge...................................... $ 1.33
Extraordinary charge net of income tax
benefit..................................... (.04)
------------
Pro forma net income (loss)................... $ 1.29
------------
------------
Shares used in computing pro forma net income
(loss) per share.............................. 28,224,862
------------
------------
Supplementary pro forma income before
extraordinary charge (f)...................... $ 41,199
------------
------------
Supplementary pro forma income per share before
extraordinary charge (e)...................... $ 1.29
------------
------------
Shares used in computing supplementary pro forma
income before extraordinary charge (f)........ 31,974,862
------------
------------
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
COMBINED (A)
TWELVE MONTHS
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, ------------------------------------------
1992 1993 1994 1995 1996
--------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................... $ 133,048 $ 176,001 $ 221,480 $ 171,166 $ 231,707
Total assets...................................... 716,196 712,051 750,930 746,063 842,755
Long-term debt (including current portion)........ 420,052 428,942 458,960 412,750 432,916
Redeemable preferred stock........................ 28,603 34,460 41,155 48,820 --
Stockholders' equity.............................. 78,499 59,667 60,828 64,300 146,090
OTHER DATA:
EBITDA (g)........................................ $ 74,388 $ 77,028 $ 108,314 $ 110,502 $ 140,224
Capital expenditures.............................. $ 31,180 $ 26,167 $ 30,109 $ 28,555 $ 25,569
Copper equivalent pounds shipped (h).............. 492,350 517,607 553,220 551,447 643,800
Average COMEX copper price per pound.............. $ 1.03 $ 0.85 $ 1.07 $ 1.35 $ 1.06
Net cash provided by operating activities......... 31,326 60,616 41,672 89,754 64,581
Net cash used for investing activities (i)........ (152,010) (30,785) (30,118) (50,466) (104,716)
Net cash provided by (used for) financing
activities (j).................................. 132,662 (28,569) (5,120) (53,031) 41,369
</TABLE>
- ------------------------
(a) Represents a combination of the Company's three month period ended December
31, 1992 and Predecessor's nine month period 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 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 are as follows:
(i) $2,595, net of tax, representing reduced interest expense due to the
assumed repayment of the Essex Term Loan ($29,497) and a portion of the
indebtedness under the Essex Revolving Credit Agreement ($33,716) from the
net proceeds of the Offerings; (ii) $677, 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, 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 3,750,000 shares of common stock offered by the Company in the
Offerings.
(g) 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.
(h) Copper equivalent pounds include aluminum pounds which have been converted
to a copper pound basis.
(i) 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.
(j) Includes the redemption of the Company's Senior Discount Debentures due
2004 in 1995 at a total cost of $272,850.
20
<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
December 31, 1996 included 28 domestic manufacturing facilities and employed
approximately 4,800 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 recent acquisition of certain assets of
Triangle (the "Triangle Acquisition") has significantly expanded the Company's
building wire and industrial wire business units. The Triangle Acquisition is
expected to strengthen both the building wire and industrial wire business, and
thus the product mix of the Company will shift 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.
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.
21
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for each of the years in the three-year
period ended December 31, 1996, the dollar amounts and percentages of sales of
each of the Company's major product lines:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT FOR COPPER PRICE)
-------------------------------------------------------------------
1994(A) 1995(A) 1996
--------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Magnet wire............................................ $ 306.9 30% $ 388.2 32% $ 388.8 29%
Building wire.......................................... 390.0 39 406.1 34 487.1 37
Communication wire..................................... 119.3 12 177.5 15 166.8 13
Automotive wire........................................ 82.8 8 97.3 8 91.2 7
Industrial wire........................................ 63.1 6 63.4 5 71.0 5
Other(b)............................................... 48.0 5 69.2 6 127.1 9
---------- --- ---------- --- ---------- ---
Total.................................................. $ 1,010.1 100% $ 1,201.7 100% $ 1,332.0 100%
---------- --- ---------- --- ---------- ---
---------- --- ---------- --- ---------- ---
Average COMEX copper price per pound................... $ 1.07 $ 1.35 $ 1.06
</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 years in the three-year
period ended December 31, 1996, the percentage relationship of net sales to
certain income statement items:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
Net sales......................................................................... 100.0% 100.0% 100.0%
Cost of goods sold................................................................ 83.8 85.8 82.8
Selling and administrative expense................................................ 8.4 7.8 9.1
Other expense, net................................................................ 0.1 0.1 0.1
--------- --------- ---------
Income from operations............................................................ 7.7 6.3 8.0
Interest expense.................................................................. 6.0 4.0 3.0
--------- --------- ---------
Income before income taxes and extraordinary charge............................... 1.7 2.3 5.0
Provision for income taxes........................................................ 1.0 1.2 2.2
--------- --------- ---------
Income before extraordinary charge................................................ 0.7 1.1 2.8
Extraordinary charge--debt retirement, net of income tax benefit.................. -- 0.2 0.1
--------- --------- ---------
Net income........................................................................ 0.7% 0.9% 2.7%
--------- --------- ---------
--------- --------- ---------
</TABLE>
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.
22
<PAGE>
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 premise wire
products. Premise 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.
23
<PAGE>
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 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. Premise 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.
24
<PAGE>
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.
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 the outstanding common stock of Essex. All
such stock is pledged, however, to the lenders under the Essex Revolving Credit
Agreement and, after the Offerings, will be pledged to the lenders under the
Restated Credit Agreement. Accordingly, Essex International's ability to meet
its cash obligations is dependent on Essex's 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;
(iii) amounts necessary to repurchase management stockholders' shares of Common
Stock under certain specified conditions; and (iv) certain other amounts to meet
ongoing expenses of Essex International (such amounts are considered to be
immaterial both individually and in the aggregate because Essex International
has no operations, other than those conducted through Essex, or employees). 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.
The Company's financial position at December 31, 1996, was highly leveraged.
The Company's aggregate notes payable to banks plus long-term debt was $463.8
million, and its stockholders' equity was $158.7 million. The resulting ratio of
debt to stockholders' equity improved to 2.9 to 1 at December 31, 1996, from 3.6
to 1 at December 31, 1995.
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 will be
amended and restated (the "Restated Credit Agreement") effective upon the
consummation of the Offerings; (ii) a $60.0 million senior unsecured note
agreement, dated as of April 12, 1995, by and among Essex, Essex International,
as guarantor, the Lenders named therein and The Chase Manhattan Bank, as
administrative agent (the "Essex Term Loan"); (iii) 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"); (iv) 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 (v) bank lines
of credit with various lending banks that provide for unsecured borrowings for
working capital of up to $25.0 million.
The Restated Credit Agreement, to be entered into in connection with the
Offerings, will provide for up to $370.0 million in revolving loans, subject to
specified percentages of eligible assets and reduced by outstanding borrowings
under the Canadian Credit Agreement and unsecured bank lines of credit. The
Restated Credit Agreement also will provide a $25.0 million letter of credit
subfacility. The Restated Credit Agreement will terminate on October 31, 2001.
The Restated Credit Agreement loans will bear floating rates of interest, at the
Company's option, at bank prime plus 0.0 to 0.50% or a reserve adjusted
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LIBOR rate plus 0.375 to 1.50%. The effective interest rate can be reduced by
0.375% to 1.125% if certain specified financial conditions are achieved. The
average interest rate on borrowings under the Essex Revolving Credit Agreement
during the fourth quarter of 1996 was 7.16%. At December 31, 1996, the amount of
revolving credit available to the Company was $61.7 million based upon the Essex
Revolving Credit Agreement borrowing base of $272.5 million, reduced by
outstanding borrowings under (i) the Essex Revolving Credit Agreement ($179.9
million), (ii) unsecured bank lines of credit ($25.0 million) and (iii) the
Canadian Credit Agreement ($5.9 million). During 1996, average borrowings under
the Company's revolving credit facilities were $163.4 million compared to $92.1
million in 1995.
The $29.5 million outstanding as of February 28, 1997 under the Essex Term
Loan is to be repaid in full with the proceeds of the Offerings.
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 December 31, 1996, $5.9 million (US dollars) was outstanding under the
Canadian Credit Agreement and included as notes payable to banks in the
Company's financial statements. The Canadian Credit Agreement bears interest at
rates slightly higher than the Restated Credit Agreement and terminates on May
30, 1997, although it may be extended for successive one-year periods upon the
mutual consent of the subsidiary and the lending bank.
The Company had $25 million outstanding under bank lines of credit as of
December 31, 1996. Such amount is included in 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. At
December 31, 1996, such rates of interest averaged 7.6%.
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 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 $25.6 million in 1996 were
$3.0 million less than in 1995. 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 and will be used for modernization projects to enhance efficiency and
expand capacity. At December 31, 1996, approximately $5.5 million was committed
to outside vendors for capital expenditures. The Restated Credit Agreement will
impose limitations on capital expenditures, business acquisitions and
investments. See "Description of Certain Indebtedness--Restated Credit
Agreement".
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<PAGE>
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.
LONG-TERM LIQUIDITY CONSIDERATIONS
Regarding long-term liquidity, the Essex Senior Notes (as defined in
"Description of Certain Indebtedness") mature in 2003 and are expected to be
replaced by similar financing at that time. 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 best 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 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.
27
<PAGE>
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 48 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 volumes
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 grew from a loss of $14.2 million in 1993 to
a profit of $36.3 million in 1996. (With respect to EBITDA, see footnote (g) in
"Selected Consolidated Financial and Operating Data").
The Company organizes its operating activities into the following principal
areas:
MAGNET WIRE PRODUCTS (29% of 1996 net sales)--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 (37% of 1996 net sales)--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 (13% of 1996 net sales)--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 voice and data communication copper wire and cable products for the
premise segment of the telecommunication system. 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 (21% of 1996 net sales)--The Company
manufactures and markets a wide range of automotive and industrial electrical
wire products and maintains a distribution business for the sale and
distribution of its magnet wire and related third-party-manufactured products.
The Company produces automotive wire and cable products (7% of 1996 net sales)
for sale to suppliers of automotive original equipment. Such products include
primary wire for use in engine harnesses, ignition wire and battery cable.
Industrial wire and cable products (5% of 1996 net sales) 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's
distribution business provides a sales channel to both small manufacturers of
original equipment motors and motor repair markets 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 1996, third-party products
constituted 9% of net sales, while 20% of the Company's magnet wire products
were sold through this sales channel.
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<PAGE>
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 electrical wire producers in the United States based
on net sales. 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 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 $140 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, has increased by 21% 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 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
number of computers, facsimile machines and Internet devices. In the
automotive business, the Company
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<PAGE>
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 its efforts in expanding 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 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 and
present and former employees (15.7% on a fully diluted basis 13.7% after giving
effect to the Offerings)) in the Company 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 the existing stockholders. The
existing stockholders of the Company and their equity interests on a fully
diluted basis are BH Group (58.9%), certain present and former employees
(15.7%), the GS Partnerships (12.4%), DLJ (9.2%) and CEA (3.7%). After giving
effect to the Offerings, BH Group, present and former employees, the GS
Partnerships, DLJ and CEA will beneficially own equity interests of 53.6%,
13.7%, 6.9%, 1.2% and 1.8%, respectively, on a fully diluted basis. In
connection with the Acquisition, the GS Partnerships and DLJ were granted
Warrants to purchase up to 1,120,551.5 and 1,712,817.5 shares of Common Stock,
respectively, at an exercise price of $5.71514 per share. The GS Partnerships
will sell all their Warrants to the Underwriters, and DLJ will sell 1,475,658 of
its Warrants to the Underwriters, in each case, at a purchase price of $12.02
per Warrant (assuming an initial public offering price of $18.50 per share, the
mid-point of the range of initial public offering prices set forth on the cover
page of this Prospectus). The Company will then redeem these Warrants for an
aggregate of 1,794,172 shares of Common Stock. The remaining 237,159 Warrants
will
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<PAGE>
also be sold by DLJ to the Underwriters if the Underwriters' over-allotment
options are exercised in full. If the over-allotment options are exercised in
full by the Underwriters, none of the Warrants will be outstanding after the
Offerings (see "Certain Relationships and Related Party Transactions--The
Redemption").
