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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
[NO FEE REQUIRED]
For the fiscal year ended ______________December 31, 1996_______________________
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
[NO FEE REQUIRED]
For the transition period from _______________________ to ______________________
Commission file number 1-10211
BCP/ESSEX HOLDINGS INC.
---------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-3496934
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1601 WALL STREET, FORT WAYNE, INDIANA 46802
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(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (219) 461-4000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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<S> <C>
None None
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. /X/ Yes / / No
The registrant does not have a class of equity securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934 and there is no public market
for voting stock of the registrant. See Part II, Item 5 of this Report.
As of January 31, 1997 the registrant had outstanding 46,814,115 shares of Class
A $.01 Par Value Common Stock and 1,199,000 shares of Class B $.01 Par Value
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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PART I
ITEM 1. BUSINESS
GENERAL
BCP/Essex Holdings Inc. (the "Company") is the holding company of Essex
Group, Inc. ("Essex"). Essex was acquired (the "Acquisition") in a merger in
October 1992 by the Company's existing stockholders. The existing stockholders
are Bessemer Holdings, L.P. ("BHLP") and certain affiliated investment
partnerships (BHLP and its affiliated investment partnerships are collectively
referred to herein as the "BH Group"), certain present and former employees of
Essex, affiliates of Goldman, Sachs & Co. (collectively "Goldman Sachs"),
affiliates of Donaldson, Lufkin & Jenrette Securities Corporation (collectively
"DLJ") and Chase Equity Associates ("CEA"). The principal asset of the Company
is all of the outstanding common stock of Essex. The Company's previous
stockholders acquired Essex from United Technologies Corporation ("UTC") in
February 1988 (the "1988 Acquisition"). See note 2 to the table included herein
setting fourth information regarding beneficial ownership of the Company's
common stock under the caption "ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT" for information regarding BHLP.
The following discussion relates to the business units of Essex. A
discussion of the Company's business units would not, in the view of management,
differ materially from the discussion presented in light of the fact that the
Company is a holding company with no independent operations.
Essex, founded in Detroit, Michigan in 1930, is engaged in one principal
line of business, the development, production and marketing of electrical wire
and cable. Among Essex' products are magnet wire for electromechanical devices
such as motors, transformers and electrical controls; building wire for
residential and commercial 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. Essex' operations at December 31, 1996 included 28
domestic manufacturing facilities and employed approximately 4,800 persons. The
Company's and Essex' principal executive offices are located at 1601 Wall
Street, Fort Wayne, Indiana.
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>
SALES PERCENTAGE OF SALES
------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994(A) 1995(A) 1996 1994 1995 1996
--------- --------- --------- ----- ----- -----
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Magnet wire............................................... $ 306.9 $ 388.2 $ 388.8 30% 32% 29%
Building wire............................................. 390.0 406.1 487.1 39 34 37
Communication wire........................................ 119.3 177.5 166.8 12 15 13
Automotive wire........................................... 82.8 97.3 91.2 8 8 7
Industrial wire........................................... 63.1 63.4 71.0 6 5 5
Other (b)................................................. 48.0 69.2 127.1 5 6 9
--------- --------- --------- --- --- ---
Total..................................................... $ 1,010.1 $ 1,201.7 $ 1,332.0 100% 100% 100%
--------- --------- --------- --- --- ---
--------- --------- --------- --- --- ---
</TABLE>
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(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.
1
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BUSINESS UNITS
Essex 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 have 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 domestic 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 has positioned
itself as one of the two leading independent domestic producers of magnet wire.
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 QS 9000 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 (see "Recent
Acquisitions" under this caption). 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.
2
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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 and the Triangle acquisition in 1996 (see "Recent
Acquisitions" under this caption). The Company believes that it is one of the
two leading domestic manufacturers of building wire.
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 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, 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 compound
3
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annual growth rate 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 wire 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, 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 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 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" under this caption)
4
<PAGE>
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 Company has recently acquired three major businesses: (i) the
distribution business of Avnet Inc. in October 1995 ("Brownell"); (ii) the
Canadian building wire business of BICC Phillips, Inc. in March 1996 ("BICC
Canada"); and (iii) the building and industrial wire businesses of Triangle Wire
and Cable, Inc. ("Triangle") in October 1996. The Company believes that each of
these businesses provide operating synergy that complement the Company's
existing manufacturing, distribution and administrative capabilities.
The Brownell acquisition 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 electric motors, electrical insulation products, motor repair parts
and pump seals. Of particular significance, Essex Brownell provides the Company
with an expanded sales channel to small original equipment motor manufacturers
and the motor repair markets.
The BICC Canada acquisition increased the Company's presence in Canada and
expanded its building wire product line.
The Triangle acquisition, completed in October 1996, was the most
significant acquisition in the Company's 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.
Furthermore, the Company has realized cost savings through the elimination of
duplicative selling, general and administrative expenses and through purchasing
economies of scale.
BUSINESS DEVELOPMENT
The Company plans to increase sales across many of its product lines by
expanding product offerings within compatible markets, targeting new global
markets for existing products, consolidating its core market positions,
expanding penetration in overseas markets where a presence has already been
established and by selectively adding key integrated components. To accomplish
this objective, the Company expects to make business acquisitions and capital
investments in new plants and equipment as necessary in the United States and
intends to invest in core businesses, in strategic partnerships and participate
in joint ventures off-shore.
5
<PAGE>
MANUFACTURING STRATEGY
The Company's manufacturing strategy is primarily focused on maximizing
product quality and production efficiencies while maintaining a high level of
vertical integration through internal production of its principal raw materials:
copper rod, magnet wire enamels and extrudable polymeric compounds. The Company
believes one of its primary cost and quality advantages in the magnet wire
business is the ability to produce most of its enamel and copper rod
requirements internally. Similarly, the Company believes its ability to develop
and produce PVC and rubber compounds, which are used as insulation and jacketing
materials for many of its building wire, communication wire, automotive and
industrial wire products, provides competitive advantages because greater
control over the cost and quality of essential components used in production can
be achieved. These operations are supported by the company's metallurgical,
chemical and polymer development laboratories.
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 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 Company-produced rod is not cost effective and when the
Company's rod requirements exceed its production capacity.
6
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COPPER SCRAP RECLAMATION. The Company's Metals Processing Center receives
clean, high quality copper scrap from the Company's magnet wire plants. Copper
scrap is processed in rotary furnaces, which also have refining capability to
remove impurities. The Company uses a continuous casting process to convert
scrap material directly into copper rod. Manufacturing cost economies,
particularly in the form of energy savings, result from this direct conversion
technique. Additionally, management believes that internal reclamation of scrap
copper provides greater control over the cost to recover the Company's principal
manufacturing by-product. The Company also, from time to time, obtains magnet
wire scrap from other copper wire producers and processes it along with its
internally generated scrap.
MANUFACTURING PROCESS
The manufacturing processes for all of the Company's wire and cable products
require copper rod to 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) 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 which
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 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.
7
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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 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.
Many of the Company's products are made to industry specifications, and are
therefore essentially fungible with those of competitors. Accordingly, in these
markets the Company is subject to competition on the basis of price, delivery
time, customer service and its ability to meet specialty needs. The Company
believes that it enjoys strong customer relations resulting from its long
participation in the industry, its emphasis on customer service, its commitment
to quality control, its reliability and its substantial production resources.
The Company's distribution networks enable it to compete effectively with
respect to delivery time. From time to time, the Company has experienced reduced
margins in certain markets due to unfavorable market conditions. During 1995 and
the first half of 1996, building wire product pricing (without regard to copper
costs) declined materially, and sales volumes also declined, although to a
lesser extent, due to competitive pricing pressures, excess capacity and
liquidation of inventories by distributors as a result of the significant
increase in copper prices in 1995 and early 1996. The communication wire
business unit also experienced reduced margins in 1994. Expected decreases in
the domestic OSP copper wire market demand may lead to reduced margins in the
communication wire business over the next few years.
ENVIRONMENTAL COMPLIANCE
The Company does not believe that compliance with environmental laws and
regulations will have a material effect on the level of capital expenditures of
the Company or its business, financial condition, cash flows or results of
operations. The Company does not currently anticipate material capital
expenditures for environmental control facilities. No material expenditures
relating to these matters were made in 1994, 1995 or 1996. In connection with
the 1988 Acquisition and associated Stock Purchase Agreement with UTC dated
January 15, 1988 (the "1988 Acquisition Agreement"), UTC indemnified the Company
with respect to certain environmental liabilities. See "ITEM 3. LEGAL
PROCEEDINGS" for further discussion of the Company's environmental liabilities
and the UTC indemnity.
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.
8
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ITEM 2. 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, subject to certain liens granted to the lenders pursuant to the Essex
Revolving Credit Agreement (as defined herein) or its subsidiaries. The Company
believes that its facilities and equipment are reasonably suited to its needs
and are properly maintained and adequately insured.
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(a)
Franklin, IN 35,000
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>
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(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
9
<PAGE>
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 markets magnet wire
with special emphasis on products required by Japanese manufacturers with
production facilities in the United States.
ITEM 3. LEGAL PROCEEDINGS
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 upon a PRP at a site 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.
10
<PAGE>
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.
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 contingencies associated with these five
sites. 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.
11
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the fourth quarter of 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(A) MARKET INFORMATION
There is no established public trading market for the common stock of Essex
or of its parent, the Company. The common stock of Essex and its parent has not
been traded or sold publicly and accordingly, no information with respect to
sales prices or quotations is available.
(B) APPROXIMATE NUMBER OF EQUITY HOLDERS OF THE COMPANY
<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF RECORD HOLDERS
TITLE OF CLASS AS OF JANUARY 31, 1997
- -------------------------------------------------------- -----------------------------------------
<S> <C>
Class A Common Stock, $.01 par value.................... 73
Class B Common Stock, $.01 par value.................... 1
</TABLE>
(C) DIVIDENDS
No dividends have been paid by the Company on its common stock in the prior
two fiscal years. Although the Board of Directors of the Company may declare
dividends in the future depending upon circumstances existing at the time of
declaration, it has no present intention of doing so.
The ability of the Company to pay dividends on its common stock is dependent
upon the ability of Essex to pay dividends, or otherwise loan, advance or
transfer funds, to the Company. Both the indenture under which the Essex 10%
Senior Notes due 2003 (the "Essex Senior Notes") were issued (the "Essex Senior
Note Indenture") and the Essex revolving credit agreement impose limitations on
the ability of Essex to pay dividends or make other payments to the Company. See
"ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION--Liquidity, Capital Resources and Financial Condition."
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth (i) selected historical consolidated
financial data of the Company prior to the Acquisition ("Predecessor") as of and
for the nine month period ended September 30, 1992, (ii) selected historical
consolidated financial data of the Company after the Acquisition ("Successor")
as of and for the three month period ended December 31, 1992 and for the years
ended December 31, 1993, 1994, 1995 and 1996, and, (iii) combined historical
consolidated financial data of Predecessor for the nine month period ended
September 30, 1992 and Successor for the three month period ended December 31,
1992. This data should be read in conjunction with "ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION" and
the consolidated financial statements and related notes included elsewhere
herein. The selected historical consolidated financial data presented below as
of September 30, 1992, December 31, 1992, 1993 and 1994 and for the nine month
period ended September 30, 1992 , the three month period ended December 31, 1992
and the year ended December 31, 1993, were derived from the audited consolidated
financial statements of Successor and Predecessor (not presented herein). The
selected historical 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 Successor, which were
audited by Ernst & Young LLP, independent
12
<PAGE>
auditors, whose report with respect thereto, together with such financial
statements, appears elsewhere herein.
<TABLE>
<CAPTION>
SUCCESSOR
-------------------------------------------------------
PREDECESSOR COMBINED(A) THREE MONTH
------------- ------------- PERIOD
NINE MONTH TWELVE MONTH ENDED
PERIOD ENDED PERIOD ENDED DECEMBER YEAR ENDED DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, 31, ------------------------------------------
1992 1992 1992 1993 1994 1995 1996
------------- ------------- ----------- --------- --------- --------- ---------
In Thousands of
Dollars, Except Per
Share Data
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $ 699,997 $ 909,351 $ 209,354 $ 868,846 $1,010,075 $1,201,650 $1,332,049
Cost of goods sold..... 594,122 780,148 186,026 745,875 846,611 1,030,511 1,102,460
Selling and
administrative
expenses............. 58,167 80,590 22,423 75,748 85,209 93,401 121,054
Other(income)/expense,
net.................. (158) (305) (147) (196) 1,114 1,032 2,045
Unusual items(b)....... 18,139 18,139 -- -- -- -- --
------------- ------------- ----------- --------- --------- --------- ---------
Income from
operations........... 29,727 30,779 1,052 47,419 77,141 76,706 106,490
Interest expense....... 35,042 50,645 15,603 56,723 60,155 49,055 39,994
------------- ------------- ----------- --------- --------- --------- ---------
Income (loss) before
income taxes and
extraordinary
charge............... (5,315) (19,866) (14,551) (9,304) 16,986 27,651 66,496
Provision (benefit) for
income taxes......... 578 (4,022) (4,600) 1,552 9,500 14,380 28,988
------------- ------------- ----------- --------- --------- --------- ---------
Income (loss) before
extraordinary
charge............... (5,893) (15,844) (9,951) (10,856) 7,486 13,271 37,508
Extraordinary charge
net of income tax
benefit(c)........... 122 122 -- 3,367 -- 2,971 1,183
------------- ------------- ----------- --------- --------- --------- ---------
Net income (loss)...... $ (6,015) $ (15,966) $ (9,951) $ (14,223) $ 7,486 $ 10,300 $ 36,325
------------- ------------- ----------- --------- --------- --------- ---------
------------- ------------- ----------- --------- --------- --------- ---------
Income (loss) per
common and common
equivalent share:
Income (loss) before
extraordinary
charge............... $ (.12) $ (.30) $ (.44) $ .02 $ .15 $ .60
Extraordinary charge
net of income tax
benefit.............. -- -- .09 -- .08 .03
------------- ----------- --------- --------- --------- ---------
Net income (loss)...... $ (.12) $ (.30) $ (.53) $ .02 $ .07 $ .57
------------- ----------- --------- --------- --------- ---------
------------- ----------- --------- --------- --------- ---------
BALANCE SHEET DATA (AT
END OF PERIOD):
Working capital........ $ 179,635 $ 133,048 $ 176,001 $ 221,480 $ 171,166 $ 231,707
Total assets........... 459,527 716,196 712,051 750,930 746,063 842,755
Long-term debt
(including current
portion)............. 375,498 420,052 428,942 458,960 412,750 432,916
Common stock subject to
put.................. 5,445 7,056 5,808 5,474 4,803 12,626
Redeemable preferred
stock................ -- 28,603 34,460 41,155 48,820 --
Other stockholders'
equity (deficit)..... (42,203) 78,499 59,667 60,828 64,300 146,090
OTHER DATA:
Additions to property,
plant and
equipment............ $ 16,475 $ 31,180 $ 14,705 $ 26,167 $ 30,109 $ 28,555 $ 25,569
Ratio of earnings to
fixed charges(d)..... -- -- -- -- 1.3 1.5 2.5
Deficiency of earnings
to fixed
charges(d)........... $ 5,487 $ 20,154 $ 14,667 $ 10,895 -- -- --
Ratio of earnings to
fixed charges and
preferred stock
dividends(d)......... -- -- -- -- 1.2 1.3 2.3
Deficiency of earnings
to fixed charges and
preferred stock
dividends(d)......... $ 5,487 $ 21,235 $ 15,748 $ 16,081 -- -- --
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
13
<PAGE>
(FOOTNOTES FOR PRECEDING PAGE)
- ------------------------
(a) Represents a combination of Predecessor's nine month period ended September
30, 1992 and Successor's three month period ended December 31, 1992. Such
combined results are not necessarily indicative of the results for the full
year due to the effects of the Acquisition and Merger 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) In connection with the Acquisition and Merger, the Predecessor recorded
certain merger related expenses of $18.1 million consisting primarily of
bonus and option payments to certain employees and certain merger fees and
expenses, which were charged to the Predecessor's operations in the nine
month period ended September 30, 1992.
