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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1997.
REGISTRATION NO. 333-26925
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 6
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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INTERNATIONAL WIRE GROUP, INC.
(and Certain Subsidiaries Identified in Footnote (1) Below)
(Exact Name of Co-Registrant as Specified in Its Charter)
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DELAWARE 3357 43-1705942
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
101 SOUTH HANLEY ROAD, SUITE 400
ST. LOUIS, MISSOURI 63105 DAVID J. WEBSTER
(314) 719-1000 101 SOUTH HANLEY ROAD, SUITE 400
(Address, Including Zip Code, and Telephone Number, ST. LOUIS, MISSOURI 63105
Including (314) 746-2280
Area Code of Co-Registrants' Principal Executive (Name, Address, including Zip Code, and Telephone
Offices) Number, Including Area Code, of Agent For Service)
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Copies to:
R. SCOTT COHEN
WEIL, GOTSHAL & MANGES LLP
100 CRESCENT COURT
SUITE 1300
DALLAS, TEXAS 75201
(214) 746-7700
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of the Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
(1) The following direct and indirect subsidiaries of International Wire Group,
Inc., are Co-Registrants (the "Subsidiary Guarantors"), each of which is
incorporated in the state and has the I.R.S. Employer Identification Number
indicated: Camden Wire Co., Inc., a New York corporation (16-1075193); ECM
Holding Company, a Delaware corporation (35-1937759); Omega Wire, Inc., a
Delaware corporation (04-3030938); OWI Corporation, a New York corporation
(16-1405230); Wire Harness Industries, Inc., a Delaware corporation
(43-1769493); Wirekraft Employment Company, a Delaware corporation
(35-1937760); Wirekraft Industries, Inc., a Delaware corporation
(35-1741595); and Wire Technologies, Inc., an Indiana corporation
(35-1753924).
THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE CO-REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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INTERNATIONAL WIRE GROUP, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K SHOWING THE LOCATION IN THE
PROSPECTUS OF THE INFORMATION REQUIRED BY PART I OF FORM S-1
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FORM S-1 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
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1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Cover Page of Registration Statement;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Inside Front Cover Page of Prospectus
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Summary; Risk Factors; Selected Financial
Data
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Not Applicable
6. Dilution................................... Not Applicable
7. Selling Security Holders................... Summary; Selling Securityholder and Plan of
Distribution
8. Plan of Distribution....................... Front Cover Page of Prospectus; Summary;
Selling Securityholder and Plan of
Distribution
9. Description of Securities to be
Registered................................. Description of the Notes
10. Interests of Named Experts and Counsel..... Legal Matters
11. Information with Respect to the
Registrant................................. Cover Page of Registration Statement;
Summary; Risk Factors; Capitalization;
Selected Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Unaudited Pro Forma Financial Information;
Business; Management; Outstanding Voting
Securities of Holding and Principal Holders
Thereof; Certain Relationships and Related
Transactions; Description of Senior Bank
Facility; Description of Other
Indebtedness; Description of the Notes;
Legal Matters
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 12, 1997
PROSPECTUS
$5,000,000
INTERNATIONAL WIRE GROUP, INC.
14% SENIOR SUBORDINATED NOTES DUE JUNE 1, 2005
This Prospectus relates to (i) $5,000,000 in aggregate principal amount of
14% Senior Subordinated Notes due June 1, 2005 (the "Notes") of International
Wire Group, Inc., a Delaware corporation (the "Company"), which are being
registered under the Securities Act of 1933, as amended (the "Securities Act"),
on behalf of the holder thereof (the "Selling Securityholder") in order to
permit their public sale or other distribution (see "Selling Securityholder and
Plan of Distribution"), and (ii) the Subsidiary Guarantees (as defined herein)
relating to the Notes.
Interest on the Notes is payable semiannually on June 1 and December 1 of
each year. The Notes will mature on June 1, 2005. Except as described below, the
Company may not redeem the Notes prior to June 1, 2000. The Notes are not
subject to any sinking fund requirement. Upon the occurrence of a Change of
Control (as defined herein), (i) the Company will have the option, at any time
on or prior to June 1, 2000, to redeem the Notes, in whole but not in part, at a
redemption price equal to 100% of the principal amount thereof plus the
Applicable Premium (as defined herein), plus accrued and unpaid interest, if
any, to the date of redemption, and (ii) if the Company does not so redeem the
Notes or if such Change of Control occurs after June 1, 2000, the Company will
be required to make an offer to repurchase the Notes at a price equal to 101% of
the principal amount thereof, together with accrued and unpaid interest, if any,
to the date of repurchase. See "Description of the Notes."
The Notes are unsecured and are subordinated to all existing and future
Senior Indebtedness (as defined herein) of the Company. The Notes rank pari
passu with all existing and any future Senior Subordinated Indebtedness (as
defined herein) of the Company and rank senior to any Subordinated Obligation
(as defined herein) of the Company. The Notes are unconditionally (as well as
jointly and severally) guaranteed (each, a "Subsidiary Guarantee") on an
unsecured, senior subordinated basis, by each subsidiary of the Company (other
than foreign subsidiaries) in existence on the date hereof and will be
unconditionally guaranteed by each subsidiary of the Company (other than foreign
subsidiaries) acquired in the future (collectively, the "Subsidiary
Guarantors"). The Company is a holding company that derives all of its operating
income and cash flow from its subsidiaries, the capital stock of each of which
constitutes the Company's only material assets and is pledged (except that only
65% of the capital stock of foreign subsidiaries is pledged) to collateralize
the obligations under the Senior Bank Facility (as defined herein). See
"Description of Senior Bank Facility." As of June 30, 1997, (i) the aggregate
amount of the Company's outstanding Senior Indebtedness (excluding unused
commitments of approximately $52.0 million under the Senior Bank Facility) and
Senior Subordinated Indebtedness (including the Notes) were approximately $201.0
million and $305.0 million, respectively, and (ii) the aggregate amount of
Guarantor Senior Indebtedness (as defined herein) and Guarantor Senior
Subordinated Indebtedness (as defined herein) were approximately $208.5 million
(including guarantees of the Senior Bank Facility) and $305.0 million
(consisting of the Subsidiary Guarantee and guarantees of the Company's 11 3/4%
Notes (as defined herein) and 11 3/4% Series B Notes (as defined herein)),
respectively. See "Description of the Notes -- Ranking."
The Notes may be sold from time to time by the Selling Securityholder
through underwriters or dealers, through brokers or other agents, or directly to
one or more purchasers, at market prices prevailing at the time of sale or at
prices otherwise negotiated. The Company will receive no portion of the proceeds
of the sale of the Notes and will bear the expenses incident to the registration
of the Notes. The Selling Securityholder and any broker-dealers, agents or
underwriters that participate with the Selling Securityholder in the
distribution of the securities to which this Prospectus relates may be deemed to
be "underwriters" within the meaning of the Securities Act, and any commissions
received by them and any profit on the resale of such securities purchased by
them may be deemed to be underwriting commissions or discounts under the
Securities Act. See "Selling Securityholder and Plan of Distribution" herein for
indemnification arrangements between the Company and the Selling Securityholder.
There is currently no public market for the Notes and there can be no
assurance that an active public market for the Notes will develop.
FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE NOTES OFFERED
HEREBY, SEE "RISK FACTORS" BEGINNING ON PAGE 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1997.
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No person has been authorized to give any information or make any
representations, other than those contained in this Prospectus, in connection
with the offering made hereby, and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or any other person. This Prospectus does not constitute an offer to sell or
solicitation of an offer to buy any securities other than those to which it
relates or an offer to any person in any jurisdiction in which it is unlawful to
make such an offer or solicitation. Neither the delivery of this Prospectus nor
any offer or sale made hereunder shall, under any circumstances, create any
implication that the information set forth herein is correct as of any time
subsequent to the date hereof.
TABLE OF CONTENTS
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PAGE
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Available Information....................... 2
Summary..................................... 3
Risk Factors................................ 7
Use of Proceeds............................. 12
Capitalization.............................. 12
Selected Financial Data..................... 13
Unaudited Pro Forma Financial Information... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 25
Business.................................... 32
Management.................................. 39
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PAGE
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Outstanding Voting Securities of Holding and
Principal Holders Thereof................. 48
Certain Relationships and
Related Transactions...................... 50
Description of Senior Bank Facility......... 51
Description of Other Indebtedness........... 52
Description of the Notes.................... 53
Selling Securityholder and Plan of
Distribution.............................. 77
Certain United States Federal Income Tax
Considerations............................ 78
Legal Matters............................... 80
Experts..................................... 81
Index to Financial Statements............... F-1
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AVAILABLE INFORMATION
The Company and the Subsidiary Guarantors have filed with the Securities
and Exchange Commission (the "SEC") a registration statement under the
Securities Act (the "Registration Statement") (which term includes any
amendments thereto) with respect to the securities offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement and the exhibits and schedules thereto, to which reference is hereby
made for further information with respect to the Company and the securities
offered hereby. Statements contained herein concerning the provisions of any
document are not necessarily complete and, in each instance, reference is made
to the copy of such document filed as an exhibit to the Registration Statement
for a more complete description of the matter involved and each such statement
shall be deemed qualified in its entirety by such reference.
Pursuant to the Indenture, the 11 3/4% Notes Indenture and the 11 3/4%
Series B Notes Indenture (each, as defined herein), the Company has agreed to
comply with the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith files reports
with the SEC. The Registration Statement, as well as such reports and other
information filed by the Company with the SEC, may be inspected at the public
facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the SEC located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
materials may be obtained from the Public Reference Section of the SEC, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The SEC
maintains a World Wide Web site that contains reports, proxy and information
statements and other information that are filed through the SEC's Electronic
Data Gathering, Analysis and Retrieval System. This Web site can be accessed at
http://www.sec.gov.
The Company will furnish holders of the securities offered hereby with
annual reports containing, among other information, audited financial statements
certified by an independent public accounting firm and the Company will also
furnish such other reports and other information as it may determine or
otherwise required pursuant to Section 13 of the Exchange Act or, in the case of
the Notes, the Indenture.
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SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. This
Prospectus contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. When used
in this Prospectus, the words "believe," "intends," "anticipates" and other
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those projected, including the actions
of the Company's competitors and customers, and those discussed under the
caption "Risk Factors." As used in this Prospectus, unless the context requires
otherwise, all references herein to (i) "Wirekraft" mean Wirekraft Industries,
Inc. and its subsidiaries (and any predecessor to any of the foregoing), (ii)
"ECM" mean Electro Componentes de Mexico, S.A. de C.V., a wholly-owned
subsidiary of Wirekraft and certain related assets acquired by Wirekraft in
December 1994, (iii) "Omega" mean Omega Wire, Inc. and its subsidiaries (and any
predecessor to any of the foregoing), (iv) "Dekko" mean the businesses of
Hoosier Wire, Inc., Dekko Automotive Wire, Inc., Albion Wire, Inc. and
Silicones, Inc., a group of affiliated companies operating together under the
trade name "Dekko Wire Technology Group" acquired by the Company in March 1996,
(v) "Camden" mean Camden Wire Co., Inc. acquired by the Company in February
1997, (vi) "Holding" mean International Wire Holding Company and (vii) the
"Company" mean International Wire Group, Inc., a wholly-owned subsidiary of
Holding, and where appropriate, its subsidiaries.
THE COMPANY
The Company is engaged in the design, manufacture and marketing of (i)
non-insulated bare and tin-plated copper wire, (ii) insulated copper wire and
(iii) wire harnesses. The Company's products are utilized by a wide variety of
customers primarily in the appliance, computer and data communications,
automotive and industrial equipment industries.
- Non-insulated copper wire products (or conductors) are used to transmit
digital, video or audio signals or conduct electricity and are sold to a
variety of insulated wire manufacturers.
- Insulated wire products (copper conductors insulated with plastic, rubber
or other polymeric compounds) are incorporated in wire harnesses that
control and distribute electrical current in automobiles, trucks and
appliances.
- Wire harnesses (assemblies of wires that are terminated with connectors,
switches or other electrical devices) are sold to major U.S.
manufacturers of household appliances and utilized in refrigerators,
washers, dryers, ranges and dishwashers.
The principal executive offices of the Company and each Subsidiary
Guarantor are located at 101 South Hanley Road, Suite 400, St. Louis, Missouri
63105 and its telephone number is (314) 719-1000.
RECENT DEVELOPMENTS
On March 5, 1996, Wire Technologies, Inc. ("Wire Technologies"), a
wholly-owned subsidiary of the Company, acquired Dekko (the "DWT Acquisition")
for total consideration of approximately $173.2 million. Wire Technologies is
engaged in the design, manufacture and marketing of insulated and non-insulated
copper wire.
On February 12, 1997, the Company acquired all of the issued and
outstanding common stock of Camden, a wholly-owned subsidiary of Oneida LTD.
(the "Camden Acquisition"), for total consideration of approximately $65.0
million. Camden is engaged in the design, manufacture and marketing of
non-insulated bare and tin-plated copper wire.
In connection with the Camden Acquisition, Holding and the Company entered
into an Amended and Restated Credit Agreement (the "Credit Agreement") dated as
of February 12, 1997, with The Chase Manhattan Bank, Bankers Trust Company and
the other lenders party thereto pursuant to which the
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Company obtained financing of up to $428.5 million, consisting of an $111.0
million, five year term Tranche A loan, an $115.0 million, seven year term
Tranche B loan, an $127.5 million, eight year term Tranche C loan (collectively,
the "Term Facility") and a $75.0 million revolving loan and letter of credit
(the "Revolver," and together with the "Term Facility," the "Senior Bank
Facility").
On June 17, 1997, the Company sold $150.0 million aggregate principal
amount of its 11 3/4% Series B Senior Subordinated Notes due 2005 (the "11 3/4%
Series B Notes") in a private placement to Chase Securities Inc. and BT
Securities Corporation, which immediately resold the 11 3/4% Series B Notes
pursuant to Rule 144A promulgated under the Securities Act (the "Rule 144A
Offering").
In connection with the Rule 144A Offering, the Company sought and received
the consent of the lenders under the Senior Bank Facility to the application of
the net proceeds from the Rule 144A Offering as described in the following
paragraph and entered into the First Amendment to Amended and Restated Credit
Agreement, dated as of June 17, 1997 (the "First Amendment"). See "Description
of Senior Bank Facility."
The Company used the net proceeds of the Rule 144A Offering to repay
approximately $158.3 million principal amount of borrowings outstanding under
the Senior Bank Facility (the "Senior Debt Repayment"). The Senior Debt
Repayment was allocated in the following manner: first, approximately $65.5
million was applied to the Tranche A Loan to reduce the aggregate principal
amount outstanding thereunder to $25.0 million; second, approximately $80.5
million was applied to the Tranche B Loan, which was combined with the Tranche C
Loan pursuant to the First Amendment, to reduce the aggregate principal amount
outstanding thereunder to $160.5 million; and third, approximately $12.3 million
was applied to the Revolver to repay in full all amounts outstanding thereunder.
See "Description of Senior Bank Facility."
The Notes were issued on February 12, 1997, as part of an original issue of
the Company's 14% Senior Subordinated Notes due June 1, 2005 in an aggregate
principal amount of $10.0 million. On June 20, 1997, the Company repurchased
$5.0 million aggregate principal amount of such 14% Senior Subordinated Notes
(the "Notes Repurchase") for 113% of the principal amount of such notes, plus
accrued and unpaid interest. The Notes offered hereby represent the Company's
14% Senior Subordinated Notes remaining outstanding following the Notes
Repurchase. See "Certain Relationships and Related Transactions."
THE NOTES
Issuer..................... International Wire Group, Inc.
Securities Offered......... $5,000,000 principal amount of 14% Senior
Subordinated Notes due 2005.
Maturity................... June 1, 2005.
Interest Payment Dates..... June 1 and December 1 of each year.
Sinking Fund............... None.
Optional Redemption........ Except as described below, the Company may not
redeem the Notes prior to June 1, 2000. On and
after such date, the Company may redeem the Notes,
in whole or in part, at any time at the redemption
prices set forth herein, together with accrued and
unpaid interest, if any, to the date of redemption.
See "Description of the Notes -- Optional
Redemption."
Change of Control.......... Upon the occurrence of a Change of Control, (i) the
Company will have the option, at any time on or
prior to June 1, 2000, to redeem the Notes, in
whole but not in part, at a redemption price equal
to 100% of the principal amount thereof plus the
Applicable Premium set forth herein, plus accrued
and unpaid interest, if any, to the date of
redemption, and (ii) if the Company does not so
redeem the Notes or if such Change of Control
occurs after June 1, 2000, the Company will be
required to make an offer to repurchase the Notes
at a price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest,
if any, to the
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date of repurchase. See "Description of the
Notes -- Change of Control."
Subsidiary Guarantee....... The Notes are unconditionally (as well as jointly
and severally) guaranteed on an unsecured, senior
subordinated basis, by the Subsidiary Guarantors.
See "Description of the Notes -- Subsidiary
Guarantee."
Ranking.................... The Notes are unsecured and are subordinated to all
existing and future Senior Indebtedness of the
Company. The Notes rank pari passu with all
existing and any future Senior Subordinated
Indebtedness of the Company and rank senior to all
Subordinated Obligations of the Company. The
Subsidiary Guarantees are general, unsecured,
senior subordinated obligations of the Subsidiary
Guarantors, subordinated in right of payment to
existing and future Guarantor Senior Indebtedness
of the Subsidiary Guarantors. The Subsidiary
Guarantees rank pari passu with all existing and
future Guarantor Senior Subordinated Indebtedness.
As of June 30, 1997, (i) the aggregate amount of
the Company's outstanding Senior Indebtedness and
Senior Subordinated Indebtedness were approximately
$201.0 million (excluding unused commitments of
approximately $52.0 million under the Senior Bank
Facility) and $305.0 million (including the Notes),
respectively, and (ii) the aggregate amount of
Guarantor Senior Indebtedness and Guarantor Senior
Subordinated Indebtedness were approximately $208.5
million (including guarantees of the Senior Bank
Facility) and $305.0 million (consisting of the
Subsidiary Guarantee and guarantees of the
Company's 11 3/4% Senior Subordinated Notes due
2005 (the "11 3/4% Notes") and 11 3/4% Series B
Notes), respectively.
Restrictive Covenants...... The indenture under which the Notes were issued
(the "Indenture") limits, among other things: (i)
the incurrence of additional indebtedness by the
Company and its subsidiaries, (ii) the payment of
dividends on, and redemption of, capital stock of
the Company and its subsidiaries and the redemption
of certain subordinated obligations of the Company
and its subsidiaries, (iii) investments, (iv) sales
of assets and subsidiary stock, (v) transactions
with affiliates and (vi) consolidations, mergers
and transfers of all or substantially all the
Company's assets. The Indenture also prohibits
certain restrictions on distributions from the
Company's subsidiaries. However, all of these
limitations and prohibitions are subject to a
number of important qualifications and exceptions.
See "Description of the Notes -- Certain
Covenants."
PLAN OF DISTRIBUTION
This Prospectus relates to $5,000,000 in aggregate principal amount of
Notes, which are being registered under the Securities Act on behalf of the
Selling Securityholder in order to permit their public sale or other
distribution. See "Selling Securityholder and Plan of Distribution."
The Notes may be sold from time to time by the Selling Securityholder
through underwriters or dealers, through brokers or other agents, or directly to
one or more purchasers, at market prices prevailing at the time of sale or at
prices otherwise negotiated. The Selling Securityholder and any broker-dealers,
agents or underwriters that participate with the Selling Securityholder in the
distribution of the securities to which this Prospectus relates may be deemed to
be "underwriters" within the meaning of the Securities Act, and any commissions
received by them and any profit on the resale of such securities purchased by
them may be deemed to be underwriting commissions or discounts under the
Securities Act.
5
<PAGE> 8
There is currently no public market for the Notes and there can be no
assurance that an active public market for the Notes will develop.
USE OF PROCEEDS
The Selling Securityholder will receive all proceeds from the sale of the
Notes. The Company has agreed to pay all expenses related to the registration of
the Notes, which are estimated at $293,000.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors to be considered
prior to making an investment in the securities offered hereby.