PRODUCT LINES
The following table sets forth for each of the years in the three-year
period ended December 31, 1996, the dollar amounts and percentages of sales of
each of the Company's major product lines:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT FOR COPPER PRICE)
----------------------------------------------------------------
1994 (a) 1995 (a) 1996
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Magnet wire............................. $ 306.9 30% $ 388.2 32% $ 388.8 29%
Building wire........................... 390.0 39 406.1 34 487.1 37
Communication wire...................... 119.3 12 177.5 15 166.8 13
Automotive wire......................... 82.8 8 97.3 8 91.2 7
Industrial wire......................... 63.1 6 63.4 5 71.0 5
Other(b)................................ 48.0 5 69.2 6 127.1 9
--------- --- --------- --- --------- ---
Total................................... $ 1,010.1 100% $ 1,201.7 100% $ 1,332.0 100%
--------- --- --------- --- --------- ---
--------- --- --------- --- --------- ---
Average COMEX copper price per pound.... $ 1.07 $ 1.35 $ 1.06
</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
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.
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<PAGE>
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. In 1996, 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 market was
approximately 1.3 billion copper equivalent pounds sold in 1996. Increased
industry sales volume in recent years has resulted primarily from the level of
repair and remodel activity, as well as new nonresidential and residential
construction. For 1996, approximately two-thirds of industry sales volume was
attributable to repair and remodel activity and one-third to new construction.
Demand is also influenced by growth in electrical needs.
The building wire industry has experienced significant consolidation in
recent years, declining from approximately 28 manufacturers in 1980 to seven
primary manufacturers in 1996. 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 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 of the communication wire
market: (i) outside plant ("OSP") wire and cable for voice communication in the
local loop segment of telephone networks and (ii) premise wire and cable for
voice and data communication in homes and offices for local area computer
networks ("LANs") and other applications. The Company believes that the domestic
copper
32
<PAGE>
OSP market was approximately $0.6 billion in 1996 and that the domestic copper
premise 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.
Premise wire is 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 premise 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 premise 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 the premise wire
market, which provides potentially greater growth opportunities than the OSP
market. Sales volumes of the Company's premise 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 premise 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 premise 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 market has experienced strong growth
over the last decade due to higher production levels of new vehicles and the
significant increase in the installation 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 harnesses, ignition wire, battery cable and specialty wiring
assemblies. Through a joint venture with
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<PAGE>
Raychem Corp., the Company has begun to market 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. Currently, the Company is in the
midst of a three-year contract with UTA, which expires in October 1997. The
Company and UTA are currently discussing an extension of this contract. Although
the Company expects to be able to extend this contract on reasonable terms, no
assurance can be given that this contract will be extended or, if extended that
it will be on the same terms as the current contract. 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 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.
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<PAGE>
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 and through purchasing economies of
scale. The Company also plans to further improve manufacturing efficiencies by
increasing the product focus of certain manufacturing facilities. 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.
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 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 enamelling 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
35
<PAGE>
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% of the Company's 1996 total cost of goods sold. 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. In 1996, the Company purchased approximately 285,000 tons of
copper, 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.
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
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<PAGE>
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 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.
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<PAGE>
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 or 1996. 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 December 31, 1996, the Company employed approximately 1,700 salaried
and 3,100 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 December 31, 1996 the Company operated 28 manufacturing facilities in 16
states. Except as indicated below, all of the facilities are owned by the
Company, and will be 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 December 31, 1996:
<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 48 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, 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
39
<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 clean-up 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% 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.
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<PAGE>
In addition, there are five 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; and Uniontown Landfill, Uniontown, IN. 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. 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. During 1996, the number of cases filed
against the Company increased to 95, involving approximately 400 claims. The
Company's strategy is to defend these cases vigorously. The Company 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.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the people who will
serve as directors and executive officers of the Company following the Offerings
(ages as of January 31, 1997):
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- --------------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS:
Steven R. Abbott............ 49 President and Chief Executive Officer; Director
Robert J. Faucher........... 52 Executive Vice President
Dominic A. Lucenta.......... 43 Senior Vice President
Charles W. McGregor......... 55 Executive Vice President
Debra F. Minott............. 41 Senior Vice President, General Counsel and Secretary
Curtis A. Norton............ 51 Senior Vice President
David A. Owen............... 50 Executive Vice President, Treasurer and Chief Financial
Officer
Gregory R. Schriefer........ 44 Executive Vice President
DIRECTORS:
Rodney A. Cohen............. 35 Director
Stuart S. Janney, III....... 48 Director
Robert D. Lindsay........... 42 Director
Ward W. Woods............... 54 Director; Chairman of the Board
</TABLE>
Mr. Joseph H. Gleberman, age 39, is a current director of the Company but
has notified the Board of Directors that, effective prior to the consummation of
the Offerings, he will resign from the Board of Directors. Mr. Gleberman is a
Managing Director of Goldman, Sachs & Co. He joined the firm in 1982 in the
Mergers and Acquisitions Department. In 1990 he became a Partner of the firm. He
serves as a director of Applied Analytical Industries, Inc, Biofield
Corporation. and Diagnostic Holdings, Inc. Mr. Gleberman has been a director of
the Company since February, 1994.
With the exception of Mr. Gleberman, the persons designated as directors in
tabular form above are all the current directors of the Company. Within three
months of the date of this Prospectus, one outside director will be appointed to
the Board and within one year of the date of this Prospectus, a second outside
director will be appointed to the Board and these two outside directors will
comprise a majority of the members of the audit and stock option committees of
the 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. Concurrent with, or immediately prior to, the consummation of the
Offerings, all directors will be elected to either class A, B or C. Mr. Cohen
and Mr. Janney will be Class A directors, Mr. Lindsay and Mr. Woods Class B
directors and Mr. Abbott will be a Class C director. The term of the initial
Class A directors will expire at the Company's first annual meeting of
stockholders following the date of this Prospectus. The term of the initial
Class B directors will expire at the Company's second annual meeting of
stockholders following the date of this Prospectus, while the term of the
initial Class C directors will expire at the Company's third annual meeting of
stockholders following the date of this Prospectus.
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
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<PAGE>
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 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.
RODNEY A. COHEN has been a director of the Company since March 1996. Mr.
Cohen is a member of the limited liability company that is the general partner
of each of the partnerships comprising BH Group. 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 BSC, a
principal limited partner in two of the partnerships comprising BH Group. Prior
to joining BSC, Mr. Cohen was an associate in the Mergers
43
<PAGE>
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.
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
Bessemer Securities, LLC ("BSLLC"), Bessemer Securities Corporation ("BSC"), the
Bessemer Group Incorporated, Bessemer Trust Company, N.A. and Bessemer Trust
Company of Florida. BSLLC is the principal limited partner in one, and BSC is
the principal limited partner in two of 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 a limited liability company that is the general partner of
each of the partnerships comprising BH Group. He is also the sole shareholder of
corporations that are general partners of a partnership affiliated with BHLP to
which the Company paid the fees described in "Certain Relationships and Related
Party Transactions". Mr. Lindsay was 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 the
Chairman of the Board of Metropolitan International, Inc., and a director of
Stant Corporation and 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 a limited liability company that is the general partner of
each of the partnerships comprising BH Group. He is also the sole shareholder of
corporations that are the managing general partners of a 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 Chairman of the Board of Stant Corporation. He is
a director of Boise Cascade Corporation, Freeport-McMoran Copper & Gold, Inc.,
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.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Directors of the Company currently receive no compensation for their service
as directors, other than reimbursement of expenses incidental to attendance at
meetings of the Board of Directors or committees thereof. After the consummation
of the Offerings, it is expected that directors will be granted a stipend by the
Board for their service as directors of $25,000 per director per year plus
$1,000 for attendance at each meeting of the Board of Directors or any committee
therof (which payments may be payable, in whole or in part, in options to
purchase shares of Common Stock), plus reimbursement of expenses incidental to
attendance at meetings of the Board of Directors or committees thereof. The
following table sets forth the cash and non-cash compensation paid by or
incurred on behalf of the Company to its Chief Executive Officer and the four
other most highly compensated executive officers for each of the three years
ended December 31, 1996.
44
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
ANNUAL ----------------------
COMPENSATION NUMBER OF SECURITIES
-------------------- UNDERLYING OPTIONS/ ALL OTHER
SALARY BONUS SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) ($)(A)
- ----------------------------------------- --------- --------- --------- ---------------------- ---------------
<S> <C> <C> <C> <C> <C>
Steven R. Abbott......................... 1996 287,993 600,000 125,000 27,531
President and Chief Executive Officer 1995 193,757 250,000 37,500 12,999
(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 Chief 1995 157,503 185,000 25,000 8,120
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.
45
<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)
-------------------------------------------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
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% ($)
- --------------------------- -------------- ------------------- ------------- ---------- --------- -----------
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.
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".
46
<PAGE>
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
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES ACQUIRED YEAR-END (#) YEAR-END ($)
ON VALUE REALIZED EXERCISABLE (E)/ EXERCISABLE (E)/
NAME EXERCISE (#) ($) 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) 42,849(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.
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
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REMUNERATION 15 20 25 30 35
- -------------- ----------- ----------- ----------- ----------- -----------
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>
47
<PAGE>
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 December 31, 1996, 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-seven years and seven months; Mr. Craft,
twenty-seven years and nine months; Mr. Owen, twenty years and eight months; Mr.
McGregor, twenty-six years and eleven months; Mr. Faucher, twenty-four years and
six months; and Mr. Schriefer, fifteen years and three 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 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 pursuant to the sale. Options
granted on January 30, 1997, in 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, are
exercisable: (i) in full, upon the third anniversary of the grant of the
options, provided that during the second year the option is outstanding it 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 it 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) 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 of 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
48
<PAGE>
stock in the Acquisition, in each case as adjusted for any stock splits or other
similar corporate transactions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Lindsay, Woods and Gleberman are currently members of the
Compensation Committee of the Board of Directors. Subsequent to the Offerings,
the Board of Directors expects to replace two of such directors with outside
directors. The Compensation Committee fixes the compensation paid to the
Company's executive officers, based in part on the recommendation of Mr. Abbott.
See "--Directors and Executive Officers" and footnote (k) of "Principal and
Selling Stockholders" for a description of the relationship between Messrs.
Lindsay and Woods and BH Group and the information set forth under the caption
"Certain Relationships and Related Party Transactions" for a description of
certain transactions between the Company and BH Group.
TERMINATION BENEFITS AGREEMENT
Prior to the consummation of the Offerings, the Company will enter into
agreements (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
executives "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-of-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-of-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-of-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.
49
<PAGE>
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 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; (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 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 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 (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.
50
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth 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 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 following the
Offerings, (c) each named executive officer, (d) all directors and executive
officers of the Company following the Offerings 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
---------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
SHARES TO BE
NUMBER OF PERCENT SOLD IN THE NUMBER OF
NAME SHARES OWNERSHIP OFFERINGS SHARES PERCENT OWNERSHIP
- ------------------------------------------------ ------------- ------------- ------------- ------------- -----------------
DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL
STOCKHOLDERS:
Steven R. Abbott(b)(c)(d)....................... 306,000.0 1.3 0 306,000.0 1.0
Rodney A. Cohen(e).............................. 0.0 * 0 0 *
Robert J. Faucher(b)(c)(f)...................... 191,488.5 * 0 191,488.5 *
Stuart S. Janney, III(e)........................ 0.0 * 0 0 *
Robert D. Lindsay(e)............................ 0.0 * 0 0 *
Charles W. McGregor(b)(c)(g).................... 73,623.0 * 0 73,623.0 *
David A. Owen(b)(c)(h).......................... 80,914.0 * 0 80,914.0 *
Gregory R. Schriefer(b)(c)(i)................... 41,593.5 * 0 41,593.5 *
Ward Woods(e)................................... 0.0 * 0 0 *
All directors and executive officers as a group
(12 persons(j))............................... 18,359,795.0 74.8 0 18,359,795.0 61.0
Bessemer Holdings, L.P.(b)(k)(l)(m)............. 17,548,165.5 72.6 0 17,548,165.5 59.0
SELLING STOCKHOLDERS:
The Goldman Sachs Group, L.P.(n)(o)............. 3,707,724.0 14.7 1,117,500 2,244,056.0 7.6
DLJ International Partners, C.V.(p)(q).......... 2,743,962.5 10.6 1,908,159 379,933.5 1.3
Chase Equity Associates(r)(s)................... 1,104,869.0 4.6 525,596 579,273 1.9
John L. Cox(c).................................. 50,048.5 * 25,000 25,048.5 *
Stanley C. Craft(c)............................. 386,500.0 1.6 75,000 311,500.0 1.0
David O. McMahan(c)............................. 66,745.0 * 18,745 48,000.0 *
Frederick M. Zinser(c).......................... 226,055.0 * 80,000 146,055.0 *
</TABLE>
- ------------------------
* Represents holdings of less than one percent.