(c) During 1992 Essex repurchased outstanding Essex Debentures, defined below,
resulting in an extraordinary charge of $0.1 million, net of applicable
income tax benefit. During 1993, Successor recognized extraordinary charges
of $3.1 million, net of applicable tax benefit, representing the write-off
of unamortized debt issuance costs associated with the termination of Essex'
term credit facility under its former credit agreement, and $0.3 million,
net of applicable tax benefit, representing the net loss resulting from the
redemption of the Essex 12 3/8% Senior Subordinated Debentures due 2000 (the
"the Essex Debentures"). During 1995 and 1996, Successor recognized
extraordinary charges of $3.0 million and $1.2 million, respectfully, net of
applicable tax benefit, representing the write-offs of unamortized debt
issuance costs associated with the termination of Essex' former credit
agreements.
(d) For purposes of this computation, earnings consist of income before income
taxes plus fixed charges (excluding capitalized interest). Fixed charges
consist of interest on indebtedness (including capitalized interest and
amortization of deferred financing fees) plus that portion of lease rental
expense representative of the interest factor (deemed to be one-third of
lease rental expense). Earnings were insufficient to cover fixed charges by
the amount of $5.5 million, $14.7 million and $10.9 million of the
Predecessor for the nine month period ended September 30, 1992, and of the
Successor for the three month period ended December 31, 1992 and for the
year ended December 31, 1993, respectively. Earnings were insufficient to
cover fixed charges and preferred stock dividends in the amount of $5.5
million, $15.7 million and $16.1 million of the Predecessor for the nine
month period ended September 30, 1992, and the Successor for the three month
period ended December 31, 1992 and for the year ended December 31, 1993,
respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
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.
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
14
<PAGE>
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 "Item 1. 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.
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>
SALES PERCENTAGE OF SALES
------------------------------- -------------------------------------
1994(A) 1995(A) 1996 1994 1995 1996
--------- --------- --------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
Magnet wire............................................... $ 306.9 $ 388.2 $ 388.8 30% 32% 29%
Building wire............................................. 390.0 406.1 487.1 39 34 37
Communication wire........................................ 119.3 177.5 166.8 12 15 13
Automotive wire........................................... 82.8 97.3 91.2 8 8 7
Industrial wire........................................... 63.1 63.4 71.0 6 5 5
Other(b).................................................. 48.0 69.2 127.1 5 6 9
--------- --------- --------- --- --- ---
Total..................................................... $ 1,010.1 $ 1,201.7 $ 1,332.0 100% 100% 100%
--------- --------- --------- --- --- ---
--------- --------- --------- --- --- ---
</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 Essex Brownell.
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>
15
<PAGE>
1996 COMPARED WITH 1995
Net sales for 1996 were $1,332.0 million or 10.8% greater than in 1995,
resulting primarily from improved sales volumes and increased sales attributable
to the Brownell acquisition in September 1995 and the Triangle acquisition in
October 1996, partially offset by lower copper prices. The 1996 daily average
COMEX copper price was 21.5% lower than in 1995. Sales volumes for 1996 exceeded
1995 by 16.9%. Improved sales volumes resulted primarily from increased demand
for the Company's magnet wire, building wire and industrial wire products.
Sales of magnet wire in 1996 were essentially equal to those in 1995
reflecting increased sales volumes offset by declining copper prices. Improved
sales volumes were attributable to increased demand for magnet wire in the
electric motor and transformer markets due in part to the increased use of
magnet wire for increased energy efficiency. Sales increases were also a result
of increased sales to distributors.
Building wire sales for 1996 increased as compared to 1995 due primarily to
an increase in sales volumes, product pricing (without regard to copper costs)
and incremental sales attributable to the Triangle acquisition, partially offset
by a decline in copper prices. Building wire market demand exhibited continued
growth during 1996 on the strength of new non-residential construction and
sustained expansion of the repair and remodeling segment of the market. The
Company believes that this growth in demand was the leading cause for the
improvement in market prices during the second half of 1996 over the depressed
market conditions of 1995 and the first half of 1996. No assurance, however, can
be given that such favorable market conditions will continue in 1997.
Communication wire sales for 1996 were below those in 1995 due to the
decrease in copper prices partially offset by increased sales of 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 "Redemption") on May 15, 1995 of all of the Company's
outstanding Senior Discount Debentures due 2004 (the "Debentures"). The
Debentures, which bore interest at 16% per annum, were refinanced
16
<PAGE>
primarily with bank debt carrying significantly lower rates of interest. See
"Liquidity, Capital Resources and Financial Condition" under this caption. The
Company's average interest rate decreased from 10.4% in 1995 to 8.6% in 1996 due
to the 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 is higher than the
approximate statutory rate of 40.0% due to the effect of the amortization of
excess of cost over net assets acquired in the Acquisition, which is not
deductible for income tax purposes.
The Company recorded net income of $36.3 million for 1996 compared to net
income of $10.3 million in 1995. The 1996 and 1995 results include extraordinary
charges of $1.2 million and $3.0 million, respectively, ($2.0 million and $5.0
million, respectively, before applicable tax benefit) for the write-off of
unamortized deferred debt expense associated with the Company's former revolving
credit agreements. In 1996, a former revolving credit agreement was terminated
in connection with the Triangle acquisition. In 1995, a former revolving credit
agreement was terminated in connection with the 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.
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. 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
17
<PAGE>
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 is higher than the
approximate statutory rate of 40.0% due to the effect of the amortization of
excess of cost over net assets acquired in the Acquisition, which is not
deductible for income tax purposes.
The Company recorded net income of $10.3 and $7.5 million in 1995 and 1994,
respectively. The 1995 results include an extraordinary charge of $3.0 million
($5.0 million before applicable tax benefit) for the write-off of unamortized
debt issuance costs associated with the Company's former credit agreement which
was terminated in connection with the Redemption.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
GENERAL
The Company 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 (as defined herein). Accordingly, the Company's ability to meet its
cash obligations is dependent on Essex' ability to pay dividends, to loan, or
otherwise advance or transfer funds to the Company in amounts sufficient to
service the Company's cash obligations.
The Company 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 Essex Revolving Credit Agreement and the Essex
Senior Note Indenture. Such payments may include (i) an amount necessary under
the tax sharing agreement between Essex and the Company to enable the Company 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 the Company's common
stock under certain specified conditions; and (iv) certain other amounts to meet
ongoing expenses of the Company (such amounts are considered to be immaterial
both individually and in the aggregate, however, because the Company 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 Essex Revolving Credit Agreement or other sources of funds
it may obtain in the future subject to the terms of the Essex Revolving 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 and long-term debt was $463.8
million and its stockholders' equity was $158.7 million. The resulting ratio of
debt to stockholder's equity improved to 2.9 to 1 at December 31, 1996 from 3.6
to 1 at December 31, 1995.
18
<PAGE>
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, the
Company, the Lenders named therein, and The Chase Manhattan Bank, as
administrative agent (the "Essex Revolving Credit Agreement"); (ii) 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"); (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 which
provide for unsecured borrowings for working capital of up to $25.0 million.
The Essex Revolving Credit Agreement, entered into in connection with the
Triangle acquisition, provides 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 Essex Revolving Credit Agreement also provides a $25.0 million
letter of credit subfacility. The Essex Revolving Credit Agreement terminates
October 31, 2001. The Essex Revolving Credit Agreement loans bear floating rates
of interest, at the Company's 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. 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 revolving credit facilities were $163.4
million compared to $92.1 million in 1995.
The $60.0 million borrowed under the Essex Term Loan is to be repaid in 20
equal quarterly installments, subject to the loan's excess cash provision,
beginning August 15, 1995 and ending 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, for the year ended December 31, 1995, resulted in reducing the
remaining principal payments to $2.3 million each. There were no requirements
for an excess cash payment to be made for 1996 results. Amounts repaid may not
be reborrowed.
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 (U.S. dollars) was outstanding under
the Canadian Credit Agreement and included as notes payable to banks in the
Company's Consolidated Balance Sheets. Borrowings are restricted to meeting the
working capital requirements of the subsidiary and are secured by the
subsidiary's accounts receivable. The Canadian Credit Agreement bears interest
at rates similar to the Essex Revolving 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.
19
<PAGE>
The Company had $25.0 million outstanding under the 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 which 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 reminder 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 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 Essex Revolving Credit Agreement
imposes limitations on capital expenditures, business acquisitions and
investments.
The costs of the BICC Canada and Triangle acquisitions, approximately $7.6
million and $71.8 million, respectfully, including related expenses, were
financed from proceeds received under the Essex 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 11,860,000 shares of its common stock to
certain of its common stockholders and their affiliates at $5 per share (the
"1996 Private Offering"). The 1996 Private Offering was extended to certain
management employees of the Company who collectively purchased 875,417 shares of
common stock at $5 per share in December 1996.
LONG-TERM LIQUIDITY CONSIDERATIONS
Regarding long-term liquidity, the Essex Senior Notes (as defined herein)
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 and the Essex Term Loan requires quarterly
principal payments of $2.3 million through May 2002. 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 both the Essex Term Loan and the
Essex Sale and Leaseback Agreement.
20
<PAGE>
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 "ITEM 3. LEGAL PROCEEDINGS" for further
discussion of the Company's environmental liabilities.
DESCRIPTION OF CERTAIN INDEBTEDNESS
ESSEX REVOLVING CREDIT AGREEMENT
In October 1996, the Company and Essex entered into the Essex Revolving
Credit Agreement with the lenders named therein and The Chase Manhattan Bank, as
administrative agent. Set forth below is a summary of certain terms of the Essex
Revolving Credit Agreement. The summary does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the Essex
Revolving Credit Agreement, which is included as an exhibit to this Annual
Report on Form 10-K. For the purposes of the following discussion, capitalized
terms used therein and not otherwise defined have the meanings given to them in
the Essex Revolving Credit Agreement.
GENERAL. The Essex Revolving 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 Essex Revolving 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 Essex Revolving Credit Agreement is secured by all of the capital stock
of Essex and substantially all the Company's assets and real property.
PREPAYMENTS. The Essex Revolving Credit Agreement may be repaid by the
Company at any time without penalty. The Essex Revolving Credit Agreement is
subject to mandatory prepayment if certain amounts outstanding under the Essex
Revolving Credit Agreement exceed the Borrowing Base or the Essex Senior Note
Indenture Revolving Credit Incurrence Limit. At December 31, 1996, the Borrowing
Base was $272.5 and the Essex Senior Note Indenture Revolving Credit Incurrence
Limit was $269.5.
INTEREST RATE. Loans under the Essex Revolving 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 .75%
to 2.25% or (ii) bank prime plus a spread based on certain financial ratios,
which spread ranges from 0% to 1.25%. The effective interest rate can be reduced
by 0.25% to 1.50%, in 0.25% increments, if certain specified financial
conditions are achieved.
FEES. Commitment fees during the revolving loan period are .25%, .375% or
.5% of the average daily unused portion of the available credit based upon
certain financial ratios. For the purposes of setting the commitment fee and
interest rate spreads, the relevant financial ratios are the Company's Leverage
Ratio and the Company's Interest Coverage Ratio. Based on the combination of
those two ratios, the Company is classified into one of seven levels, with level
one being the most beneficial. For the fourth quarter of
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<PAGE>
1996, the Company's Leverage and Interest Coverage Ratios positioned it in Level
2. The Company's Leverage Ratio and Interest Coverage Ratio as of December 31,
1996 were 3.07 to 1.00 and 3.73 to 1.00, respectively.
NEGATIVE COVENANTS. The Company is required to maintain a ratio of
Consolidated Current Assets to Consolidated Current Liabilities of 2.0 to 1.0.
As of December 31, 1996 this ratio was 2.45 to 1.0. 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 Essex Revolving Credit Agreement also requires the maintenance of an
Interest Coverage Ratio of not less than 2.00 to 1.00, a Leverage Ratio prior to
March 31, 1998 of not more than 5.00 to 1.00 decreasing to 4.00 to 1.00 by March
31, 2000, and a Senior Secured Leverage Ratio prior to March 31, 1998, of not
more than 3.00 to 1.00 decreasing to 2.25 to 1.00 by March 31, 2000. As of
December 31, 1996, the Company's Leverage Ratio and Senior Secured Leverage
Ratio were 3.07 to 1.00 and 1.37 to 1.00, respectively.
The Essex Revolving 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
carryover from prior years. The Essex Revolving Credit Agreement also restricts
the payment of dividends by Essex to the Company and prohibits the payment of
dividends by the Company to its stockholders.
EVENTS OF DEFAULT. The Essex Revolving 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 if BHLP and its
affiliates beneficially own less than 70% of the common stock owned by BHLP and
its affiliates on the effective date of the Essex Revolving Credit Agreement or,
except in certain circumstances, if in the aggregate, BHLP and its affiliates,
DLJ, Goldman Sachs and certain officers or employees of the Company have less
than 51% of the voting power for the election of directors of the Company or 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.
SENIOR NOTES
In May 1993, Essex issued the Essex Senior Notes pursuant to 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 this Annual Report on Form 10-K. 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.