6
<PAGE> 9
RISK FACTORS
Prospective investors should carefully consider the following factors in
addition to other information included in this Prospectus before purchasing any
of the Notes.
SUBSTANTIAL LEVERAGE
The Company is highly leveraged and has indebtedness that is substantial in
relation to its total stockholder's equity. As of June 30, 1997, the Company and
its consolidated subsidiaries had an aggregate of $525.8 million of outstanding
indebtedness and a stockholder's deficit of $43.9 million. See "Capitalization."
For the year ended December 31, 1996, after giving pro forma effect to the DWT
Acquisition, the Rule 144A Offering, the Senior Debt Repayment and the Notes
Repurchase as if they had occurred on January 1, 1996, the Company's earnings
would have been insufficient to cover fixed charges (consisting principally of
interest on its long-term debt) by approximately $88.5 million. For the six
months ended June 30, 1997, after giving pro forma effect to the Rule 144A
Offering, the Senior Debt Repayment and the Notes Repurchase as if they had
occurred on January 1, 1996, the Company's ratio of earnings to fixed charges
would have been 1.3 to one. See "Unaudited Pro Forma Financial Information." The
Company may incur additional indebtedness in the future, subject to certain
limitations contained in (i) the Senior Bank Facility; (ii) the indenture (the
"11 3/4% Notes Indenture"), dated as of June 12, 1995, pursuant to which the
Company issued its 11 3/4% Notes; (iii) the indenture (the "11 3/4% Series B
Notes Indenture"), dated as of June 17, 1997, pursuant to which the Company
issued its 11 3/4% Series B Notes; and (iv) the Indenture. See "Description of
Senior Bank Facility," "Description of Other Indebtedness" and "Description of
the Notes."
The Company's high degree of leverage could have important consequences to
the holders of the Notes, including the following: (i) the Company's ability to
obtain additional financing for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes may be limited; (ii)
a substantial portion of the Company's cash flow from operations must be
dedicated to the payment of principal and interest on its indebtedness, thereby
reducing the funds available to the Company for other purposes; (iii) certain of
the Company's borrowings are and will continue to be at variable rates of
interest, which exposes the Company to the risk of increased interest rates;
(iv) the indebtedness outstanding under the Senior Bank Facility is secured and
matures prior to the maturity of the Notes; and (v) the Company's substantial
degree of leverage may limit its flexibility to adjust to changing market
conditions, reduce its ability to withstand competitive pressures and could make
it more vulnerable to a downturn in general economic conditions or its business.
See "Description of Senior Bank Facility," "Description of Other Indebtedness"
and "Description of the Notes."
ABILITY TO SERVICE DEBT
The Company's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness will depend on its financial and
operating performance which, in turn, is subject to prevailing economic
conditions and to certain financial, business and other factors beyond its
control. If the Company's cash flow and capital resources are insufficient to
fund its debt service obligations, the Company may be forced to reduce or delay
planned expansion and capital expenditures, sell assets, obtain additional
equity capital or restructure its debt. There can be no assurance that the
Company's cash flow and capital resources will be sufficient for payment of its
indebtedness in the future. In the absence of such operating results and
resources, the Company could face substantial liquidity problems and might be
required to dispose of material assets or operations to meet its debt service
and other obligations, and there can be no assurance as to the timing of such
sales or the proceeds which the Company could realize therefrom. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
SUBORDINATION
The payment of principal of and interest on, and any premium or other
amounts owing in respect of, the Notes is subordinated to the prior payment in
full of all existing and future Senior Indebtedness of the Company, including
all amounts owing under the Senior Bank Facility. In the event of a bankruptcy,
liquidation, dissolution, reorganization or similar proceeding with respect to
the Company, assets of the
7
<PAGE> 10
Company will be available to pay obligations on the Notes and other Senior
Subordinated Indebtedness only after all Senior Indebtedness has been paid in
full, and there can be no assurance that there will be sufficient assets to pay
amounts due on all or any of the Notes. In addition, under certain
circumstances, the Company may not pay principal of, premium, if any, or
interest on, or any other amounts owing in respect of the Notes, or purchase,
redeem or otherwise retire the Notes, in the event of certain defaults with
respect to Senior Indebtedness, including the Senior Bank Facility.
As of June 30, 1997, there was approximately $208.5 million of Senior
Indebtedness (including the issuance of letters of credit pursuant to the Senior
Bank Facility to support borrowings of certain of the Company's subsidiaries),
outstanding. See "Capitalization." In addition, there was approximately $52.0
million available for borrowing under the Senior Bank Facility as of June 30,
1997 for general corporate purposes and working capital needs, which would be
Senior Indebtedness if borrowed. Additional Senior Indebtedness may be incurred
by the Company from time to time, subject to certain restrictions. See
"Description of Senior Bank Facility," "Description of Other Indebtedness" and
"Description of the Notes."
Similarly, the indebtedness evidenced by the Subsidiary Guarantee is
subordinated to the prior payment in full of all existing and future Guarantor
Senior Indebtedness, including all amounts owing pursuant to the guarantees of
the Senior Bank Facility. As of June 30, 1997, there was approximately $208.5
million of Guarantor Senior Indebtedness (including guarantees of the Senior
Bank Facility and subsidiary guarantees of, and borrowings backed by letters of
credit issued pursuant to, the Senior Bank Facility) and $305.0 million of
Guarantor Senior Subordinated Indebtedness (consisting of the Subsidiary
Guarantee and guarantees of the Company's 11 3/4% Notes and 11 3/4% Series B
Notes), respectively. See "Description of Senior Bank Facility," "Description of
Other Indebtedness" and "Description of the Notes -- Ranking" and "-- Subsidiary
Guarantee."
INTEREST RATE SENSITIVITY
As borrowings under the Senior Bank Facility (approximately $185.5 million
as of June 30, 1997) bear interest at floating rates that fluctuate over time,
the Company is particularly sensitive to prevailing interest rates. A change in
interest rates of 1/8 of 1% would result in a change of approximately $232,000
in the Company's annual interest expenses. A substantial increase in interest
rates would adversely affect the Company's annual income and cash flow that
would be available to meet its debt service obligations, including the Notes. In
order to minimize this risk the Company has entered into two interest rate
agreements. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Financing
Arrangements."
HOLDING COMPANY STRUCTURE
The Company is a holding company that derives all of its operating income
from its subsidiaries. The Company must rely upon dividends and other payments
from its subsidiaries to generate the funds necessary to meet its obligations,
including the payment of principal of, premium, if any, and interest on the
Notes. The ability of the Company's subsidiaries to make such payments may be
restricted by, among other things, applicable state and foreign corporate laws
and other laws and regulations.
Indebtedness of the Company under the Senior Bank Facility is guaranteed by
Holding and each of its direct or indirect subsidiaries (except foreign
subsidiaries), including the Subsidiary Guarantors, and secured by a pledge of
all the capital stock of the Company, all of the capital stock and the tangible
and intangible assets of such subsidiaries, and 65% of the capital stock of
foreign subsidiaries. Therefore, the rights of holders of the Notes to
participate in any distribution of assets of any Subsidiary Guarantor upon its
bankruptcy, liquidation, dissolution, reorganization or otherwise will, as is
the case with other unsecured creditors of such subsidiary, be subject to prior
claims of senior creditors of that Subsidiary Guarantor (including holders of
Indebtedness under the Senior Bank Facility and holders of other Guarantor
Senior Indebtedness). See "Description of Senior Bank Facility," "Description of
Other Indebtedness" and "Description of the Notes."
8
<PAGE> 11
FRAUDULENT CONVEYANCE
The Subsidiary Guarantee may be subject to review under relevant federal
and state fraudulent conveyance and similar statutes in a bankruptcy or
reorganization case or a lawsuit by or on behalf of creditors of any of the
Subsidiary Guarantors. Under these statutes, if a court were to find that
obligations (such as the Subsidiary Guarantee) were incurred with the intent of
hindering, delaying or defrauding present or future creditors, that a Subsidiary
Guarantor received less than a reasonably equivalent value or fair consideration
for those obligations or that such Subsidiary Guarantor contemplated insolvency
with a design to prefer one or more creditors to the exclusion, in whole or in
part, of other creditors and, at the time of the incurrence of the obligations,
the obligor either (i) was insolvent or rendered insolvent by reason thereof,
(ii) was engaged or was about to engage in a business or transaction for which
its remaining unencumbered assets constituted unreasonably small capital or
(iii) intended to or believed that it would incur debts beyond its ability to
pay such debts as they matured or became due, such court could void such
Subsidiary Guarantor's obligations under the Subsidiary Guarantee, subordinate
such Subsidiary Guarantor's obligations under the Subsidiary Guarantee to other
indebtedness of the Subsidiary Guarantors or take other action detrimental to
the holders of the Notes.
The measure of insolvency for purposes of a fraudulent conveyance claim
will vary depending upon the law of the jurisdiction being applied. Generally,
however, a company will be considered insolvent at a particular time if the sum
of its debts at that time is greater than the then fair value of its assets or
if the fair salable value of its assets at that time is less than the amount
that would be required to pay its probable liability on its existing debts as
they become absolute and mature.
RESTRICTIVE DEBT COVENANTS
The Senior Bank Facility, the 11 3/4% Notes Indenture, the 11 3/4% Series B
Notes Indenture and the Indenture contain a number of significant covenants
that, among other things, restrict the ability of the Company and its
subsidiaries to dispose of assets, incur additional indebtedness, incur
guarantee obligations, repay other indebtedness or amend other debt instruments
(including the Indenture and the Subsidiary Guarantee), pay dividends, create
liens on assets, enter into leases, make investments, loans or advances, make
acquisitions, engage in mergers or consolidations, make capital expenditures,
enter into sale/leaseback transactions or engage in certain transactions with
subsidiaries and affiliates and otherwise restrict corporate activities. In
addition, under the Senior Bank Facility, the Company will be required to comply
with specified financial ratios and tests, including minimum interest coverage
and maximum leverage ratios and a trailing four quarter minimum EBITDA (earnings
before interest, taxes, depreciation and amortization) test. See "Description of
Senior Bank Facility," "Description of Other Indebtedness" and "Description of
the Notes."
The Company's ability to comply with the covenants and restrictions
contained in the Senior Bank Facility, the 11 3/4% Notes Indenture, the 11 3/4%
Series B Notes Indenture and the Indenture may be affected by events beyond its
control, including prevailing economic, financial and industry conditions. The
breach of any of such covenants or restrictions could result in a default under
the Senior Bank Facility, the 11 3/4% Notes Indenture, the 11 3/4% Series B
Notes Indenture and/or the Indenture, which would permit the senior lenders or
the holders of the 11 3/4% Notes, the 11 3/4% Series B Notes or the Notes, as
the case may be, to declare all amounts borrowed thereunder to be due and
payable, together with accrued and unpaid interest, and the commitments of the
senior lenders to make further extensions of credit under the Senior Bank
Facility could be terminated. If the Company were unable to repay its
indebtedness to its senior lenders, such lenders could proceed against the
collateral securing such indebtedness as described under "Description of Senior
Bank Facility." See "Description of Senior Bank Facility," "Description of Other
Indebtedness" and "Description of the Notes."
CHANGE OF CONTROL
Upon a Change of Control, as defined in the Indenture, (i) the Company will
have the option at any time on or prior to June 1, 2000, to redeem the Notes, in
whole but not in part, at a redemption price equal to 100% of the principal
amount thereof plus the Applicable Premium, plus accrued and unpaid interest, if
any, to the date of redemption, and (ii) if the Company does not so redeem the
Notes or if such Change of Control
9
<PAGE> 12
occurs after June 1, 2000, the Company will be required to offer to purchase all
of the outstanding Notes at a price equal to 101% of the principal amount
thereof to the date of repurchase plus accrued and unpaid interest, if any, to
the date of repurchase. There can be no assurance that the Company will have
funds available to repurchase the Notes upon the occurrence of a Change of
Control. In particular, a Change of Control may cause an acceleration of, or
require an offer to repurchase under, the Senior Bank Facility and other
indebtedness, if any, of the Company and its subsidiaries, in which case such
indebtedness may be required to be repaid in full before repurchase of the
Notes. See "Description of Senior Bank Facility." Additionally, the occurrence
of the events that would constitute a Change of Control would also constitute a
"Change of Control" under the 11 3/4% Notes Indenture and the 11 3/4% Series B
Notes Indenture. In such a case, the Company would be subject to the same
obligations with respect to the 11 3/4% Notes and the 11 3/4% Series B Notes as
the Company would be subject to with respect to the Notes. See "Description of
Other Indebtedness" and "Description of the Notes -- Change of Control." The
inability to repay such indebtedness, if accelerated, and to purchase all of the
tendered Notes would constitute an event of default under the Indenture.
DEPENDENCE ON CERTAIN INDUSTRIES
A substantial portion of the Company's wire and wire harness products are
ultimately used in the appliance, computer and data communications and
automotive industries. Accordingly, a downturn in those industries could
adversely affect the Company. Furthermore, an overall softening in the economy
could adversely affect generally all the markets the Company serves.
DEPENDENCE ON KEY CUSTOMERS
One customer accounted for approximately 18% of the Company's total sales
in 1996, and certain other customers of the company account for significant
portions of the Company's sales. The loss of any such account, whether as a
result of general or regional economic conditions, a diminished demand for the
Company's products, or any other reason, could adversely affect the Company's
results of operations. See "Business -- Key Customers."
FOREIGN OPERATIONS
The Company manufactures certain of its products in Mexico, which such
products management estimates accounted for approximately 18% of net sales in
1996. Foreign operations are subject to special risks that can materially affect
the cash flows and financial position of the Company, including currency
exchange rate fluctuations, inflation, exchange controls and political and other
risks.
COMPETITION
The wire and cable and wire harness markets in which the Company operates
are highly competitive. Some of the Company's competitors are larger than the
Company and have greater financial and other resources available to them and
there can be no assurance that the Company can compete successfully with such
other companies.
CONTROLLING STOCKHOLDER
All of the common stock of the Company is owned by Holding. The majority
stockholder of Holding is Hicks, Muse, Tate & Furst Equity Fund II, L.P. ("HM
Fund II"), an affiliate of Hicks, Muse, Tate & Furst Incorporated, a private
investment firm headquartered in Dallas with offices in New York, St. Louis and
Mexico City, specializing in strategic investments, leveraged acquisitions and
real estate equity investments ("Hicks, Muse"). As a result, Hicks, Muse
effectively will be able to elect all the members of the Board of Directors of
Holding and therefore direct the management and policies of the Company. The
interests of Hicks, Muse and its affiliates may differ from the interests of
holders of the Notes. See "Outstanding Voting Securities of Holding and
Principal Holders Thereof" and "Certain Relationships and Related Transactions."
ERISA CONSIDERATIONS
HM Fund II is a private investment fund which is managed by an affiliate of
Hicks, Muse and which was formed for the principal purpose of making investments
in companies. HM Fund II currently owns at least
10
<PAGE> 13
80% of the total outstanding common stock of Holding and thereby indirectly
possesses at least 80% of the total combined voting power and total value of
shares of all classes of stock of the Company. HM Fund II also currently owns
and may acquire at least 80% of the total combined voting power or the total
value of shares of all classes of stock of other companies, some of which may
sponsor or contribute to pension plans subject to Title IV of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or Section 412 of
the Internal Revenue Code of 1986, as amended (the "Code"). In accordance with
the provisions of ERISA and the Code, the Company is a member of a controlled
group of corporations or a group of trades or businesses under common control
that includes HM Fund II (the "Fund II ERISA Group"), and each member of such
group is jointly and severally liable for certain unfunded pension liabilities
and pension contributions which arise during such member's inclusion within such
group. While Hicks, Muse expects each member of the Fund II ERISA Group to
satisfy its pension-related obligations with respect to its employees to the
fullest extent permitted by law, without assistance from other members of the
Fund II ERISA Group, there are no assurances that an insolvency, bankruptcy or
other condition would not occur at one member of the Fund II ERISA Group which
could result in a liability to other members of the Fund II ERISA Group
(including the Company). Hicks, Muse is not currently aware of any accrued and
unpaid pension contribution, or termination of or withdrawal from a pension plan
subject to Title IV of ERISA or Section 412 of the Code at any member of the
Fund II ERISA Group which would have a material adverse effect on the Company.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state, local and foreign
laws and regulations relating to the storage, handling, generation, treatment,
emission, release, discharge and disposal of certain substances and wastes.
While the Company believes that it is currently in material compliance with
those laws and regulations, there can be no assurance that the Company will not
incur significant costs to remediate violations thereof or to comply with
changes in existing laws and regulations (or the enforcement thereof). Such
costs could have a material adverse effect on the Company's results of
operations and financial condition. As a manufacturer that uses hazardous
materials in its operations, it is possible that in the future the Company will
be subject to new or more stringent regulatory requirements. The Company is
currently involved in environmental monitoring activities at its Camden, New
York and Jordan, New York facilities. See "Business -- Environmental Matters."
LACK OF PUBLIC MARKET
The Company does not intend to apply for a listing of the Notes on a
securities exchange or on any automated dealer quotation system. There is
currently no established market for the Notes and there can be no assurance as
to the liquidity of markets that may develop for the Notes, the ability of the
holders of the Notes to sell their Notes or the price at which such holders
would be able to sell their Notes. If such markets were to exist, the Notes
could trade at prices that may be lower than the initial market values thereof
depending on many factors, including prevailing interest rates and the markets
for similar securities.
The liquidity of, and trading market for, the Notes also may be adversely
affected by general declines in the market for similar securities. Such a
decline may adversely affect such liquidity, and trading markets independent of
the financial performance of, and prospects for, the Company.
11
<PAGE> 14
USE OF PROCEEDS
This Prospectus has been prepared for use by the Selling Securityholder in
sales of the Notes. The Company will receive no proceeds from the sales of the
Notes by the Selling Securityholder, but will bear all expenses (estimated at
$293,000) relating to the registration of the Notes.
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
at June 30, 1997.
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------
(IN THOUSANDS)
<S> <C>
Long-term debt (including current maturities):
Revolver(1)............................................... $ --
Term Facility:
Tranche A Loan......................................... 25,000
Tranche B Loan......................................... 160,500
11 3/4% Senior Subordinated Notes due 2005................ 150,000
11 3/4% Series B Senior Subordinated Notes due 2005(2).... 163,036
14% Senior Subordinated Notes due 2005.................... 5,000
Other(3).................................................. 22,223
--------
Total long-term debt.............................. 525,759
Stockholder's equity (deficit)(4)........................... (43,915)
--------
Total capitalization.............................. $481,844
========
</TABLE>
- ---------------
(1) The Senior Bank Facility provides for maximum revolving loans of up to
$75,000. See "Description of Senior Bank Facility."
(2) Includes approximately $13,036 attributable to amortizable bond premium
received in connection with the Rule 144A Offering.
(3) Includes $15,500 in industrial revenue bonds issued by a Subsidiary
Guarantor that have been guaranteed by the Company.
(4) Included in stockholder's equity (deficit) are the following:
<TABLE>
<S> <C>
Contributed capital....................................... $114,193
Predecessor basis......................................... (67,762)
Accumulated deficit....................................... (90,346)
--------
Total stockholder's equity (deficit).................... $(43,915)
========
</TABLE>
12
<PAGE> 15
SELECTED FINANCIAL DATA
THE COMPANY
The selected financial data below presents the financial information for
the seven months ended December 31, 1995, for the year ended December 31, 1996,
for the six months ended June 30, 1996 and for the six months ended June 30,
1997. The data for the seven months ended December 31, 1995 and for the year
ended December 31, 1996 are derived from the audited consolidated financial
statements of the Company. The data for the six months ended June 30, 1996 and
June 30, 1997 are derived from the unaudited consolidated financial statements
of the Company, which, in the opinion of management of the Company, include all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation. The selected financial data should be read in conjunction
with the consolidated financial statements of the Company and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included elsewhere herein. Certain financial information regarding
the Company's industry segments is provided in the notes to the consolidated
financial statements of the Company included elsewhere herein.