(a) Prior to the Offerings, there were 27,007,545.5 shares of Common Stock
outstanding, including 2,833,369 shares of Common Stock issuable upon
exercise of the Warrants. 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) All shares of Common Stock owned by executive officers, employees, former
employees and retirees of the Company, or their respective estates (a total
of 1,902,824.5 shares), currently are subject to a proxy held by BHLP. This
proxy will terminate upon consummation of the Offerings. Pursuant to the
terms of certain option agreements, the aggregate number of shares issuable
upon exercise of such 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, Indiana 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 each of these directors is c/o BHLP, 630 Fifth Avenue, New
York, NY 10111.
(f) 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.
(g) 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.
(h) 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.
(i) Includes 10,225 shares issuable upon exercise of options held by Mr.
Schriefer that, pursuant to the applicable option agreement, may be reduced
to 6,428 shares.
(j) Consists of the 17,548,165.5 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
(k) below), 449,379.5
51
<PAGE>
shares of Common Stock owned by the executive officers of Essex
International included in this group, 362,250 shares of Common Stock
issuable to the executive officers of Essex International included in this
group upon exercise of options which, pursuant to the applicable option
agreements, may be reduced and excludes 1,453,445 shares of Common Stock,
along with 1,411,106 shares of Common Stock issuable upon exercise of
options (also subject to reduction) owned by other employees, former
employees and retirees of the Company.
(k) 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, also is a member of that limited liability company. That
limited liability company is also the sole general partner of six other
limited partnerships that hold in the aggregate 4,175,173 additional shares
of Common Stock (see footnote (l) below). Mr. Janney is a director of BSC
and BSLLC. BSC is a principal limited partner of BHLP and Bessec Holdings,
L.P. BSLLC is a principal limited partner of Bessec Holdings, L.P. (see
footnote (l) below). 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 such other limited partnerships.
(l) The share ownership figure for BHLP includes 20,202 shares held by Bessemer
Holdings Special Situations, L.P., 1,140,562.5 shares held by BGE Partners,
L.P., 1,036,875 shares held by BNE Partners, L.P., 1,140,562.5 shares held
by BTE Partners, L.P., 599,500 shares held by BCE Partners, L.P. and 237,471
shares held by Bessec Holdings, L.P., affiliates of BHLP.
(m) The address for BHLP is 630 Fifth Avenue, New York, NY 10111.
(n) Represents in the aggregate 2,587,172.5 shares of Common Stock and warrants
to purchase 1,120,551.5 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) 2,532,493 shares
of Common Stock and warrants to purchase 1,092,538 shares of Common Stock
owned by GS Capital Partners, L.P., (ii) 34,120 shares of Common Stock and
warrants to purchase 17,480.5 shares of Common Stock owned by Stone Street
Fund 1992, L.P. and (iii) 20,559.5 shares of Common Stock and warrants to
purchase 10,533 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. GS Group disclaims beneficial ownership of the shares
owned by the GS Partnerships to the extent interests in such partnerships
are owned by persons other than GS Group and its affiliates. If the
Underwriters' over-allotment options are exercised in full, the GS
Partnerships will sell an additional 382,500 shares of Common Stock and will
have 1,861,556 shares of Common Stock after the Offerings, representing 6.3%
of the outstanding shares of the Common Stock after the Offerings.
(o) The address for GS Group and the GS Partnerships is 85 Broad Street, New
York, NY 10004.
(p) Represents in the aggregate 1,031,145 shares of Common Stock and Warrants to
purchase 1,712,817.5 shares of Common Stock owned by DLJ International
Partners, C.V. and its affiliates, including (i) 1,031,145 shares of Common
Stock owned by DLJ International Partners, C.V., (ii) Warrants to purchase
942,437 shares of Common Stock owned by DLJ Merchant Banking Partners, L.P.,
(iii) Warrants to purchase 457,867.5 shares of Common Stock owned by DLJ
Merchant Banking Funding, Inc. and (iv) Warrants to purchase 312,513 shares
of Common Stock owned by DLJ First ESC LLC. If the Underwriters'
over-allotment options are exercised in full, DLJ International Partners,
C.V. and its affiliates will sell an additional 142,774 shares of Common
Stock and 237,159 Warrants, which will be redeemed in exchange for 163,895
shares of Common Stock, and DLJ International Partners, C.V. and such
affiliates will have no remaining shares of Common Stock or Warrants
outstanding after the Offerings.
(q) 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.
(r) The share ownership figure for CEA does not include 599,500 shares of Common
Stock in which CEA has an indirect ownership interest through its limited
partnership interest in BCE Partners, L.P. If the Underwriters' over-
allotment options are exercised in full, CEA will sell an additional 123,331
shares of Common Stock and will have 464,440 shares of Common Stock after
the Offerings, representing 1.6% of the outstanding shares of Common Stock
after the Offerings.
(s) The address for CEA is 380 Madison Avenue, New York, NY 10017.
With the exception of Mr. Joseph H. Gleberman, the persons listed in the
table above under the subheading "Directors, Executive Officers and Principal
Stockholders" (other than Bessemer Holdings, L.P.) are all the current directors
and executive officers of the Company. Mr. Gleberman, whose address is c/o
Goldman, Sachs & Co., 85 Broad Street, New York, NY 10004, is a current director
of the Company but has notified the Board of Directors that, effective prior to
the consummation of the Offerings, he will resign from the Board of Directors.
Mr. Gleberman does not beneficially own any shares of the Company's Common
Stock.
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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 (k) 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. The Engagement Letter will terminate effective
upon the consummation of the Offerings, other than the indemnification and
contribution obligations thereunder.
1996 PRIVATE OFFERING
In July 1996, the Board of Directors of the Company approved the 1996
Private Offering which consisted of an offering of shares of Common Stock to
certain stockholders of the Company and certain limited partnerships affiliated
with BH Group at $10.00 per share of Common Stock. BH Group, the GS Partnerships
and CEA purchased an aggregate of 5,930,000 shares of Common Stock at that
price. DLJ, also a stockholder of the Company, elected not to purchase shares of
Common Stock at that price in the 1996 Private Offering. In December 1996, as
part of the 1996 Private Offering, certain management employees of the Company,
including each executive officer, purchased an aggregate of 437,708.5 shares of
Common Stock at $10.00 per share of Common Stock.
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 Warrants outstanding to
purchase 237,159 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.
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THE REDEMPTION
At or prior to the closing of the Offerings, the GS Partnerships will sell
all their Warrants to the Underwriters and DLJ will sell 1,475,658 of its
Warrants to the Underwriters, DLJ may also sell up to 237,159 Warrants to the
Underwriters in connection with the exercise of the Underwriters' over-allotment
options. The Warrants obtained by the Underwriters from the GS Partnerships and
from DLJ will be redeemed by the Company at or prior to the closing of the
Offerings for a number of shares of Common Stock equal to the number of shares
underlying the Warrants reduced by the product of the number of shares
underlying the Warrants, and a fraction, the numerator of which is $5.72 per
share and the denominator of which is the initial public offering price per
share (or 1,794,172 shares, assuming an initial public offering price of $18.50
per share, the mid-point of the range of initial public offering prices set
forth on the cover page of this Prospectus). All such 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 the GS Partnerships or DLJ. The
redemption of the Warrants by the Company as described in this paragraph is
referred to herein as the "Redemption".
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's 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.
TRANSFER RESTRICTIONS. The Management Stockholders Agreement provides that
Management Stockholders may not transfer, sell, assign, pledge, hypothecate or
otherwise dispose of (collectively, "Transfer") any of their Common Stock except
as provided in the Management Stockholders Agreement. This restriction will
expire 90 days after the closing of the Offerings.
RIGHT OF FIRST REFUSAL. If any Management Stockholder receives a bona fide
offer to purchase any of his or her Common Stock, such Management Stockholder
may Transfer such Common Stock only after offering such Common Stock first to
the Company and then, if not accepted by the Company, to BH Group, in each case
on the same terms and conditions as the bona fide offer. This restriction will
expire 90 days after the closing of the Offerings.
TAG-ALONG RIGHTS. Subject to certain exceptions, if at any time BH Group
proposes to sell to a third party or parties, directly or indirectly (other than
in a 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.
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PUT OPTIONS. Subject to certain exceptions, including those related to the
Company's credit facilities, if any Management Stockholder's employment with the
Company is terminated prior to the Offerings, then such Management Stockholder
or his or her estate will have the right for one year following the date of
termination of employment to sell to the Company (or its designee) any or all
shares of Common Stock then held by such Management Stockholder or his or her
estate for their fair market value if the termination was due to the death,
disability or retirement of the Management Stockholder or for the lower of fair
market value and the price paid for the shares of Common Stock by the Management
Stockholder, if the termination was for a reason other than the death,
disability or retirement of the Management Stockholder.
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 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. These provisions will survive the Offerings.
TERMINATION. The Management Stockholders Agreement (other than with respect
to pending purchases and sales) will terminate thirty days following BH Group
ceasing to have beneficial ownership of 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 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 non-monetary 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
Upon consummation of the Offerings, the authorized capital stock of the
Company will consist of 150,000,000 shares of Common Stock, par value $.01 per
share, and 5,000,000 shares of preferred stock, par value $.01 per share
("Preferred Stock"). However, the number of shares of authorized Common Stock or
Preferred Stock may, 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 December 31, 1996, there were 24,056,557.5 shares of Common Stock
outstanding and held of record by approximately 73 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 59.0% of the Common Stock (53.6% on a fully diluted basis) or
58.1% (53.2% on a fully diluted basis), assuming that the Underwriters'
over-allotment options are exercised in full. 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 (without the consent of the Company's
other stockholders) 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 will, upon consummation of the
Offerings, 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:
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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 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 Company has been approved to list the Common Stock on the New York Stock
Exchange, subject to notice of issuance, under the 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. Prior to the Effective Date, the Essex
Revolving Credit Agreement will be amended and restated as the Restated Credit
Agreement, which amendment and restatement will become effective on the
consummation of the Offerings.
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 December 31, 1996, the Company had outstanding borrowings of $179.9
million under the Essex Revolving Credit Agreement and $61.7 million of undrawn
capacity based upon the Borrowing Base at that time of $272.5 million, reduced
by outstanding borrowings under (i) the Essex Revolving Credit Agreement ($179.9
million), (ii) unsecured bank lines of credit ($25.0 million) and (iii) the
Canadian Credit Agreement ($5.9 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 December 31, 1996, the Borrowing Base was $272.5 million
and the Senior Note Indenture Revolving Credit Incurrence Limit was $269.5
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 certain financial ratios, which spread ranges from 0.375% to
1.500% or (ii) bank prime plus a spread based on certain financial ratios, which
spread ranges from 0% to 0.500%. The effective interest rate can be reduced by
0.375% to 1.125%, if certain specified financial conditions are 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 December 31, 1996, was 3.07 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 December 31, 1996, this ratio was 2.45 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 December 31, 1996, the Company's Consolidated Net Worth was
$158.7 million or 152% of that required to be maintained.