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<PAGE>
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 Notes Indenture restricts the incurrence of debt by the Company
unless the Company has an earnings before interest, taxes, depreciation and
amorization ("EBITDA") Coverage Ratio of greater 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 Notes 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 subsidiaries' inventory (before giving effect to any LIFO
Reserve) and (ii) 80% of the book value of such subsidiaries' accounts
receivable (subject to certain exceptions). At December 31, 1996, 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 Notes 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 under this covenant. The Essex Senior Notes Indenture also restricts
the incurrence of secured debt, sale and leaseback transactions, sales of assets
and transactions with affiliates.
EVENTS OF DEFAULT. The Essex Senior Note Indenture contains customary
events of default, including a failure to pay principal or interest, a payment
default with respect to, or the acceleration of, other indebtedness in excess of
$10.0 million, the entry of certain unstayed judgments in excess of $10.0
million and certain events of bankruptcy or insolvency.
CHANGE OF CONTROL. Upon a Change in Control, 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, plus accrued and unpaid interest. "Change of Control" is defined
in the Essex Senior Notes Indenture as (i) the acquisition by any person (other
than BH Group, Goldman Sachs, DLJ and certain other shareholders) 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.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company, to a limited extent, uses forward fixed price contracts and
derivative financial instruments to manage foreign currency exchange and
commodity price risks. To protect the Company's anticipated cash flows from the
risk of adverse foreign currency exchange fluctuations for firm sales and
purchase commitments, the Company enters into foreign currency forward exchange
contracts. Copper, the Company's principal raw material, experiences marked
fluctuations in market prices, thereby subjecting the Company to copper price
risk with respect to copper purchases on fixed customer sales contracts.
Derivative financial instruments in the form of copper futures and forward
contracts are utilized by the Company to reduce those risks. The Company does
not hold or issue financial instruments for investment or trading purposes. The
Company is exposed to credit risk in the event of nonperformance by
counterparties to foreign exchange forward contracts, metal forward price
contracts and metals futures contracts but the Company does not anticipate
nonperformance by any of these counterparties. The amount of such exposure is
generally the unrealized gains, if any, with respect to the underlying
contracts.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors........................................ F-1
Consolidated Balance Sheets:
As of December 31, 1996 and 1995.................................... F-2
Consolidated Statements of Income:
For each of the three years in the period ended December 31, 1996... F-3
Consolidated Statements of Cash Flows:
For each of the three years in the period ended December 31, 1996... F-4
Notes to Consolidated Financial Statements............................ F-5
</TABLE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
I. Parent Company Only Condensed Financial Statements................ S-1
II. Valuation and Qualifying Accounts................................. S-5
</TABLE>
All other schedules have been omitted because they are not applicable or not
required or because the required information is included in the consolidated
financial statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth information concerning the Directors and
Executive Officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Steven R. Abbott........................... 49 President and Chief Executive Officer;
Director
Rodney A. Cohen............................ 35 Director
Joseph H. Gleberman........................ 38 Director
Robert D. Lindsay.......................... 42 Vice President; Director
David A. Owen.............................. 50 Vice President, Treasurer and Chief
Financial Officer
John E. Phipps............................. 64 Director
Ward W. Woods.............................. 54 Director (Chairman)
</TABLE>
Messrs. Lindsay and Woods have held their positions with the Company since
October 1992. Mr. Owen became an executive officer in March 1993. Mr. Phipps was
elected a director in December 1993. Mr. Gleberman was elected a director in
February 1994. Mr. Abbott was elected a Director effective February 26, 1996.
Mr. Cohen was elected a Director effective March 15, 1996. Directors of the
Company are elected annually to serve until the next annual meeting of
stockholders of the Company or until their successors have been elected or
appointed and qualified. Executive officers of the Company are appointed by, and
serve at the discretion of, the Board of Directors of the Company. Each of the
executive officers and directors of the Company serves in such capacities
without compensation of any kind for such service.
Mr. Abbott was appointed President and Chief Executive Officer of the
Company and Essex on February 26, 1996. He was President of the Wire and Cable
Sector of Essex from September 1995 to February 1996 and President of the Wire
and Cable Division of Essex from September 1993 to September 1995. He was
President of the Magnet Wire and Insulation Division from 1987 to 1993. Mr.
Abbott has been employed by the Company since 1967.
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
Bessemer Securities Corporation ("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 and Acquisitions Department of Morgan Stanley & Co.
Incorporated. Mr. Cohen is also a director of a number of private companies.
Mr. Gleberman is a Partner in the Principal Investment Area of Goldman
Sachs. He joined the firm in 1982 in the Mergers and Acquisitions Department and
became a partner of the firm in 1990. In 1990 he became head of Mergers and
Acquisitions for Asia based in Tokyo. Mr. Gleberman joined the Principal
Investment Area in 1993 and returned to New York. He also serves as a director
of Biofield, Inc.
Mr. Lindsay is the sole shareholder and president of a corporation which 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 the two partnerships affiliated with
BHLP to which Essex and the Company paid the fees described in "Certain 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.,
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<PAGE>
Incorporated. He is the Chairman of Metropolitan International, Inc., and a
Director of Stant Corporation and several private companies.
Mr. Owen 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.
Mr. Phipps is a private investor. He is chairman and partner of Phipps
Ventures LLC and a director of Bessemer Securities, LLC ("BSLLC, the parent
company of BSC), BSC, Bessemer Trust Company, Bessemer Trust Company of Florida,
Bessemer Trust Company, N.A., The Bessemer Group, Incorporated and W. R. Grace &
Co.
Mr. Woods is Chairman of the Board of Directors of the Company. 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 the two partnerships
affiliated with BHLP to which Essex and the Company paid the fees described
under Item 13 below. 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, Kelly Oil & Gas Corporation and several private companies.
DIRECTORS AND EXECUTIVE OFFICERS OF ESSEX
The following table sets forth information concerning the Directors and
Executive Officers of Essex:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Steven R. Abbott........................... 49 President and Chief Executive Officer;
Director (Chairman)
Robert J. Faucher.......................... 52 Executive Vice President; Director
Robert D. Lindsay.......................... 42 Director
Charles W. McGregor........................ 55 Executive Vice President; Director
David A. Owen.............................. 50 Executive Vice President and Chief
Financial Officer; Director
Gregory R. Schriefer....................... 44 Executive Vice President
Ward W. Woods.............................. 54 Director
</TABLE>
Mr. Abbott has been a director since 1988. Messrs. Lindsay and Woods became
directors of Essex in 1992. Messrs. Owen and Faucher became directors in 1993
and Mr. McGregor was elected as a director in April 1994. Directors of Essex are
elected annually to serve until the next annual meeting of stockholders of Essex
or until their successors have been elected or appointed and qualified.
Executive officers are appointed by, and serve at the discretion of, the Board
of Directors of Essex.
Mr. Faucher was appointed Executive Vice President in September 1995. He was
President of the Engineered Products Division from January 1992 to September
1995 and was Vice President, Operations in the Industrial Products Division from
June 1988 to January 1992. He joined Essex in 1985 as Vice President, Planning.
Mr. McGregor was appointed Executive Vice President in October 1996. He was
President of the Magnet Wire and Insulation Sector from September 1995 to August
1996. He was President of the Magnet Wire and Insulation Division from September
1993 to September 1995. He was Director of Manufacturing for the Division from
1987 to 1993. Mr. McGregor has been employed by Essex since January 1970.
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<PAGE>
Mr. Schriefer was appointed Executive Vice President in October 1996. He was
Vice President and General Manager of Building Wire Products from September 1995
to October 1996. He 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 Essex since 1981.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The directors of both the Company and Essex receive no compensation for
their service as directors except for reimbursement of expenses incidental to
attendance at meetings of the Board of Directors or committees thereof. The
officers of the Company receive no compensation as such. 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 four other most highly
compensated executive officers for each of the three years ended December 31,
1996.
27
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
-------------
NUMBER OF
ANNUAL SECURITIES
COMPENSATION UNDERLYING
-------------------- OPTIONS/ ALL OTHER
SALARY BONUS SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) ($) (A)
- ----------------------------------------------------- --------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Steven R. Abbott..................................... 1996 287,993 600,000 250,000 27,531
President and 1995 193,757 250,000 75,000 12,999
Chief Executive 1994 182,502 200,000 120,000 8,306
Officer (CEO)(b)
Stanley C. Craft(c).................................. 1996 325,008 0 0 15,155
1995 310,004 450,000 100,000 27,905
1994 293,763 400,000 150,000 22,174
Charles W. McGregor.................................. 1996 167,001 275,000 80,000 11,356
Executive Vice President 1995 157,503 210,000 65,000 9,684
1994 132,504 165,000 100,000 7,787
David A. Owen........................................ 1996 167,001 250,000 75,000 9,195
Executive Vice 1995 157,503 185,000 50,000 8,120
President and Chief 1994 145,257 165,000 100,000 6,894
Financial Officer (CFO)
Robert J. Faucher.................................... 1996 167,001 250,000 100,000 11,972
Executive Vice President 1995 157,503 175,000 50,000 11,356
1994 149,379 145,000 100,000 8,568
Gregory R. Schriefer................................. 1996 129,510 225,000 115,000 11,062
Executive Vice President
</TABLE>
- ------------------------
(a) All Other Compensation in 1996 consists of Essex 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.
28
<PAGE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT
- --------------------------------------------------------------------------------------------- ASSUMED ANNUAL RATES
NUMBER OF OF
SECURITIES % OF TOTAL STOCK PRICE
UNDERLYING OPTIONS/SARS APPRECIATION FOR
OPTIONS/SARS GRANTED TO EXERCISE OR OPTION TERM (A)
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME (#) (B) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ----------------------------------- ------------- ------------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Steven R. Abbott................... 250,000 15.3 5.00 1/30/07 786,118 1,992,178
Stanley C. Craft................... 0 0 -- -- 0 0
Charles W. McGregor................ 80,000 4.9 5.00 1/30/07 251,558 637,497
David A. Owen...................... 75,000 4.6 5.00 1/30/07 235,835 597,653
Robert J. Faucher.................. 100,000 6.1 5.00 1/30/07 314,447 796,871
Gregory R. Schriefer............... 115,000 7.0 5.00 (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 $5.00 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 Company's
common stock.
(b) In October 1996 options to purchase 175,000 shares of the Company's common
stock were granted. Such options become exercisable on October 1, 1999. In
January 1997 options to purchase 1,460,000 shares of common stock were
granted to maintain management's equity interest in the Company as a result
of the increase in total Company common stock outstanding following the 1996
Private Offering and in respect of performance for the year ended December
31, 1996. Such options become exercisable on January 30, 1998.
(c) Options to purchase 50,000 and 65,000 shares of the Company's common stock
granted in October 1996 and January 1997, respectively, expire on October 1,
2006 and January 30, 2007, respectively.
29
<PAGE>
The following table details the December 31, 1996 year end estimated value
of each named executive officer's unexercised stock options. All unexercised
options are to purchase the number of shares of the Company's common stock
indicated, although the Board of Directors of the Company may require that, in
lieu of the exercise of any Roll-over options (as defined herein), 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 a
number of shares equal to the product of (A) the number of shares specified in
the grant and (B) the quotient of (x) the original exercise price (unadjusted
for any split or other reorganization) and (y) approximately $2.86. See "STOCK
OPTION PLAN" under this caption.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-
OPTIONS/SARS AT THE-MONEY OPTIONS/SARS
YEAR-END (#) AT YEAR-END ($)
SHARES ACQUIRED ON VALUE REALIZED EXERCISABLE (E)/ EXERCISABLE (E)/
NAME EXERCISE (#) ($) UNEXERCISABLE (U) (1) UNEXERCISABLE (U) (2)
- -------------------------- ------------------ ----------------- --------------------- -----------------------
<S> <C> <C> <C> <C>
298,000(E) 1,141,811(E)
Steven R. Abbott.......... -- -- 445,000(U) 417,774(U)
623,000(E) 2,413,197(E)
Stanley C. Craft.......... -- -- 250,000(U) 535,608(U)
70,500(E) 233,561(E)
Charles W. McGregor....... -- -- 245,000(U) 353,501(U)
77,000(E) 258,811(E)
David A. Owen............. -- -- 225,000(U) 321,365(U)
170,000(E) 624,811(E)
Robert J. Faucher......... -- -- 250,000(U) 321,365(U)
20,450(E) 80,550(E)
Gregory R. Schriefer...... -- -- 135,000(U) 42,849(U)
</TABLE>
- ------------------------
(1) The options to purchase the Company's 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 the Company's 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.
(2) The estimated value of in-the-money stock options held at the end of 1996
assumes a per-share fair market value of approximately $5.00 and per-share
exercise prices of $1.00, $1.25 and $2.86 as applicable.
PENSION PLANS. Essex 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.
30
<PAGE>
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>
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).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Woods and Lindsay constitute the Compensation Committee of the Board
of Directors of Essex. See footnote (2) under the caption "ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" for a description of the
relationship between Messrs. Lindsay and Woods and BHLP and the information set
forth under the caption "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS" for a description of certain transactions between Essex and BCP or
BHLP and between the Company and BCP or BHLP.
Mr. Lindsay and Mr. Woods are also members of the Compensation Committee of
the Company's Board of Directors. The other member of such committee is Mr.
Gleberman. Mr. Gleberman is a Partner of Goldman Sachs. The Company's
Compensation Committee fixes the compensation paid to the Company's executive
officers, based in part on the recommendation of Mr. Abbott. See the information
set forth under the caption "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS" for a description of certain transactions between Essex and DLJ
and Goldman Sachs and their respective affiliates. The Company's Compensation
Committee considers compensation of executive officers of Essex to the extent it
is paid by or affects the Company, as is the case when options to purchase the
Company's common stock are granted to executive officers of Essex.
31
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the issued and outstanding common stock of Essex is owned
beneficially and of record by the Company. The Company has pledged such stock to
the lenders under the Essex Revolving Credit Agreement in support of its
guarantee of Essex' obligations thereunder. In the event of a default by the
Company of its obligations under such guarantee, the lenders under the Essex
Revolving Credit Agreement could exercise their powers under such pledge and
thereby obtain control of Essex.