<TABLE>
<CAPTION>
SEVEN
MONTHS SIX MONTHS ENDED
ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -------------------
1995 1996 1996 1997
------------ ------------ -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT RATIO AMOUNTS)
<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales........................................ $245,583 $546,981 $266,116 $365,551
Cost of goods sold............................... 195,221 420,823 207,968 284,378
Selling, general and administrative expenses..... 17,129 43,885 20,578 27,719
Depreciation and amortization.................... 11,020 31,341 12,946 16,167
Impairment, unusual and plant closing
charges(1).................................... 1,750 84,250 4,000 500
Inventory valuation adjustment(2)................ -- 8,500 8,500 --
-------- -------- -------- --------
Operating income (loss)....................... 20,463 (41,818) 12,124 36,787
Interest expense................................. (19,931) (43,013) (20,583) (25,380)
Amortization of deferred financing costs......... (1,468) (3,701) (1,814) (2,057)
Other (expense) income........................... (158) 312 132 11
-------- -------- -------- --------
Income (loss) before income tax provision..... (1,094) (88,220) (10,141) 9,361
Income tax provision............................. 2,197 1,262 575 3,943
-------- -------- -------- --------
Income (loss) before extraordinary item....... (3,291) (89,482) (10,716) 5,418
Extraordinary item............................... -- -- -- (2,991)(3)
-------- -------- -------- --------
Net income (loss)............................. $ (3,291) $(89,482) $(10,716) $ 2,427
======== ======== ======== ========
OTHER DATA:
EBITDA, as adjusted(4)........................... $ 33,233 $ 82,273 $ 37,570 $ 53,454
Capital expenditures............................. 5,751 15,849 5,486 7,679
Total assets..................................... 427,920 531,020 603,284 614,796
Long-term obligations (including current
maturities)................................... 338,677 447,667 466,541 525,759
Ratio of earnings to fixed charges(5)............ -- -- -- 1.3x
Deficiency of earnings available to cover fixed
charges(5).................................... (1,094) (88,220) (10,141) --
CASH FLOW DATA:
Net cash from (used in) operating activities..... $ 13,334 $ 31,980 $ 3,478 $ 8,331
Net cash from (used in) investing activities..... (346,797) (176,108) (165,745) (66,675)
Net cash from (used in) financing activities..... 333,463 144,128 165,103 58,344
</TABLE>
13
<PAGE> 16
- ---------------
(1) Represents charges relating to plant closings in the amounts of $1,750,
$6,000, $4,000 and $500 in the seven months ended December 31, 1995, the
year ended December 31, 1996, the six months ended June 30, 1996 and the six
months ended June 30, 1997, respectively. In addition, included in the year
ended December 31, 1996 are charges relating to the write-off of goodwill
principally related to the acquisition of Wirekraft in the amount of
$78,250. See Note 10 to the Company's consolidated financial statements for
the year ended December 31, 1996.
(2) Represents a pre-tax inventory valuation charge to reduce the last in, first
out ("LIFO") valuation of copper in inventory as a result of the decline in
the average price of copper during 1996. See Note 4 to the Company's
consolidated financial statements for the year ended December 31, 1996.
(3) The extraordinary item in the six months ended June 30, 1997, represents a
$2,991 loss on the early extinguishment of debt (net of income taxes of
$1,995).
(4) As used herein, "EBITDA, as adjusted" is defined as operating income (loss)
adjusted to exclude impairment, unusual and plant closing charges, and other
one-time charges. EBITDA is presented because (i) it is a widely accepted
financial indicator of a company's ability to incur and service debt and
(ii) it is the basis on which the Company's compliance with certain
financial covenants contained in the Indenture, the 11 3/4% Notes Indenture,
the 11 3/4% Series B Notes Indenture and the Senior Bank Facility is
principally determined. However, EBITDA, as adjusted, does not purport to
represent cash provided by operating activities as reflected in the
Company's consolidated statements of cash flow, is not a measure of
financial performance under generally accepted accounting principles
("GAAP") and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with GAAP. Also, the measure
of EBITDA, as adjusted, may not be comparable to similar measures reported
by other companies. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(5) For purposes of calculating the ratio of earnings to fixed charges and the
deficiency of earnings available to cover fixed charges, "earnings"
represent operating income (loss) before income taxes plus fixed charges.
"Fixed charges" consist of interest on all indebtedness, amortization of
deferred financing costs and the portion (approximately one-third) of rental
expenses that management believes is representative of the interest
component of rent expense.
14
<PAGE> 17
WIREKRAFT (A PREDECESSOR COMPANY)
The selected financial data below presents the financial information of
Wirekraft and its predecessor, Kirtland Indiana, Limited Partnership ("KILP"),
for the periods indicated. The data for the year ended November 30, 1992 and for
the period December 1, 1992 through December 21, 1992 are derived from the
audited financial statements of KILP. The data for the period December 22, 1992
through November 30, 1993, the year ended November 30, 1994 and the six months
ended May 31, 1995 are derived from the audited consolidated financial
statements of Wirekraft. In connection with the December 2, 1994 acquisition
(the "ECM Acquisition") of ECM and certain assets of General Electric Company
("GE"), WB Holdings Inc. became a wholly-owned subsidiary of Wirekraft, and,
accordingly, references to Wirekraft shall include WB Holdings Inc. The
following information should be read in conjunction with the audited
consolidated financial statements of Wirekraft and KILP and the notes thereto,
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.
<TABLE>
<CAPTION>
KILP WIREKRAFT
--------------------------- -------------------------------------------
DECEMBER 1, DECEMBER 22,
1992 THROUGH 1992 THROUGH YEAR ENDED SIX MONTHS
NOVEMBER 30, DECEMBER 21, NOVEMBER 30, NOVEMBER 30, ENDED MAY 31,
1992 1992 1993 (1) 1994 1995
------------ ------------ ------------ ------------ -------------
(IN THOUSANDS, EXCEPT RATIO AMOUNTS)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales..................... $174,684 $ 9,714 $181,188 $240,972 $168,053
Cost of goods sold............ 146,597 8,339 150,092 201,602 138,851
Selling, general and
administrative expenses..... 10,869 505 10,582 14,319 13,301
Depreciation and
amortization................ 5,141 218 4,496 6,435 6,474
Compensation expense.......... -- -- -- -- 895(2)
Expenses related to sale...... -- 6,929(3) -- -- 501(4)
Expenses related to plant
closings.................... -- -- -- -- 2,000(5)
-------- ------- -------- -------- --------
Operating income (loss)..... 12,077 (6,277) 16,018 18,616 6,031
Interest expense.............. (4,761) (1,418)(6) (8,645) (10,565) (8,020)
Amortization of deferred
financing costs............. -- -- (1,677) (1,995) (1,657)
-------- ------- -------- -------- --------
Income (loss) before income
taxes and extraordinary
item...................... 7,316 (7,695) 5,696 6,056 (3,646)
Income tax provision
(benefit)(7)................ -- -- 3,155 3,023 (2,114)
-------- ------- -------- -------- --------
Income (loss) before
extraordinary item........ 7,316 (7,695) 2,541 3,033 (1,532)
Extraordinary item............ -- -- -- (7,835)(8)
-------- ------- -------- -------- --------
Net income (loss)........... $ 7,316 $(7,695) $ 2,541 $ 3,033 $ (9,367)
======== ======= ======== ======== ========
OTHER DATA:
EBITDA, as adjusted (9)....... $ 18,673 $ 870 $ 20,514 $ 25,051 $ 15,901
Capital expenditures.......... 2,122 136 3,705 6,248 2,914
Total assets.................. 81,074 80,421 146,671 178,488 241,277
Long-term obligations
(including current
maturities)................. 45,294 42,143 93,123 111,639 148,386
Ratio of earnings to fixed
charges (10)................ 2.5x -- 1.5x 1.5x --
Deficiency of earnings
available to cover fixed
charges (10)................ -- (7,695) -- -- (3,646)
CASH FLOW DATA:
Net cash from (used in)
operating activities........ $ 15,710 $ 601 $ 8,620 $ 2,318 $ (3,921)
Net cash from (used in)
investing activities........ (1,964) (136) (115,026) (18,002) (47,887)
Net cash from (used in)
financing activities........ (13,009) (652) 106,646 17,497 51,663
</TABLE>
15
<PAGE> 18
- ---------------
(1) On December 21, 1992, WB Holdings Inc., through a series of acquisitions
and mergers (the "Original Wirekraft Acquisition"), acquired all of the
issued and outstanding common stock of Bristol Holding Corporation and
Burcliff Holdings Corporation, the parent companies of the general partners
of KILP.
(2) Represents payments to senior management of Wirekraft for the redemption of
employee stock options in connection with the combination of Wirekraft and
Omega in June 1995 (the "Wirekraft/Omega Combination") as described under
"Business -- General."
(3) Represents non-recurring expenses associated with the Original Wirekraft
Acquisition, which included exit bonuses, severance arrangements and
brokerage and legal fees.
(4) Represents non-recurring expenses of Wirekraft associated with the
Wirekraft/Omega Combination, which included, among other things, brokerage
and legal fees.
(5) Represents expenses related to the closing of certain domestic wire harness
facilities.
(6) Includes write-off of deferred financing costs of $1,211 associated with
the Original Wirekraft Acquisition.
(7) The results of operations for the year ended November 30, 1992 and the
period from December 1, 1992 through December 21, 1992 did not include a
provision for income taxes since the net income for KILP is included in the
income tax returns of its partners.
(8) The extraordinary item in the six months ended May 31, 1995, represents a
$7,835 loss on the early extinguishment of debt (net of income taxes of
$4,930).
(9) As used herein, "EBITDA, as adjusted" is defined as operating income (loss)
adjusted to exclude impairment, unusual and plant closing charges, and
other one-time charges. EBITDA is presented because (i) it is a widely
accepted financial indicator of a company's ability to incur and service
debt and (ii) it is the basis on which the Company's compliance with
certain financial covenants contained in the Indenture, the 11 3/4% Notes
Indenture, the 11 3/4% Series B Notes Indenture and the Senior Bank
Facility is principally determined. However, EBITDA, as adjusted, does not
purport to represent cash provided by operating activities as reflected in
the Company's consolidated statements of cash flow, is not a measure of
financial performance under GAAP and should not be considered in isolation
or as a substitute for measures of performance prepared in accordance with
GAAP. Also, the measure of EBITDA, as adjusted, may not be comparable to
similar measures reported by other companies. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations." An
adjustment was made to EBITDA for the year ended November 30, 1993 in the
amount of $1,455. This adjustment represents charges to operations incurred
by KILP but not assumed by the Company.
(10) For purposes of calculating the ratio of earnings to fixed charges and the
deficiency of earnings available to cover fixed charges, "earnings"
represent operating income (loss) before income taxes plus fixed charges.
"Fixed charges" consist of interest on all indebtedness, amortization of
deferred financing costs and the portion (approximately one-third) of
rental expenses that management believes is representative of the interest
component of rent expense.
16
<PAGE> 19
OMEGA (A PREDECESSOR COMPANY)
The selected financial data below presents the financial information of
Omega and its predecessor, THL-Omega Holding Corporation ("THL-Omega"), for the
periods indicated. The data for the years ended December 31, 1992, 1993 and 1994
and the three months ended March 31, 1995 are derived from the audited
consolidated financial statements of THL-Omega. The data for the two months
ended May 31, 1995, are derived from the audited consolidated financial
statements of Omega. The following information should be read in conjunction
with the audited consolidated financial statements of Omega and the notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," included elsewhere herein.
<TABLE>
<CAPTION>
THL-OMEGA OMEGA
------------------------------------------------- ----------
THREE TWO
MONTHS MONTHS
YEARS ENDED DECEMBER 31, ENDED ENDED
--------------------------------- MARCH 31, MAY 31,
1992 1993 1994 1995 1995(1)
-------- -------- -------- ------------ ----------
(IN THOUSANDS, EXCEPT RATIO AMOUNTS)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales............................. $108,312 $107,004 $134,457 $38,736 $ 23,295
Cost of goods sold.................... 82,008 80,276 98,012 29,401 17,512
Selling, general and administrative
expenses............................ 8,925 12,061 10,839 2,651 1,639
Depreciation and amortization......... 5,488 5,191 5,761 1,459 1,233
Compensation expense.................. -- -- -- 9,715(2) --
Expenses related to sale.............. -- -- -- 1,689(3) --
-------- -------- -------- ------- --------
Operating income (loss)............. 11,891 9,476(4) 19,845 (6,179) 2,911
Interest expense...................... (6,526) (6,026) (5,932) (1,478) (1,797)
Amortization of deferred financing
costs............................... (285) (289) (262) (50) (238)
Other income.......................... 1,015 772 296 32 --
-------- -------- -------- ------- --------
Income (loss) before income taxes
and extraordinary item............ 6,095 3,933 13,947 (7,675) 876
Income tax provision.................. 2,550 1,892 5,787 484 171
-------- -------- -------- ------- --------
Income (loss) before extraordinary
item.............................. 3,545 2,041 8,160 (8,159) 705
Extraordinary item.................... -- -- -- (1,148)(5) (4,044)(6)
-------- -------- -------- ------- --------
Net income (loss)................... $ 3,545 $ 2,041 $ 8,160 $(9,307) $ (3,339)
======== ======== ======== ======= ========
OTHER DATA:
EBITDA, as adjusted(7)................ $ 17,379 $ 14,667(4) $ 25,606 $ 6,684 $ 4,144
Capital expenditures.................. 1,947 3,683 8,667 1,597 581
Total assets.......................... 87,342 85,868 101,675 97,657 176,659
Long-term obligations (including
current maturities)................. 64,554 58,174 56,093 54,615 128,116
Ratio of earnings to fixed
charges(8).......................... 1.8x 1.6x 3.1x -- 1.4x
Deficiency of earnings available to
cover fixed charges(8).............. -- -- -- (7,675) --
CASH FLOW DATA:
Net cash from (used in) operating
activities.......................... $ 3,474 $ 10,070 $ 11,064 $ 3,604 $ 4,987
Net cash from (used in) investing
activities.......................... 594 (3,683) (8,667) (1,597) (159,661)
Net cash from (used in) financing
activities.......................... (4,721) (6,380) (2,081) (1,536) 154,674
</TABLE>
- ---------------
(1) On March 31, 1995, Omega acquired all of the issued and outstanding common
stock of THL-Omega (the "Original Omega Acquisition").
(2) Represents payments to senior management for the redemption of stock options
and stock that was issued immediately prior to the Original Omega
Acquisition for consideration less than the fair value.
(3) Represents expenses of the sellers associated with the Original Omega
Acquisition.
17
<PAGE> 20
(4) During 1993 a charge of approximately $3,100 was recorded related to certain
one time bad debt write-offs. Excluding the effects of this charge,
operating income and EBITDA, as adjusted, would have been $12,576 and
$17,767, respectively.
(5) The extraordinary item in the three months ended March 31, 1995, represents
a $1,148 loss on the early extinguishment of debt (net of income taxes of
$765).
(6) The extraordinary item in the two months ended May 31, 1995, represents a
$4,044 loss on the early extinguishment of debt (net of income taxes of
$2,082).
(7) As used herein, "EBITDA, as adjusted" is defined as operating income (loss)
adjusted to exclude impairment, unusual and plant closing charges, and other
one-time charges. EBITDA is presented because (i) it is a widely accepted
financial indicator of a company's ability to incur and service debt and
(ii) it is the basis on which the Company's compliance with certain
financial covenants contained in the Indenture, the 11 3/4% Indenture, the
11 3/4% Series B Indenture and the Senior Bank Facility is principally
determined. However, EBITDA, as adjusted, does not purport to represent cash
provided by operating activities as reflected in the Company's consolidated
statements of cash flow, is not a measure of financial performance under
GAAP and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with GAAP. Also, the measure
of EBITDA, as adjusted, may not be comparable to similar measures reported
by other companies. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(8) For purposes of calculating the ratio of earnings to fixed charges and the
deficiency of earnings available to cover fixed charges, "earnings"
represent operating income (loss) before income taxes plus fixed charges.
"Fixed charges" consist of interest on all indebtedness, amortization of
deferred financing costs and the portion (approximately one-third) of rental
expenses that management believes is representative of the interest
component of rent expense.
18
<PAGE> 21
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information (the "Unaudited Pro
Forma Financial Information") of the Company is based on the audited and
unaudited consolidated financial statements of the Company included elsewhere in
this Prospectus, as adjusted to give effect to the DWT Acquisition, the Rule
144A Offering, the Senior Debt Repayment and the Notes Repurchase.
The statement of operations data included in the Unaudited Pro Forma
Financial Information for the year ended December 31, 1996 has been prepared to
give effect to the DWT Acquisition, the Rule 144A Offering, the Senior Debt
Repayment and the Notes Repurchase as if they had occurred on January 1, 1996.
The statement of operations data included in the Unaudited Pro Forma Financial
Information for the six months ended June 30, 1997 has been prepared to give
effect to the Rule 144A Offering, the Senior Debt Repayment and the Notes
Repurchase as if they had occurred on January 1, 1996. The pro forma adjustments
are based upon available information and certain assumptions that the Company
believes are reasonable. The DWT Acquisition was accounted for using the
purchase method of accounting whereby the total acquisition cost has been
allocated to the consolidated assets and liabilities based upon their estimated
respective fair values.
The Unaudited Pro Forma Financial Information does not purport to be
indicative of the results that would have been obtained had such transactions
been completed as of the assumed dates and for the periods presented or that may
be obtained in the future.
19
<PAGE> 22
INTERNATIONAL WIRE GROUP, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
-------------------------
RULE 144A
OFFERING,
SENIOR DEBT
REPAYMENT
COMPANY DEKKO AND NOTES COMPANY
HISTORICAL HISTORICAL DEKKO(1) REPURCHASE(2) PRO FORMA(3)
---------- ---------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales............................ $546,981 $ 29,095 $(1,249) $ -- $574,827
Cost of goods sold................... 420,823 22,938 (1,249) -- 442,512
Selling, general and administrative
expenses........................... 43,885 1,199 -- -- 45,084
Depreciation and amortization........ 31,341 607 812(4) -- 32,760
Impairment, unusual and plant closing
charges............................ 84,250 -- -- -- 84,250
Inventory valuation adjustment....... 8,500 -- -- -- 8,500
-------- -------- ------- ------- --------
Operating income (loss)......... (41,818) 4,351 (812) -- (38,279)
Other income (expense):
Interest expense................... (43,013) (216) --(5) (3,382)(6) (46,611)
Amortization of deferred financing
costs........................... (3,701) (8) -- 135(7) (3,574)
Other (expense) income............. 312 (391) -- -- (79)
-------- -------- ------- ------- --------
Income (loss) before income tax
provision..................... (88,220) 3,736 (812) (3,247) (88,543)
Income tax provision................. 1,262 -- 1,170(8) (1,299)(9) 1,133
-------- -------- ------- ------- --------
Net income (loss)............... $(89,482) $ 3,736 $(1,982) $(1,948) $(89,676)
======== ======== ======= ======= ========
EBITDA, as adjusted(10).............. $ 82,273 $ 87,231
======== ========
Ratio of earnings to fixed
charges(11)........................ N/A N/A
</TABLE>
See accompanying Notes to the Unaudited Pro Forma Statement of Operations.
20
<PAGE> 23
INTERNATIONAL WIRE GROUP, INC.
NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS)
(1) Adjustments give effect to the DWT Acquisition as if it were consummated on
January 1, 1996.
(2) Adjustments give effect to the Rule 144A Offering, the Senior Debt
Repayment and the Notes Repurchase as if each were consummated on January
1, 1996.
(3) The Unaudited Pro Forma Statement of Operations does not reflect the
following:
(a) The write-off of deferred financing costs of approximately $4,336
related to the portion of the Senior Bank Facility that was repaid with
the net proceeds from the Rule 144A Offering.
(b) The extraordinary item for early extinguishment of debt resulting from
$650 premium for the Notes Repurchase.
(c) Revenues and expenses of Camden for the year ended December 31, 1996.
(d) Cost savings related to the DWT Acquisition and the Camden Acquisition
and the full-year impact of cost reduction programs implemented in
1996. The cost savings include plant rationalizations, headcount
reductions and consolidation of administrative services. The cost
reduction programs include early retirement programs and the full-year
impact of the establishment of a southwest facility.