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
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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 December 31, 1996, the Company's Interest Coverage Ratio,
Leverage Ratio and Senior Secured Leverage Ratio were 3.73 to 1.00, 3.07 to 1.00
and 1.37 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. 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
beneficially owns 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), 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, (iii) if
any person or group, other than a group consisting solely of BH Group, 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 than 2.0 to 1.0
or unless another exemption is available. At December 31, 1996, the Company had
a 3.73 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 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 December 31, 1996,
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Essex could have incurred $269.5 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 December 31, 1996,
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 judgements 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, 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
29,718,348 shares of Common Stock. In addition, the Company will have
outstanding options granted under the Stock Option Plan to purchase up to
1,685,475 shares of Common Stock (which pursuant to applicable option agreements
may be reduced to 1,115,071 shares). All the shares of Common Stock sold in the
Offerings will be freely transferable without restriction or further
registration under the Securities Act, except those shares owned by "affiliates"
of the Company (as such term is defined in Rule 144). The remaining 22,218,348
shares of Common Stock will be "restricted securities" 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). If the Underwriters'
over-allotment options are not exercised in full, there will be up to 237,159
Warrants outstanding after the completion of the Offerings. These Warrants will
be transferable, subject to the lock-up arrangements described below,
immediately after the Offerings, without restriction pursuant to Rule 144(k).
Any shares of Common Stock received upon exercise of the Warrants for cash will
constitute "restricted securities", but will be entitled to the benefits of the
registration rights described below under "Registration Rights--Other Initial
Shareholders". Any shares of Common Stock received upon any "cashless exercise"
or other redemption of the Warrants (I.E., by the surrender of Warrants with a
value equal to the exercise price) will, subject to the lock-up arrangements
described below, be transferable without restriction pursuant to Rule 144(k).
There will also be 1,685,475 shares of Common Stock subject to vested options
(which pursuant to applicable option agreements may be reduced to 1,115,071
shares) that, subject to the lock-up arrangements described below will be
transferable 90 days after the Effective Date pursuant to Rule 701. The Company
and its directors and executive officers, certain of its employees, BH Group and
the Selling Stockholders have agreed, subject to certain exceptions, not to
sell, offer or agree to sell, or otherwise dispose of, directly or indirectly,
any shares of Common Stock, any security substantially similar to the Common
Stock or any security exchangeable for, or convertible into, shares of Common
Stock or any such substantially similar security for a period of at least 180
days after the date of this Prospectus, without the prior written consent of
Goldman Sachs. Additionally, each stockholder (other than BHLP and certain of
its affiliates) has agreed not to sell any of its Common Stock for 90 days after
the effective date of the Registration Statement of which this Prospectus is a
part (the "Effective Date"), pursuant to either the Management Stockholders
Agreement or the Registration Rights Agreement.
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose securities are aggregated) who (together with predecessor
holders who were not affiliates) has beneficially owned shares of Common Stock
that are treated as restricted securities for at least one year from the date
such shares were acquired from the Company or an affiliate thereof, is entitled
to sell, within any three-month period, a number of shares that does not exceed
the greater of (i) 1% of the then outstanding shares of Common Stock or (ii) the
average weekly trading volume of the then outstanding shares of Common Stock
during the four calendar weeks preceding the date on which notice of such sale
was filed with the Commission under Rule 144. Sales under Rule 144 are also
subject to certain provisions relating to the manner and notice of sale and the
availability of current public information about the Company. In addition,
affiliates of the Company must comply with the restrictions and requirements of
Rule 144 (other than the one-year holding period requirement) in order to sell
shares of Common Stock that are not restricted securities (such as shares
acquired by affiliates in the public market). Commencing two years after the
acquisition of restricted securities from the Company or an affiliate, a holder
of such restricted securities who is not an affiliate at the time of the sale
and has not been an affiliate for at least three months prior to such sale would
be entitled, pursuant to Rule 144(k), to sell such securities immediately
without regard to the volume limitations and other conditions described above.
Any employee, officer or director of the Company who acquired his or her
shares prior to the Effective Date at a time when the Company was not subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act or who
holds vested options as of the Effective Date, pursuant to a written
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<PAGE>
compensatory plan or contract is entitled to rely on the resale provisions of
Rule 701. Rule 701 permits non-affiliates to sell their Rule 701 shares without
having to comply with the public information, holding period, volume limitation
or notice provisions of Rule 144 and permits affiliates to sell their Rule 701
shares without having to comply with Rule 144's holding period restrictions, in
each case commencing 90 days after the Effective Date.
Excluding the shares of Common Stock offered pursuant to the Offerings,
22,218,348 shares of Common Stock are outstanding and were sold by the Company
in reliance on exemptions from the registration requirements of the Securities
Act and thus are restricted securities within the meaning of Rule 144. None of
these shares of Common Stock will be eligible for sale in the public market
immediately upon the Effective Date due to "lock-up" provisions in the
Registration Rights Agreement, the Management Stockholders Agreement and
"lock-up" agreements with the Underwriters. Beginning 90 days after the
Effective Date, approximately 1,836,936 of the restricted shares (including
865,942 shares subject to vested options) will become eligible for sale subject
to the provisions of Rule 144 and Rule 701 (all of which will be eligible, under
Rule 701 and Rule 144(k), for sale without limitation as to volume or manner of
sale), upon the expiration of agreements not to sell such shares entered into
between the Company and holders of such stock. In addition, beginning 180 days
after the date of this Prospectus, approximately 15,758,774 of the restricted
shares (including 249,129 shares subject to vested options) will become eligible
for sale subject to the provisions of Rule 144 and Rule 701 (3,510,609.5 of
which will be eligible, under Rule 701 and Rule 144(k), for sale without
limitation as to volume or manner of sale (including 249,129 shares subject to
vested options)), upon the expiration of agreements not to sell such shares
entered into between Underwriters and holders of such stock.
The Company intends to file a registration statement on Form S-8 covering
all shares of Common Stock issuable in the future under the Stock Option Plan
(an aggregate of 1,034,844 shares). Any shares issued upon exercise of such
options will be eligible for sale in the public market after the effective date
of such registration statement, subject to any contractual restrictions.
In connection with the 1996 Private Offering, the Company issued 6,367,708.5
shares of Common Stock. All such shares are restricted securities. Pursuant to
Rule 144, 5,300,000 shares will be available for sale in the public market,
subject to the restrictions of Rule 144, on July 3, 1997, and 437,708.5 shares
will be available for sale in the public market, subject to the restrictions of
Rule 144, on December 27, 1997. The remaining 630,000 shares will be sold in the
Offerings.
In addition, during fiscal 1996, the Company issued options to certain
employees under the Stock Option Plan to purchase approximately 462,500 shares
of Common Stock. All such options are subject to a vesting schedule that
provides for vesting (i) in full on the third anniversary of the date the
options were granted, (ii) in full upon the death, retirement or disability of
the optionee and (iii) in part, upon certain sales of Common Stock by
significant stockholders. See "Management--Stock Option Plan".
On January 30, 1997, the Company issued options to certain employees under
the Stock Option Plan to purchase approximately 730,000 shares of Common Stock.
Such options were granted in 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.
All such options are subject to a vesting schedule that provides for vesting (i)
in full on the first anniversary of the date the options were granted, (ii) in
full upon the death, retirement or disability of the optionee and (iii) in part,
upon certain sales of Common Stock by significant stockholders. See
"Management--Stock Option Plan".
Prior to the Offerings, there has been no market for the Common Stock, and
no prediction can be made as to the effect, if any, that future public sales of
shares or the availability of shares for future sale, will have on the market
price prevailing from time to time. Nevertheless, sales of substantial amounts
of Common Stock in the public market, or the perception that such sales could
occur, could have an
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adverse impact on the market price of the Common Stock and could impair the
Company's future ability to raise capital through the sale of equity securities.
As a result of the ability of BH Group, the GS Partnerships and DLJ and in
certain circumstances, CEA to require the Company to register any or all of
their shares in certain circumstances means that all their 20,522,765 shares of
Common Stock and 237,159 Warrants could be available for sale in the public
market as early as 180 days after the date of this Prospectus. While
stockholders subject to the Management Stockholders Agreement do not have demand
registration rights thereunder, their ability to piggyback on other registered
offerings means that all their 1,710,095.5 shares of Common Stock could be
available for sale in the public market as early as 180 days after the date of
this Prospectus.
REGISTRATION RIGHTS
BH GROUP
Pursuant to the Management Stockholders Agreement, BH Group has 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 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 a Registration Rights Agreement to be entered into prior to the
Offerings (the "BH Group Registration Rights Agreement"), between BH Group and
the Company, BH Group will have the 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 BH Group's Common Stock,
including any shares of Common Stock subsequently acquired by BH Group. 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 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 against certain liabilities, including liabilities arising under the
Securities Act.
After the consummation of the Offerings, it is expected that the BH Group
Registration Rights Agreement will cover 17,548,166 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
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<PAGE>
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 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 2,386,830
shares of Common Stock and Warrants to purchase 237,159 shares of Common Stock
and the "piggyback" rights in such agreement will cover such shares plus an
additional 587,771 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.
After the consummation of the Offerings, the "piggyback" rights in the
Management Stockholders Agreement will cover 1,695,582 shares of Common Stock.
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
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(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 U.S. 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 Federal income tax purposes to the extent paid
from current or accumulated earnings and profits of the Company (as determined
under 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 U.S. 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, 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").
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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
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 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
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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.
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.
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,
or through the World Wide Web (http:// www.sec.gov). 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 not currently subject to the informational requirements of
the Securities Exchange Act of 1934 (the "Exchange Act"). As a result of the
Offerings, the Company will become subject to the informational requirements of
the Exchange Act. The Company will fulfill its obligations with respect to such
requirements by filing periodic reports with the Commission. 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.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ESSEX INTERNATIONAL INC.
(FORMERLY KNOWN AS BCP/ESSEX HOLDINGS INC.)