The following table sets forth certain information regarding the beneficial
ownership of the common stock of the Company as of January 31, 1997 by (i) each
beneficial owner of more than 5% of the outstanding common stock of the Company,
(ii) each director of the Company, (iii) each of the named executive officers,
(iv) all directors and executive officers of the Company as a group, and (v) all
directors and executive officers of Essex as a group. Certain beneficial owners
of the common stock of the Company are parties to an Investors Shareholder
Agreement, which provides restrictions on the transferability of the Company's
common stock and other matters. The terms of the agreement are summarized in
"Investors Shareholders Agreement" under this caption.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OWNERSHIP
OF COMMON STOCK OF COMMON STOCK(1)
---------------------------------------- ---------------------------------------
SOLE SHARED SOLE SHARED
VOTING VOTING VOTING VOTING
NAME AND ADDRESS POWER POWER COMBINED POWER POWER COMBINED
- --------------------------------------------- ------------ ------------ ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bessemer Holdings, L.P.(2)................... 35,096,331 7,352,361(3) 42,448,692 73.1% 14.2%(3) 81.8%
630 Fifth Avenue
New York, NY 10111
GS Capital Partners, L.P. (4)................ 7,415,448 -- 7,415,448 14.8 -- 14.8
85 Broad Street
New York, NY 10004
DLJ International Partners, C.V.(5).......... 5,487,925 -- 5,487,925 10.7 -- 10.7
85 Broad Street
New York, NY 10004
Steven R. Abbott(6).......................... -- 612,000 612,000 -- 1.3 1.3
1601 Wall Street
Fort Wayne, IN 46802
Robert J. Faucher(7)......................... -- 382,977 382,977 -- 0.8 0.8
1601 Wall Street
Fort Wayne, IN 46802
David A. Owen (8)............................ -- 161,828 161,828 -- 0.3 0.3
1601 Wall Street
Fort Wayne, IN 46802
Charles W. McGregor(9)....................... -- 147,246 147,246 -- 0.3 0.3
1601 Wall Street
Fort Wayne, IN 46802
Gregory R. Schriefer(10)..................... -- 83,187 83,187 -- 0.2 0.2
1601 Wall Street
Fort Wayne, IN 46802
All directors and executive officers of the -- 42,448,692 42,448,692 -- 81.8 81.8
Company as a group (7 persons)(11).........
All directors and executive officers of Essex -- 42,448,692 42,448,692 -- 81.8 81.8
as a group (7 persons)(12).................
</TABLE>
- ------------------------
(1) Percentages have been calculated assuming, in the case of each person or
group listed, the exercise of all warrants and options owned (which are
exercisable within sixty days following January 30, 1997) by each such
person or group, respectively, but not the exercise of any warrants or
options owned by any other person or group listed.
32
<PAGE>
(2) BHLP is a limited partnership the only activity of which is to make private
structured investments. The primary limited partner of BHLP is BSC, a
corporation owned by trusts whose beneficiaries are descendants of Henry
Phipps and charitable trusts established by such descendants. Each of
Messrs. Woods and Lindsay, directors of the Company, and Mr. Michael B.
Rothfeld, is a sole shareholder of a corporation which is a manager of the
limited liability company which is the sole general partner of BHLP. Mr.
Cohen, a director of the Company, also is a member of that limited liability
Company. In addition, each of Messrs. Woods, Lindsay and Rothfeld are the
sole shareholders of corporations which are the general partners, and Mr.
Cohen is a principal of, of each of the partnerships affiliated with BHLP,
to which Essex and the Company paid the fees described under Item 13 below.
Mr. Woods is the President and Chief Executive Officer of BSC. Each of
Messrs. Woods, Lindsay, Rothfeld and Cohen disclaim beneficial ownership of
the shares of common stock of the Company owned or controlled by BHLP.
(3) Consists of (a) all shares of common stock owned by executive officers,
employees, family members, former employees and retirees of Essex and its
subsidiaries, or their respective estates (a total of 3,470,411 shares),
which shares are subject to a proxy held by BHLP which provides that BHLP
may vote such shares on all matters presented to stockholders other than (i)
the sale or merger of the Company or Essex; (ii) any amendment to the
certificate of incorporation of the Company which would adversely affect the
terms of the common stock and (iii) the election of directors in the event
that BHLP does not include at least one member of management of Essex in its
nominees for directors of the Company and (b) all shares of common stock
issuable upon exercise of options held by executive officers, employees,
family members, and retirees of Essex and its subsidiaries, or their
respective estates (a total of 3,881,950 shares). Pursuant to the terms of
the applicable options agreements, the aggregate number of shares issuable
upon exercise of such options can be reduced. All shares issuable upon
exercise of the foregoing options are subject to the proxy held by BHLP.
(4) Held by GS Capital Partners, L.P. (an affiliate of Goldman Sachs) and
certain of its affiliates, and includes 2,241,103 shares issuable upon
exercise of warrants.
(5) Includes 3,425,635 shares issuable upon exercise of warrants held by
affiliates and employees of DLJ.
(6) Includes 298,000 shares issuable upon exercise of options held by Mr.
Abbott, of which 273,000 shares, pursuant to the applicable option
agreement, may be reduced to 176,152 shares. All shares owned by Mr. Abbott
and all shares issuable to Mr. Abbott upon exercise of options are subject
to the proxy described in footnote (3) above.
(7) Includes 170,000 shares issuable upon exercise of options held by Mr.
Faucher, of which 145,000 shares, pursuant to the applicable option
agreement, may be reduced to 91,196 shares. All shares owned by Mr. Faucher
and all shares issuable to Mr. Faucher upon exercise of options are subject
to the proxy described in footnote (3) above.
(8) Includes 77,000 shares issuable upon exercise of options held by Mr. Owen,
of which 52,000 shares, pursuant to the applicable option agreement, may be
reduced to 32,840 shares. All shares owned by Mr. Owen and all shares
issuable to Mr. Owen upon exercise of options are subject to the proxy
described in footnote (3) above.
(9) Includes 70,500 shares issuable upon exercise of options held by Mr.
McGregor, of which 45,500 shares, pursuant to the applicable option
agreement, may be reduced to 28,877 shares. All shares owned by Mr. McGregor
and all shares issuable to Mr. McGregor upon exercise of options are subject
to the proxy described in footnote (3) above.
(10) Includes 20,450 shares issuable upon exercise of options held by Mr.
Schriefer which, pursuant to the applicable option agreement, may be reduced
to 12,856 shares. All shares owned by Mr. Schriefer and all shares issuable
to Mr. Schriefer upon exercise of options are subject to the proxy described
in footnote (3) above.
(11) Consists of (a) the 35,096,331 shares of common stock owned by BH Group,
which, together with the shares described in (b), (c) and (d) 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 (2) above), (b) 398,828 shares of common stock owned by the
executive officers
33
<PAGE>
of the Company included in this group, (c) 375,000 shares issuable to the
executive officers of the Company included in this group upon exercise of
options which, pursuant to the applicable option agreements, may be reduced
and (d) 3,071,583 shares of common stock and 3,506,950 shares of common
stock issuable upon exercise of options (also subject to reduction) owned by
other employees, former employees and retirees of Essex and its
subsidiaries, or their respective estates. All shares described in (b), (c)
and (d) are subject to the proxy described in footnote (3) above.
(12) Consists of (a) 35,096,331 shares of common stock owned by BH Group, which,
together with the shares described in (b), (c) and (d) 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 (2) above), (b) 751,288 shares of common stock owned by the other
directors and executive officers of Essex included in this group, (c)
635,950 shares issuable to the other directors and executive officers of
Essex included in this group upon exercise of options which, pursuant to the
applicable option agreements, may be reduced and (d) 2,719,123 shares of
common stock and 3,246,000 shares of common stock issuable upon exercise of
options (also subject to reduction) owned by other employees, former
employees and retirees of Essex and its subsidiaries, or their respective
estates. All shares described in (b), (c) and (d) are subject to the proxy
described in footnote (3) above.
MANAGEMENT STOCKHOLDER AGREEMENTS
The members of Essex' management who are stockholders of the Company (each a
"Management Stockholder") are each parties to various agreements pertaining to
their ownership of the Company's common stock and options therefor. Set forth
below is a summary of certain provisions of these agreements, each of which is
filed as an exhibit to this Annual Report. Capitalized terms set forth below and
not otherwise defined have the meanings assigned thereto in the relevant
agreements.
MANAGEMENT STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT. The Management
Stockholders and Registration Rights Agreement as amended generally prohibits
Management Stockholders from transferring shares of common stock of the Company
owned by them before an initial public offering by the Company (or any successor
thereto) (an "IPO"). If any Management Stockholder receives a bona fide offer to
purchase any of his 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 BHLP, in each case on the same terms
and conditions as such bona fide offer.
Any Management Stockholder whose employment with Essex ceases prior to an
IPO will have a "put right" for one year by which he, or his estate may require
the Company to repurchase all or a portion of his shares of common stock of the
Company. If the Management Stockholder leaves Essex due to death, disability or
retirement, the Company will purchase the shares at a price equal, at the option
of the Company, to (i) the higher of (x) the last price paid by BHLP, the
Company or a Management Stockholder for shares of common stock of the Company
and (y) approximately $2.86 per share or (ii) the fair market value of the
shares of common stock of the Company as determined by an independent appraiser
or investment banking firm selected by the Board of Directors of the Company
(the value determined pursuant to clause (i) or (ii) being the "Fair Market
Value"). In all other cases of termination of employment, the Company will
purchase the shares at the lesser of Fair Market Value or the purchase price
actually paid by the Management Stockholder. The Company will be required to
repurchase such shares at such price, unless such repurchase would violate any
applicable law or regulation or any agreement pursuant to which the Company
incurred any debt, in which case the Company may defer such repurchase until
such repurchase would no longer result in any such violation. The Company will
have a "call right" for 365 days by which it can repurchase, at Fair Market
Value, any or all of the shares of common stock of the Company belonging to the
Management Stockholder or his estate if, prior to an IPO, the Management
Stockholder's employment is terminated for any reason, whether due to his
retirement, resignation, death, disability or otherwise. Under certain
circumstances, the Company may pay the
34
<PAGE>
purchase price of any common stock of the Company repurchased from a Management
Stockholder pursuant to the put rights and call rights described above by
delivery of a subordinated note.
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.
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 after January 30, 1997, 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.
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 the Company or Essex.
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 a number of shares equal to the
product of (A) the number of shares specified in the grant and (B) the quotient
of (x) the original exercise price (unadjusted for any split or other
reorganization) and (y) approximately 2.86.
INVESTORS SHAREHOLDERS AGREEMENT
SET FORTH BELOW IS A SUMMARY OF CERTAIN TERMS OF THE INVESTORS SHAREHOLDERS
AGREEMENT AMONG THE COMPANY, BHLP (AS SUCCESSOR IN INTEREST TO BCP), AFFILIATES
OF DLJ, AFFILIATES OF GOLDMAN SACHS AND CEA. CAPITALIZED TERMS USED BELOW AND
NOT OTHERWISE DEFINED HAVE THE MEANING ASSIGNED THERETO IN THE INVESTORS
SHAREHOLDERS AGREEMENT.
In connection with the Acquisition, BHLP (as successor in interest to
Bessemer Capital Partners, L.P.), Goldman Sachs, DLJ and CEA (together with
certain assignees, the "Initial Shareholders") entered into the Investors
Shareholders Agreement, dated as of October 9, 1992 (as amended, the "Investors
Shareholders Agreement"), with the Company. Set forth below is a summary of
certain terms of the Investors Shareholders Agreement. The summary does not
purport to be complete and is subject to, and is qualified in its entirety by,
the Investors Shareholders Agreement.
BOARD OF DIRECTORS. The Investors Shareholders Agreement provides that the
Initial Shareholders will use their power to cause the Board of Directors of the
Company to be composed of seven directors, that BHLP (as successor in interest
to Bessemer Capital Partners, L.P.) shall have the right to nominate five of
these directors and that, so long as Goldman Sachs own a minimum number of
shares of Common Stock, Goldman Sachs will have the right to nominate one
director, which director will sit on all committees of the Board of Directors.
As a result of these arrangements, BHLP controls the Board of Directors of the
Company. These rights survive the Termination Date (as defined below).
35
<PAGE>
The Agreement also grants to BHLP and, so long as Goldman Sachs own a
minimum number of shares of common stock, to Goldman Sachs, the right to veto
certain extraordinary transactions by the Company. This right terminates on the
Termination Date.
APPROVAL OF CERTAIN MATTERS. The Investors Shareholders Agreement provides
that, without the approval of the Board of Directors, the Company will not, and
will not permit any subsidiary to, sell assets having an aggregate value in
excess of $1.0 million, grant liens in excess of $1.0 million, make capital
expenditures in excess of $1.0 million or prepay, repurchase or redeem any debt
or equity security if the amount used for such purpose exceeds $1.0 million. The
requirement for Board approval of such matters terminates on the Termination
Date.
TAG-ALONG RIGHTS. Subject to certain exceptions, if at any time BHLP or any
of its affiliates or associates propose to sell to a third party or parties,
directly or indirectly (other than in a registered public offering), any shares
of common stock, then effective provision will be made whereby each other
Initial Shareholder will be given the right to sell an equal proportion of its
common stock to such third party or parties on terms identical to those
applicable to such proposed sale. This right SURVIVES the Termination Date.
Subject to certain exceptions, if at any time BHLP or any of its affiliates
or associates propose to purchase from other stockholders of the Company,
directly or indirectly, any shares of common stock, then effective provision
will be made whereby each other Initial Shareholder will be given the right to
purchase an equal proportion of the common stock of such other stockholder on
terms identical to those applicable to such proposed purchase. This right
terminates on the Termination Date.
PRE-EMPTIVE RIGHTS. The Investor Shareholders Agreement provides that the
Initial Shareholders shall have the pre-emptive right to subscribe to issuances
by the Company of equity securities or securities convertible into equity
securities. This right terminates on the Termination Date.
RIGHT OF FIRST OFFER. The Investor Shareholders Agreement requires that
each Initial Shareholder offer to the Company and, if the Company declines, to
the other Initial Shareholders, any shares of the Company's common stock to be
sold or otherwise transferred by the Initial Shareholder (other than pursuant to
a public offering). This right terminates on the Termination Date.
TERMINATION DATE. For the purposes of the Investors Shareholders Agreement,
the "Termination Date" is the closing date of a public offering whereby on such
date, 25% of the total number of common stock (including those issuable pursuant
to options warrants and right) have been sold in one or more public offerings.
It is anticipated that the closing date of the offerings will be the Termination
Date.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 the Company, Essex and this affiliate of BHLP, 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 (2) under "ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT" for a description of the relationship of
Messrs. Woods and Lindsay, directors of both the Company and Essex, and Mr.
Cohen, a director of the Company with 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"), DLJ and
Goldman Sachs were given the right, but not the obligation, subject to certain
conditions, to act as financial advisor to the Company until October 1997 on a
co-exclusive basis in connection with all acquisition, divestiture and other
financial advisory assignments relating to the Company and to act as
co-exclusive managing placement agents or co-
36
<PAGE>
exclusive managing underwriters in connection with any debt or equity financing
which is either privately placed or publicly offered (excluding commercial bank
debt or other senior debt which is privately placed other than any private
placement which contemplates a registration of, registered exchange offer for,
or similar registration with respect to such securities). DLJ has the right, but
not the obligation, to act as co-managing placement agent or co-managing
underwriter, together only with The Chase Manhattan Bank in connection with
other senior debt that is privately placed. The Company retained the right to
designate DLJ or The Chase Manhattan Bank as lead placement agent or lead
managing underwriter. As a result of the occurrence of a Sell Down Date (as
defined) in 1999, and in accordance with the Engagement Letter, DLJ no longer
has the right to act as financial advisor to Essex and the Company under the
engagement letter because it no longer holds a specified minimum investment in
the Company.