(e) Elimination of the non-recurring charge for expenses related to plant
closings, which relate to the consolidation and closing of previously
owned facilities. These closures occurred as their operations were
transitioned to Dekko facilities.
(4) Reflects the increase in goodwill amortization in the amount of $566 and
the net increase in depreciation expense in the amount of $246 as if the
DWT Acquisition had been consummated at the beginning of the period.
(5) Financing for the DWT Acquisition is included in the column "Rule 144A
Offering, Senior Debt Repayment and Notes Repurchase."
(6) Reflects the net increase in interest expense as if the Rule 144A Offering,
the Senior Debt Repayment and the Notes Repurchase had occurred on January
1, 1996:
<TABLE>
<S> <C>
Senior Bank Facility(a)
Reduction of Senior Bank Facility interest expense from
interest rate reduction................................ $ (1,515)
Reduction of Senior Bank Facility interest expense from
principal reduction -- $158,338 at applicable interest
rates.................................................. (12,683)
--------
Reduction of interest under Senior Bank Facility....... (14,198)
11 3/4% Series B Senior Subordinated Notes due 2005 at an
effective yield to maturity of 10.121%(b)................. 16,493
14% Senior Subordinated Notes due 2005(c)................... 1,400
Reduction of interest under Notes Repurchase(d)............. (313)
--------
Net interest adjustment................................ $ 3,382
========
</TABLE>
- ---------------
(a) A one-eighth of one percent change in interest rates would impact
interest expense for borrowings under the Senior Bank Facility in the
amount of approximately $232.
(b) Effective yield to maturity reflects the effect of the amortization of
the bond premium received in connection with the Rule 144A Offering.
(c) Reflects $10,000 14% Senior Subordinated Notes due 2005 originally
converted.
21
<PAGE> 24
(d) Reflects the net decrease in interest expense between $5,000 14% Senior
Subordinated Notes due 2005 and $5,650 of borrowings under the Senior
Bank Facility.
(7) Reflects the net decrease in deferred financing costs amortization as if
the Rule 144A Offering had occurred on January 1, 1996.
(8) Reflects the effect of pro forma adjustments described above and the
estimated pro forma tax provision of Dekko as a C corporation.
(9) Reflects the tax effect of the pro forma adjustments (6) and (7) described
above.
(10) As used herein, "EBITDA, as adjusted" is defined as operating income (loss)
adjusted to exclude impairment, unusual and plant closing charges, and
other one-time charges. EBITDA is presented because (i) it is a widely
accepted financial indicator of a company's ability to incur and service
debt and (ii) it is the basis on which the Company's compliance with
certain financial covenants contained in the Indenture, the 11 3/4% Notes
Indenture, the 11 3/4% Series B Notes Indenture and the Senior Bank
Facility is principally determined. However, EBITDA, as adjusted, does not
purport to represent cash provided by operating activities as reflected in
the Company's consolidated statements of cash flow, is not a measure of
financial performance under GAAP and should not be considered in isolation
or as a substitute for measures of performance prepared in accordance with
GAAP. Also, the measure of EBITDA, as adjusted, may not be comparable to
similar measures reported by other companies.
(11) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" represent operating income (loss) before income taxes plus fixed
charges. "Fixed charges" consist of interest on all indebtedness,
amortization of deferred financing costs and the portion (approximately
one-third) of rental expenses that management believes is representative of
the interest component of rent expense. On a pro forma basis, earnings were
insufficient to cover fixed charges by $88,543.
22
<PAGE> 25
INTERNATIONAL WIRE GROUP, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT RATIO AMOUNTS)
<TABLE>
<CAPTION>
ADJUSTMENTS
----------------
RULE 144A
OFFERING,
SENIOR DEBT
REPAYMENT
COMPANY AND NOTES COMPANY
HISTORICAL REPURCHASE(1) PRO FORMA(2)
---------- ---------------- ------------
<S> <C> <C> <C>
Net sales............................................ $365,551 $ -- $365,551
Cost of goods sold................................... 284,378 -- 284,378
Selling, general and administrative expenses......... 27,719 -- 27,719
Depreciation and amortization........................ 16,167 -- 16,167
Plant closing charges................................ 500 -- 500
-------- ------- --------
Operating income................................ 36,787 -- 36,787
Other income (expense):
Interest expense................................... (25,380) (1,609)(3) (26,989)
Amortization of deferred financing costs........... (2,057) 68(4) (1,989)
Other income....................................... 11 -- 11
-------- ------- --------
Income before income tax provision.............. 9,361 (1,541) 7,820
Income tax provision................................. 3,943 (616)(5) 3,327
-------- ------- --------
Income (loss) before extraordinary item......... $ 5,418 $ (925) $ 4,493
======== ======= ========
EBITDA, as adjusted(6)............................... $ 53,454 $ 53,454
======== ========
Ratio of earnings to fixed charges(7)................ 1.3x 1.3x
</TABLE>
See accompanying Notes to the Unaudited Pro Forma Statement of Operations.
23
<PAGE> 26
INTERNATIONAL WIRE GROUP, INC.
NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS)
(1) Adjustments give effect to the Rule 144A Offering, the Senior Debt Repayment
and the Notes Repurchase as if each were consummated on January 1, 1996.
(2) The Unaudited Pro Forma Statement of Operations does not reflect revenues
and expenses of Camden for the period from January 1, 1997 to February 12,
1997 (the date of the Camden Acquisition) and cost savings related to the
Camden Acquisition. The cost savings include plant rationalizations, head
count reductions and the consolidation of administrative services.
(3) Reflects net increase in interest expense as if the Rule 144A Offering, the
Senior Debt Repayment and the Notes Repurchase had occurred on January 1,
1996:
<TABLE>
<S> <C>
Senior Bank Facility(a)
Reduction of Senior Bank Facility interest expense from
interest rate reduction................................ $ (716)
Reduction of Senior Bank Facility interest expense from
principal reduction -- $158,338 at applicable interest
rates.................................................. (5,990)
-------
Reduction of interest under Senior Bank
Facility.......................................... (6,706)
11 3/4% Series B Senior Subordinated Notes due 2005 at an
effective yield to maturity of 10.121%(b)................. 7,802
14% Senior Subordinated Notes due 2005(c)................... 661
Reduction of interest under Notes Repurchase(d)............. (148)
-------
Net interest adjustment........................... $ 1,609
=======
</TABLE>
- ---------------
(a) A one-eighth of one percent change in interest rates would impact
interest expense for borrowings under the Senior Bank Facility in the
amount of approximately $116.0.
(b) Effective yield to maturity reflects the effect of the amortization of
the bond premium received in connection with the Rule 144A Offering.
(c) Reflects $10,000 14% Senior Subordinated Notes due 2005 originally
converted.
(d) Reflects the net decrease in interest expense between $5,000 14% Senior
Subordinated Notes due 2005 and $5,650 of borrowings under the Senior
Bank Facility.
(4) Reflects the net decrease in amortization of deferred financing costs as if
the Rule 144A Offering had occurred on January 1, 1996.
(5) Reflects the tax effect of the pro forma adjustments (3) and (4) described
above.
(6) As used herein, "EBITDA, as adjusted" is defined as operating income (loss)
adjusted to exclude impairment, unusual and plant closing charges, and other
one-time charges. EBITDA is presented because (i) it is a widely accepted
financial indicator of a Company's ability to incur and service debt and
(ii) it is the basis on which the Company's compliance with certain
financial covenants contained in the Indenture, the 11 3/4% Notes Indenture,
the 11 3/4% Series B Notes Indenture and the Senior Bank Facility is
principally determined. However, EBITDA, as adjusted, does not purport to
represent cash provided by operating activities as reflected in the
Company's consolidated statements of cash flow, is not a measure of
financial performance under GAAP and should not be considered in isolation
or as a substitute for measures of performance prepared in accordance with
GAAP. Also, the measure of EBITDA, as adjusted, may not be comparable to
similar measures reported by other companies.
(7) For purposes of calculating the ratio of earnings to fixed charges and the
deficiency of earnings available to cover fixed charges, "earnings"
represent operating income (loss) before income taxes plus fixed charges.
"Fixed charges" consist of interest on all indebtedness, amortization of
deferred financing costs and the portion (approximately one-third) of rental
expenses that management believes is representative of the interest
component of rent expense.
24
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
To facilitate a meaningful comparison, the following discussion and
analysis includes combined results of operations of the Company, Wirekraft,
Omega and ECM for periods prior to the Wirekraft/Omega Combination. These
combined results of operations have not been prepared in accordance with GAAP,
which does not allow for the aggregation of financial data for entities that are
not under common ownership. Nevertheless, management believes that the aggregate
financial information shown below for the periods prior to the Wirekraft/Omega
Combination is helpful in understanding the past operations of the companies
combined in the Wirekraft/Omega Combination. The Company in June 1995, through a
series of mergers and acquisitions, consummated the Wirekraft/Omega Combination.
As a result of certain transactions, including the Wirekraft/Omega Combination,
the Original Omega Acquisition and the ECM Acquisition, the Company incurred
substantial indebtedness and recorded significant amounts of goodwill, which
resulted in interest and amortization expenses for the Company substantially
greater than the interest and amortization expenses incurred by the Company's
predecessors. Additionally, the accounting bases for the Company's predecessors
differ from the accounting bases of the Company. Therefore, the results of
operations data for the Company's predecessors are not directly comparable to
the results of operations data for the Company, and the Company cautions
investors against placing undue reliance on the comparative information
contained herein.
The Company conducts its operations through two segments: (i) wire
products, which includes both non-insulated and insulated wire, and (ii) wire
harness products. The table below sets forth the major components of the results
of operations on a historical combined basis for the fiscal year 1994 and the
five months ended May 31, 1995 and on a historical basis for the seven months
ended December 31, 1995, the year ended December 31, 1996 and the six month
periods ended June 30, 1996 and 1997 and should be used in reviewing the
discussion and analysis of results of operations and liquidity and capital
resources.
Included in fiscal year 1994, and referred to as "Historical Combined
Fiscal Year Ended December 31, 1994," is the year ended November 30, 1994 of
Wirekraft, the year ended December 31, 1994 of THL-Omega, which was acquired by
Omega in March 1995, and the eleven month period ended November 30, 1994 of ECM.
The results of operations of Dekko and Camden are not included in the Historical
Combined Fiscal Year Ended December 31, 1994.
Included in fiscal year 1995, and referred to as "Historical Combined
Fiscal Year Ended December 31, 1995," is the five month period ended May 31,
1995 of Wirekraft, the three month period ended March 31, 1995 of THL-Omega, the
two month period ended May 31, 1995 of Omega (collectively referred to as
"Historical Combined Five Months Ended May 31, 1995") and the seven month period
ended December 31, 1995 of the Company. The results of operations of Dekko and
Camden are not included in the Historical Combined Fiscal Year Ended December
31, 1995.
Included in the year ended December 31, 1996 is the year ended December 31,
1996 of the Company, which includes the results of operations of Wire
Technologies from March 5, 1996, the date of the DWT Acquisition. The results of
operations of Camden are not included in the year ended December 31, 1996.
The data for the six month periods ended June 30, 1996 and June 30, 1997
are derived from the unaudited consolidated financial statements of the Company,
which, in the opinion of management of the Company include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation. Included in the six month period ended June 30, 1996 are the
results of the Company, which includes the results of operations of Wire
Technologies from March 5, 1996, the date of the DWT Acquisition. Included in
the six months ended June 30, 1997 are the results of the Company, which
includes the results of operations of Camden from February 12, 1997, the date of
the Camden Acquisition.
25
<PAGE> 28
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
-------------------------- -------------------------------------------------
SIX MONTHS
FISCAL YEAR FIVE MONTHS SEVEN MONTHS ENDED
ENDED ENDED ENDED YEAR ENDED JUNE 30,
DECEMBER 31, MAY 31, DECEMBER 31, DECEMBER 31, -------------------
1994 1995(1) 1995 1996 1996 1997
------------ ----------- ------------ ------------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Wire sales............................ $272,414 $131,831 $161,741 $385,627 $184,231 $275,156
Wire harness sales.................... 174,716 77,279 83,842 161,354 81,885 90,395
-------- -------- -------- -------- -------- --------
Net sales....................... 447,130 209,110 245,583 546,981 266,116 365,551
Cost of goods sold.................... 348,633 167,456 195,221 420,823 207,968 284,378
Selling, general and administrative
expenses............................ 39,746 15,714 17,129 43,885 20,578 27,719
Depreciation and amortization......... 13,310 8,313 11,020 31,341 12,946 16,167
Impairment, unusual and plant closing
charges............................. -- 2,000 1,750 84,250 4,000 500
Inventory valuation adjustment........ -- -- -- 8,500 8,500 --
Compensation expense.................. -- 10,610 -- -- -- --
Expenses related to sale.............. -- 2,190 -- -- -- --
-------- -------- -------- -------- -------- --------
Operating income (loss)............. $ 45,441 $ 2,827 $ 20,463 $(41,818) $ 12,124 $ 36,787
======== ======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) The results of operations data related to Wirekraft for the five months
ended May 31, 1995 excludes the one month period ended December 31, 1994.
Loss from operations of Wirekraft for the one month period ended December
31, 1994 was $64.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Net sales for the six months ended June 30, 1997 were $365.6 million,
representing a $99.4 million, or 37.4%, increase compared to the same period in
1996. Wire segment sales increased $90.9 million, or 49.4%, in the six months
ended June 30, 1997 as compared to the six months ended June 30, 1996. This
increase was the result of the DWT Acquisition, the Camden Acquisition and
growth in the Company's computer and electronics, control signal and security
and alarm accounts. The six months ended June 30, 1997 included the operations
of Wire Technologies for the full six month period, while the same period in
1996 included the operations of Wire Technologies from March 5, 1996, the date
of the DWT Acquisition. In addition, the six month period ended June 30, 1997
includes $52.7 million of sales from Camden. The increase in sales was partially
offset by a decline in the average price of copper during the six months ended
June 30, 1997 compared to the same period in 1996. Generally, the Company prices
its products based upon a spread over the cost of copper, which results in a
decreased dollar value of sales when copper prices decrease. The average price
of copper based upon the New York Mercantile Exchange, Inc. (the "COMEX")
declined to $1.13 per pound over the six months ended June 30, 1997 from $1.17
per pound over the six months ended June 30, 1996. Within the wire harness
segment, sales increased $8.5 million, or 10.4%, for the six months ended June
30, 1997 compared to the same period in 1996. This increase was due to higher
sales to the Company's major wire harness customers.
Cost of goods sold as a percent of sales decreased to 77.8% for the six
months ended June 30, 1997 from 78.1% for the six months ended June 30, 1996.
This improvement reflected lower costs achieved through the transition of
certain wire harness segment business to lower cost Mexican facilities, savings
realized from plant consolidation actions taken in 1996, reduced material and
logistic costs as well as the impact of declining copper prices. Because the
Company's products are typically priced at a spread over the cost of copper, a
lower copper price leads to a higher gross margin percentage but generally has
no impact on gross margin dollars.
Selling, general and administrative expenses were $27.7 million for the
first six months of 1997 compared to $20.6 million for the same period in 1996.
This $7.1 million increase primarily reflected the Camden Acquisition and the
effect of including Wire Technologies for the entire six month period ended June
30, 1997. Expressed as a percent of sales, selling, general and administrative
expenses decreased from 7.7% for the six month period ended June 30, 1996 to
7.6% for the six month period ended June 30, 1997. This
26
<PAGE> 29
improvement was attributable to synergies created through the acquisition, cost
control and the effects of increased sales volume.
Depreciation and amortization was $16.2 million for the six months ended
June 30, 1997 as compared to $12.9 million for the same period in 1996. The
increase of $3.3 million was the result of depreciation of property, plant and
equipment additions and the amortization of goodwill from the Camden Acquisition
partially offset by lower amortization as the result of the goodwill impairment
charge recorded in 1996.
A $4.0 million pre-tax charge to operations was recorded in March 1996,
representing plant closing costs. The plant closing costs related to shutting
down and consolidating several wire segment facilities. During the same period
in 1997, the Company recorded a $0.5 million pre-tax charge to operations for
consolidating a wire segment facility. An $8.5 million pre-tax inventory
valuation charge was recorded in the first six months of 1996. This was the
result of an adjustment to the LIFO valuation of copper in inventory, reflecting
the decrease in the copper cost per pound from December 31, 1995 to June 30,
1996. During the first six months of 1997, a similar decrease did not occur.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO HISTORICAL COMBINED FISCAL YEAR ENDED
DECEMBER 31, 1995
Net sales for the year ended December 31, 1996 were $547.0 million,
representing a $92.3 million, or 20.3%, increase over the Historical Combined
Fiscal Year Ended December 31, 1995. This increase occurred substantially within
the wire segment, where sales increased $92.1 million, or 31.3%, over the
Historical Combined Fiscal Year Ended December 31, 1995. This increase reflected
$139.7 million of net sales from Wire Technologies, as well as continued growth
in the Company's automotive, cable and control signal market accounts. These
increases were partially offset by a decline in copper prices. In general, the
Company prices its products based upon a spread over the cost of copper, which
results in a decreased dollar value of sales when copper prices decrease. The
average price of copper based upon the COMEX declined to $1.06 per pound over
the year ended December 31, 1996 from $1.35 per pound during the Historical
Combined Fiscal Year Ended December 31, 1995. Within the wire harness segment,
sales remained constant at $161.4 million during the year ended December 31,
1996. This constant level of sales represented strong sales from most major wire
harness customers other than Whirlpool. Sales to Whirlpool declined during the
year due to the expiration of a transition supply agreement in October 1995.
Cost of goods sold as a percent of sales decreased from 79.8% to 76.9% for
the year ended December 31, 1996. This decrease was due to the result of
negotiated price reductions for certain purchased materials and the elimination
of the majority of outside purchases of non-insulated wire subsequent to the
Original Omega Acquisition in 1995. Wirekraft's purchases of non-insulated wire
from outside suppliers declined as Omega's non-insulated wire production for
Wirekraft increased. In addition, the change in cost of goods sold as a percent
of sales reflected cost reductions achieved within both the wire and wire
harness segments resulting from plant consolidation actions taken in 1995 and
1996, as well as the impact of declining copper prices. Because the Company's
products are typically priced at a spread over the cost of copper, a lower
copper price leads to a higher gross margin percentage but generally has no
impact on gross margin dollars.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO SEVEN MONTHS ENDED DECEMBER 31, 1995
Net sales for the year ended December 31, 1996 were $547.0 million,
representing an increase of $301.4 million over the seven months ended December
31, 1995. This increase included wire segment sales of $223.9 million and wire
harness segment sales of $77.5 million. The increase was primarily the result of
the additional five months of operations of the Company in 1996, as compared to
1995 and the inclusion of $139.7 million of wire segment sales as the result of
the DWT Acquisition in March 1996. These increases were partially offset by a
decline in copper prices. Generally, the Company prices its products based upon
a spread over copper, which results in a decreased dollar value of sales when
copper prices decrease. The average price of copper based upon the COMEX
declined to $1.06 per pound over the year ended December 31, 1996 from $1.35 per
pound during the seven months ended December 31, 1995.
Cost of goods sold as a percentage of sales decreased from 79.5% for the
seven months ended December 31, 1995 to 76.9% for the year ended December 31,
1996. This decrease was due to the result of negotiated price reductions for
certain purchased materials and the elimination of the majority of outside
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purchases of non-insulated wire. Wirekraft's purchases of non-insulated wire
from outside sources declined as Omega's non-insulated wire production for
Wirekraft increased. In addition, the change in cost of goods sold as a percent
of sales reflected cost reductions achieved within both the wire and wire
harness segments resulting from plant consolidation actions taken in 1995 and
1996, as well as the impact of declining copper prices. Because the Company's
products are typically priced at a spread over the cost of copper, a lower
copper price leads to a higher gross margin percentage but generally has no
impact on gross margin dollars.