<S> <C>
Report of Independent Auditors..................................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995....................... F-3
Consolidated Statements of Income for each of the three years in the period ended
December 31, 1996................................................................ F-4
Consolidated Statements of Cash Flows for each of the three years in the period
ended December 31, 1996.......................................................... 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,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 3,195 $ 4,429
Accounts receivable (net of allowance of $3,930 and $5,239)........ 154,584 189,717
Inventories........................................................ 166,076 217,643
Other current assets............................................... 10,545 12,147
--------- ---------
Total current assets............................................. 334,400 423,936
Property, plant and equipment, net................................... 270,546 280,489
Excess of cost over net assets acquired (net of accumulated
amortization of $13,221 and $17,388)............................... 129,943 126,619
Other intangible assets and deferred costs (net of accumulated
amortization of $3,102 and $4,501)................................. 9,187 7,417
Other assets......................................................... 1,987 4,294
--------- ---------
$ 746,063 $ 842,755
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank.............................................. $ 11,760 $ 30,913
Current portion of long-term debt.................................. 24,734 11,576
Accounts payable................................................... 66,797 71,243
Accrued liabilities................................................ 44,598 63,346
Deferred income taxes.............................................. 15,345 15,151
--------- ---------
Total current liabilities........................................ 163,234 192,229
Long-term debt....................................................... 388,016 421,340
Deferred income taxes................................................ 66,809 58,043
Other long-term liabilities.......................................... 10,081 12,427
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:
Class A common stock ($0.01 par value, shares outstanding,
1995--16,818,707 and 1996--22,194,455.5)......................... 168 222
Class B common stock ($0.01 par value, shares outstanding,
1995--none and 1996--599,500).................................... -- 6
Additional paid in capital......................................... 85,779 139,145
Carryover of Predecessor basis..................................... (15,259) (15,259)
Retained earnings (deficit)........................................ (6,388) 21,976
--------- ---------
Total stockholders' equity....................................... 64,300 146,090
--------- ---------
$ 746,063 $ 842,755
--------- ---------
--------- ---------
</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>
YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1995 1996
---------- -------------- ----------
<S> <C> <C> <C>
Net sales........................................ $1,010,075 $ 1,201,650 $1,332,049
Cost of goods sold............................... 846,611 1,030,511 1,102,460
Selling and administrative expenses.............. 85,209 93,401 121,054
Other expense, net............................... 1,114 1,032 2,045
---------- -------------- ----------
Income from operations........................... 77,141 76,706 106,490
Interest expense................................. 60,155 49,055 39,994
---------- -------------- ----------
Income before income taxes and extraordinary
charge......................................... 16,986 27,651 66,496
Provision for income taxes....................... 9,500 14,380 28,988
---------- -------------- ----------
Income before extraordinary charge............... 7,486 13,271 37,508
Extraordinary charge--debt retirement, net of
income tax benefit............................. -- 2,971 1,183
---------- -------------- ----------
Net income....................................... $ 7,486 $ 10,300 $ 36,325
---------- -------------- ----------
---------- -------------- ----------
Net income....................................... $ 7,486 $ 10,300 $ 36,325
Preferred stock redemption premium............... -- -- (4,185)
Preferred stock dividend requirement............. (6,008) (6,962) (4,248)
Accretion of preferred stock..................... (687) (703) (2,024)
Increase in fair value of common stock subject to
put............................................ -- -- (3,547)
---------- -------------- ----------
Net income applicable to common stock............ $ 791 $ 2,635 $ 22,321
---------- -------------- ----------
---------- -------------- ----------
Pro forma income per share:
Pro forma income before extraordinary charge..... $ 1.33
Extraordinary charge............................. (.04)
----------
----------
Pro forma net income............................. $ 1.29
----------
----------
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
ESSEX INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS OF DOLLARS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............................................. $ 7,486 $ 10,300 $ 36,325
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization......................... 31,420 34,205 33,944
Non cash interest expense............................. 38,813 16,466 1,935
Non cash pension expense.............................. 2,328 1,947 3,021
Provision for losses on accounts receivable........... 1,332 676 1,175
Provision (benefit) for deferred income taxes......... (8,388) 486 (7,417)
Loss on disposal of property, plant and equipment..... 1,354 2,610 1,679
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
(Increase) decrease in inventories.................. (4,515) 3,762 (16,109)
Increase in accounts payable and accrued
liabilities....................................... 6,837 15,193 6,531
Net (increase) decrease in other assets and
liabilities....................................... (8,022) 9,823 (4,762)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES........... 41,672 89,754 64,581
--------- --------- ---------
INVESTING ACTIVITIES
Additions to property, plant and equipment.............. (30,109) (28,555) (25,569)
Proceeds from disposal of property, plant and
equipment............................................. 227 2,419 533
Acquisitions............................................ -- (24,934) (79,395)
Other investments....................................... (236) (459) (285)
Issuance of equity interest in a subsidiary............. -- 1,063 --
--------- --------- ---------
NET CASH USED FOR INVESTING ACTIVITIES.............. (30,118) (50,466) (104,716)
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from long term debt............................ 106,000 428,390 493,900
Repayment of long term debt............................. (106,396) (215,640) (473,734)
Proceeds from notes payable to banks.................... -- 160,030 537,550
Repayment of notes payable to banks..................... -- (148,270) (518,397)
Repurchase of debentures................................ (4,745) (272,850) --
Debt issuance costs..................................... -- (4,691) (2,350)
Proceeds from exercised stock options................... 21 -- --
Preferred stock redemption.............................. -- -- (59,277)
Common stock issuance................................... -- -- 63,677
--------- --------- ---------
NET CASH PROVIDED BY (USED FOR) FINANCING
ACTIVITIES........................................ (5,120) (53,031) 41,369
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... 6,434 (13,743) 1,234
Cash and cash equivalents at beginning of year............ 10,504 16,938 3,195
--------- --------- ---------
Cash and cash equivalents at end of year.................. $ 16,938 $ 3,195 $ 4,429
--------- --------- ---------
--------- --------- ---------
</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)
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-month period
ended December 31, 1996 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 are 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.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and depreciated over
estimated useful lives using the straight-line method.
F-7
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 ACQUISITIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 proposed initial
public offering have been included in the calculation of pro forma income per
common and common equivalent share as if they were outstanding for all periods,
using the treasury stock method and an assumed initial public offering price.
RECLASSIFICATION
Certain 1994 and 1995 amounts have been reclassified to conform with the
current year presentation.
F-8
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
Finished goods........................................ $ 146,821 $ 171,213
Raw materials and work in process..................... 52,366 56,840
--------- ---------
199,187 228,053
LIFO reserve.......................................... (33,111) (10,410)
--------- ---------
$ 166,076 $ 217,643
--------- ---------
--------- ---------
</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 and $210,454 at December 31, 1995 and
1996, respectively.
NOTE 3 PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
Land.................................................. $ 8,877 $ 9,386
Buildings and improvements............................ 87,704 95,600
Machinery and equipment............................... 240,257 272,621
Construction in process............................... 18,049 14,990
--------- ---------
354,887 392,597
Less accumulated depreciation......................... 84,341 112,108
--------- ---------
$ 270,546 $ 280,489
--------- ---------
--------- ---------
</TABLE>
NOTE 4 ACCRUED LIABILITIES
Accrued liabilities include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
Salaries, wages and employee benefits.................... $ 15,566 $ 20,271
Amounts due customers.................................... 5,860 11,381
Other.................................................... 23,172 31,694
--------- ---------
$ 44,598 $ 63,346
--------- ---------
--------- ---------
</TABLE>
F-9
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 NOTES PAYABLE AND LONG-TERM DEBT
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
Bank lines of credit..................................... $ 11,760 $ 25,000
Canadian credit facility................................. -- 5,913
--------- ---------
$ 11,760 $ 30,913
--------- ---------
--------- ---------
</TABLE>
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
10% Senior notes...................................... $ 200,000 $ 200,000
Revolving loan........................................ 135,000 179,900
Term loan............................................. 54,000 31,766
Lease obligation...................................... 23,750 21,250
--------- ---------
412,750 432,916
Less current portion.................................. 24,734 11,576
--------- ---------
$ 388,016 $ 421,340
--------- ---------
--------- ---------
</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 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
F-10
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
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 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
F-11
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
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, $5.9 million 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 and $25,000 were outstanding
at December 31, 1995 and 1996, 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, $200,000 aggregate principal amount of the
Essex Senior Notes were 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.
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 and $558 in 1994, 1995 and
1996, respectively, with respect to qualifying assets.
Total interest paid was $20,826, $32,312 and $38,284 in 1994, 1995 and 1996,
respectively.
F-12
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
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.
F-13
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
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>
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 and $32,656 in 1994, 1995 and
1996, respectively.
F-14
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 INCOME TAXES (CONTINUED)
Principal differences between the effective income tax rate and the
statutory federal income tax rate are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Statutory federal income tax rate................... 35.0% 35.0% 35.0%
State and local taxes, net of federal benefit....... 10.9 7.9 5.2
Excess of cost over net assets acquired
amortization...................................... 8.4 5.1 2.1
Other, net.......................................... 1.6 4.0 1.3
--- --- ---
Effective income tax rate........................... 55.9% 52.0% 43.6%
--- --- ---
--- --- ---
</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.
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>
F-15
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 RETIREMENT BENEFITS (CONTINUED)
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>
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 non-union 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 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.
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
Following is an analysis of redeemable preferred stock, common stock subject
to put and stockholders' equity:
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
----------------------------------------------------------------
COMMON STOCK
REDEEMABLE SUBJECT TO PUT COMMON STOCK ADDITIONAL CARRYOVER OF RETAINED
PREFERRED ---------------------- ----------------------- PAID-IN PREDECESSOR EARNINGS
STOCK SHARES AMOUNT SHARES AMOUNT CAPITAL BASIS (DEFICIT)
------------- --------- ----------- ---------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1993........... $ 34,460 1,016,189 $ 5,808 16,559,793 $ 165 $ 98,935 $ (15,259) $ (24,174)
Net income....... -- -- -- -- -- -- -- 7,486
Preferred stock
dividend....... 6,008 -- -- -- -- (6,008) -- --
Accretion of
preferred
stock.......... 687 -- -- -- -- (687) -- --
Expiration of put
rights......... -- (58,444) (334) 58,444 1 333 -- --
Stock options
exercised...... -- -- -- 10,250 -- 36 -- --
------------- --------- ----------- ---------- ----- ----------- ------------- -----------
Balance at
December 31,
1994........... 41,155 957,745 5,474 16,628,487 166 92,609 (15,259) (16,688)
Net income....... -- -- -- -- -- -- -- 10,300
Preferred stock
dividend....... 6,962 -- -- -- -- (6,962) -- --
Accretion of
preferred
stock.......... 703 -- -- -- -- (703) -- --
Expiration of put
rights......... -- (117,352) (671) 117,352 1 670 -- --
Stock options
exercised...... -- -- -- 72,868 1 165 -- --
------------- --------- ----------- ---------- ----- ----------- ------------- -----------
Balance at
December 31,
1995........... 48,820 840,393 4,803 16,818,707 168 85,779 (15,259) (6,388)
Net income....... -- -- -- -- -- -- -- 36,325
Issuance of
common stock... -- 437,709 4,377 5,930,000 59 59,241 -- --
Preferred stock
dividend....... 4,248 -- -- -- -- (1,906) -- (2,342)
Accretion of
preferred
stock.......... 2,024 -- -- -- -- (179) -- (1,845)
Preferred stock
redemption..... (55,092) -- -- -- -- (411) -- (3,774)
Expiration of put
rights......... -- (15,500) (101) 15,500 -- 101 -- --
Stock options
exercised...... -- -- -- 29,748 1 67 -- --
Increase in fair
value.......... -- -- 3,547 -- -- (3,547) -- --
------------- --------- ----------- ---------- ----- ----------- ------------- -----------
Balance at
December 31,
1996........... $ -- 1,262,602 $ 12,626 22,793,955 $ 228 $ 139,145 $ (15,259) $ 21,976
------------- --------- ----------- ---------- ----- ----------- ------------- -----------
------------- --------- ----------- ---------- ----- ----------- ------------- -----------
<CAPTION>
TOTAL
---------
<S> <C>
Balance at
December 31,
1993........... $ 59,667
Net income....... 7,486
Preferred stock
dividend....... (6,008)
Accretion of
preferred
stock.......... (687)
Expiration of put
rights......... 334
Stock options
exercised...... 36
---------
Balance at
December 31,
1994........... 60,828
Net income....... 10,300
Preferred stock
dividend....... (6,962)
Accretion of
preferred
stock.......... (703)
Expiration of put
rights......... 671
Stock options
exercised...... 166
---------
Balance at
December 31,
1995........... 64,300
Net income....... 36,325
Issuance of
common stock... 59,300
Preferred stock
dividend....... (4,248)
Accretion of
preferred
stock.......... (2,024)
Preferred stock
redemption..... (4,185)
Expiration of put
rights......... 101
Stock options
exercised...... 68
Increase in fair
value.......... (3,547)
---------
Balance at
December 31,
1996........... $ 146,090
---------
---------
</TABLE>
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 ("Class B Stock"), and (ii) 5,000,000
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)
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.
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 for stock-based employee compensation plans at fair
value. The Company has chosen to continue to account for
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)
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
------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- ------------- --------- ------------- --------- -------------
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-19
<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.
PREFERRED STOCK AND WARRANTS
On July 3, 1996, the Company called for redemption 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. 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
F-20
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE INFORMATION (CONTINUED)
instruments for investment or trading purposes. Essex is exposed to credit risk
in the event of 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
F-21
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE INFORMATION (CONTINUED)
amounts of the Company's cash and cash equivalents approximated fair value at
December 31, 1995 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. 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 purchase 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, Essex had committed $5,547 to outside vendors for
certain capital projects.
F-22
<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 $ .42
Extraordinary charge........................... -- -- -- (.04)
--------- --------- --------- ---------
Pro forma net income........................... $ .23 $ .27 $ .41 $ .38
--------- --------- --------- ---------
--------- --------- --------- ---------
</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-23
<PAGE>
ESSEX INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 SUBSEQUENT EVENT
On February 19, 1997 the Company filed a Registration Statement with the
Securities and Exchange Commission for an initial public offering ("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.
F-24
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and 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 Company and 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................................................... 4,564,663 2,076,968
---------- -----------
---------- -----------
</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 1,500,000 shares of 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
U-1
<PAGE>
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.