Pursuant to such engagement, DLJ and Goldman Sachs acted as underwriters in
the offerings of the Essex Senior Notes, and in such capacity received aggregate
underwriting discounts and commissions of $5.3 million. For any further services
performed by DLJ or Goldman Sachs pursuant to the Engagement Letter, DLJ and
Goldman Sachs are entitled to fees competitive with those customarily charged by
DLJ, Goldman Sachs and other major investment banks in similar transactions and
to customary out of pocket fee and expense reimbursement and indemnification and
contribution agreements.
In July 1996, the Board of Directors of the Company approved the 1996
Private Offering of shares of the Company's common stock to certain stockholders
of the Company and certain limited partnerships affiliated with BH Group. Such
offering was made at $5.00 per share of the Company's common stock. BH Group,
Goldman Sachs and CEA purchased an aggregate of 11,860,000 shares of the
Company's common stock at that price. DLJ, also a stockholder of the Company,
elected not to purchase shares of the Company's 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 875,417 shares of the Company's common stock
at $5.00 per share.
37
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements listed under Item 8 are filed as a part of this
report.
2. Financial Statement Schedules
The financial statement schedules listed under Item 8 are filed as a part
of this report.
3. Exhibits
The exhibits listed on the accompanying Index to Exhibits are filed as a
part of this report.
(b) Reports on Form 8-K:
1. A Current Report on Form 8-K (Items 5 and 7) was filed on October 16,
1996 to report third quarter 1996 earnings.
2. A Current Report on Form 8-K (Items 5 and 7) was filed on November 5,
1996 to report the acquisition of substantially all the assets and
certain liabilities of Triangle Wire and Cable, Inc. of Lincoln, Rhode
Island and its Canadian affiliate, FLI Royal Wire and Cable related to
the sales, marketing, manufacture and distribution of electrical wire and
cable.
38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BCP/ESSEX HOLDINGS INC.
(REGISTRANT)
BY /S/ DAVID A. OWEN
-----------------------------------------
David A. Owen
VICE PRESIDENT, TREASURER AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ STEVEN R. ABBOTT President; Director
- ------------------------------ (Principal Executive
Steven R. Abbott Officer) February 19, 1997
/s/ ROBERT D. LINDSAY Vice President; Director
- ------------------------------
Robert D. Lindsay February 19, 1997
Vice President, Treasurer
/s/ DAVID A. OWEN and
- ------------------------------ Chief Financial Officer
David A. Owen (Principal Financial
Officer) February 19, 1997
/s/ RODNEY A. COHEN Director
- ------------------------------
Rodney A. Cohen February 19, 1997
/s/ JOSEPH H. GLEBERMAN Director
- ------------------------------
Joseph H. Gleberman February 19, 1997
/s/ JOHN E. PHIPPS Director
- ------------------------------
John E. Phipps February 19, 1997
/s/ WARD W. WOODS, JR. Director (Chairman)
- ------------------------------
Ward W. Woods, Jr. February 19, 1997
Vice President
/s/ JAMES D. RICE Chief Accounting Officer
- ------------------------------ (Principal Accounting
James D. Rice Officer) February 19, 1997
39
<PAGE>
BCP/ESSEX HOLDINGS INC.
INDEX OF EXHIBITS
(ITEM 14(A)(3))
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
2.01-- 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).
2.02-- 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).
3.01-- 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).
3.02-- By-Laws of the Registrant, as amended, incorporated by reference to Exhibit 4.2 to the Registrant's
Current Report on Form 8-K filed with the Commission on October 26, 1992 (Commission File No. 1-10211).
4.01-- Stock and Warrant Subscription Agreement dated as of October 9, 1992, among B E Acquisition
Corporation, certain affiliates of Donaldson, Lufkin & Jenrette, Securities Corporation, 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).
4.02-- Warrant Agreement dated as of October 9, 1992, between B E Acquisition Corporation, certain affiliates
of Donaldson, Lufkin & Jenrette, Securities Corporation 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).
4.03-- 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 Group, Inc. Registration Statement on Pre-Effective Amendment No. 1 to Form S-2
(Commission File No. 33-59488).
4.04-- 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, Securities
Corporation, certain affiliates of Goldman, Sachs & Co., and Chemical Equity Associates, a California
Limited Partnership (Commission File No. 33-93232).
4.05-- Credit Agreement dated as of October 31, 1996, between 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).
4.06-- Senior Unsecured Note Agreement dated as of April 12, 1995, between 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.
4.07-- 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.
9.01-- Investors Shareholders Agreement dated as of October 9, 1992, among B E Acquisition Corporation,
Bessemer Capital Partners, L.P., 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 28.1 to the Registrant's Current
</TABLE>
40
<PAGE>
BCP/ESSEX HOLDINGS INC.
INDEX OF EXHIBITS
(ITEM 14(A)(3))
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
Report on Form 8-K, filed with the Commission on October 26, 1992 (Commission File No. 1-10211).
<C> <S>
9.02-- Management Stockholders and Registration Rights Agreement dated as of October 9, 1992, between 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).
9.03-- 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).
9.04-- Amendment No. 1 dated as of July 3, 1996 to the Management Stockholders Agreement.
9.05-- Amendment No. 2 dated as of December 11, 1996 to the Management Stockholders Agreement.
9.06-- Form of Irrevocable Proxy dated December 1996, granted to Bessemer Holdings, L.P. by certain employees
of the Registrants' subsidiaries.
10.01-- 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 Group, Inc.
Annual Report on Form 10-K for the fiscal year ended December 31, 1992 (Commission File No. 1-7418).
10.02-- Amendment dated October 9, 1992 between Bessemer Capital Partners, L.P., Donaldson, Lufkin & Jenrette,
Securities Corporation, and Goldman, Sachs and 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 Group Inc. Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 (Commission File No. 1- 74181).
10.03-- Advisory Services Agreement dated as of December 15, 1992, between 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)
11.01-- Calculation of Net Income Per Common Share.
12.01-- Computation of Ratio of Earnings to Fixed Charges.
21.01-- Subsidiaries of the Registrant.
27.01-- Financial Data Schedule.
99.01-- Registration Rights Agreement ("Registration Rights Agreement") dated as of October 9, 1992, between B
E Acquisition Corporation, certain affiliates of Donaldson, Lufkin & Jenrette Securities Corporation,
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).
99.02-- Amendment No. 1 dated as of June 5, 1995 to the Registration Rights Agreement (Commission File No.
33-93232).
99.03-- 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).
99.04-- Amendment No. 1 to the Stock Option Plan.
</TABLE>
41
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
BCP/Essex Holdings Inc.
We have audited the accompanying consolidated balance sheets of 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. Our audits also included the financial statement
schedules listed in the Index at Item 14(a). These financial statements and
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedules 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 BCP/Essex
Holdings 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. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
INDIANAPOLIS, INDIANA
January 28, 1997, except for Note 13,
as to which the date is February 19, 1997
F-1
<PAGE>
BCP/ESSEX HOLDINGS 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................................................................ 48,820 --
Common stock subject to put............................................................... 4,803 12,626
Other stockholders' equity:
Common stock............................................................................ 336 456
Additional paid in capital.............................................................. 85,611 133,298
Carryover of Predecessor basis.......................................................... (15,259) (15,259)
Retained earnings (deficit)............................................................. (6,388) 27,595
---------- ----------
Total other stockholders' equity.................................................... 64,300 146,090
---------- ----------
$ 746,063 $ 842,755
---------- ----------
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements
F-2
<PAGE>
BCP/ESSEX HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
IN THOUSANDS OF DOLLARS,
EXCEPT PER SHARE DATA
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)
------------ ------------ ------------
Net income applicable to common stock................................... $ 791 $ 2,635 $ 25,868
------------ ------------ ------------
------------ ------------ ------------
Income per common and common equivalent share:
Income before extraordinary charge.................................... $ .02 $ .15 $ .60
Extraordinary charge.................................................. -- .08 .03
------------ ------------ ------------
Net income............................................................ $ .02 $ .07 $ .57
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
BCP/ESSEX HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
IN THOUSANDS OF DOLLARS
<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-4
<PAGE>
BCP/ESSEX HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IN THOUSANDS OF DOLLARS
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 B E Acquisition Corporation ("BE") with and into the Company
with the Company surviving under the name BCP/Essex Holdings 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. ["BCP"]) ("BHLP"), members of 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-5
<PAGE>
BCP/ESSEX HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IN THOUSANDS OF DOLLARS
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 common and common equivalent share................. $ .03 $ .62
</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.
F-6
<PAGE>
BCP/ESSEX HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IN THOUSANDS OF DOLLARS
NOTE 1 ACQUISITIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
EARNINGS PER SHARE
Earnings per share are computed by dividing net income applicable to common
stock by the weighted average number of shares of common stock and common stock
equivalents (stock options and warrants) outstanding. Net income is adjusted for
dividend and accretion requirements of redeemable preferred stock.
F-7
<PAGE>
BCP/ESSEX HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IN THOUSANDS OF DOLLARS
NOTE 1 ACQUISITIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATION
Certain 1994 and 1995 amounts have been reclassified to conform with the
current year presentation.
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>
F-8
<PAGE>
BCP/ESSEX HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IN THOUSANDS OF DOLLARS
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>
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
F-9
<PAGE>
BCP/ESSEX HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IN THOUSANDS OF DOLLARS
NOTE 5 NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
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% and 8.75%, respectively. Indebtedness under the Essex
Revolving Credit Agreement is guaranteed by the Company and all of Essex'
subsidiaries, and is secured by a pledge of the capital stock of Essex and its
subsidiaries and by a first lien on substantially all assets.
The Essex Revolving Credit Agreement also provides a $25,000 letter of
credit subfacility. Essex' ability to borrow under the Essex Revolving Credit
Agreement is restricted by the financial covenants contained therein as well as
those contained in the Essex Term Loan, as defined in the second succeeding
paragraph, and by certain debt limitation covenants contained in the indenture
under which the 10% Senior Notes due 2003 (the "Essex Senior Notes") were issued
(the "Essex Senior Note Indenture").
The Essex Revolving Credit Agreement contains various covenants which
include, among other things: (a) the maintenance of certain financial ratios and
compliance with certain financial tests and limitations; (b) limitations on
investments and capital expenditures; (c) limitations on cash dividends paid;
and (d) limitations on leases and the sale of assets. Through December 31, 1996,
Essex fully complied with all of the financial ratios and covenants contained in
the Essex Revolving Credit Agreement.
Essex and its subsidiaries also maintain three additional credit facilities
consisting of: (i) a $60.0 million senior unsecured note agreement, dated as of
April 12, 1995 by and among Essex, the Company, as guarantor, the lenders named
therein and The Chase Manhatten 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
F-10
<PAGE>
BCP/ESSEX HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IN THOUSANDS OF DOLLARS
NOTE 5 NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
balance. The 1996 excess cash repayment of $12.4 million, for the year ended
December 31, 1995, resulted in remaining principal payments of 17 equal
quarterly installments of $2.3 million. Amounts repaid with respect to the
excess cash provisions may not be reborrowed. There are no requirements for an
excess cash payment to be made for 1996 results.
The Essex Sale and Leaseback Agreement provides $25,000 for the sale and
leaseback of certain of Essex' fixed assets. The Essex Sale and Leaseback
Agreement has a seven-year term expiring in May 2002. The principal component of
the rental is paid quarterly, with the amount of each of the first 27 payments
equal to 2.5% of lessor's cost of the equipment, and the balance is due at the
final payment. The interest component is paid on the unpaid principal balance
and is calculated by lessor at LIBOR plus 2.5%. The effective interest rate can
be reduced by 0.25% to 1.125% if certain specified financial conditions are
achieved. The fixed assets subject to the Essex Sale and Leaseback Agreement
(all of which are machinery and equipment) are included in property, plant and
equipment in the Consolidated Balance Sheets and have a gross cost of $30,882
and accumulated amortization of $4,139 at December 31, 1996.
Borrowings under the Canadian Credit Agreement are restricted to meeting the
working capital requirements of the subsidiary and are collateralized by the
subsidiary's accounts receivable. As of December 31, 1996, $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.
F-11
<PAGE>
BCP/ESSEX HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IN THOUSANDS OF DOLLARS
NOTE 5 NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
THE COMPANY'S SENIOR DISCOUNT DEBENTURES
In May 1989, the Company issued $342,000 aggregate principal amount
($135,117 aggregate proceeds amount) of its Debentures. In connection with the
Acquisition and Merger, the Debentures were valued at an effective annual
interest rate of 14.25% through May 1995. The Debentures accreted to their full
face value (an aggregate principal amount of $272,850) on May 15, 1995. On May
15, 1995 the Company redeemed all of its outstanding Debentures at 100% of their
principal amount with cash received from Essex in the form of a cash dividend
and repayment of a portion of an intercompany liability totalling $272,850.
OTHER
Essex capitalized interest costs of $132, $565 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.