Selling, general and administrative expenses were $43.9 million for the
year ended December 31, 1996 compared to $17.1 million during the seven months
ended December 31, 1995, an increase of $26.8 million. The increase was
primarily the result of the additional five months of operations of the Company
in 1996, as compared to 1995 and the inclusion of $5.7 million of expenses from
the DWT Acquisition. Expressed as a percentage of sales, selling, general and
administrative expenses increased from 7.0% during the seven months ended
December 31, 1995 to 8.0% during the year ended December 31, 1996. This
increase, as a percentage of sales, was partially attributable to the effect on
net sales of higher copper costs during the seven months ended December 31,
1995, as compared to the year ended December 31, 1996. Other cost increases
included volume related items and cost inflation.
Depreciation and amortization was $31.3 million for the year ended December
31, 1996 compared to $11.0 million for the seven months ended December 31, 1995.
This increase of $20.3 million was the result of the additional five months of
operations of the Company in 1996, as compared to 1995, as well as additional
depreciation of property, plant and equipment from 1996 additions and the
amortization of goodwill from the DWT Acquisition.
In the first quarter of 1996, the Company adopted a new business strategy
that had a major impact on its business units. The Company's strategy considered
reducing production costs, moving production to the South and Southwest,
improving customer service and lowering selling, general and administrative
expenses. The Company developed the new strategy and business plan in the first
quarter of 1996, which it finalized in connection with the DWT acquisition.
The DWT Acquisition was instrumental in the evaluation and implementation
of the new business strategy, due to DWT's strategically sized and located
facilities. With the DWT Acquisition, additional goodwill of $105.0 million was
recorded. With the addition of significant goodwill, the Company believed it was
appropriate to perform a comprehensive review of the carrying value of goodwill.
In addition to the DWT Acquisition, factors that were examined during the
Company's review of the carrying value of goodwill included the changes in the
appliance and automotive industries. These changes include the movement of
appliance harness requirements to Mexican manufacturing facilities and the shift
in automotive harness requirements from large, long lead-time orders to more
frequent, small, short lead-time orders. As a result of these changes, the
Company closed certain of its facilities and undertook its new business
strategy.
Upon completion of its analysis, the Company determined that the carrying
value of goodwill exceeded fair value by approximately $78.2 million. A non-cash
impairment charge of $78.2 million was recorded upon completion of the analysis
in the fourth quarter of 1996.
A $6.0 million pre-tax charge to operations was recorded during the year
ended December 31, 1996, representing plant closing costs. The plant closing
costs relate to shutting down and consolidating six facilities. There was a
similar charge of $1.8 million for the seven months ended December 31, 1995. An
$8.5 million pre-tax inventory valuation charge was recorded during the year
ended December 31, 1996. This charge was the result of an adjustment to the LIFO
valuation of copper in inventory reflecting the decrease in the copper cost per
pound during fiscal 1996. There was no similar charge for the seven months ended
December 31, 1995.
HISTORICAL COMBINED FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO HISTORICAL
COMBINED FISCAL YEAR ENDED DECEMBER 31, 1994
Net sales for the Historical Combined Fiscal Year Ended December 31, 1995
were $454.7 million, representing a $7.6 million, or 1.7%, increase over the
Historical Combined Fiscal Year Ended December 31, 1994. This increase in net
sales was primarily attributable to an increase in sales of wire products which
grew
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to $293.6 million in 1995 from $272.4 million in 1994, an increase of $21.2
million, or 7.8%. The increase was largely due to rising copper prices. In
general, the Company prices its products based upon a spread over the cost of
copper, which results in an increased dollar volume of sales when copper prices
increase. The average price of copper based on the COMEX rose to $1.35 per pound
during the Historical Combined Fiscal Year Ended December 31, 1995 from $1.07
per pound during the Historical Combined Fiscal Year Ended December 31, 1994.
The increase in wire sales was also bolstered by growth in specialty accounts
which primarily occurred in the security, alarm, data communications and fine
wire businesses. The increase in sales of wire products was offset somewhat by a
slowdown in the automotive industry as well as by several model related
changeovers at key automotive customers. Within the wire harness segment, sales
decreased $13.6 million, or 7.8%, for the Historical Combined Fiscal Year Ended
December 31, 1995 as compared to the Historical Combined Fiscal Year Ended
December 31, 1994. This decrease reflects a decline in sales to Whirlpool. This
decline was pursuant to an agreement effective October 1, 1994, whereby
Whirlpool began transitioning certain wire harness purchases to its own captive
operation in Mexico and other third party suppliers. The wire harness segment,
however, retained Whirlpool's dishwasher harness business.
Cost of goods sold as a percent of sales increased to 79.8% from 78.0% for
the Historical Combined Fiscal Year Ended December 31, 1995 compared to the
Historical Combined Fiscal Year Ended December 31, 1994. The change was
primarily due to the increase in the average price of copper. Because the
Company's products are typically priced at a spread over the cost of copper, a
higher copper price leads to a lower gross margin percentage but generally has
no impact on gross margin dollars. The increasing cost of materials used to
insulate wire, which include resins and plasticizers, and the impact of
producing to shorter average runs during the mid-year automotive slowdown and
customer inventory adjustment period also had dampening effects on margins.
HISTORICAL COMBINED FIVE MONTHS ENDED MAY 31, 1995 COMPARED TO HISTORICAL
COMBINED FISCAL YEAR ENDED DECEMBER 31, 1994
Net sales for the Historical Combined Five Months Ended May 31, 1995 were
$209.1 million, representing a $238.0 million decrease from the Historical
Combined Fiscal Year Ended December 31, 1994. This decrease included wire
segment sales of $140.6 million and wire harness segment sales of $97.4 million.
The decrease was primarily the result of a full twelve months of operations for
the 1994 period compared to only five months of operations included the 1995
period. This decrease was partially offset by rising copper prices. In general,
the Company prices its products based upon a spread over the cost of copper,
which results in an increased dollar volume of sales when copper prices
increase. The average price of copper based on the COMEX rose to $1.35 per pound
during the Historical Combined Five Months Ended May 31, 1995 from $1.07 per
pound during the Historical Combined Fiscal Year Ended December 31, 1994.
Cost of sales as a percentage of sales increased to 80.1% for the
Historical Combined Five Months Ended May 31, 1995 from 78.0% for the Historical
Combined Fiscal Year Ended December 31, 1994. The change was primarily due to
the increase in the average price of copper. Because the Company's products are
typically priced at a spread over the cost of copper, a higher copper price
leads to a lower gross margin percentage but generally has no impact on gross
margin dollars.
Selling, general and administrative expenses were $15.7 million for the
Historical Combined Five Months Ended May 31, 1995 compared to $39.8 million for
the Historical Combined Fiscal Year Ended December 31, 1994, a decrease of $24.1
million. Expressed as a percentage of sales, selling, general and administrative
expenses decreased to 7.5% for the Historical Combined Five Months Ended May 31,
1995, from 8.9% for the Historical Combined Fiscal Year Ended December 31, 1994.
The decrease in the percentage of sales was primarily attributable to cost
containment efforts, movement away from commissioned sales representatives to a
captive sales force and consolidation in administrative positions.
Depreciation and amortization was $8.3 million for the Historical Combined
Five Months Ended May 31, 1995, compared to $13.3 million for the Historical
Combined Fiscal Year Ended December 31, 1994. This decrease of $5.0 million was
primarily the result of a full twelve months of operations for the 1994 period
compared to only five months of operations included the 1995 period. This
decrease was partially offset by
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depreciation of property, plant and equipment additions and the amortization of
goodwill from the ECM Acquisition and the Original Omega Acquisition.
During the Historical Combined Five Months Ended May 31, 1995, the Company
recorded a $2.0 million charge to operations to provide for plant closing costs
including shut-down costs, commitment costs for leased equipment and key
personnel and severance related costs. There was no similar charge for the
Historical Combined Fiscal Year Ended December 31, 1994.
During the Historical Combined Five Months Ended May 31, 1995, the Company
recorded $10.6 million in compensation expense and $2.2 million for expenses
related to the Original Wirekraft Acquisition and the Original Omega
Acquisition. There was no similar charge for the Historical Combined Fiscal Year
Ended December 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital and Cash Flows
Net cash provided by operating activities was $8.3 million for the six
months ended June 30, 1997, compared to $3.5 million used in operating
activities for the six months ended June 30, 1996. The fluctuation is primarily
due to an increase in net income. Net cash used in investing activities was
$66.7 million for the first six months of 1997 and includes (i) acquisition
costs of $59.0 million, related to the Camden Acquisition and (ii) capital
expenditures of $7.7 million. Net cash used in investing activities was $165.7
million for the first six months of 1996 and represented (i) acquisition costs
of $160.3 million related to the DWT Acquisition and (ii) capital expenditures
of $5.5 million. Net cash provided by financing activities was $58.3 million for
the six months ended June 30, 1997 and includes (i) proceeds of $228.1 million
from the issuance of long-term obligations, (ii) net repayments of $163.0
million under debt obligations, (iii) payments of $5.4 million related to
financing fees and (iv) cash dividends of $1.4 million related to the Company's
Series A Senior Cumulative Exchangeable Redeemable Preferred Stock (the
"Preferred Stock"), which was exchanged for $10 million aggregate principal
amount of the Company's 14% Senior Subordinated Notes due 2005, including the
Notes, on February 12, 1997. Net cash provided by financing activities was
$165.1 million for the six months ended June 30, 1996 and includes (i) proceeds
of $173.2 million from the issuance of equity securities and long-term
obligations, (ii) net repayments of $0.3 million under debt obligations and
(iii) payments of $7.8 million related to financing fees.
For the year ended December 31, 1996, the Company generated $32.0 million
in cash from operations and $13.0 million of net proceeds from the issuance of
equity securities and long-term debt obligations related to the DWT Acquisition.
During 1996, the Company made net repayments of $21.3 million under debt
obligations, spent $15.8 million on capital projects and used $7.8 million to
pay financing fees.
For the Historical Combined Fiscal Year Ended December 31, 1995, the
Company generated $25.2 million in cash from operations and $23.0 million of net
proceeds from the issuance of equity securities and long-term debt obligations
related to acquisitions. During 1995, the Company made net repayments of $17.6
million under debt obligations ($12.5 million repaid by the predecessor
companies in connection with the Wirekraft/Omega Combination), spent
approximately $10.5 million on capital projects and used $21.0 million to pay
financing fees ($7.0 million of which were incurred in connection with the
Original Omega Acquisition).
For the Historical Combined Fiscal Year Ended December 31, 1994, the
Company generated $13.4 million in cash from operations and $3.8 million from
the issuance of certain notes. Cash was used in 1994 primarily to fund capital
expenditures of $14.9 million.
Financing Arrangements
The Senior Bank Facility provides senior secured financing of up to $260.5
million, consisting of the $25.0 million, five year Tranche A Loan, the $160.5
million, seven year Tranche B Loan and the $75.0 million Revolver. The Company
has made principal payments in respect of the Term Facility of $5.0 million thus
far in 1997. The Company is obligated to make principal payments in respect of
the Term Facility of $1.6 million for the remainder of 1997, $3.5 million in
1998, $4.8 million in 1999, $6.0 million in 2000, $7.3 million in 2001, $46.4
million in 2002 and $115.9 million in 2003. The Revolver is available for
working capital purposes
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including letters of credit. The Tranche A Loan commitments terminate and all
amounts under the Revolver then outstanding mature on September 30, 2002. The
Tranche B Loan commitments terminate on September 30, 2003. As of June 30, 1997,
there was approximately $185.5 million outstanding under the Term Facility and
approximately $52.0 million of unused borrowing capacity under the Revolver.
The Company's obligations under the Senior Bank Facility bear interest at
floating rates and require interest payments on varying dates depending on the
interest rate option selected by the Company. At June 30, 1997, the weighted
average interest rate on outstanding borrowings under the Senior Bank Facility
was approximately 7.7%.
As of June 30, 1997, the Company had entered into two interest rate
agreements to assure the net interest cost to the Company on at least 50% of the
sums of the aggregate principal amount of the Term Facility. These agreements
provide ceilings of 8.0% on $63.5 million of indebtedness through May 1998, 7.0%
on $32.5 million of indebtedness through March 1998 and 8.0% on $32.5 million of
indebtedness through March 1999.
In connection with the Wirekraft/Omega Combination, the Company issued the
11 3/4% Notes. On June 17, 1997, the Company issued the 11 3/4% Series B Notes
pursuant to the Rule 144A Offering. The 11 3/4% Notes and the 11 3/4% Series B
Notes require semi-annual interest payments of $17.6 million, collectively, on
each June 1 and December 1. The 11 3/4% Notes and the 11 3/4% Series B Notes are
not subject to any sinking fund requirements. The Notes require semi-annual
interest payments of $350,000 on each June 1 and December 1. The Notes are not
subject to any sinking fund requirements.
Liquidity
The principal raw material used in the Company's products is copper. The
market price of copper is subject to significant fluctuations. Increased working
capital needs occur whenever the Company experiences a significant rise in
copper prices. The Company estimates that a $0.10 per pound change in the price
of copper changes the Company's working capital by approximately $2.8 million.
The Company enters into contractual relationships with most of its customers to
adjust its prices based upon the prevailing market prices on the COMEX. This
approach is patterned after the Company's arrangement with its copper suppliers
and is designed to minimize the Company's exposure to risk associated with
fluctuating copper prices.
As part of the impairment charge in 1996 as more fully described in Note 10
to the Company's financial statements for the year ended December 31, 1996, the
Company has accrued $4.2 million for anticipated losses related to product
liability claims associated with the Original Wirekraft Acquisition. These
claims are for a non-wire product in the appliance industry that the Company has
not manufactured since 1992. The Company's policy is to record the probable and
reasonably estimable loss related to product liability claims. In 1996, the
claims significantly increased as a result of the receipt of claims accumulated
by insurance companies related to prior periods. Accordingly, the Company
revised its estimated liability outstanding on actual claims reported and its
estimate of claims incurred but not reported. In developing its estimated
liability outstanding on actual claims reported, the Company considered historic
settlement rates. The Company has estimated its liability outstanding on actual
claims reported to be $1.5 million. In determining its estimate of claims
incurred but not reported, the Company considered historical claim levels and
amounts relative to total product shipped. Additionally, the Company considered
historical settlement rates to develop its estimate of incurred but not reported
claims of $2.7 million. Due to the uncertainties associated with these product
claims, the future cost of final settlement of these claims may differ from the
liability currently accrued. However, in the Company's opinion, the impact of
final settlement of these claims on future operations, financial position and
liquidity will not be material.
The Company's primary source of liquidity are cash flows from operations
and borrowings under the Revolver, which are subject to a borrowing base
calculation. The major uses of cash in 1997 are expected to be for debt service
requirements and capital expenditures. Debt service requirements in 1997 are
estimated at approximately $53.0 million while capital expenditures in 1997 are
estimated at approximately $27.0 million, of which $7.7 million has been spent
as of June 30, 1997. Management believes that cash from operating activities,
together with available borrowings under the Revolver, if necessary, should be
sufficient to permit the Company to meet these financial obligations.
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BUSINESS
GENERAL
The Company is a holding company which owns all of the outstanding capital
stock of the Guarantor Subsidiaries and two foreign subsidiaries. All of the
outstanding capital stock of the Company is held by Holding. Hicks, Muse,
through its affiliates, is the controlling stockholder of the Company. With
respect to the Company, Hicks, Muse is combining its financial expertise with
the operating management experience of Mills & Partners. Organized in 1985 by
James N. Mills, Mills & Partners consists of a group of senior operating
executives who manage a portfolio of companies in a variety of industries.
The Company's insulated wire manufacturing and wire harness fabrication
businesses are conducted by its Wirekraft unit, which has been in the business
of manufacturing wire and cable and fabricating wire harnesses for approximately
35 years. On December 2, 1994, Wirekraft consummated the ECM Acquisition. ECM
was engaged in the manufacture of wire harnesses.
The Company's non-insulated wire manufacturing business is conducted by its
Omega unit. Omega was formed in March 1995 by Hicks, Muse and Mills & Partners
to participate in the Original Omega Acquisition. On March 31, 1995, Omega
consummated the Original Omega Acquisition. THL-Omega was engaged in the design,
manufacture and marketing of non-insulated bare and tin-plated copper wire.
Holding and the Company were incorporated in Delaware in April 1995 by
Hicks, Muse and Mills & Partners to facilitate the Wirekraft/Omega Combination,
pursuant to which the operations of Wirekraft and Omega were combined to form
the Company's operations. In June 1995, through a series of acquisitions and
mergers, the Company acquired Wirekraft and Omega.
On March 5, 1996, Wire Technologies, a wholly-owned subsidiary of the
Company, consummated the DWT Acquisition. Wire Technologies is engaged in the
design, manufacture and marketing of non-insulated copper wire and insulated
copper wire.
On February 12, 1997, the Company consummated the Camden Acquisition.
Camden is engaged in the design, manufacture and marketing of non-insulated bare
and tin-plated copper wire.
The principal executive offices of the Company and each Subsidiary
Guarantor are located at 101 South Hanley Road, Suite 400, St. Louis, Missouri
63105 and the Company's telephone number at such address is (314) 719-1000.
PRODUCTS AND MARKETS
The Company is engaged in the design, manufacture and marketing of (i)
non-insulated bare and tin-plated copper wire, (ii) insulated copper wire and
(iii) wire harnesses. The Company's products are used by a wide variety of
customers primarily in the appliance, computer and data communications,
automotive and industrial equipment industries.
The following is a description of the Company's primary products and
markets served:
Non-Insulated Wire
The Company's non-insulated copper conductors are primarily used to (i)
transmit digital, video and audio signals that generally control motor functions
in appliances and industrial equipment, HVAC systems, safety control systems and
switching equipment and (ii) conduct electricity. The Company's non-insulated
wire products are primarily sold to wire insulators, who apply various
insulating materials to the conductors through an extrusion process. These wire
insulators, in turn, sell the insulated wire to a variety of customers, many of
which are in the computer and data communications industry. Within this
industry, the Company's non-insulated wire is generally used in wire and cable
products that (i) connect circuit boards inside personal computers ("PCs"), (ii)
join PCs to peripheral equipment and (iii) link PCs in local area and wide area
networks. The Company also manufactures non-insulated wire that is used in a
variety of industrial markets including appliance, fine wire automotive, mining
and mass transportation.
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The Company manufactures a broad array of non-insulated copper conductors
including the following:
- Single End Wire. Single end wire is an individual wire drawn to the
customer's size requirements ranging from .08 to .002 inches in diameter.
Single end wire is used to transmit digital, video and audio signals or
low voltage current in a variety of wire products used in motor controls,
local area networks, security systems, television or telephone
connections inside homes and buildings, and water sprinkler systems.
Single end wire is capable of transmitting signals or electrical current
only between two distinct end points (terminals) such as between an
on-off switch and the starter to a motor. Single end wire is generally
the least expensive form of wire to produce due to its simple
configuration.
- Stranded Wire. Stranded wire is comprised of a number of single end
wires, twisted together in a specific geometric pattern, where each
individual wire's relative position is preserved throughout the length of
the strand. Like single end wire, stranded wire transmits digital, video
and audio signals or low voltage current but is capable of connecting
multiple terminals. This type of wire is the primary wire used in
appliance and automotive wire harnesses. In addition, stranded wire is
typically used in wire and cable products that (i) connect peripherals
such as printers to a computer, (ii) connect the internal components of a
PC, and (iii) control HVAC, security and other functions inside
buildings.
- Bunched Wire. Bunched wire is comprised of a number of single end wires
that are twisted in a random pattern rather than a specific geometric
pattern. Bunched wire is commonly used for transmission of electrical
current in lighting fixture cords, extension cords and power cords for
portable power hand tools. This type of wire provides improved
flexibility (versus single end wire) while maintaining its ability to
carry electrical currents.
- Shielding Wire. Shielding wire is comprised of varying numbers of single
end wire which are wound together in parallel construction around a
bobbin. Shielding wire does not transmit signals or voltage but rather
shields the signal traveling through the core conductor from outside
interference. This type of wire is primarily used in data communication
applications.