The Company and the Selling Stockholders have granted the U.S. Underwriters
an option exercisable for 30 days after the date of this Prospectus to purchase
up to an aggregate of 900,000 additional shares of Common Stock, which includes
up to 131,116 shares of Common Stock subject to 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 the 4,564,663 shares of common Stock and 2,076,968
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 Company and
the Selling Stockholders have granted the International Underwriters a similar
option to purchase up to an aggregate of 225,000 additional shares of Common
Stock, which includes up to 32,779 shares of Common Stock subject to 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 180 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, with certain limited
exceptions, that, during the period beginning from the date of this Prospectus
and continuing to and including the date 180 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 Common Stock or any substantially similar security (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.
At the Company's request, the Underwriters have reserved up to $5 million in
aggregate value of shares of Common Stock (the "Directed Shares") for sale at
the initial public offering price to employees of the Company who have advised
the Company of their desire to participate in its future growth. This represents
approximately 3 1/2% of the shares offered hereby. The number of shares of
Common Stock available for sale to the general public will be reduced to the
extent of sales of Directed Shares. Any Directed Shares not so purchased will be
offered by the Underwriters on the same basis as all other shares offered
hereby.
U-2
<PAGE>
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price will be negotiated among the Company,
the Selling Stockholders and the representatives of the U.S. Underwriters and
the International Underwriters. Among the factors to be considered in
determining the initial public offering price of the Common Stock, in addition
to prevailing market conditions, will be the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
The Company has been approved to list the Common Stock on the New York Stock
Exchange, subject to notice of issuance, under the symbol "SXC". In order to
meet one of the requirements for listing the Common Stock on the New York Stock
Exchange, the U.S. Underwriters have undertaken to sell lots of 100 or more
shares to a minimum of 2,000 beneficial holders.
During and after 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 Company and 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
securities 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, and these
activities, if commenced, may be discontinued at any time.
The Company, Essex and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.
Affiliates of Goldman, Sachs & Co. (the GS Partnerships) own over 10% of the
outstanding shares of Common Stock (on a fully diluted basis). Affiliates of
Donaldson, Lufkin & Jenrette Securities Corporation also own over 10% of the
outstanding shares of Common Stock (assuming exercise of such affiliates'
Warrants but not the Warrants or options of any other stockholder). See
"Principal and Selling Stockholders". As a result, this offering will be made in
compliance with the applicable provisions of Conduct Rule 2720 of the National
Association of Securities Dealers, Inc. Accordingly, the initial public offering
price can be no higher than that recommended by a "qualified independent
underwriter" meeting certain standards. In accordance with this requirement,
Smith Barney Inc. is serving in such role and will recommend a price in
compliance with the requirements of Rule 2720. Smith Barney Inc., in its role as
qualified independent underwriter, has performed due diligence investigations
and reviewed and participated in the preparation of this Prospectus and the
Registration Statement of which this Prospectus forms a part. In addition, the
Underwriters may not confirm sales to any discretionary account without the
prior specific written approval of the customer.
Joseph H. Gleberman, a Managing Director of Goldman, Sachs & Co., currently
serves as a director of the Company. He will resign from the Board of Directors
effective prior to the consummation of the Offerings. See "Management--Directors
and Executive Officers".
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
REPRESENTATIONS 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 INFORMATION 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............................. 10
Use of Proceeds.......................... 15
Dividend Policy.......................... 15
Dilution................................. 16
Capitalization........................... 18
Selected Consolidated Financial and
Operating Data......................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 21
Business................................. 28
Management............................... 42
Principal and Selling Stockholders....... 51
Certain Relationships and Related Party
Transactions........................... 53
Description of Capital Stock............. 56
Description of Certain Indebtedness...... 58
Shares Eligible for Future Sale.......... 61
Certain United States Federal Tax
Consequences To Non-United States
Holders of Common Stock................ 64
Validity of Common Stock................. 67
Experts.................................. 67
Available Information.................... 67
Index to Financial Statements............ F-1
Underwriting............................. U-1
</TABLE>
------------------------
THROUGH AND INCLUDING , 1997 (THE 25TH DAY AFTER THE DATE OF
THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
7,500,000 SHARES
ESSEX
INTERNATIONAL
INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------
[LOGO]
------------------------
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., the listing fee for the New York Stock Exchange 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........................................... $ 52,273
NASD filing fee................................................ 17,750
NYSE listing fee............................................... 179,100
Printing and engraving expenses................................ 320,000
Legal fees and expenses........................................ 600,000
Accounting fees and expenses................................... 300,000
Transfer agent and registrar fees.............................. 10,000
Miscellaneous.................................................. 20,877
----------
Total.......................................................... $1,500,000
----------
----------
</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.
II-2
<PAGE>
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 --Form of Second Amended and Restated Certificate of Incorporation of the Registrant
3.2 --Conformed Restated Certificate of Incorporation of the Registrant, incorporated by reference to
Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q, filed with the Commission on November
13, 1996 (Commission File No. 1-10211)
**3.3 --Form of By-laws of the Registrant
4.1 --Stock and Warrant Subscription 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 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 --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)
4.3 --Amendment No. 2 dated as of June 5, 1995 to the Stock and Warrant Subscription Agreement dated as of
October 9, 1992 among the Registrant, 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 4.04 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 --Indenture dated as of May 7, 1993, among Essex Group, Inc. and NBD Bank, National
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
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)
<C> <S>
**4.5 --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
4.6 --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)
4.7 --Senior Unsecured Note Agreement dated as of April 12, 1995, among the Registrant, as guarantor, Essex
Group, Inc., the lenders named therein and The Chase Manhattan Bank, as administrative agent,
incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q, filed
with the Commission on May 12, 1995 (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 --Form of opinion of Cravath, Swaine & Moore
9.1 --Management Stockholders and Registration Rights Agreement dated as of October 9, 1992, 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)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
**9.6 --Termination, Amendment and Approval Agreement
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 --Form of Registration Rights Agreement between Bessemer Holdings, L.P. and the Registrant
**10.5 --Form of Termination Benefits Agreement
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 --Form of Amendment No. 2 to Stock Option Plan
11.1 --Pro forma earnings per share
21.1 --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>
II-5
<PAGE>
- ------------------------
** 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-6
<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 April 15, 1997.
<TABLE>
<S> <C> <C>
ESSEX INTERNATIONAL INC.
(Registrant)
By: /s/ DAVID A. OWEN
------------------------------------------
David A. Owen
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND TREASURER
</TABLE>
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------- ------------------------------------- -----------------
<C> <S> <C>
* President, Chief Executive Officer April 15, 1997
- --------------------------------- and Director (Principal Executive
Steven R. Abbott Officer)
/s/ DAVID A. OWEN Executive Vice President, Chief April 15, 1997
- --------------------------------- Financial Officer and Treasurer
David A. Owen (Principal Financial and Accounting
Officer)
* Director April 15, 1997
- ---------------------------------
Rodney A. Cohen
Director
- ---------------------------------
Stuart S. Janney, III
* Director April 15, 1997
- ---------------------------------
Robert D. Lindsay
* Director April 15, 1997
- ---------------------------------
Joseph H. Gleberman
* Director April 15, 1997
- ---------------------------------
Ward W. Woods
*By: /S/ DAVID A. OWEN
- ---------------------------------
David A. Owen
Attorney-In-Fact
</TABLE>
II-7
<PAGE>
SCHEDULE I
ESSEX INTERNATIONAL INC.
PARENT COMPANY ONLY CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
IN THOUSANDS OF DOLLARS
ASSETS
Cash and cash equivalents............................................................... $ 38 $ 1,530
Refundable income taxes................................................................. 3,062 1,211
Due from Essex Group, Inc. ............................................................. 384 5,153
Investment in Essex Group, Inc.......................................................... 114,678 151,066
----------- -----------
$ 118,162 $ 158,960
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued liabilities..................................................................... $ 239 $ 244
Redeemable preferred stock.............................................................. 48,820 --
Common stock subject to put............................................................. 4,803 12,626
Stockholders' equity:
Common stock ....................................................................... 168 228
Additional paid in capital ......................................................... 85,779 139,145
Carryover of Predecessor basis ..................................................... (15,259) (15,259)
Retained earnings (deficit)......................................................... (6,388) 21,976
----------- -----------
64,300 146,090
----------- -----------
$ 118,162 $ 158,960
----------- -----------
----------- -----------
</TABLE>
See Note to Condensed Financial Statements
S-1
<PAGE>
SCHEDULE I
(CONTINUED)
ESSEX INTERNATIONAL INC.
PARENT COMPANY ONLY CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994 1995 1996
--------- -------------- ---------
<S> <C> <C> <C>
IN THOUSANDS OF DOLLARS
------------------------------------
Costs and Expenses:
Interest expense ....................................................... $ 36,165 $ 14,476 $ --
Other expense, net ..................................................... (280) 47 63
--------- -------------- ---------
Loss before income taxes, equity in earnings of subsidiary, and
extraordinary charge ................................................... (35,885) (14,523) (63)
Income tax benefit ....................................................... (13,200) (5,300) --
--------- -------------- ---------
Loss before equity in earnings of subsidiary and extraordinary charge..... (22,685) (9,223) (63)
Equity in earnings of Essex Group, Inc. before extraordinary charge ...... 30,171 22,494 37,571
--------- -------------- ---------
Income before extraordinary charge ....................................... 7,486 13,271 37,508
Equity in Essex Group, Inc. extraordinary charge-net of income tax
benefit................................................................. -- 2,971 1,183
--------- -------------- ---------
Net income ............................................................... $ 7,486 $ 10,300 $ 36,325
--------- -------------- ---------
--------- -------------- ---------
</TABLE>
See Note to Condensed Financial Statements
S-2
<PAGE>
SCHEDULE I
(CONTINUED)
ESSEX INTERNATIONAL INC.
PARENT COMPANY ONLY CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994 1995 1996
---------- -------------- ------------
<S> <C> <C> <C>
IN THOUSANDS OF DOLLARS
OPERATING ACTIVITIES
Net income........................................................... $ 7,486 $ 10,300 $ 36,325
Adjustments to reconcile net income to cash provided by operating
activities:
Equity in earnings of Essex Group, Inc............................. (30,171) (19,523) (36,388)
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
(Increase) decrease in amount due from Essex Group, Inc............ (14,616) 32,595 (4,769)
(Increase) decrease in other assets................................ 2,704 (1,555) 1,851
---------- -------------- ------------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES............. 4,610 34,096 (2,908)
---------- -------------- ------------
FINANCING ACTIVITIES
Preferred stock redemption........................................... -- -- (59,277)
Common stock issuance................................................ -- -- 63,677
Dividend received from Essex Group, Inc.............................. -- 238,748 --
Proceeds from exercised stock options................................ 21 -- --
Repurchase of senior discount debentures............................. (4,745) (272,850) --
---------- -------------- ------------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES............. (4,724) (34,102) 4,400
---------- -------------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................... (114) (6) 1,492
Cash and cash equivalents at beginning of year....................... 158 44 38
---------- -------------- ------------
Cash and cash equivalents at end of year............................. $ 44 $ 38 $ 1,530
---------- -------------- ------------
---------- -------------- ------------
</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
Detailed notes to consolidated financial statements of Essex International
Inc. (formerly known as BCP/Essex Holdings Inc.) ("ESI") are included beginning
on page F-6.
ESI is beneficially owned by Bessemer Holdings, L.P., members of management,
other current and former employees of Essex Group, Inc. ("Essex") and certain
other investors. ESI is the holding company for Essex. The principal asset of
ESI 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,
ESI has no source of income other than the earnings, if any, of Essex.
ESI 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
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
--------- -------------- ---------
<S> <C> <C> <C>
IN THOUSANDS OF DOLLARS
Allowance for doubtful accounts:
Balance at beginning of year .............................................. $ 2,811 $ 3,537 $ 3,930
Provision.................................................................. 1,332 676 1,782
Write-offs ................................................................ (900) (476) (738)
Recoveries ................................................................ 294 193 265
--------- ------- ---------
Balance at end of year .................................................... $ 3,537 $ 3,930 $ 5,239
--------- ------- ---------
--------- ------- ---------
</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 --Form of Second Amended and Restated Certificate of Incorporation of the Registrant
3.2 --Conformed Restated Certificate of Incorporation of the Registrant, incorporated by reference to
Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q, filed with the Commission on November
13, 1996 (Commission File No. 1-10211)
**3.3 --Form of By-laws of the Registrant
4.1 --Stock and Warrant Subscription 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 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 --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)
4.3 --Amendment No. 2 dated as of June 5, 1995 to the Stock and Warrant Subscription Agreement dated as of
October 9, 1992 among the Registrant, 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 4.04 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 --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)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO.