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-12
<PAGE>
BCP/ESSEX HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IN THOUSANDS OF DOLLARS
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,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
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-13
<PAGE>
BCP/ESSEX HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IN THOUSANDS OF DOLLARS
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,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
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,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
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-14
<PAGE>
BCP/ESSEX HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IN THOUSANDS OF DOLLARS
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,
---------------------
<S> <C> <C>
1995 1996
--------- ----------
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,
-------------------------------------
<S> <C> <C> <C>
1994 1995 1996
----- ----- -----
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-15
<PAGE>
BCP/ESSEX HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IN THOUSANDS OF DOLLARS
NOTE 8 STOCKHOLDERS' EQUITY
Following is an analysis of stockholders' equity:
<TABLE>
<CAPTION>
OTHER STOCKHOLDERS' EQUITY
---------------------------------------
COMMON STOCK
REDEEMABLE SUBJECT TO PUT COMMON STOCK ADDITIONAL
PREFERRED --------------------- -------------------------- PAID-IN
STOCK SHARES AMOUNT SHARES AMOUNT CAPITAL
------------ ---------- --------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993................. $ 34,460 2,032,379 5,808 33,119,587 $ 331 $ 98,769
Net income................................... -- -- -- -- -- --
Preferred stock dividend..................... 6,008 -- -- -- -- (6,008)
Accretion of preferred stock................. 687 -- -- -- -- (687)
Expiration of put rights..................... -- (116,888) (334) 116,888 1 333
Stock options exercised...................... -- -- -- 20,500 -- 36
------------ ---------- --------- ------------- ----- -----------
Balance at December 31, 1994................. 41,155 1,915,491 5,474 33,256,975 332 92,443
Net income................................... -- -- -- -- -- --
Preferred stock dividend..................... 6,962 -- -- -- -- (6,962)
Accretion of preferred stock................. 703 -- -- -- -- (703)
Expiration of put rights..................... -- (234,704) (671) 234,704 2 669
Stock options exercised...................... -- -- -- 145,736 2 164
------------ ---------- --------- ------------- ----- -----------
Balance at December 31, 1995................. 48,820 1,680,787 4,803 33,637,415 336 85,611
Net income................................... -- -- -- -- -- --
Issuance of common stock..................... -- 875,417 4,377 11,860,000 119 59,181
Preferred stock dividend..................... 4,248 -- -- -- -- (1,906)
Accretion of preferred stock................. 2,024 -- -- -- -- (2,024)
Preferred stock redemption................... (55,092) -- -- -- -- (4,185)
Expiration of put rights..................... -- (31,000) (101) 31,000 -- 101
Stock options exercised...................... -- -- -- 59,496 1 67
Increase in fair value....................... -- -- 3,547 -- -- (3,547)
------------ ---------- --------- ------------- ----- -----------
Balance at December 31, 1996................. $ -- 2,525,204 $ 12,626 45,587,911 $ 456 $ 133,298
------------ ---------- --------- ------------- ----- -----------
------------ ---------- --------- ------------- ----- -----------
<CAPTION>
CARRYOVER OF RETAINED
PREDECESSOR EARNINGS
BASIS (DEFICIT) TOTAL
------------ ---------- ----------
<S> <C> <C> <C>
Balance at December 31, 1993................. $ (15,259) $ (24,174) $ 59,667
Net income................................... -- 7,486 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................. (15,259) (16,688) 60,828
Net income................................... -- 10,300 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................. (15,259) (6,388) 64,300
Net income................................... -- 36,325 36,325
Issuance of common stock..................... -- -- 59,300
Preferred stock dividend..................... -- (2,342) (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................. $ (15,259) $ 27,595 $ 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 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 46,914,115 shares of Class A Stock outstanding,
1,199,000 shares of Class B Stock outstanding and no shares of Series B
Preferred Stock or Series A Preferred Stock outstanding.
COMMON STOCK AND OPTIONS
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
("IPO") 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
F-16
<PAGE>
BCP/ESSEX HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IN THOUSANDS OF DOLLARS
NOTE 8 STOCKHOLDERS' EQUITY (CONTINUED)
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 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 IPO. 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 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 9,596,288 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.
F-17
<PAGE>
BCP/ESSEX HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IN THOUSANDS OF DOLLARS
NOTE 8 STOCKHOLDERS' EQUITY (CONTINUED)
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-AVERAGE WEIGHTED-AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
---------- ----------------- ---------- ----------------- ---------- ---------------
Outstanding--beginning of
year.......................... 3,996,600 $ 1.03 4,307,600 $ 1.17 4,928,350 $ 1.47
Granted......................... 331,500 2.86 865,000 2.86 925,000 3.26
Exercised....................... (20,500) 1.05 (226,750) 1.02 (92,400) 1.02
Forfeited....................... -- -- (17,500) 2.86 (19,000) 2.86
---------- ---------- ----------
Outstanding--end of year........ 4,307,600 1.17 4,928,350 1.47 5,741,950 1.76
---------- ---------- ----------
---------- ---------- ----------
Exercisable at end of year...... 3,976,100 $ 1.03 3,749,350 $ 1.03 3,656,950 $ 1.03
</TABLE>
As of December 31, 1996 there were 3,236,000 options at $1.00 per share
exercise price, 420,950 options at $1.25 exercise price, 1,910,000 options at
$2.86 per share exercise price and 175,000 options at $5.00 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 1,460,000 shares of the
Company's common stock at a $5.00 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 11,860,000 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 875,417 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, 5,666,738 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 5,666,738 outstanding at December 31,
1996, are presently exercisable and represent the right to purchase an aggregate
of approximately 10% of the fully diluted
F-18
<PAGE>
BCP/ESSEX HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IN THOUSANDS OF DOLLARS
NOTE 8 STOCKHOLDERS' EQUITY (CONTINUED)
common stock of the Company (based on the common equity, warrants and options
outstanding as of December 31, 1996). The Warrants are exercisable at $2.86 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 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
F-19
<PAGE>
BCP/ESSEX HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IN THOUSANDS OF DOLLARS
NOTE 10 DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE INFORMATION (CONTINUED)
$41,300, respectively. There are no sales contracts at December 31, 1996. Sales
contracts at December 31, 1995 totalled 13.5 million copper pounds, with a
contract amount of $16,600 and a fair value of $16,300. Deferred and unrealized
gains or losses on these futures contracts ($100 gain and $700 loss at December
31, 1995 and 1996, respectively) are included within other assets and will be
recognized in earnings in the period in which the hedged copper is sold to
customers and the underlying contracts are liquidated, when a sale is no longer
expected to occur or when the carryover copper is received.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, exclusive of certain forward contracts
and futures contracts as discussed above, generally consist of cash and cash
equivalents and long-term debt. The carrying amounts of the Company's cash and
cash equivalents approximated fair value at December 31, 1995 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 flow 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 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 or financial
F-20
<PAGE>
BCP/ESSEX HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IN THOUSANDS OF DOLLARS
NOTE 11 CONTINGENT LIABILITIES AND COMMITMENTS (CONTINUED)
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.
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>
F-21
<PAGE>
BCP/ESSEX HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IN THOUSANDS OF DOLLARS
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
Net income applicable to common stock............................ 1,251 (3,838) 4,139 1,083
Income (loss) per common and common equivalent share: Income
(loss) before extraordinary charge............................. $ .03 $ (.02) $ .11 $ .03
Extraordinary charge............................................. -- (.08) -- --
---------- ---------- ---------- ----------
Net income (loss)................................................ $ .03 $ (.10) $ .11 $ .03
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<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
Net income applicable to common stock............................ 4,304 5,438 5,369 10,757
Income per common and common equivalent share: Income before
extraordinary charge........................................... $ .11 $ .14 $ .10 $ .25
Extraordinary charge............................................. -- -- -- (.03)
---------- ---------- ---------- ----------
Net income....................................................... $ .11 $ .14 $ .10 $ .22
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
- ------------------------
(a) In the second quarter 1995, Essex recognized an extraordinary charge of
$2,971 ($.08 per share), 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
$1,183 ($.03 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.
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.
F-22
<PAGE>
SCHEDULE I
BCP/ESSEX HOLDINGS 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
Preferred stock........................................................................... 48,820 --
Common stock subject to put............................................................... 4,803 12,626
Other stockholders' equity (deficit):
Common stock............................................................................ 336 456
Additional paid in capital.............................................................. 85,611 133,298
Carryover of Predecessor basis.......................................................... (15,259) (15,259)
Retained earnings (deficit)............................................................. (6,388) 27,595
---------- ----------
64,300 146,090
---------- ----------
$ 118,162 $ 158,960
---------- ----------
---------- ----------
</TABLE>
See Note to Condensed Financial Statements
S-1
<PAGE>
SCHEDULE I
(CONTINUED)
BCP/ESSEX HOLDINGS 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)
BCP/ESSEX HOLDINGS 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)
BCP/ESSEX HOLDINGS INC.
PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS
NOTE TO CONDENSED FINANCIAL STATEMENTS
Detailed notes to consolidated financial statements of BCP/Essex Holdings
Inc. ("Holdings") are included beginning on page F-5.
Holdings is beneficially owned by Bessemer Holdings, L.P., members of
management and other current and former employees of Essex Group, Inc. ("Essex")
and certain other investors. Holdings is the holding company for Essex. The
principal asset of Holdings 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, Holdings has no source of income other than the
earnings, if any, of Essex.
Holdings 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
BCP/ESSEX HOLDINGS 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>
LOCATION OF EXHIBIT
EXHIBIT IN SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT NUMBERING SYSTEM
- --------- ----------------------------------------------------------------------------------- ---------------------
<C> <S> <C>
2.01-- 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).
2.02-- 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).
3.01-- 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).
3.02-- By-Laws of the Registrant, as amended, incorporated by reference to Exhibit 4.2 to
the Registrant's Current Report on Form 8-K filed with the Commission on October
26, 1992 (Commission File No. 1-10211).
4.01-- Stock and Warrant Subscription Agreement dated as of October 9, 1992, among B E
Acquisition Corporation, certain affiliates of Donaldson, Lufkin & Jenrette,
Securities Corporation, 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).
4.02-- Warrant Agreement dated as of October 9, 1992, between B E Acquisition Corporation,
certain affiliates of Donaldson, Lufkin & Jenrette, Securities Corporation 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).
4.03-- 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 Group, Inc. Registration
Statement on Pre-Effective Amendment No. 1 to Form S-2 (Commission File No.
33-59488).
4.04-- 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, Securities Corporation, certain affiliates of
Goldman, Sachs & Co., and Chemical Equity Associates, a California Limited
Partnership.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOCATION OF EXHIBIT
EXHIBIT IN SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT NUMBERING SYSTEM
- --------- ----------------------------------------------------------------------------------- ---------------------
<C> <S> <C>
4.05-- Credit Agreement dated as of October 31, 1996, between 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).
4.06-- Senior Unsecured Note Agreement dated as of April 12, 1995, between 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.
4.07-- 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.
9.01-- Investors Shareholders Agreement dated as of October 9, 1992, among B E Acquisition
Corporation, Bessemer Capital Partners, L.P., 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 28.1 to the Registrant's Current Report on Form 8-K, filed with the
Commission on October 26, 1992 (Commission File No. 1-10211).
9.02-- Management Stockholders and Registration Rights Agreement dated as of October 9,
1992, between 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).
9.03-- 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).
9.04-- Amendment No. 1 dated as of July 3, 1996 to the Management Stockholders Agreement.
9.05-- Amendment No. 2 dated as of December 11, 1996 to the Management Stockholders
Agreement.
9.06-- Form of Irrevocable Proxy dated December 1996, granted to Bessemer Holdings, L.P.
by certain employees of the Registrants' subsidiaries.
10.01-- 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 Group, Inc. Annual Report on Form 10-K for the fiscal
year ended December 31, 1992 (Commission File No. 1-7418).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOCATION OF EXHIBIT
EXHIBIT IN SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT NUMBERING SYSTEM
- --------- ----------------------------------------------------------------------------------- ---------------------
<C> <S> <C>
10.02-- Amendment dated October 9, 1992 between Bessemer Capital Partners, L.P., Donaldson,
Lufkin & Jenrette, Securities Corporation, and Goldman, Sachs and 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 Group Inc. Annual Report on Form 10-K for the fiscal
year ended December 31, 1992 (Commission File No. 1- 74181).
10.03-- Advisory Services Agreement dated as of December 15, 1992, between 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)
11.01-- Calculation of Net Income Per Common Share.
12.01-- Computation of Ratio of Earnings to Fixed Charges.
21.01-- Subsidiaries of the Registrant.
27.01-- Financial Data Schedule.
99.01-- Registration Rights Agreement ("Registration Rights Agreement") dated as of October
9, 1992, between B E Acquisition Corporation, certain affiliates of Donaldson,
Lufkin & Jenrette Securities Corporation, 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).
99.02-- Amendment No. 1 dated as of June 5, 1995 to the Registration Rights Agreement.
99.03-- 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).
99.04-- Amendment No. 1 to the Stock Option Plan.
</TABLE>
<PAGE>
Exhibit 4.04
AMENDMENT NO. 2 dated as of June 5, 1995, to STOCK AND
WARRANT SUBSCRIPTION AGREEMENT dated as of October 9, 1992, among
BCP/ESSEX HOLDINGS, INC. (as successor by merger to B E
Acquisition Corporation) ("Holdings") and each of the parties
named on the signature pages hereof (the "Investors").
Holdings and the Investors are parties to the Stock and Warrant
Subscription Agreement dated as of October 9, 1992, as amended by Amendment
No. 1 dated as of April 1, 1993 ("Amendment No. 1") (as so amended, the
"Subscription Agreement"). Pursuant to Amendment No. 1 certain employees and
affiliates of Donaldson Lufkin & Jenrette Securities Corporation ("DLJSC")
(together with permitted transferees of such employees specified in clauses
(1) through (5) of Section 6.02 of the Shareholders Agreement, the
"Employees") were granted certain rights under the Subscription Agreement,
subject to the terms of several Custody Agreements. Pursuant to an
Assignment and Agreement to Be Bound dated as of December 16, 1994 among
DLJSC, DLJ First ESC L.L.C. ("DLJFE") and Holdings, these shares of Series A
Preferred Stock and Warrants were transferred to DLJFE. Holdings and the
Investors wish to amend a provision of the Subscription Agreement upon the
terms and subject to the conditions set forth herein.
In consideration of the premises and the agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally
bound hereby, the parties hereto agree as follows:
Section 1. DEFINITIONS. Capitalized terms used but not defined
herein have the meanings assigned to them in the Subscription Agreement.
Section 2. AMENDMENT TO THE SUBSCRIPTION AGREEMENT. (a) Section
6.1 of the Subscription Agreement is hereby amended by deleting the text
thereof in its entirety.
(b) Section 6.2 of the Subscription Agreement is hereby amended by
deleting the text thereof in its entirety.
Section 3. COUNTERPARTS. This Amendment No. 2 may be executed by
the parties hereto in separate counterparts, each of which when so executed
and delivered
<PAGE>
2
shall be an original, but all such counterparts shall together constitute but
one and the same instrument.
Section 4. HEADINGS, ETC. The headings of the various Sections of
this Amendment No. 2 are for convenience of reference only and shall not
modify, define, expand or limit any of the terms or provisions hereof.
Section 5. GOVERNING LAW. THE LAWS OF THE STATE OF NEW YORK SHALL
GOVERN THE INTERPRETATION, VALIDITY AND PERFORMANCE OF THE TERMS OF THIS
AGREEMENT, REGARDLESS OF THE LAW THAT MIGHT BE APPLIED UNDER APPLICABLE
PRINCIPLES OF CONFLICTS OF LAWS.
Section 6. SEVERABILITY. Any provision of this Amendment No. 2
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction
<PAGE>
3
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
No. 2 to be duly executed on the date first written above.