- Cabled Wire and Braided Wire. Cabled wire and braided wire are
combinations of single, bunched or stranded wire twisted together in
various patterns and thickness. These wires transmit electrical current
and are typically used in mining, mass transportation, automotive and
other industrial applications.
Insulated Wire
The Company's insulated wire products are primarily sold to companies that
assemble wire harnesses that are installed in automobiles or appliances. The
Company manufactures a diverse array of insulated wire products including the
following:
- PVC Lead Wire and Cable. PVC lead wire and cable is copper wire that has
been insulated with polyvinyl chloride ("PVC"). This product is used
primarily in automotive wire harnesses located behind the instrument
panel or in the vehicle body that control certain functions including
turn signals and air bags.
- JIS Wire. JIS wire is copper wire insulated with PVC that is produced
according to Japanese Industrial Standards ("JIS"). The primary
difference between domestic PVC wire and JIS wire is that JIS wire is
manufactured to metric dimensions and generally has thinner insulation
than products manufactured according to U.S. Society of Automotive
Engineers Standards. JIS wire is used primarily in automotive wire
harnesses located behind the instrument panel or in the vehicle body.
- XLPE Insulated Wire. Cross-linked polyethylene ("XLPE") wire is copper
wire insulated with polyethylene that is subjected to heat and steam
pressure ("cross-linking") to make the wire resistant to high
temperatures. This product's primary application includes use in high
temperature environments such as the engine compartment of vehicles and
in electric ranges.
- PVC Insulated Cord. PVC insulated cord is insulated wire that is
surrounded with fillers and then jacketed with PVC insulation. This
product is used primarily for wall-plug applications (cord sets) in the
appliance and power tool industries.
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- Appliance Wire. Appliance wire is copper wire primarily insulated with
PVC and used in producing harnesses for a variety of appliances. The
Company also manufactures high temperature wire, insulated with silicone,
used primarily in electric ranges and niche applications such as
resistance heaters, motor leads and lighting products.
Wire Harnesses
A wire harness is comprised of an assembly of wires with connectors and
terminals attached to their ends that transmit electricity between two or more
points. For example, a wire harness used in a washing machine links the washing
machine's control panel with its other electrical components, such as the motor.
The Company supplies wire harnesses to most of the leading domestic appliance
manufacturers, including GE, Frigidaire, Whirlpool, and Raytheon (Amana).
Other Products
The Company also participates in several niche businesses oriented around
its expertise and marketing presence in the appliance industry, including
resistance and appliance heaters. In addition, the Company produces truck
trailer cable assemblies that transmit electrical current from the tractor to
the trailer.
INDUSTRY TRENDS
In recent years several key trends and events developed within the
automotive and appliance industries which caused the Company to develop and
execute new business strategies to maintain customer volume levels and meet
competitive pressures. The trends and events included the implementation of the
North American Free Trade Agreement ("NAFTA"), geographic relocation of
production facilities and changes in customers' ordering patterns to match
just-in-time inventory management practices.
With NAFTA and competitive pressures, the automotive and appliance industry
accelerated the shifting of production of wire harness assemblies to lower cost
Mexican operations. In order to address the market's demands, the Company
purchased ECM in December 1994 and began moving production from the Midwest to
the Southwest and Mexico to retain its long-standing relationship with certain
major customers and to achieve cost efficiencies. As the Company increased the
transition of wire harness production to Mexican facilities it began closing
several domestic wire harness facilities in fiscal 1995.
At the time of the acquisition of KILP in 1992, the automotive marketplace
accepted KILP's manufacturing philosophy and approach to customer service.
KILP's manufacturing philosophy was geared toward meeting long lead-time orders
for large quantities of certain types of automotive insulated wire. However, due
to overall economic trends and changes within the automotive industry, KILP's
customer base began to decrease the number and frequency of long lead-time
orders and increased the number and frequency of short lead-time orders for
small quantities of insulated wire. This allowed customers the ability to
further reduce their on-hand inventories and led to more demanding customer
service expectations and a change in KILP's production philosophy to fill the
small orders and meet stringent delivery schedules. As a result, KILP's
operating costs increased, because shorter production runs created more
downtime, an increased number of setups and higher scrap rates. This shift was a
significant factor in the Company's decision to acquire Dekko, which utilized
product line focused facilities which were geared for shorter production runs
and had a history of superior customer service and on-time delivery operating on
that basis. In addition, several of these facilities were strategically located
near the Southwest and Mexico. As the Company began integrating facilities
purchased in the DWT Acquisition, it closed several insulated wire facilities
during 1996.
MARKETING AND DISTRIBUTION
The Company sells its products through a combination of direct
(Company-employed) sales people, manufacturer's representatives and
distributors. The Company's sales organization is supported by an internal
marketing staff and a customer service group. Collectively, these departments
act as a bridge between the Company's customers and its production and
engineering staff. The Company's engineers work directly with customers in
designing the wire or wire harness product that best fits their needs. In
addition, engineers work
34
<PAGE> 37
closely with the Company's production managers, quality supervisors and customer
service representatives to ensure the timely delivery of quality products.
KEY CUSTOMERS
The Company sells its products primarily to major appliance manufacturers,
automotive wire harness manufacturers and copper wire insulators who then sell
to a diverse array of end users. The Company's customers are principally located
in the United States. A substantial percentage of the Company's total sales are
to GE. Sales to GE accounted for approximately 18% and 19% of the Company's
total sales in 1996 and 1995, respectively. In connection with the ECM
Acquisition, the Company entered into a supply agreement with GE, which expires
December 31, 2006, pursuant to which the Company supplies substantially all of
GE's domestic wire harness requirements for major kitchen and laundry
appliances.
RAW MATERIALS
The principal raw material used by the Company is copper, which is
purchased in the form of 5/16 inch rod from the major copper producers in North
America. Copper rod prices are based on market prices, which are generally
established by reference to COMEX prices, plus a premium charged to convert
copper cathode to copper rod and deliver it to the required location. As a world
traded commodity, copper prices have historically been subject to fluctuations,
however, the Company generally passes the copper cost through to its customers.
Management has no reason to believe that this practice will change.
Other major raw materials used by the Company include PVC resin,
plasticizer, XLPE compound and a wide variety of electro-mechanical components.
The Company enters into long term supply agreements on a wide variety of
materials consumed. Supplies of these materials are currently adequate to meet
market needs.
MANUFACTURING
The Company is committed to the highest quality standards for its products,
a standard maintained in part by continuous improvements to its production
processes and upgrades and investments to its manufacturing equipment. The
Company's equipment can be adapted to satisfy the changing needs of its
customers. The Company maintains advanced quality assurance and testing
equipment to ensure the products it manufactures will consistently meet customer
quality requirements. The following is a description of the Company's
manufacturing facilities and processes for its major product lines.
Non-Insulated Wire. As of September 30, 1997, the Company had ten
facilities dedicated to the production and distribution of non-insulated wire.
Five of these facilities are located in New York, two are located in Arkansas,
one facility is located in Indiana, one facility is located in Texas and one
facility is located in California. The manufacturing of non-insulated wire
consists of three processes: wire drawing, plating and bunching and stranding.
- Wire Drawing Process. Wire drawing involves a multi-step process in which
5/16 inch copper rod is drawn through a series of dies of decreasing
diameters.
- Plating Process. After being drawn, the Company's wire products may be
plated through an electro-plating process. The Company has the capability
to plate copper wire with tin and other metals. Approximately 30% of the
Company's non-insulated wire products are plated with tin. The plating
process prevents the bare copper from oxidizing and also allows the wire
to be soldered, which is an important quality in many electrical
applications.
- Bunching and Stranding Process. Bunching and stranding is the process of
twisting together single strand wires to form a construction ranging from
seven to over 200 strands. If the wire is bunched, the individual strands
of wire are twisted together in a random pattern. Bunched wire is
typically used in power cords for lights and appliances. Stranded wire is
composed of a number of single end wires twisted together in a specific
geometric pattern where each strand's relative position is maintained
throughout the length of the wire. Stranded wire is typically used in
security systems, audio systems and intercom systems.
35
<PAGE> 38
Insulated Wire. As of September 30, 1997, the Company had thirteen
manufacturing facilities used to insulate wire. Six of these facilities are
located in Indiana, four are located in Texas, two are located in Alabama and
one is located in Mexico. The production of insulated wire starts with
non-insulated wire (primarily manufactured internally) and involves the
following two processes:
- Compounding Process. The Company produces PVC, polyethylene, rubber and
silicone insulation formulations from basic components utilizing its own
computerized mixing and blending systems and utilizes purchased
compounds. The Company is capable of producing polymeric insulation
compounds that meet specific customer requirements.
- Extrusion Process. The Company insulates wire products with a polymeric
insulating compound through an extrusion process. Extrusion involves the
feeding, melting and pumping of insulating compounds through a die to
shape it into its final form on the wire. In order to enhance the
insulation properties of certain products, certain polymeric compounds
can be cross-linked chemically after the extrusion process. The Company
has extensive chemical cross-linking capabilities.
Wire Harnesses. As of September 30, 1997, the Company had two wire harness
manufacturing facilities in the U.S., which are located in the Midwest region of
the nation, and two facilities located in Mexico. The manufacturing of wire
harnesses involves the following four-step process:
- Cutting and Stripping. Insulated copper wire, obtained primarily from
internal sources, is fed through cutting machines that are programmed to
cut wire to a certain length, strip the end of the wire and attach
terminals or connectors.
- Splicing and Connecting. In the second process, the lengths of wire are
spliced or joined together and additional connectors and/or terminals are
attached. Splicing, like cutting and stripping, lends itself to
automation.
- Harness Assembly. Once these two preparatory stages have been completed,
the cut and spliced wires are brought to the assembly area. Assembly
boards are used to guide each employee on the assembly line in the
placement of designated wires.
- Quality Control. After assembly, each harness is tested for continuity
and analyzed by a trained inspector. Every assembly board is equipped
with 100% continuity testers that are designed into the assembly board.
These testers will pinpoint any defective circuits for repair or rework.
COMPETITION
As a result of the diversity of the Company's product lines, the Company
believes that no single competitor competes with the Company across the entire
spectrum of the Company's product lines. However, in each of the Company's
business segments, the Company experiences competition from at least one major
competitor. The Company competes primarily on the basis of quality, reliability,
price, reputation, customer service and delivery time. The Company believes it
maintains a leading market share position in the non-captive (defined as third
party purchases from independent suppliers) U.S. market for each of its business
segments.
BACKLOG
Due to the manner in which it processes its orders, the Company has no
significant order backlog. The Company follows the industry practice of
producing its products on an ongoing basis to meet customer demand without
significant delay. Management believes the ability to supply orders in a timely
fashion is a competitive factor in its market, and therefore, attempts to
minimize order backlog to the extent practicable.
36
<PAGE> 39
PATENTS AND TRADEMARKS
The Company has seven patents, nine registered trademarks and three
trademark applications. The Company does not believe that its competitive
position is dependent on patent protection or that its operations are dependent
on any individual patent or trademark or group of related patents or trademarks.
EMPLOYEES
As of September 30, 1997, the Company employed approximately 7,500 full
time employees, of which approximately 4,700 were located in Mexico and 90 (all
located at the Company's plant in Rolling Prairie, Indiana) were represented by
a labor union. The Company believes that it has a good relationship with its
employees.
ENVIRONMENTAL MATTERS
The Company is subject to a number of federal, state, local and foreign
environmental laws and regulations relating to the storage, handling, use,
emission, discharge, release or disposal of materials into the environment and
the investigation and remediation of contamination associated with such
materials. These laws include, but are not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act, the Water Pollution
Control Act, the Clean Air Act and the Resource Conservation and Recovery Act,
the regulations promulgated thereunder, and any state analogs. The Company's
operations also are governed by laws and regulations relating to employee health
and safety. The Company believes that it is in material compliance with such
applicable laws and regulations and that its existing environmental controls are
adequate. Further, the Company has no current plans for substantial capital
expenditures in this area.
As is the case with most manufacturers, the Company could incur costs
relating to environmental compliance, including remediation costs related to
historical hazardous materials handling and disposal practices at certain
facilities, although it does not believe that such costs would materially and
adversely affect the Company. In the past the Company has undertaken remedial
activities to address on-site soil contamination caused by historic operations.
None of these activities have resulted in any material liability. Currently, the
Company is involved with environmental monitoring activities at its Camden, New
York and Jordan, New York facilities.
The Company currently does not anticipate that compliance with
environmental laws or regulations or the costs to remediate the sites discussed
above will have material adverse effect on the Company's operations, financial
condition or competitive position. As mentioned above, however, the risk of
environmental liability and remediation costs is inherent in the nature of the
Company's business and, therefore, there can be no assurances that material
environmental costs, including remediation costs, will not arise in the future.
In addition, it is possible that future developments (e.g., new regulations or
stricter regulatory requirements) could result in the Company incurring material
costs to comply with applicable environmental laws and regulations.
PROPERTIES
The Company uses owned or leased properties as manufacturing facilities,
warehouses and offices throughout the United States and Mexico. The Company's
principal executive offices are located in St. Louis, Missouri. The Company
considers its plants and equipment to be modern and well-maintained and
providing adequate production capacity to meet expected demand for its products.
All of the Company's owned properties are pledged to secure the Company's
indebtedness under the Senior Bank Facility.
37
<PAGE> 40
Listed below are the principal manufacturing and distribution facilities
operated by the Company as of September 30, 1997:
<TABLE>
<CAPTION>
LOCATION SQUARE FEET OWNED/LEASED PRIMARY PRODUCTS/END USE
-------- ----------- ------------ ------------------------
<S> <C> <C> <C>
NON-INSULATED WIRE
Camden, NY............. 450,000 Owned Single End, Bunched, Stranded, Cabled and
Electroplated Wire
Williamstown, NY....... 210,000 Owned Single End, Bunched, Stranded and Cabled Wire
Bremen, IN............. 175,000 Owned Bunched Wire
Camden, NY............. 150,000 Leased Single End, Bunched, Stranded and Cabled Wire
Pine Bluff, AR......... 130,000 Owned Single End, Bunched, Stranded and Cabled Wire
Jordan, NY............. 120,000 Leased Single End, Bunched, Stranded, Shielding and Cabled
Wire
Cazenovia, NY.......... 60,000 Owned Braided Wire
El Paso, TX............ 57,000 Owned Bunched Wire
Pine Bluff, AR......... 20,000 Owned Shielding, Fine Pigtail and Braided Wire
Cerritos, CA........... 19,000 Leased Distribution
INSULATED WIRE
Rolling Prairie, IN.... 200,000 Owned Automotive and Appliance
Avilla, IN............. 119,000 Owned Appliance
Elkmont, AL............ 115,000 Owned Automotive
Corunna, IN............ 72,000 Owned Appliance
El Paso, TX............ 72,000 Owned Automotive
El Paso, TX............ 70,000 Leased Automotive
Kendallville, IN....... 61,000 Leased Appliance and Automotive
El Paso, TX............ 60,000 Owned Automotive
Corunna, IN............ 58,000 Owned Appliance
Ardmore, AL............ 45,000 Owned Automotive
Nogales, Mexico........ 42,000 Leased Automotive
Albion, IN............. 39,000 Owned Appliance and Automotive
El Paso, TX............ 28,000 Leased Automotive
WIRE HARNESSES
Chihuahua, Mexico...... 195,000 Owned Dishwashers, Laundry and Ranges
Juarez, Mexico......... 145,000 Leased Refrigerators, Dishwashers and Ranges
Bucyrus, OH............ 47,000 Leased Truck Trailers and Farm Machinery
Mishawaka, IN.......... 29,000 Owned Refrigerators, Dishwashers and Laundry
</TABLE>
The leases on the Company's Camden, New York and Jordan, New York
facilities have remaining terms of approximately 15 years. The Company has an
option to renew each of these leases for two terms of five years each or to
purchase the facilities at their respective fair values or 90% of their
respective fair values, depending on the time of exercise of the option to
purchase. The lease on the Company's Nogales, Mexico facility has a remaining
term of approximately three years. The lease on the Company's Juarez, Mexico
facility has a remaining term of approximately six years. The leases on the
Company's Kendallville, Indiana and El Paso, Texas facilities have remaining
terms of approximately two years. The lease on the Company's Bucyrus, Ohio
facility expires in November 1999. The lease on the Company's distribution
facility in Cerritos, California has a remaining term of approximately three
years.
The Company believes its facilities are suitable for their present and
intended purposes and adequate for the Company's current level of operations.
LEGAL PROCEEDINGS
The Company is a party to various legal proceedings and administrative
actions, all of which are of an ordinary or routine nature incidental to the
operations of the Company. The Company was served with notice
38
<PAGE> 41
of an action styled Whirlpool Corporation v. Wirekraft Industries, Inc. (Case
No. 97-2039-CK-T), initiated in the Second Judicial Circuit of the State of
Michigan, Berrien County Trial Court, Civil Division, on August 8, 1997. The
action relates to a product liability claim related to certain wire harness
products supplied to Whirlpool by one of the Company's predecessors during 1991
and 1992. The complaint filed with respect to such lawsuit does not specify an
amount of damages. The Company is investigating the merits of the claim as well
as the Company's rights of indemnification from involved third-party suppliers
and the Company's related insurance coverage. In the opinion of the Company's
management, all such proceedings and actions should not, individually or in the
aggregate, have a material adverse effect on the Company's results of
operations, financial condition or cash flows.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names and positions of the directors and executive
officers of Holding and the Company. All directors hold office until the next
annual meeting of stockholders of Holding and the Company, and until their
successors are duly elected and qualified. All officers serve at the pleasure of
the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
James N. Mills............................ 60 Chairman of the Board and Chief Executive
Officer of Holding and the Company
Charles W. Tate........................... 52 Director of Holding and the Company
Jack D. Furst............................. 38 Director of Holding and the Company
John A. Gavin............................. 65 Director of Holding and the Company
Thomas P. Danis........................... 50 Director of Holding and the Company
Richard W. Vieser......................... 69 Director of Holding and the Company
Joseph M. Fiamingo........................ 47 Director, President and Chief Operating
Officer of Holding and the Company
Rodney D. Kent............................ 49 Director of Holding and the Company,
President and Chief Executive Officer of
Omega
David M. Sindelar......................... 40 Senior Vice President and Chief Financial
Officer of Holding, Senior Vice President of
the Company
Larry S. Bacon............................ 51 Senior Vice President -- Human Resources of
Holding and the Company
W. Thomas McGhee.......................... 61 Secretary and General Counsel of Holding and
the Company
Glenn J. Holler........................... 50 Vice President -- Finance of the Company
</TABLE>
James N. Mills is Chairman of the Board and Chief Executive Officer of
Holding and the Company and has held such positions since April 1995. Mr. Mills
serves as Chairman of the Board, President and Chief Executive Officer of Mills
& Partners. Mr. Mills is also Chairman of the Board and Chief Executive Officer
of Berg Electronics Corp., Chairman of the Board of Berg Electronics Group,
Inc., Chairman of the Board and Chief Executive Officer of Crain Holdings Corp.,
Crain Industries, Inc., Viasystems Group, Inc. and Copy USA Holdings Corp. Mr.
Mills was Chairman of the Board and Chief Executive Officer of Jackson Holding
Company and Jackson Products, Inc. from February 1993 through August 1995. Mr.
Mills was Chairman of the Board and Chief Executive Officer of Thermadyne
Holdings Corporation from February 1989 through February 1995 and Chairman of
the Board and Chief Executive Officer of Thermadyne Industries, Inc. from 1987
to 1995. Mr. Mills was Executive Vice President of McGraw-Edison Company, a
company engaged in the electronic, industrial, commercial and automotive
industries, from 1978 to 1985, and served as Industrial Group President and
President of the Bussmann Division of the McGraw-Edison Company from 1980 to
1984.
Charles W. Tate is a director of Holding and the Company and has held such
positions since April 1995. Mr. Tate is a Managing Director and Principal of
Hicks, Muse. Before joining Hicks, Muse in 1991, Mr. Tate
39
<PAGE> 42
had over 19 years of experience in investment and merchant banking with Morgan
Stanley & Co. Incorporated, including ten years in the mergers and acquisitions
department and the last two and one-half years as a managing director in Morgan
Stanley's merchant banking group. Mr. Tate serves as a director of The
Morningstar Group Inc., Desa Holdings Corporation, Berg Electronics Corp.,
International Home Foods, Inc., Seguros Comercial America S.A. de C.V., and
Vidrio Formas S.A. de C.V. He also served as a director of Berg Electronics
Group, Inc. until August 1996 and Jackson Holding Company until August 1995.