- ---------
<C> <S>
**4.5 --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
4.6 --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)
4.7 --Senior Unsecured Note Agreement dated as of April 12, 1995, among the Registrant, as guarantor, Essex
Group, Inc., the lenders named therein and The Chase Manhattan Bank, as administrative agent,
incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q, filed
with the Commission on May 12, 1995 (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 --Form of Opinion of Cravath, Swaine & Moore
9.1 --Management Stockholders and Registration Rights Agreement dated as of October 9, 1992, 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
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO.
- ---------
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)
<C> <S>
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 --Form of Registration Rights Agreement between Bessemer Holdings, L.P. and the Registrant
**10.5 --Form of Termination Benefits Agreement
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 --Form of Amendment No. 2 to Stock Option Plan
11.1 --Pro forma earnings per share
21.1 --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>
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:
Essex International Inc., a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
........ shares of Common Stock, par value $.01 per share ("Stock"), of the
Company and, at the election of the Underwriters, up to ........ additional
shares of Stock and the stockholders of the Company named in Schedule II hereto
(the "Selling Stockholders") propose, subject to the terms and conditions stated
herein, to sell to the Underwriters (a) an aggregate of ........ shares of
Stock and (b) an aggregate of ....... warrants to purchase shares of Stock and,
at the election of the Underwriters, up to (a) ........ additional shares of
Stock and (b) ....... additional warrants to purchase shares of Stock. The
aggregate of ........ shares to be sold by the Company and the Selling
Stockholders is herein called the "Firm Shares", the aggregate of .......
warrants to be sold by certain Selling Stockholders is herein called the "Firm
Warrants", the aggregate of ........ additional shares to be sold by the Company
and certain Selling Stockholders is herein called the "Optional Shares" and the
aggregate of ....... additional warrants to be sold by certain Selling
Stockholders is herein called 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 the 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 the
Company and 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
<PAGE>
States (the "International Underwriters"), for whom Goldman Sachs International,
Smith Barney Inc., Donaldson, Lufkin & Jenrette Securities Corporation and
Lehman Brothers International (Europe) are acting as lead managers. Anything
herein or therein 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, 4, 5,
11 and 13 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. 333-22043) (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 6(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,
-2-
<PAGE>
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; 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
-3-
<PAGE>
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 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 5 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) The unissued Shares to be issued and sold by the Company to
the Underwriters hereunder and under the International Underwriting
Agreement have been duly and validly authorized and, when issued and
delivered against payment therefor as provided herein, will be duly and
validly issued and 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; and 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;
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(x) The issue and sale of the Shares to be sold by the Company
hereunder and under the International Underwriting Agreement and 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
issue and 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 "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;
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(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 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 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, 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 statute or any
order, 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;
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(iv) During the period beginning from the date hereof and
continuing to and including the date 180 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, 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
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<PAGE>
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.
2. Subject to the terms and conditions herein set forth, (a) the Company
and each of the 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 the Company and 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 the Company and
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 the Company and 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, the Company and each of the 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 the Company and
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
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<PAGE>
Warrant set forth in clause (b) of this Section 2, 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.
The Company and 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, at the purchase price per share or
per Warrant set forth in the paragraph above, 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 (i) as between the
Company and the Selling Stockholders, in the same proportion as the maximum
number of Optional Shares to be sold by the Company bears to the maximum number
of Optional Shares to be sold by the Selling Stockholders (including for this
purpose the shares of Stock which would be issued upon the redemption of the
maximum number of Optional Warrants) and (ii) as between the Selling
Stockholders, 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 5 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. The Company hereby confirms its engagement of Smith Barney Inc. as,
and Smith Barney Inc. hereby confirms its agreement with the Company to render
services as, a "qualified independent underwriter" within the meaning of
Paragraph (b)(15) of Conduct Rule 2720 of the National Association of Securities
Dealers, Inc. (the "NASD") with respect to the offering and sale of the Shares.
Smith Barney Inc., in its capacity as qualified independent underwriter and not
otherwise, is referred to herein as the "QIU".
4. 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
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received upon redemption of the Firm Warrants) for sale upon the terms and
conditions set forth in the Prospectus.
5. (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 Company and the Selling Stockholders
shall be delivered by or on behalf of the Company and 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
Company and 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 Company 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 8 hereof, including the cross-receipt
for the Shares and the Warrants and any additional documents requested by the
Underwriters pursuant to Section 8(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 5, "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.
6. 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,
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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 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
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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 180 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 an acquisition or other business transaction
where the Company uses shares of Stock as all or a portion of the
consideration for the transaction provided that if the aggregate number of
shares of Stock issued in any such acquisition or transaction exceeds 1.3
million, or if the number of shares of Stock issued in any such acquisition
or transaction, together with the number of shares of Stock issued in any
other acquisition or transaction 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 6(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
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);
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(h) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement and the International Underwriting Agreement in
the manner specified in the Prospectus under the caption "Use of Proceeds";
(i) To use its best efforts to list, subject to notice of issuance,
the Shares on the Exchange;
(j) To file with the Commission such reports on Form SR as may be
required by Rule 463 under the Act;
(k) 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
(l) 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 5 hereof.
7. The Company and each of the Selling Stockholders, jointly and
severally, covenant and agree with one another and with the several 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 6(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, including the fees and expenses of a
"qualified independent underwriter", as defined in Conduct Rule 2720 of the
NASD; (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 (x) 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
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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 9 and 13 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.
8. 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 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
6(a) hereof; if the Company has 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 similar rights 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
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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 has been 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 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 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 issue and sale of the Shares being delivered at
such Time of Delivery to be sold by the Company and 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
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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.
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 8(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), (ii) (excluding the validity of any Shares not
being delivered at such Time of Delivery) and (viii) of subsection (c) of this
Section 8, 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 (ix) of Section 8(c) is required for the
issue and sale of the Shares or the Warrants or the consummation by
the Company of the transactions contemplated by this Agreement
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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; and the issue and sale of the Shares
being delivered at such Time of Delivery to be sold by the Company and
the compliance by the Company with all of the provisions of this
Agreement and the International Underwriting Agreement and the
consummation of the transaction herein and therein contemplated will
not conflict with or result in breach or violation of any of the terms
or provisions of, or constitute a default under, the Restated Credit
Agreement;
(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",
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 8(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). Such counsel shall further state that such
counsel does not know of any amendment to the Registration Statement required to
be filed which are not filed as required.
(e) The respective counsel for GS Capital Partners, L.P., Stone Street Fund
1992, L.P., Broad Street Fund 1992, L.P., DLJ International Partners, C.V., DLJ
Merchant Banking Partners, L.P., DLJ Merchant Banking Funding, Inc., DLJ First
ESC LCC and Chase Equity Associates each shall have furnished to you their
written opinion (drafts of such opinions are attached as Annex II(c) hereto)
with
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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 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.
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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 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;
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(j) The Shares to be sold by the Company and the Selling Stockholders at
such Time of Delivery shall have been duly listed, subject to notice of
issuance, on the Exchange;
(k) The Company has obtained and delivered to the Underwriters executed
copies of an agreement from Bessemer Holdings, L.P., Bessemer Holdings Special
Situations, L.P., BGE Partners, L.P., BNE Partners, L.P., BTE Partners, L.P.,
BCE Partners, L.P., Bessec Holdings, L.P., Steven R. Abbott, Robert J. Faucher,
Dominic A. Lucenta, Charles W. McGregor, Debra F. Minott, Curtis A. Norton,
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;
(l) 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;
(m) The Company shall have complied with the provisions of Section 6(c)
hereof with respect to the furnishing of prospectuses on the New York Business
Day next succeeding the date of this Agreement;
(n) The Company shall have complied with the provisions of Section 6(l)
with respect to the redemption of the Warrants to be sold at such Time of
Delivery for shares of Stock; and
(o) The Stock Split, the Reclassification and the amendment and
restatement of the Essex Revolving Credit Agreement as the Restated Credit
Agreement, each as described in the Prospectus, shall have been consummated as
described in the Prospectus; and the Termination, Amendment and Approval
Agreement, dated as of April 1, 1997, shall have been duly authorized, executed
and delivered by the parties thereto and shall have become effective.
9. (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.
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(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 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,
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<PAGE>
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 9 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
appropriate 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 statements 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 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 connection 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.
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<PAGE>
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 9 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 9 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 9, the liability
or required contribution of any Selling Stockholder pursuant to this Section 9
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).
10. (a) The Company and Essex, jointly and severally, will indemnify and
hold harmless Smith Barney Inc., in its capacity as QIU, against any losses,
claims, damages or liabilities, joint or several, to which the QIU may become
subject, under the Act of 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 the QIU for any legal or other expenses reasonably incurred by the QIU
in connection with investigating or defending any such action or claim as such
expenses are incurred.
(b) Promptly after receipt by the QIU under subsection (a) above of notice
of the commencement of any action, the QIU shall, if a claim in respect thereof
is to be made against the Company and Essex under such subsection, notify the
Company and Essex in writing of the commencement thereof; but the omission so to
notify the Company and Essex shall not relieve them from any liability which
they may have to the QIU otherwise than under such subsection. In case any such
action shall be brought against the QIU and it shall notify the Company and
Essex of the commencement thereof, the Company and Essex shall be entitled to
participate therein and, to the extent that they shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to the QIU (who shall not, except with the consent of the
QIU, be counsel to the Company or Essex), and, after notice from the
indemnifying party to the QIU of its election so to assume the defense thereof,
the indemnifying party shall not be liable to the QIU under such subsection for
any legal expenses of other counsel or any other expenses, in each case
subsequently incurred by the QIU, in connection with the defense thereof other
than reasonable costs
-23-
<PAGE>
of investigation. Neither of the Company or Essex 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 QIU is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (i) includes an
unconditional release of the QIU 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 the QIU.
(c) If the indemnification provided for in this Section 10 is unavailable
to or insufficient to hold harmless Smith Barney Inc., in its capacity as QIU,
under subsection (a) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then the
Company and Essex shall contribute to the amount paid or payable by the QIU 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 and Essex on the one hand and the QIU 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 QIU
failed to give the notice required under subsection (b) above, then the Company
and Essex shall contribute to such amount paid or payable by the QIU in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and Essex on the one hand and the QIU on the
other in connection with the statements 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 and Essex on the one hand and the QIU on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company, as set forth in the table
on the cover page of the Prospectus, bear to the fee payable to the QIU pursuant
to Section 3 hereof. 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 and Essex on the one hand or the QIU 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 and the QIU agree that it would not be just and equitable if contributions
pursuant to this subsection (c) were determined by PRO RATA allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to above in this subsection (c). The amount paid or
payable by the QIU as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this subsection (c) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigation or defending any such action
or claim. 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.
(d) The obligations of the Company and Essex under this Section 10 shall
be in addition to any liability which the Company or Essex may otherwise have
and shall extend, upon the same terms and conditions, to each person, if any,
who controls the QIU within the meaning of the Act.
11. (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 Company and the Selling Stockholders shall be entitled to
a further period of thirty-six
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<PAGE>
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 Company and the Selling Stockholders that you
have so arranged for the purchase of such Shares, or the Company and the Selling
Stockholders notify you that they have so arranged for the purchase of such
Shares, you or the Company and 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.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company 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 Company and 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 Company 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 Company and 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 Company and 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 7 hereof and the indemnity and
contribution agreements in Section 9 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 11 to the
Shares shall be deemed to refer to and include the shares of Stock underlying
any Warrants to be purchased.
12. The respective indemnities, agreements, representations, warranties
and other statements of the Company, 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.