BCP/ESSEX HOLDINGS, INC.
by
/s/ David A. Owen
-------------------------------
Name: David A. Owen
Title: Vice President,
Treasurer and Chief
Financial Officer
(Principal Financial
Officer)
Investors:
GS CAPITAL PARTNERS, L.P.,
by GS ADVISORS, L.P.,
its general partner,
by GS ADVISORS, INC.,
its general partner,
by
/s/ Richard A. Friedman
-------------------------------
Name: Richard A. Friedman
Title: President
<PAGE>
4
STONE STREET FUND 1992, L.P.,
by STONE STREET PERFORMANCE
CORP., its general partner
by
/s/ C.H. Skodinski
-------------------------------
Name: C.H. Skodinski
Title: Vice President
BRIDGE STREET FUND 1992 L.P.,
by STONE STREET PERFORMANCE
CORP., its general partner
by
/s/ C.H. Skodinski
-------------------------------
Name: C.H. Skodinski
Title: Vice President
DLJ MERCHANT BANKING FUNDING, INC.
by
/s/ Thomas E. Siegler
-------------------------------
Name: Thomas E. Siegler
Title: Secretary
<PAGE>
5
DLJ INTERNATIONAL PARTNERS, C.V.
by DLJ MERCHANT BANKING, INC.,
its advisory general partner
by
/s/ Thomas E. Siegler
-------------------------------
Name: Thomas E. Siegler
Title: Secretary and
Treasurer
DLJ MERCHANT BANKING PARTNERS, L.P.
by DLJ MERCHANT BANKING, INC.,
its managing general partner
by
/s/ Thomas E. Siegler
-------------------------------
Name: Thomas E. Siegler
Title: Secretary and
Treasurer
DLJ FIRST ESC L.L.C.,
by DLJ LBO Plans Management
Corporation,
by
/s/ Thomas E. Siegler
-------------------------------
Name: Thomas E. Siegler
Title: Vice President and
Secretary
<PAGE>
6
CHEMICAL EQUITY ASSOCIATES, A
CALIFORNIA LIMITED PARTNERSHIP
by CHEMICAL VENTURE PARTNERS,
its general partner
by
/s/
-------------------------------
Name:
Title:
<PAGE>
Exhibit 9.04
AMENDMENT NO. 1 dated as of July 3, 1996, to the MANAGEMENT
STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT dated as of
October 9, 1992 (as amended hereby, and as further amended from
time to time, the "Management Stockholders Agreement"), among
BCP/ESSEX HOLDINGS INC. (as successor to B E ACQUISITION
CORPORATION), a Delaware corporation (the "Company"), the
MANAGEMENT PURCHASERS party thereto and BESSEMER HOLDINGS, L.P.
(as successor in interest to BESSEMER CAPITAL PARTNERS, L.P.), a
Delaware limited partnership.
WHEREAS the Company desires to sell to certain purchasers, and such
purchasers desire to purchase from Holdings, an aggregate of up to 13,000,000
shares of Common Stock of the Company ("Common Stock"); and
WHEREAS, in connection with the sale of such Common Stock, the
parties to the Management Stockholders Agreement wish to amend the Management
Stockholders Agreement upon the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, in consideration of the premises and the respective
agreements hereinafter set forth, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. Unless otherwise defined herein, each term
used herein that is defined in the Management Stockholders Agreement shall
have the meaning assigned thereto in the Management Stockholders Agreement.
SECTION 2. AMENDMENT OF MANAGEMENT STOCKHOLDERS AGREEMENT. The
Management Stockholders Agreement is hereby amended as follows:
(a) The definition of "Registrable Securities" in Section 1.22 of
the Management Stockholders Agreement is amended by inserting the phrase "by
the Company" in place of the phrase "pursuant to the BCP Subscription
Agreement or the Management Subscription Agreements".
SECTION 3. AGREEMENT TO BE BOUND. Each of BCE Partners, L.P., BGE
Partners, L.P., BNE Partners, L.P., and
<PAGE>
2
BTE Partners, L.P. (the "New Investors"), upon its acquisition of Common
Stock, agrees to be bound by the provisions of the Management Stockholders
Agreement as a Shareholder and shall have all the rights and obligations of a
Shareholder to the same extent and in the same manner as the parties thereto
and as additionally provided in this Amendment. Each of the New Investors
currently is a member of the BCP Group.
SECTION 4. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York, regardless of
the law that might be applied under applicable principles of conflicts of law.
SECTION 5. COUNTERPARTS; EFFECTIVENESS. The Amendment may be
signed in any number of counterparts, each of which shall be an original and
all of which together shall constitute the same instrument, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
SECTION 6. HEADINGS, ETC. The headings of the various sections of
this Amendment are for convenience of reference and shall not modify, define,
expand or limit any of the terms or provisions hereof.
SECTION 7. SEVERABILITY. Any provision of this Amendment which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and
<PAGE>
3
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
BESSEMER HOLDINGS, L.P.,
by KYLIX HOLDINGS, L.L.C.,
its general partner,
by DEMAREST CORPORATION,
a manager,
by /s/ Robert D. Lindsay
----------------------------
Name: Robert D. Lindsay
Title: President
THE MANAGEMENT PURCHASERS WHO ARE
PARTIES TO THE MANAGEMENT
SUBSCRIPTION AGREEMENTS,
by BESSEMER HOLDINGS, L.P., as
attorney-in-fact,
by KYLIX HOLDINGS, L.L.C.,
its general partner,
by DEMAREST CORPORATION,
a manager,
by /s/ Robert D. Lindsay
--------------------------
Name: Robert D. Lindsay
Title: President
<PAGE>
4
BCE PARTNERS, L.P.,
by KYLIX HOLDINGS, L.L.C.,
its general partner,
by DEMAREST CORPORATION,
a manager,
by /s/ Robert D. Lindsay
----------------------------
Name: Robert D. Lindsay
Title: President
BGE PARTNERS, L.P.,
by KYLIX HOLDINGS, L.L.C.,
its general partner,
by DEMAREST CORPORATION,
a manager,
by /s/ Robert D. Lindsay
----------------------------
Name: Robert D. Lindsay
Title: President
BNE PARTNERS, L.P.,
by KYLIX HOLDINGS, L.L.C.,
its general partner,
by DEMAREST CORPORATION,
a manager,
by /s/ Robert D. Lindsay
----------------------------
Name: Robert D. Lindsay
Title: President
BTE PARTNERS, L.P.,
by /s/ Edward Smith
---------------------------------
Name: Edward Smith
Title: Authorized Signatory
<PAGE>
5
BCP/ESSEX HOLDINGS INC.,
by /s/ Steven R. Abbott
---------------------------------
Name: Steven R. Abbott
Title: President
<PAGE>
Exhibit 9.05
AMENDMENT NO. 2 dated as of December 11, 1996, to the
MANAGEMENT STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT dated
as of October 9, 1992, as amended by Amendment No. 1 dated as of
July 3, 1996 (as so amended, the "Management Stockholders
Agreement"), among BCP/ESSEX HOLDINGS INC. (as successor to B E
ACQUISITION CORPORATION), a Delaware corporation (the "Company"),
the MANAGEMENT PURCHASERS party thereto and BESSEMER HOLDINGS,
L.P. (as successor in interest to BESSEMER CAPITAL PARTNERS,
L.P.), a Delaware limited partnership.
WHEREAS, the parties to the Management Stockholders Agreement wish to
amend the Management Stockholders Agreement upon the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the respective
agreements hereinafter set forth, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. Unless otherwise defined herein, each term
used herein that is defined in the Management Stockholders Agreement shall have
the meaning assigned thereto in the Management Stockholders Agreement.
SECTION 2. AMENDMENT OF MANAGEMENT STOCKHOLDERS AGREEMENT. The
Management Stockholders Agreement is hereby amended as follows:
(a) The definition of "BCP Group" in Section 1.01 is amended by
inserting the phrase ", PROVIDED that for purposes of this clause (B), the term
BCP Affiliate shall not include the Company or any person controlled by the
Company" immediately prior to the phrase "(collectively, "BCP Associates")".
(b) The definition of "Fair Market Value" in Section 1.12 is amended
by inserting the following clause immediately after the comma at the end of such
Section 1.12:
"PROVIDED, HOWEVER, that in the event no sale of Common Stock to BCP, the
Company or a Management Purchaser has
<PAGE>
occurred during the two year period prior to the date described in clause
(A), (B) or (C) above, as applicable, the value of shares of Common Stock
shall be determined pursuant to clause (ii) above.".
(c) The definition of "Initial Public Offering" in Section 1.15 is
amended by deleting the phrase "of at least 20% of the sum of (i) the total
number of shares of Common Stock of Holdings that are then outstanding and
(ii) the total number of shares of Common Stock of Holdings that are issuable
pursuant to options, warrants or other rights or upon the conversion or exchange
of any other securities then outstanding" and inserting in its place "of Common
Stock of Holdings".
(d) The definition of "Permitted Transferees" in Section 1.19 is
amended by inserting the phrase ", his spouse, his lineal descendants, any other
member of his family approved by the Board of Directors of the Company, a trust,
the beneficiaries of which include only such Management Purchaser, his spouse,
his lineal descendants and any other member of his family approved by the Board
of Directors of the Company," immediately after the phrase "the Company" in
clause (i) thereof.
(e) The definition of "Retirement" in Section 1.24 is amended by
deleting "65" and inserting in its place "60".
(f) Article II is amended by inserting at the end thereof the
following new Section 2.08:
"SECTION 2.08. EXCLUSIONS; TERMINATION. (a) This Article II
shall not apply to any sale of Common Stock to the Company in a transaction
approved by the Board of Directors of the Company or any duly appointed
committee thereof.
(b) This Article II shall terminate 90 days following the
Initial Public Offering.".
(g) Section 3.01(b) is amended by deleting the last sentence thereof
and inserting in its place the following sentence:
"All calculations pursuant to this paragraph (i) shall include any shares
of Common Stock issuable pursuant to employee stock options and (ii) shall
exclude and
<PAGE>
3
ignore any shares of Common Stock issuable pursuant to warrants, options
(other than employee stock options excluded in clause (i) above) and other
rights pursuant to convertible or exchangeable securities.".
(h) Section 4.01(a) shall be amended and restated to read as follows:
"(a) If, prior to the Initial Public Offering, a Management
Purchaser's employment with the Company and its subsidiaries is terminated,
then such Management Purchaser or his Estate (hereinafter sometimes
collectively referred to as the "Purchaser's Group") shall have the right,
subject to the provisions of Article V hereof, for one year following the
date of termination of employment of the Management Purchaser, to sell to
the Company (or its designee), and the Company (or its designee) shall be
required to purchase (subject to the terms of Article V hereof), on one
occasion from each member of the Purchaser's Group, all or a portion of the
shares of Common Stock then held by such member. Such purchase shall be
made (i) in the event of termination due to Retirement, Disability or death
of such Management Purchaser, at a price equal to the Fair Market Value of
such shares, and (ii) in the event of any other termination, at a price
equal to the lesser of (A) the Fair Market Value of such shares and (B) the
purchase price paid by such Management Purchaser for such shares."
(i) Section 4.01(b) shall be amended by deleting the phrase "90 days
(180 days in the event of death)" and inserting in its place "one year".
(j) Section 4.04(a) shall be amended by deleting the phrase ", the
Board may, in its sole discretion, allow such a sale pursuant to the provisions
hereof" and inserting in its place "and such Hardship Transferor establishes to
the reasonable satisfaction of the Board that a financial hardship does exist,
the Board will allow such a sale pursuant to the provisions hereof".
(k) Section 4.04(d) shall be amended by deleting the word "may" in
the proviso thereof and inserting in its place "will".
<PAGE>
4
(l) Section 5.02 shall be amended by deleting in its entirety the
last sentence of such paragraph and inserting in its place the following:
"The Company shall have the right to pay the purchase price for the shares
of Common Stock pursuant to Article II or IV hereof, by use of a Junior
Subordinated Note only if there exists at such time or could reasonably be
expected to exist (or the use of cash, or failure to use such Junior
Subordinated Note as payment would result in or could reasonably be
expected to result in) a Financing Default or a Violation.".
(m) Article VII is amended by inserting at the end thereof the
following new Section 7.18:
"SECTION 7.18. TERMINATION. This Agreement (other than with
respect to pending purchases and sales subject to this Agreement) shall
terminate thirty days following BCP Group ceasing to have Beneficial
Ownership of 14,000,000 shares of Common Stock (subject to adjustment for
any stock split, stock combination, stock dividend or other non-cash
distribution on such Common Stock).".
SECTION 3. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York, regardless of
the law that might be applied under applicable principles of conflicts of law.
SECTION 4. COUNTERPARTS; EFFECTIVENESS. The Amendment may be signed
in any number of counterparts, each of which shall be an original and all of
which together shall constitute the same instrument, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
SECTION 5. HEADINGS, ETC. The headings of the various sections of
this Amendment are for convenience of reference and shall not modify, define,
expand or limit any of the terms or provisions hereof.
SECTION 6. SEVERABILITY. Any provision of this Amendment which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and
<PAGE>
5
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
BESSEMER HOLDINGS, L.P.,
by KYLIX HOLDINGS, L.L.C., its
general partner,
by DEMAREST CORPORATION,
a manager,
by /s/ Robert D. Lindsay
------------------------
Name: Robert D. Lindsay
Title: President
THE MANAGEMENT PURCHASERS WHO ARE
PARTIES TO THE MANAGEMENT
SUBSCRIPTION AGREEMENT,
by /s/ Steven R. Abbott
------------------------
Name: Steven R. Abbott
Title: Attorney-in-Fact
BCP/ESSEX HOLDINGS INC.,
by /s/ Steven R. Abbott
------------------------
Name: Steven R. Abbott
Title: President
<PAGE>
6
BESSEMER HOLDINGS SPECIAL
SITUATIONS, L.P.
by KYLIX HOLDINGS, L.L.C., its
general partner,
by DEMAREST CORPORATION,
a manager,
by /s/ Robert D. Lindsay
------------------------
Name: Robert D. Lindsay
Title: President
<PAGE>
Exhibit 9.06
IRREVOCABLE PROXY
I, the undersigned, pursuant to Section 212 of the Delaware General
Corporation Law, hereby irrevocably appoint BESSEMER HOLDINGS, L.P. ("BH"),
a Delaware limited partnership, as attorney and proxy for the undersigned, to
vote, and to express written consent to any corporate action with respect to,
the total number of shares of Class A Common Stock, par value $0.01 per
share, of BCP/Essex Holdings Inc., a Delaware corporation ("BCP Holdings"),
currently owned by the undersigned, and any shares of capital stock of BCP
Holdings acquired by the undersigned from time to time subsequent to the date
hereof (collectively, the "Shares"); to take action by written consent and to
attend any and all meetings, and adjournments thereof, of the stockholders of
BCP Holdings called for any purpose; and to represent and otherwise to act
for the undersigned in the same manner and with the same effect as if such
action were taken by the undersigned.