Jack D. Furst is a director of Holding and the Company and has held such
positions since April 1995. Mr. Furst is a Managing Director and Principal of
Hicks, Muse and has held such position since 1989. Mr. Furst has approximately
15 years of experience in merchant and investment banking. At Hicks, Muse, Mr.
Furst is involved in all aspects of its business and has been actively involved
in originating, structuring and monitoring of investments. Mr. Furst is
primarily responsible for managing the relationship with Mills & Partners. Prior
to joining Hicks, Muse, Mr. Furst was a vice president and subsequently a
partner of Hicks & Haas Incorporated from 1987 to May 1989. From 1984 to 1986,
Mr. Furst was a merger and acquisition/ corporate finance specialist for The
First Boston Corporation in New York. Before joining First Boston, Mr. Furst was
a financial consultant at Price Waterhouse. Mr. Furst serves on the board of
directors of Desa Holdings Corporation, Crain Industries and Cooperative
Computing, Inc.
John A. Gavin is a director of Holding and the Company and has held such
positions since June 1995. Mr. Gavin is the founder and Chairman of the Board of
Gamma Services, an international venture capital and consulting firm established
in 1968, and is the Managing Director of Hicks, Muse, Tate & Furst (Latin
America), Incorporated and has held such position since 1996. From 1987 to 1990,
Mr. Gavin was President of Univisa Satellite Communications, a part of a
Spanish-speaking broadcast network. Prior thereto, Mr. Gavin served as a Vice
President of Atlantic Richfield Company from 1986. From 1981 to 1986, Mr. Gavin
served as the United States Ambassador to Mexico. Mr. Gavin also serves as a
director of Atlantic Richfield Company, Dresser Industries, Inc., Pinkerton's
Inc., and the Hotchkis and Wiley Funds.
Thomas P. Danis is a director of Holding and the Company and has held such
positions since June 1995. Mr. Danis has been Chairman of the Board of AON Risk
Services of Missouri, Inc., a company engaged in the insurance brokerage
business, since 1993. In 1979, Mr. Danis co-founded an insurance brokerage firm,
a joint venture with Corroon & Black, which was ultimately purchased by Corroon
& Black in 1984. Mr. Danis also serves as a director of Commerce Bank, N.A.
Richard W. Vieser is a director of Holding and the Company and has held
such positions since September 1995. Mr. Vieser is the retired Chairman of the
Board, Chief Executive Officer and President of Lear Siegler, Inc. (a
diversified manufacturing company), the former Chairman of the Board and Chief
Executive Officer of FL Industries, Inc. and FL Aerospace (formerly Midland-Ross
Corporation), also diversified manufacturing companies, and the former President
and Chief Operating Officer of McGraw-Edison Co. He is also a director of Berg
Electronics Corp., Ceridian Corporation (formerly Control Data Corporation),
Dresser Industries, Inc., INDRESCO Inc., Sybron International Corporation and
Varian Associates, Inc. He also served as a director of Berg Electronics Group,
Inc. until August 1996.
Joseph M. Fiamingo is a director of Holding and the Company and has held
such positions since October 1996. Mr. Fiamingo also serves as President and
Chief Operating Officer of Holding and the Company and has held such positions
since September 1996. Previously, Mr. Fiamingo held the position of Vice
President of Operations and Technology of the Company from June 1996 and
President and Chief Operating Officer of Wirekraft from October 1995. Prior
thereto, Mr. Fiamingo was employed by General Cable Corporation from 1972 to
1995 where he held various senior management level positions including President
and Vice President and General Manager of several divisions of General Cable and
most recently, Executive Vice President of Operations.
Rodney D. Kent is a director of Holding and the Company and has held such
positions since April 1995. Mr. Kent also serves as President and Chief
Executive Officer of Omega and has held such position since 1983. Mr. Kent
served as Assistant to the President of Omega from 1974 to 1983. Prior to
joining Omega, Mr. Kent was employed with Flexo Wire from 1973 to 1974 and
Camden Wire Company from 1970 to 1973. Mr. Kent also serves as a director of
Oneida Savings Bank.
40
<PAGE> 43
David M. Sindelar is Senior Vice President and Chief Financial Officer of
Holding and Senior Vice President of the Company and has held such positions
since April 1995. Mr. Sindelar is also Senior Vice President and Chief Financial
Officer of Mills & Partners, Berg Electronics Corp., Crain Industries, Inc. and
Crain Holdings Corp., Viasystems Group, Inc., Copy USA Holding Corp. and Senior
Vice President of Berg Electronics Group, Inc. Mr. Sindelar was Senior Vice
President and Chief Financial Officer of Jackson Holding Company from February
1993 through August 1995. From 1987 to February 1995, Mr. Sindelar held various
other positions at Thermadyne Holdings Corporation including Senior Vice
President and Chief Financial Officer, Vice President -- Corporate Controller
and Controller.
Larry S. Bacon is Senior Vice President-Human Resources of Holding and the
Company and has held such positions since April 1995. Mr. Bacon is also Senior
Vice President -- Human Resources of Mills & Partners, Berg Electronics Corp.,
Berg Electronics Group, Inc., Crain Industries, Inc., Crain Holdings Corp.,
Viasystems Group, Inc., and Copy USA Holding Corp. Mr. Bacon was Senior Vice
President -- Human Resources of Jackson Holding Company from February 1993
through August 1995. Previously, Mr. Bacon was Senior Vice President -- Human
Resources of Thermadyne Holdings Corporation from September 1987 until February
1995.
W. Thomas McGhee is Secretary and General Counsel of Holding and the
Company and has held such positions since April 1995. Mr. McGhee is also a
partner in the law firm of Herzog, Crebs and McGhee and has held that position
since 1987. In addition, Mr. McGhee serves as Secretary and General Counsel of
Berg Electronics Corp., Berg Electronics Group, Inc., Crain Industries, Inc.,
Crain Holdings Corp., Viasystems Group, Inc. and Copy USA Holding Corp.
Glenn J. Holler is Vice President-Finance of the Company and has held such
position since August 1996. Prior to joining the Company, Mr. Holler was
employed by Vigoro Industries, Inc. as Vice President, Finance from 1994 to 1996
and Moog Automotive, Inc. from 1983 to 1994, most recently as Senior Vice
President, Finance.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation decisions are made by the Board of Directors. James N. Mills
served as both an executive officer and director of the Company during 1996 and
is expected to serve in such capacities in 1997.
COMPENSATION OF DIRECTORS
Directors who are officers, employees or otherwise an affiliate of Holding
or the Company receive no compensation for their services as directors. Each
director of Holding and the Company who is not also an officer, employee or an
affiliate of Holding or the Company (an "Outside Director") receives an annual
retainer of $12,000 and a fee of $1,000 for each meeting of the board of
directors at which the director is present. Directors of Holding and the Company
are entitled to reimbursement of their reasonable out-of-pocket expenses in
connection with their travel to and attendance at meetings of the board of
directors or committees thereof.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the cash and noncash compensation earned by
the Chief Executive Officer, the four other most highly compensated executive
officers of Holding and the Company and a former executive officer of the
Company. Such compensation was paid by or on behalf of Wirekraft and Omega
during the year ended December 31, 1994 and the first five months of 1995 and
was paid by or on behalf of the Company during the remaining seven months of
1995, and during the year ended December 31, 1996. As of the date hereof, the
Company has not granted any stock appreciation rights.
41
<PAGE> 44
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION(1) SECURITIES
-------------------- UNDERLYING ALL OTHER
YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
---- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
James N. Mills............................. 1996 485,281 548,000 412,188(2) --
Chairman of the Board and Chief 1995 250,000 97,500 988,725(2) --
Executive Officer of Holding 1994 186,425 150,000 -- --
Joseph M. Fiamingo......................... 1996 202,166 123,337 600,000(3) --
President and Chief Operating Officer of 1995 32,685 8,500 400,000(3) --
Holding and the Company 1994 -- -- -- --
Rodney D. Kent............................. 1996 323,911 193,714 -- 142,289(4)
President and Chief Executive Officer of 1995 285,479 70,000 400,000(3) 129,766(4)
Omega 1994 240,419 2,340 -- 124,072(4)
Robert C. Kozlowski(5)..................... 1996 194,609 98,066 400,000(3) --
President -- Wire Technologies 1995 -- -- -- --
1994 -- -- -- --
David M. Sindelar.......................... 1996 201,422 121,000 309,143(2) --
Senior Vice President and Chief 1995 108,833 48,000 741,547(2) --
Financial Officer of Holding, 1994 26,234 25,000 -- --
Senior Vice President of the Company
William J. Kriss(6)........................ 1996 368,956 -- -- --
President and Chief Operating Officer of 1995 312,330 100,000 1,000,000(3) --
Holding and the Company 1994 -- -- -- --
</TABLE>
- ---------------
(1) Holding and the Company provide to certain executive officers, a car
allowance, reimbursement for club memberships, insurance policies and
certain other benefits. The aggregate incremental cost of these benefits to
Holding and the Company for each officer do not exceed the lesser of $50,000
or 10% of the total annual salary and bonus reported for each officer.
(2) Reflects Performance Options (as hereinafter defined) granted by Holding.
For a description of the material terms of such options, see
"Management -- Benefit Plans -- Performance Options."
(3) Reflects options to purchase Common Stock of Holding, par value $0.01 per
share ("Holding Common Stock"), granted under the Option Plan (as
hereinafter defined). The options vest in five equal annual installments
commencing on the first anniversary date of the grant, subject to
acceleration under certain circumstances, including a Change of Control (as
defined in the Option Plan).
(4) Represents (i) $45,792, $43,347 and $43,347 in premiums paid on life
insurance policies for the benefit of Mr. Kent in 1996, 1995 and 1994
respectively and (ii) $51,797, $41,536 and $42,300 in annual deferred
compensation and $44,700, $44,883 and $38,425 in annual interest accruals
thereon earned by Mr. Kent in 1996 and 1995 respectively, pursuant to his
employment agreement.
(5) As of July 14, 1997, Mr. Kozlowski resigned as President of Wire
Technologies and, accordingly, all options granted by Holding to Mr.
Kozlowski have terminated.
(6) As of September 25, 1996, Mr. Kriss resigned as President and Chief
Operating Officer of Holding and the Company.
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<PAGE> 45
OPTION GRANTS IN LAST FISCAL YEAR
The following table summarizes option grants made during fiscal 1996 to the
executive officers named above.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES
OPTIONS OF STOCK PRICE
NUMBER OF GRANTED TO APPRECIATION FOR OPTION
SECURITIES EMPLOYEES TERM(1)
UNDERLYING IN FISCAL EXERCISE EXPIRATION --------------------------
NAME OPTIONS(#) YEAR PRICE($/SHARE) DATE 5%($) 10%($)
---- ---------- ------------ -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
James N. Mills.......................... 412,188(2) 11.8% $1.00(3) 03/05/06 0(4) 0(4)
Joseph M. Fiamingo...................... 600,000(5) 17.1% $1.00 11/08/06 378,000 954,000
Rodney D. Kent.......................... -- -- -- -- -- --
Robert C. Kozlowski(6).................. 400,000(5) 11.4% $1.00 03/05/06 252,000 636,000
David M. Sindelar....................... 309,143(2) 8.8% $1.00(3) 03/05/06 0(4) 0(4)
William J. Kriss........................ -- -- -- -- -- --
</TABLE>
- ---------------
(1) The potential realizable value portion of the foregoing table illustrates
the value that might be realized upon exercise of the option immediately
prior to the expiration of its term, assuming the specified compound rates
of appreciation of Holding Common Stock over the term of the options. These
amounts represent certain assumed rates of appreciation only. Actual gains
on the exercise of options are dependent on the future performance of
Holding Common Stock. There can be no assurance that the potential values
reflected in this table will be achieved. All amounts have been rounded to
the nearest whole dollar amount.
(2) Reflects Performance Options granted by Holding. For a description of the
material terms of such options, see "Management -- Benefit
Plans -- Performance Options."
(3) The exercise price for the Performance Options is initially equal to $1.00
per share and, effective each anniversary date of the grant date, the per
share exercise price for the Performance Options is equal to the per share
exercise price for the prior year multiplied by 1.09.
(4) The Performance Options are exercisable only in the event that HM Fund II
realizes a 35% overall rate of return, compounded annually, on its equity
funds invested in Holding. Accordingly, there is no potential realizable
value to the Performance Options at compound appreciation rates of 5% and
10%.
(5) Reflects options to purchase Holding Common Stock granted under the Option
Plan. The options vest in five equal annual installments commencing on the
first anniversary date of the grant, subject to acceleration under certain
circumstances, including a Change of Control (as defined in the Option
Plan).
(6) As of July 14, 1997, Mr. Kozlowski resigned as President of Wire
Technologies and, accordingly, all options granted by Holding to Mr.
Kozlowski have terminated.
43
<PAGE> 46
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
No options were exercised by the executive officers named above during
fiscal 1996. The following table summarizes the value of unexercised options as
of December 31, 1996. The per share fair market value of the Holding Common
Stock used to make the calculations in the following table is $1.00, which is
the per share price at which Holding Common Stock was sold in connection with
the Wirekraft/Omega Combination and the DWT Acquisition. Accordingly, the table
indicates that the options had no value at the end of 1996 because the exercise
price was equal to or greater than such fair market value.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END
ACQUIRED VALUE --------------------------- ---------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James N. Mills.......................... 0 0 0 1,400,913 0 0
Joseph M. Fiamingo...................... 0 0 80,000 920,000 0 0
Rodney D. Kent.......................... 0 0 80,000 320,000 0 0
Robert C. Kozlowski(1).................. 0 0 0 400,000 0 0
David M. Sindelar....................... 0 0 0 1,050,690 0 0
William J. Kriss........................ 0 0 0 0 0 0
</TABLE>
- ---------------
(1) As of July 14, 1997, Mr. Kozlowski resigned as President of Wire
Technologies and, accordingly, all options granted by Holding to Mr.
Kozlowski have terminated.
EMPLOYMENT AGREEMENTS
James N. Mills Employment Agreement. Mr. James N. Mills entered into an
employment agreement with Holding and the Company on June 12, 1995. Pursuant to
such employment agreement, Mr. Mills will serve as the Chairman of the Board and
Chief Executive Officer of Holding and the Company through June 11, 2000. Mr.
Mills is required to devote such business time and attention to the transaction
of the Company's business as is reasonably necessary to discharge his duties
under the employment agreement. Subject to the foregoing limitation on his
activities, Mr. Mills is free to participate in other business endeavors.
The compensation provided to Mr. Mills under his employment agreement
includes an annual base salary of not less than $300,000, subject to adjustment
at the sole discretion of the Board of Directors of Holding, and such benefits
as are customarily accorded the executives of Holding and the Company for as
long as the employment agreement is in force. In addition, Mr. Mills is entitled
to an annual bonus in an amount to be determined at the sole discretion of the
Board of Directors of Holding.
Mr. Mills' employment agreement also provides that if Mr. Mills' employment
is terminated without cause, Mr. Mills will continue to receive his then current
salary for the longer of the remainder of the employment period or 18 months
following such termination. In addition, Mr. Mills' employment agreement
provides that if Mr. Mills is terminated due to death or disability, Mr. Mills'
estate, heirs, or beneficiaries, as applicable, will receive, in addition to any
other benefits provided under any benefit plan, his then current salary for a
period of 18 months from the date of termination.
Joseph M. Fiamingo Employment Agreement. Mr. Joseph M. Fiamingo entered
into an employment agreement with Holding and the Company on September 25, 1996.
Pursuant to such employment agreement, Mr. Fiamingo will serve as President and
Chief Operating Officer of Holding and the Company through September 24, 1999.
The compensation provided to Mr. Fiamingo under his employment agreement
includes an annual base salary of not less than $260,000, subject to adjustment
at the sole direction of the Board of Directors of Holding, and such benefits as
are customarily accorded the executives of Holding and the Company for as long
as the employment agreement is in force. In addition, Mr. Fiamingo is entitled
to an annual bonus in an
44
<PAGE> 47
amount to be determined by the Chairman of the Board of Holding of up to
sixty-five percent of his base compensation.
Mr. Fiamingo's employment agreement also provides that if Mr. Fiamingo's
employment is terminated without cause, Mr. Fiamingo will continue to receive
his then current salary for the remainder of such employment agreement. In
addition, Mr. Fiamingo's employment agreement provides that if Mr. Fiamingo is
terminated due to death or disability, Mr. Fiamingo's estate, heirs, or
beneficiaries, as applicable, will receive, in addition to any other benefits
provided under any benefit plan, his then current salary for a period of 12
months from the date of termination.
Rodney D. Kent Employment Agreement. Mr. Kent entered into an employment
agreement with Omega on March 14, 1995. Pursuant to such employment agreement,
Mr. Kent will serve as President and Chief Executive Officer of Omega through
March 28, 1998. Mr. Kent is required to devote substantially all of his business
time and attention to the performance of his duties under the employment
agreement.
The compensation provided to Mr. Kent under his employment agreement
includes an annual base salary of not less than $286,000 for the period ended
March 31, 1996, not less than $302,000 for the period ended March 31, 1997, and
not less than $325,000 thereafter, subject to increase at the sole discretion of
the Board of Directors of Omega, and certain other benefits for as long as the
employment agreement is in force. In addition, during each year of employment,
an additional 15% of the annual base salary is credited to a deferred
compensation account for the benefit of Mr. Kent, which deferred compensation
account is annually credited with an interest accrual of 8% on the balance of
the account for the prior year. Further, Mr. Kent is entitled to an annual bonus
in an amount to be determined at the sole discretion of the Chairman of the
Board of Holding of up to sixty-five percent of his annual base salary.
Mr. Kent's employment agreement also provides that if Mr. Kent's employment
is terminated without cause or due to disability or death, Mr. Kent or his
estate, heirs or beneficiaries, as applicable, will receive, in addition to any
other benefits provided him or them under any benefit plan, Mr. Kent's then
current salary for a period of 24 months from Mr. Kent's termination without
cause or his disability or death. In the event that Mr. Kent terminates his
employment and receives a bona fide offer of employment from a competitor of the
Company, Mr. Kent will receive, in addition to any other benefits provided under
any benefit plan, Mr. Kent's then current salary for a period of 24 months from
such termination, but only in the event that Omega elects to enforce certain
non-competition provisions of the employment agreement.
Robert C. Kozlowski Employment Agreement. Mr. Robert C. Kozlowski entered
into an employment agreement with Holding and the Company on March 5, 1996. Mr.
Kozlowski resigned as of July 14, 1997, but will continue to receive an annual
base salary of $227,136 pursuant to the terms of such agreement until March 4,
1999.
David M. Sindelar Employment Agreement. Mr. David M. Sindelar entered into
an employment agreement with Holding and the Company on June 12, 1995. Pursuant
to such employment agreement, Mr. Sindelar will serve as the Senior Vice
President and Chief Financial Officer of Holding and Senior Vice President of
the Company through June 11, 2000. Mr. Sindelar is required to devote such
business time and attention to the transaction of the Company's business as is
reasonably necessary to discharge his duties under the employment agreement.
Subject to the foregoing limitation on his activities, Mr. Sindelar is free to
participate in other business endeavors.
The compensation provided to Mr. Sindelar under his employment agreement
includes an annual base salary of not less than $150,000, subject to adjustment
at the sole discretion of the Board of Directors of Holding, and such benefits
as are customarily accorded the executives of Holding and Senior Vice President
of the Company for as long as the employment agreement is in force. In addition,
Mr. Sindelar is entitled to an annual bonus in an amount to be determined by the
Chairman of the Board of Holding of up to sixty-five percent of his base
compensation.