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<PAGE>
13. If this Agreement shall be terminated pursuant to Section 11 hereof,
neither the Company nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Sections 7 and 9 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 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 7 and 9 hereof.
14. 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 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 9(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
or the Selling Stockholders by you upon request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
15. 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 9 and 12 hereof, the officers and directors of
the Company and each person who controls the Company, 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.
16. 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.
17. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
18. 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.
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<PAGE>
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 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.
-27-
<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:
Title:
Essex Group, Inc.
By:.................................
Name:
Title:
[NAMES OF SELLING STOCKHOLDERS]
By:.................................
Name:
Title:
As Attorney-in-Fact acting on behalf of each of the
Selling Stockholders named in Schedule II to this
Agreement.
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
-28-
<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 . . . . . . .
Smith Barney . . . . . . . .
Donaldson Lufkin & Jenrette
Securities Corpora. . . . .
Lehman Brothers. . . . . . .
[Names of other Underwriters]
------------ ------------ ------------ ------------
Total. . . . . . . . . .
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
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<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
OPTIONAL OPTIONAL
SHARES TO BE WARRANTS TO
TOTAL 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 Company. . . . . . . . . . .
The Selling Stockholder. . . . .
[Name of Selling Stockholder .
[Name of Selling Stockholder .
[Name of Selling Stockholder](c)
[Name of Selling Stockholder](d)
[Name of Selling Stockholder](e)
-------------- ------------ ------------ -----------
Total. . . . . . . . . . . .
-------------- ------------ ------------ -----------
-------------- ------------ ------------ -----------
</TABLE>
(a) This Selling Stockholder is represented by [NAME AND ADDRESS OF
COUNSEL] and has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)], and
each of them, as the Attorneys-in-Fact for such Selling Stockholder.
(b) This Selling Stockholder is represented by [NAME AND ADDRESS OF
COUNSEL] and has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)], and
each of them, as the Attorneys-in-Fact for such Selling Stockholder.
(c) This Selling Stockholder is represented by [NAME AND ADDRESS OF
COUNSEL] and has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)], and
each of them, as the Attorneys-in-Fact for such Selling Stockholder.
(d) This Selling Stockholder is represented by [NAME AND ADDRESS OF
COUNSEL] and has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)], and
each of them, as the Attorneys-in-Fact for such Selling Stockholder.
(e) This Selling Stockholder is represented by [NAME AND ADDRESS OF
COUNSEL] and has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)], and
each of them, as the Attorneys-in-Fact for such Selling Stockholder.
-30-
<PAGE>
ANNEX I
Pursuant to Section 8(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) audited by them and
included in the Prospectus or the Registration Statement comply as to form
in all material respect with the applicable accounting requirements of the
Act and the related published rules and regulation 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");
[(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, if any, included
in the Prospectus, as indicated in their reports thereon; 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, if any, 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, if any, 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 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 and 402, respectively,
of Regulation S-K;
<PAGE>
(vi) On the basis of limited procedures, not constituting an audit 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, if any, 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, if any, included
in the Prospectus for them to be in conformity with generally accepted
accounting principles;
(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, if any, 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 warrants,
options and stock appreciation rights 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
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<PAGE>
(F) for the period from the date of the latest financial statements
included in the Prospectus to the specified date referred to in Clause (B)
there were any decreases in consolidated net revenues or income before
income taxes and extraordinary charges 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
(vi) 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.
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<PAGE>
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:
Essex International Inc., a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
............. shares of Common Stock, par value $.01 per share ("Stock"), of the
Company and, at the election of the Underwriters, up to ............ additional
shares of Stock and the stockholders of the Company named in Schedule II hereto
(the "Selling Stockholders") propose, subject to the terms and conditions stated
herein, to sell to the Underwriters (a) an aggregate of ............ shares of
Stock and (b) an aggregate of ....... warrants to purchase shares of Stock and,
at the election of the Underwriters, up to (a) ........ additional shares of
Stock and (b) ....... additional warrants to purchase shares of Stock. The
aggregate of ................ shares to be sold by the Company and the Selling
Stockholders is herein called the "Firm Shares", the aggregate of .......
warrants to be sold by certain Selling Stockholders is herein called the "Firm
Warrants", the aggregate of ................ additional shares to be sold by the
Company and certain Selling Stockholders is herein called the "Optional Shares"
and the aggregate of ....... additional warrants to be sold by certain Selling
Stockholders is herein called 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 the Company and 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"),
<PAGE>
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 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 Section 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) the Company
and each of the 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 the Company and 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 the Company and 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 the
Company and all the Selling Stockholders hereunder,
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<PAGE>
(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, the Company and each of the 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 the Company and 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, 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.
The Company and 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, at the purchase price per share or
per Warrant set forth in the paragraph above, 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 (i) as between the
Company and the Selling Stockholders, in the same proportion as the maximum
number of Optional Shares to be sold by the Company bears to the maximum number
of Optional Shares to be sold by the Selling Stockholders (including for this
purpose the shares of Stock which would be issued upon the redemption of the
maximum number of Optional Warrants) and (ii) as between the Selling
Stockholders, 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.
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<PAGE>
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 Company and the Selling Stockholders
shall be delivered by or on behalf of the Company and 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
Company and 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 Company 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 8 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 8(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 6 of the U.S. Underwriting Agreement, which Section is
incorporated herein by this reference.
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<PAGE>
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 7 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 Stockholders
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 8 of the U.S. Underwriting
Agreement, which Section is incorporated herein by this reference.
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.
-5-
<PAGE>
(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 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 appropriate to reflect not only such relative benefits but also
the relative fault of the Company, Essex and the
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<PAGE>
Selling Stockholders on the one hand and the Underwriters on the other in
connection with the statements 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 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 connection 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).
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<PAGE>
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 Company and 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 Company and
the Selling Stockholders that you have so arranged for the purchase of such
Shares, or the Company and the Selling Stockholders notify you that they have so
arranged for the purchase of such Shares, you or the Company and 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.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company 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 Company and 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 Company 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 Company and 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 Company and 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, 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
-8-
<PAGE>
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 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 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 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 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 and each person who controls the Company, 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.
-9-
<PAGE>
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 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.
-10-
<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:
Title:
Essex Group, Inc.
By: ...................................
Name:
Title:
[NAMES OF SELLING STOCKHOLDERS]
By: ...................................
Name:
Title:
As Attorney-in-Fact acting on behalf of each of the
Selling Stockholders named in Schedule II to this
Agreement.
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>
SCHEDULE I
<TABLE>
<CAPTION>
Number of Number of Optional
Optional Shares to Warrants to be
Total Number of Total Number of be Purchased if Purchased if
Firm Shares to be Firm Warrants to Maximum Option Maximum 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 International
(Europe)......................
----------------- ---------------- ------------------ ------------------
----------------- ---------------- ------------------ ------------------
----------------- ---------------- ------------------ ------------------
Total...............
</TABLE>
-12-
<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 Company.........................
The Selling Stockholder(s):
[Name of Selling Stockholder](a)
[Name of Selling Stockholder](b)
[Name of Selling Stockholder](c)
[Name of Selling Stockholder](d)
[Name of Selling Stockholder](e)
-------------- ---------------- ------------------ ----------------
-------------- ---------------- ------------------ ----------------
-------------- ---------------- ------------------ ----------------
Total......................
</TABLE>
(a) This Selling Stockholder is represented by [NAME AND ADDRESS OF
COUNSEL] and has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)], and
each of them, as the Attorneys-in-Fact for such Selling Stockholder.
(b) This Selling Stockholder is represented by [NAME AND ADDRESS OF
COUNSEL] and has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)], and
each of them, as the Attorneys-in-Fact for such Selling Stockholder.
(c) This Selling Stockholder is represented by [NAME AND ADDRESS OF
COUNSEL] and has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)], and
each of them, as the Attorneys-in-Fact for such Selling Stockholder.
(d) This Selling Stockholder is represented by [NAME AND ADDRESS OF
COUNSEL] and has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)], and
each of them, as the Attorneys-in-Fact for such Selling Stockholder.
(e) This Selling Stockholder is represented by [NAME AND ADDRESS OF
COUNSEL] and has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)], and
each of them, as the Attorneys-in-Fact for such Selling Stockholder.
-13-
<PAGE>
Exhibit 5
[Letterhead of]
CRAVATH, SWAINE & MOORE
, 1997
Essex International Inc.
------------------------
Public Offering of up to 8,625,000 shares of
--------------------------------------------
Common Stock, Par Value $.01 Per Share,
---------------------------------------
Registration Statement on Form S-1
----------------------------------
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. 333-22043) (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 up to 8,625,000 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, 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. Underwriter") and an International
Underwriting Agreement (the "International Underwriting Agreement") to be
entered into among the Company, 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 instru-
<PAGE>
2
ments as we have deemed necessary or appropriate for the purposes of this
opinion.
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 by 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".
Very truly yours,
Cravath, Swaine & Moore
Essex International Inc.
1601 Wall Street
Fort Wayne, IN 46802
<PAGE>
EXHIBIT 11.1
ESSEX INTERNATIONAL INC.
CALCULATION OF PRO FORMA NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
YEAR ENDED
IN THOUSANDS OF DOLLARS, DECEMBER 31
EXCEPT PER SHARE DATA 1996
- -------------------------------------------------------------------------------------- --------------
<S> <C>
Income (loss) before extraordinary charge............................................. $ 37,508
Extraordinary charge-net of income tax benefit........................................ 1,183
--------------
Net income (loss) used in calculation pro forma of net income per common share(a)..... $ 36,325
--------------
--------------
Weighted average common shares outstanding............................................ 24,040,438
Common shares issuable in respect to common stock equivalents, with a dilutive
effect............................................................................... 4,184,424
--------------
Weighted average number of common and common equivalent shares(b)..................... 28,224,862
--------------
--------------
Pro forma income (loss) per common and common equivalent share (c):
Pro forma income (loss) before extraordinary charge................................. $ 1.33
Extraordinary charge................................................................ (.04)
--------------
Pro forma net income (loss)........................................................... $ 1.29
--------------
--------------
</TABLE>
- ------------------------
(a) In accordance with Securities and Exchange Commission requirements, common
shares and common equivalent shares issued during the twelve-month period
preceding the Offerings have been included in the calculation of income per
common share and per common equivalent share as if they were outstanding for
all periods. Because the proceeds of the common stock issued in July 1996
were used to redeem all outstanding preferred stock, the preferred stock
redemption premium, the preferred stock dividend requirement, and accretion
of preferred stock that appear on the income statement as reductions to net
income have been excluded from this calculation. In addition, because it is
expected that shares of common stock subject to put, if any, will not be
material following the Offerings, the adjustment to the fair value of common
stock subject to put that appears on the income statement as a reduction to
net income has also been excluded from this calculation.
(b) 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
proposed initial public offering have been included in the calculation of
pro forma income per common and common equivalent share as if they were
outstanding for all periods, using the treasury stock method and an assumed
initial public offering price of $18.50 per share.
(c) The computation of fully diluted income (loss) per share has not been
presented herein since the per share amounts do not differ from the primary
computation outlined above.
<PAGE>
EXHIBIT 21.1
ESSEX INTERNATIONAL INC. (DELAWARE)
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<S> <C>
Essex Group, Inc......................................................... Michigan
Essex Group, Inc......................................................... Delaware
Essex Canada Inc......................................................... Delaware
Essex Wire Corporation................................................... Michigan
Diamond Wire & Cable Co.................................................. Illinois
US Samica Corporation.................................................... Vermont
Essex Group Export Inc................................................... U.S. Virgin
Islands
Interstate Industries Holdings Inc....................................... Delaware
Interstate Industries, Inc............................................... Mississippi
Essex Group Mexico Inc................................................... Delaware
Essex Group Mexico, S.A. de C.V.......................................... Mexico
SX Mauritius Holding Inc................................................. Mauritius
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 28, 1997 (except for Note 13, as to which
the date is February 19, 1997) in Amendment No. 3 to the Registration Statement
(Form S-1 No. 333-22043) and related Prospectus of Essex International Inc.
(formerly known as BCP/Essex Holdings Inc.) for the registration of 8,625,000
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
April 15, 1997