The foregoing notwithstanding, the rights to exercise any and all
voting and consensual rights and powers accruing to the owner of the Shares
shall remain with the undersigned with respect to (i) the sale or merger of
BCP Holdings or Essex Group, Inc., a Michigan corporation ("Essex"), (ii) any
amendment of the Certificate of Incorporation of BCP Holdings that would
adversely affect the terms of the Shares and (iii) the election of the Board
of Directors of BCP Holdings in the event that BCP does not include at least
one member of the management of Essex in its nominees for such Board of
Directors.
The undersigned hereby revokes any previous proxies with respect to
the Shares that are the subject of this irrevocable proxy. This proxy is
irrevocable, coupled with an interest and has been granted pursuant to the
Management Stockholders and Registration Rights Agreement, dated as of
October 9, 1992, among BH (as successor to Bessemer Capital Partners, L.P.),
BCP Holdings (as successor to B E Acquisition Corporation), a Delaware
corporation, and the parties named therein. The undersigned became a party
to such agreement pursuant to a Subscription Agreement, dated as of December
27, 1996, between BCP Holdings and the undersigned. Notwithstanding anything
to the contrary in the foregoing, this proxy shall not be applicable to (and
shall be deemed revoked as to) Shares otherwise covered by this proxy that
are sold by the undersigned (other than
<PAGE>
2
Shares sold subsequent to any record date for any meeting of stockholders of
BCP Holdings or any action by stockholders in lieu of a meeting as to which the
undersigned retains voting rights). This proxy shall expire on October 9, 2002.
The undersigned authorizes the attorney and proxy appointed herein
to substitute any other person to act hereunder, to revoke any such
substitution and to file this proxy or any substitution or revocation with
the Secretary of BCP Holdings.
IN WITNESS WHEREOF, the undersigned has executed this proxy this
day of December, 1996.
________________________________________
Name:
Address:
YOUR SIGNATURE TO THIS PROXY FORM SHOULD BE EXACTLY THE SAME AS THE NAME
IMPRINTED ON YOUR STOCK CERTIFICATE. PERSONS SIGNING AS EXECUTORS,
ADMINISTRATORS, TRUSTEES OR IN SIMILAR CAPACITIES SHOULD SO INDICATE, FOR
JOINT ACCOUNTS, THE NAME OF EACH OWNER MUST BE SIGNED.
<PAGE>
EXHIBIT 11.01
BCP/ESSEX HOLDINGS INC.
CALCULATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
SUCCESSOR
PREDECESSOR -------------------------------------------------------
------------ THREE MONTH
NINE MONTH PERIOD
PERIOD ENDED ENDED YEAR ENDED
SEPTEMBER DECEMBER DECEMBER 31
30, 31, ------------------------------------------
1992 1992 1993 1994 1995 1996
------------ ----------- --------- --------- --------- ---------
IN THOUSANDS OF DOLLARS,
EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
Income (loss) applicable to
common and common
equivalent shares:
Income (loss) before
extraordinary charge..... $ (5,893) $ (9,951) $ (10,856) $ 7,486 $ 13,271 $ 37,508
Extraordinary charge -net
of income tax benefit.... 122 -- 3,367 -- 2,971 1,183
------------ ----------- --------- --------- --------- ---------
Net income (loss).......... (6,015) (9,951) (14,223) 7,486 10,300 36,325
Less:
Preferred Stock
Redemption Premium......... -- -- -- -- -- 4,185
Preferred Stock Dividend... -- 1,081 5,186 6,008 6,962 4,248
Preferred Stock
Accretion................ -- 165 671 687 703 2,024
------------ ----------- --------- --------- --------- ---------
Adjusted net income
(loss)................... $ (6,015) $ (11,197) $ (20,080) $ 791 $ 2,635 $ 25,868
------------ ----------- --------- --------- --------- ---------
------------ ----------- --------- --------- --------- ---------
Weighted average common
shares outstanding....... 45,890,000 35,151,966 35,151,966 35,152,134 35,203,717 41,222,609
Common shares issuable in
respect to common stock
equivalents, with a
dilutive effect.......... 3,252,731 2,558,591 2,558,591 2,558,484 2,514,363 4,433,270
------------ ----------- --------- --------- --------- ---------
Weighted average number of
common and common
equivalent shares........ 49,142,731 37,710,557 37,710,557 37,710,618 37,718,080 45,655,816
------------ ----------- --------- --------- --------- ---------
------------ ----------- --------- --------- --------- ---------
Income (loss) per common
and common equivalent
share*:
Income (loss) before
extraordinary charge..... $ (.12) $ (.30) $ (.44) $ .02 $ .15 $ .60
Extraordinary charge....... -- -- .09 -- .08 .03
------------ ----------- --------- --------- --------- ---------
Net income (loss).......... $ (.12) $ (.30) $ (.53) $ .02 $ .07 $ .57
------------ ----------- --------- --------- --------- ---------
------------ ----------- --------- --------- --------- ---------
</TABLE>
* 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 12.01
BCP/ESSEX HOLDINGS INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
SUCCESSOR
PREDECESSOR -------------------------------------------------------
------------- THREE MONTH
NINE MONTH PERIOD YEAR ENDED
PERIOD ENDED ENDED DECEMBER 31,
SEPTEMBER 30, DECEMBER 31 ------------------------------------------
1992 1992 1993 1994 1995 1996
------------- ----------- --------- --------- --------- ---------
IN THOUSANDS OF DOLLARS
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes and
extraordinary charge............... $ (5,315) $ (14,551) $ (9,304) $ 16,986 $ 27,651 $ 66,496
Add:
Interest expense..................... 35,042 15,603 56,723 60,155 49,055 39,994
Portion of rents representative of
interest factor.................... 1,379 650 2,073 2,302 2,490 2,977
Current period amortization of
interest capitalized in prior
periods............................ 48 -- 8 95 120 143
------------- ----------- --------- --------- --------- ---------
Income as adjusted................... $ 31,154 $ 1,702 $ 49,500 $ 79,538 $ 79,316 $ 109,61
------------- ----------- --------- --------- --------- ---------
------------- ----------- --------- --------- --------- ---------
Fixed charges:
Interest incurred:
Amount expensed...................... $ 35,042 $ 15,603 $ 56,723 $ 60,155 $ 49,055 $ 39,994
Amount capitalized................... 220 116 1,599 132 565 558
Portion of rents representative of
interest factor.................... 1,379 650 2,073 2,302 2,490 2,977
------------- ----------- --------- --------- --------- ---------
Total fixed charges.................. 36,641 16,369 60,395 62,589 52,110 43,529
Preferred stock dividends............ N/A 1,081 5,186 6,008 6,962 4,248
------------- ----------- --------- --------- --------- ---------
Total fixed charges and preferred
stock dividends.................... $ 36,641 $ 17,450 $ 65,581 $ 68,597 $ 59,072 $ 47,777
------------- ----------- --------- --------- --------- ---------
------------- ----------- --------- --------- --------- ---------
Ratio of earnings to fixed
charges(a)......................... -- -- -- 1.3 1.5 2.5
------------- ----------- --------- --------- --------- ---------
------------- ----------- --------- --------- --------- ---------
Ratio of earnings to fixed charges
and preferred stock dividends(b)... -- -- -- 1.2 1.3 2.3
------------- ----------- --------- --------- --------- ---------
------------- ----------- --------- --------- --------- ---------
</TABLE>
(a) Earnings of the Successor and Predecessor in 1992 and the Successor in 1993
were insufficient to cover fixed charges by the amount of $5,487, $14,667
and $10,895 for the nine month period ended September 30, 1992, the three
month period ended December 31, 1992, and for the year 1993, respectively.
(b) Earnings of the Successor and Predecessor in 1992 and the Successor in 1993
were insufficient to cover fixed charges and preferred stock dividends by
the amount of $5,487, $15,748 and $16,081 for the nine month period ended
September 30, 1992, the three month period ended December 31, 1992, and for
the year 1993, respectively.
<PAGE>
EXHIBIT 21.01
BCP/ESSEX HOLDINGS INC. (DELAWARE)
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<S> <C>
Essex Group, Inc......................................................... Michigan
Essex Group, Inc......................................................... Delaware
Essex International, 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>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
FORM 10-K AS OF DECEMBER 31, 1996
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,429
<SECURITIES> 0
<RECEIVABLES> 194,956
<ALLOWANCES> 5,239
<INVENTORY> 217,643
<CURRENT-ASSETS> 423,936
<PP&E> 392,597
<DEPRECIATION> 112,108
<TOTAL-ASSETS> 842,755
<CURRENT-LIABILITIES> 192,229
<BONDS> 421,340
0
0
<COMMON> 456
<OTHER-SE> 145,634
<TOTAL-LIABILITY-AND-EQUITY> 842,755
<SALES> 1,332,049
<TOTAL-REVENUES> 1,332,049
<CGS> 1,102,460
<TOTAL-COSTS> 1,102,460
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,994
<INCOME-PRETAX> 66,496
<INCOME-TAX> 28,988
<INCOME-CONTINUING> 37,508
<DISCONTINUED> 0
<EXTRAORDINARY> 1,183
<CHANGES> 0
<NET-INCOME> 36,325
<EPS-PRIMARY> .57
<EPS-DILUTED> .57
</TABLE>
<PAGE>
Exhibit 99.2
AMENDMENT NO. 1 dated as of June 5, 1995, to REGISTRATION
RIGHTS AGREEMENT dated as of October 9, 1992, among BCP/ESSEX
HOLDINGS, INC. (as successor by merger to B E Acquisition
Corporation) ("Holdings") and the Persons (other than Holdings)
listed on the signature pages hereof (the "Investors").
Holdings and the Investors are parties to a Registration Rights
Agreement dated as of October 9, 1992, (the "Registration Rights Agreement").
Holdings and the Investors wish to amend a provision of the Registration Rights
Agreement upon the terms and subject to the conditions set forth herein.
In consideration of the premises and the agreements contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, and intending to be legally bound hereby, the
parties hereto agree as follows:
Section 1. DEFINITIONS. Capitalized terms used but not defined
herein have the meanings assigned to them in the Registration Rights Agreement.
Section 2. AMENDMENT TO SECTION 1(A) OF THE REGISTRATION RIGHTS
AGREEMENT. Section 1(a) of the Registration Rights Agreement is hereby amended
by amending the definition of "Registrable Securities" in its entirety to read
as follows:
'"REGISTRABLE SECURITIES" shall mean the Warrants and the Common
Shares (but shall not include any Warrant or any Common Share, (i) which
has been effectively registered under the Securities Act and disposed of in
accordance with a Registration Statement covering such security or
(ii) which has been distributed to the public pursuant to Rule 144 under
the Securities Act, and, in each such case, the certificate or other
evidence of ownership of which does not and is not required to bear any
legend previously required by the Subscription Agreement, or any other
legend of similar import and is not subject to any stop transfer order).'
Section 3. COUNTERPARTS. This Amendment No. 1 may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered
<PAGE>
2
shall be an original, but all such counterparts shall together constitute but
one and the same instrument.
Section 4. HEADINGS, ETC. The headings of the various Sections of
this Amendment No. 1 are for convenience of reference only and shall not modify,
define, expand or limit any of the terms or provisions hereof.
Section 5. GOVERNING LAW. THE LAWS OF THE STATE OF NEW YORK SHALL
GOVERN THE INTERPRETATION, VALIDITY AND PERFORMANCE OF THE TERMS OF THIS
AGREEMENT, REGARDLESS OF THE LAW THAT MIGHT BE APPLIED UNDER APPLICABLE
PRINCIPLES OF CONFLICTS OF LAWS.
Section 6. SEVERABILITY. Any provision of this Amendment No. 1 which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and
<PAGE>
3
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
No. 1 to be duly executed on the date first written above.
BCP/ESSEX HOLDINGS, INC.
by
/s/ David A. Owen
----------------------------
Name: David A. Owen
Title: Vice President,
Treasurer and Chief
Financial Officer
(Principal Financial
Officer)
Investors:
GS CAPITAL PARTNERS, L.P.,
by GS ADVISORS, L.P., its
general partner,
by GS ADVISORS, INC., its
general partner,
by
/s/ Richard A. Friedman
----------------------------
Name: Richard A. Friedman
Title: President
<PAGE>
4
STONE STREET FUND 1992, L.P.,
by STONE STREET PERFORMANCE
CORP., its general partner
by
/s/ C.H. Skodinski
----------------------------
Name: C.H. Skodinski
Title: Vice President
BRIDGE STREET FUND 1992 L.P.,
by STONE STREET PERFORMANCE
CORP., its general partner
by
/s/ C.H. Skodinski
----------------------------
Name: C.H. Skodinski
Title: Vice President
DLJ MERCHANT BANKING FUNDING, INC.
by
/s/ Thomas E. Siegler
----------------------------
Name: Thomas E. Siegler
Title: Secretary
DLJ FIRST ESC L.L.C.,
by DLJ LBO Plans Management
Corporation,
by
/s/ Thomas E. Siegler
----------------------------
Name: Thomas E. Siegler
Title: Vice President and
Secretary
<PAGE>
5
DLJ INTERNATIONAL PARTNERS, C.V.
by DLJ MERCHANT BANKING, INC.,
its advisory general partner
by
/s/ Thomas E. Siegler
----------------------------
Name: Thomas E. Siegler
Title: Secretary and
Treasurer
DLJ MERCHANT BANKING PARTNERS, L.P.
by DLJ MERCHANT BANKING, INC.,
its managing general partner
by
/s/ Thomas E. Siegler
----------------------------
Name: Thomas E. Siegler
Title: Secretary and
Treasurer
CHEMICAL EQUITY ASSOCIATES, A
CALIFORNIA LIMITED PARTNERSHIP
by CHEMICAL VENTURE PARTNERS,
its general partner
by
/s/
----------------------------
Name:
Title:
<PAGE>
Exhibit 99.04
BCP/ESSEX HOLDINGS INC.
AMENDMENT NO. 1 TO AMENDED AND RESTATED STOCK OPTION PLAN
The BCP/Essex Holdings Inc. Amended and Restated Stock Option Plan
(the "Plan") is amended as follows:
1. The first sentence of Section 3 of Plan is amended to read as follows:
SECTION 3. LIMITS ON OPTIONS. The total number of Shares for which Options
may be granted to Optionees under this Plan shall not exceed in the
aggregate 9,596,288.
2. Except as set forth in Paragraph 1 above, all other provisions of the
Plan remain unchanged.
3. The changes set forth in this Amendment are incorporated in the
BCP/Essex Holdings Inc. Amended and Restated Stock Option Plan.