Mr. Sindelar's employment agreement also provides that if Mr. Sindelar's
employment is terminated without cause, Mr. Sindelar will continue to receive
his then current salary for the longer of the remainder of the employment period
or 18 months following such termination. In addition, Mr. Sindelar's employment
45
<PAGE> 48
agreement provides that if Mr. Sindelar is terminated due to death or
disability, Mr. Sindelar's estate, heirs, or beneficiaries, as applicable, will
receive, in addition to any other benefits provided under any benefit plan, his
then current salary for a period of 18 months from the date of termination.
William J. Kriss Employment Agreement. Mr. William J. Kriss entered into an
employment agreement with Wirekraft on February 6, 1995. Mr. Kriss resigned as
of September 25, 1996, but will continue to receive an annual base salary of
$300,000 pursuant to the terms of such agreement until February 6, 1998.
BENEFIT PLANS
Stock Option Plan
Holding's qualified and non-qualified stock option plan (the "Option Plan")
provides for the granting of up to 4,795,322 shares of Holding Common Stock, to
officers and key employees of Holding and the Company. Under the Option Plan, as
of September 15, 1997, Holding has granted options to purchase 4,565,249 shares
of Holding Common Stock, 3,150,000 at $1.00 per share, 65,249 at $1.625 per
share and 1,350,000 at $1.40 per share, the fair market value of Holding Common
Stock at the date of grant as determined by the Board of Directors of Holding.
Such options vest ratably over a five year period commencing on the first
anniversary date after the date of grant, subject to acceleration in the
discretion of the committee appointed to administer the Option Plan in the event
of a Change of Control (as defined in the Option Plan). Generally, an option may
be exercised only if the holder is an officer or employee of Holding or the
Company at the time of exercise. Options granted under the Option Plan are not
transferable, except by will and the laws of descent and distribution. Except as
expressly provided otherwise in any optionee's agreement relating to the grant
of options under the Option Plan, in the event an optionee's employment with
Holding, the Company or a related entity terminates at any time, Holding or its
designees shall have the right to repurchase from the optionee (or optionee's
representatives) (i) the number of shares of Holding Common Stock acquired upon
exercise of an option and (ii) the optionee's right to acquire that number of
shares of Holding Common Stock which an optionee can acquire upon exercise
immediately prior to such repurchase. The purchase price to be paid is
calculated on the basis of the fair market value (as defined in the Option Plan)
of Holding Common Stock multiplied by the number of shares of Holding Common
Stock to be acquired (less the aggregate exercise price in the event such
repurchase option is exercised by Holding with respect to the optionee's right
to acquire Holding Common Stock).
Performance Options
On March 31, 1995, Omega granted options (the "Performance Options") to
purchase 1,958,762 shares of common stock of Omega ("Omega Common Stock"). Mr.
Mills was granted Performance Options to purchase 652,921 shares of Omega Common
Stock, and Performance Options to purchase the remaining 1,305,841 shares of
Omega Common Stock were granted to certain officers of Omega who are also
affiliated with Mills & Partners. In connection with the Wirekraft/Omega
Combination and pursuant to the terms of the option agreements (the "Performance
Option Agreements") related to the Performance Options, the Performance Options
became options to purchase an identical number of shares of Holding Common
Stock.
On June 12, 1995, the Company granted Performance Options to purchase
1,007,416 shares of Holding Common Stock. Mr. Mills was granted Performance
Options to purchase 335,804 shares of Holding Common Stock, and Performance
Options to purchase the remaining 671,612 shares of Holding Common Stock were
granted to certain officers of the Company who are also affiliated with Mills &
Partners.
On March 5, 1996, the Company granted Performance Options to purchase
1,236,566 shares of Holding Common Stock, Mr. Mills was granted Performance
Options to purchase 412,188 shares of Holding Common Stock, and Performance
Options to purchase the remaining 824,378 shares of Holding Common Stock were
granted to certain officers of the Company who are also affiliated with Mills &
Partners.
The Performance Options are exercisable only in the event that HM Fund II
has realized an overall rate of return of at least 35% per annum, compounded
annually, on all equity funds invested by it in Holding. Subject to the
foregoing, the Performance Options are exercisable (i) immediately prior to a
Liquidity Event
46
<PAGE> 49
(as hereinafter defined), (ii) concurrently with the consummation of a Qualified
IPO (as hereinafter defined), or (iii) on December 31, 2004 (with respect to the
Performance Options granted on March 31, 1995 and June 12, 1995) or on December
31, 2005 (with respect to the Performance Options granted on March 5, 1996). A
"Liquidity Event" generally means (i) one or more sales or other dispositions of
Holding Common Stock if, thereafter, the amount of Holding Common Stock owned by
HM Fund II is reduced by 50%, (ii) any merger, consolidation or other business
combination of Holding pursuant to which any person or group acquires a majority
of the common stock of the resulting entity, or (iii) any sale of all or
substantially all of the assets of Holding. A "Qualified IPO" means a firm
commitment underwritten public offering of Holding Common Stock for gross
proceeds of at least $25.0 million.
The exercise price for the Performance Options is initially equal to $1.00
per share and, effective each anniversary of the grant date, the per share
exercise price for the Performance Options is equal to the per share exercise
price for the prior year multiplied by 1.09. The exercise price of the
Performance Options and the number of shares of Holding Common Stock for which
the Performance Options are exercisable is subject to adjustment in the event of
certain fundamental changes in the capital structure of Holding. The Performance
Options terminate on the tenth anniversary of the date of grant.
47
<PAGE> 50
OUTSTANDING VOTING SECURITIES OF HOLDING
AND PRINCIPAL HOLDERS THEREOF
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the issued and outstanding shares of capital stock of the Company
are held by Holding. The following table sets forth as of September 15, 1997
certain information regarding the beneficial ownership of the voting securities
of Holding by each person who beneficially owns more than 5% of any class of
Holding voting securities and by the directors and certain executive officers of
the Company, individually, and by the directors and executive officers of the
Company as a group. The Class A Common Stock, par value $0.01 per share, of
Holding ("Holding Class A Common Stock") votes together with the Holding Common
Stock as a single class and is entitled to one vote for each share.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
-------------------------------------------------------------------
HOLDING CLASS A
HOLDING COMMON STOCK COMMON STOCK
------------------------- ------------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF PERCENT OF
SHARES CLASS SHARES CLASS TOTAL
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
5% Stockholders:
HM Parties(2).................. 117,050,000 100.0% -- -- 90.0%
c/o Hicks, Muse, Tate &
Furst Incorporated
200 Crescent Court, Suite
1600
Dallas, Texas 75201
Officers and Directors:
James N. Mills(3).............. 1,702,034 1.5% 13,000,000 100.0% 11.3%
Thomas P. Danis................ 100,000 * -- -- *
Jack D. Furst(2)............... 117,050,000 100.0% -- -- 90.0%
John A. Gavin.................. 135,957 * -- -- *
Charles W. Tate(2)............. 117,050,000 100.0% -- -- 90.0%
Rodney D. Kent(4).............. 5,780,000 4.9% -- -- 4.4%
Richard W. Vieser.............. 135,957 * -- -- *
Joseph Fiamingo(5)............. 80,000 * -- -- *
David M. Sindelar(6)........... -- -- 3,648,482 28.1% 2.8%
Larry S. Bacon(7).............. -- -- 875,507 6.7% *
W. Thomas McGhee(8)............ -- -- 875,505 6.7% *
Robert C. Kozlowski............ -- -- -- -- --
William J. Kriss............... -- -- 514,124 -- *
All executive officers and
directors as a group (12
persons)(9)................. 117,050,000 100.0% 13,000,000 100.0% 100.0%
</TABLE>
- ---------------
* Less than one percent.
(1) Holding Class A Common Stock is convertible into Holding Common Stock (i)
at the option of any holder thereof at any time, (ii) at the option of
Holding upon the occurrence of a Triggering Event (as defined below), and
(iii) mandatorily at March 31, 2005. A "Triggering Event" means any sale of
substantially all of the assets of Holding or any merger, consolidation or
other business combination of Holding in which Hicks, Muse and its
affiliates cease to own at least 50% of the resulting entity. Each share of
Holding Class A Common Stock is convertible into a fraction of a share of
Holding Common Stock equal to the quotient of (i) the fair market value of
a share of Holding Common Stock at the time of conversion less the sum of
$.99 plus imputed interest thereon at a rate of 9% per annum, compounded
annually, at the time of conversion, divided by (ii) the fair market value
of a share of Holding Common Stock at the time of conversion. Because the
fraction of a share of Holding Common Stock into which Holding Class A
Common Stock is convertible is determinable only at the time of a
conversion, shares of Holding Common Stock are not included in the shares
of Holding Common Stock beneficially owned in the foregoing table.
48
<PAGE> 51
(2) Includes (i) shares owned of record by HM Fund II, a limited partnership of
which the sole general partner is HM2/GP Partners, L.P., a limited
partnership of which the sole general partner is Hicks, Muse GP Partners,
L.P., a limited partnership of which the sole general partner is Hicks,
Muse, Tate & Furst Fund II Incorporated, a corporation affiliated with
Hicks, Muse; (ii) shares owned of record by HM2/Wire/Hunt Partners, L.P.,
HM2/Wire/Sunwestern Partners, L.P. and HM2/Wire/Hubbard Partners, L.P.,
limited partnerships of which the sole general partner is HM2/GP Partners,
L.P.; and (iii) shares owned of record by certain individuals subject to an
irrevocable proxy in favor of Hicks, Muse. Thomas O. Hicks is a controlling
stockholder of Hicks, Muse and serves as Chairman of the Board, President,
Chief Executive Officer, Chief Operating Officer and Secretary of Hicks,
Muse. Accordingly, Mr. Hicks may be deemed to be the beneficial owner of
Holding Common Stock held by HM Fund II. John R. Muse, Charles W. Tate,
Jack D. Furst, Lawrence D. Stuart, Michael J. Levitt and Alan B. Menkes are
officers, directors and minority stockholders of Hicks, Muse and as such
may be deemed to share with Mr. Hicks the power to vote or dispose of
Holding Common Stock held by HM Fund II. Each of Messrs. Hicks, Muse, Tate,
Furst, Stuart, Levitt and Menkes disclaims the existence of a group and
disclaims beneficial ownership of Holding Common Stock not respectively
owned of record by him.
(3) Includes shares of Holding Class A Common Stock held by James N. Mills and
shares of Holding Class A Common Stock that Mr. Mills has the power to vote
by proxy. Does not include 1,400,913 shares of Holding Common Stock
issuable to Mr. Mills upon the exercise of Performance Options that are not
currently exercisable. See "Management -- Benefit Plans -- Performance
Options."
(4) Includes 80,000 shares of Holding Common Stock issuable to Mr. Kent upon
exercise of options granted under the Option Plan that are currently
exercisable. Does not include 320,000 shares of Holding Common Stock
issuable to Mr. Kent upon exercise of options granted under the Option Plan
that are not currently exercisable. See "Management -- Benefit
Plans -- Stock Option Plan."
(5) Includes 80,000 shares of Holding Common Stock issuable to Mr. Fiamingo
upon exercise of options granted under the Option Plan that are currently
exercisable. Does not include 920,000 shares of Holding Common Stock
issuable to Mr. Fiamingo upon exercise of options granted under the option
plan that are not currently exercisable. See "Management -- Benefit
Plans -- Stock Option Plan."
(6) Does not include 1,050,690 shares of Holding Common Stock issuable to Mr.
Sindelar upon exercise of Performance Options that are not currently
exercisable. See "Management -- Benefit Plans -- Performance Options."
(7) Does not include 700,457 shares of Holding Common Stock issuable to Mr.
Bacon upon exercise of Performance Options that are not currently
exercisable. See "Management -- Benefit Plans -- Performance Options."
(8) Does not include 700,456 shares of Holding Common Stock issuable to Mr.
McGhee upon exercise of Performance Options that are not currently
exercisable. See "Management -- Benefit Plans -- Performance Options."
(9) Includes shares of Holding Class A Common Stock which Mr. Mills has the
power to vote by proxy and 490,000 shares subject to currently exercisable
options and options exercisable within 60 days. Does not include 5,012,516
shares of Holding Common Stock issuable to executive officers of Holding
upon the exercise of Performance Options and options under the Option Plan
that are not currently exercisable. See "Management -- Benefit
Plans -- Performance Options."
49
<PAGE> 52
CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS
RELATIONSHIPS WITH HICKS, MUSE
Monitoring and Oversight Agreement
On June 12, 1995, Holding and the Company entered into a ten-year agreement
(the "Monitoring and Oversight Agreement") with Hicks, Muse & Co. Partners, L.P.
("Hicks Muse Partners"), a limited partnership of which the sole general partner
is HM Partners Inc., a corporation affiliated with Hicks, Muse, pursuant to
which they pay an annual fee of $500,000 for oversight and monitoring services
to Holding and the Company. The annual fee is adjustable at the end of each
fiscal year to an amount equal to 0.1% of the consolidated net sales of the
Company, but in no event less than $500,000. Hicks Muse Partners also will be
entitled to receive a fee equal to 1.5% of the transaction value (as hereinafter
defined) for each add-on transaction (as hereinafter defined) in which the
Company is involved. The term "transaction value" means the total value of any
add-on transaction, including, without limitation, the aggregate amount of the
funds required to complete the add-on transaction (excluding any fees payable
pursuant to the Monitoring and Oversight Agreement and any fees, if any, paid to
any other person or entity for financial advisory, investment banking,
brokerage, or any other similar services rendered in connection with such add-on
transaction) including the amount of any indebtedness, preferred stock or
similar items assumed (or remaining outstanding). The term "add-on transaction"
means any future proposal for a tender offer, acquisition, sale, merger,
exchange offer, recapitalization, restructuring, or other similar transaction
directly or indirectly involving Holding, the Company, or any of their
respective subsidiaries and any other person or entity. On March 5, 1996, in
connection with the DWT Acquisition, Holding and the company paid Hicks Muse
Partners a cash financial advisory fee of approximately $2.5 million as
compensation for its services as financial advisor. On February 12, 1997, in
connection with the Camden Acquisition, Holding and the Company paid Hicks Muse
Partners a cash financial advisory fee of approximately $900,000 as compensation
for its services as financial advisor.
Messrs. Tate and Furst, directors of Holding and the Company, are each
principals of Hicks Muse Partners. In addition, Holding and the Company have
agreed to indemnify Hicks Muse Partners, its affiliates and shareholders, and
their respective directors, officers, agents, employees and affiliates from and
against all claims, actions, proceedings, demands, liabilities, damages,
judgments, assessments, losses and costs, including fees and expenses, arising
out of or in connection with the services rendered by Hicks Muse Partners in
connection with the Monitoring and Oversight Agreement.
The Monitoring and Oversight Agreement makes available the resources of
Hicks Muse Partners concerning a variety of financial and operational matters.
The services that have been and will continue to be provided by Hicks Muse
Partners could not otherwise be obtained by Holding and the Company without the
addition of personnel or the engagement of outside professional advisors. In
management's opinion, the fees provided for under this agreement reasonably
reflect the benefits received and to be received by Holding and the Company.
Stockholders Agreement
Each investor in any class of common stock of Holding has entered into a
stockholders agreement (the "Stockholders Agreement"). The Stockholders
Agreement, among other things, grants preemptive rights and certain registration
rights to the parties thereto and contains provisions requiring the parties
thereto to sell their shares of common stock in connection with certain sales of
Holding Common Stock by HM Fund II ("drag-along rights") and granting the
parties thereto the right to include a portion of their shares of common stock
in certain sales in which HM Fund II does not exercise its drag-along rights
("tag-along rights"). All parties to the Stockholders Agreement agree to take
all action within their respective power (including the voting of Holding Common
Stock and Holding Class A Common Stock) to cause the Board of Directors of the
Company to at all times be constituted by the members designated by HM Fund II.
In addition, the Stockholders Agreement contains an irrevocable proxy pursuant
to which all parties to the Stockholders
50
<PAGE> 53
Agreement (other than the initial holders of Holding Class A Common Stock and
their transferees) grant to HM Fund II the power to vote all shares of Holding
Common Stock held by such parties on all matters submitted to the Company's
stockholders. Further, the Stockholders Agreement contains an irrevocable proxy
pursuant to which the initial holders of Holding Class A Common Stock and their
transferees grant to James N. Mills (HM Fund II if Mr. Mills is no longer an
officer or director of Holding and the Company) the power to vote all shares of
Holding Class A Common Stock held by such parties on all matters submitted to
the Company's stockholders. The Stockholders Agreement terminates on its tenth
anniversary date, although the preemptive rights, drag-along rights and
tag-along rights contained therein terminate earlier upon the consummation of a
firm commitment underwritten public offering of Holding Common Stock.
Notes Repurchase
On June 20, 1997, the Company consummated the Notes Repurchase, pursuant to
which the Company repurchased $5.0 million in aggregate principal amount of the
Company's 14% Senior Subordinated Notes due 2005 for 113% of the principal
amount of such notes, plus accrued and unpaid interest, from HM Fund II, and
certain affiliates and principals of Hicks, Muse, including Messrs. Tate and
Furst, directors of Holding and the Company.
DESCRIPTION OF SENIOR BANK FACILITY
The description set forth below does not purport to be complete and is
qualified in its entirety by reference to certain agreements setting forth the
principal terms and conditions of the Company's Senior Bank Facility.
Capitalized terms used but not otherwise defined in this "Description of Senior
Bank Facility" shall have the meaning to be ascribed to them in the Credit
Agreement, as amended by the First Amendment.
The Senior Bank Facility provides senior secured financing of up to $260.5
million, consisting of the $25.0 million Tranche A Loan, the $160.5 million
Tranche B Loan and the $75.0 million Revolver.
The Tranche A Loan amortizes quarterly with a maturity date of September
30, 2002, and the Tranche B Loan amortizes quarterly with a maturity date of
September 30, 2003. Optional prepayments under the Term Facility will be
allocated among the loans made thereunder as the Company may elect (other than
certain installments of the Tranche B Loan) in connection with the first $10.0
million of such prepayments, and any amount of such optional prepayments in
excess of $10.0 million and any mandatory prepayments will be allocated, on a
pro rata basis, among the Tranche A Loan and the Tranche B Loan and thereafter
applied in accordance with the then remaining number of scheduled principal
installments of the Tranche A Loan and the Tranche B Loan, respectively.
The Company has made principal payments in respect of the Term Facility of
$5.0 million thus far in 1997. The Company is obligated to make principal
payments in respect of the Term Facility of $1.6 million for the remainder of
1997, $3.5 million in 1998, $4.8 million in 1999, $6.0 million in 2000, $7.3
million in 2001, $46.4 million in 2002 and $115.9 million in 2003.
The obligations of the Company under the Senior Bank Facility are
unconditionally and irrevocably guaranteed by Holding and the Domestic
Subsidiaries (the "Guarantors"). In addition, the Senior Bank Facility is
secured by first priority or equivalent security interests in substantially all
tangible and intangible assets of the Company and the Guarantors, including all
the capital stock of, or other equity interests in, each other direct or
indirect domestic subsidiary of the Company and 65% of the capital stock of, or
other equity interests in, each direct foreign subsidiary of the Company or any
Guarantor (to the extent permitted by applicable contractual and legal
provisions).
At the Company's election, the interest rates per annum applicable to the
Tranche A Loan and the Revolver are either the Eurodollar Rate plus 1.5%, 1.25%
or 1.0% based upon a formula described in the Credit Agreement or the Alternate
Base Rate plus 0.5%, 0.25% or 0.0% based upon a formula described in the Credit
Agreement. In addition, at the Company's election, the interest rates per annum
applicable to the Tranche B Loan will be either the Eurodollar Rate plus 2.0% or
the Alternate Base Rate plus 1.0%. The Alternate Base Rate is the highest of The
Chase Manhattan Bank's Prime Rate, the Secondary Market Rate for Certificates of
Deposit plus 1.0%, and the Federal Funds Rate plus 0.5%.
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The Company pays a per annum fee equal to the interest rate margin
applicable to loans under the Revolver, which bear interest at the Eurodollar
Rate, of the average daily face amount of outstanding letters of credit under
the Revolver and a per annum fee equal to 0.5% on the undrawn portion of the
commitments in respect of the Revolver.
The Senior Bank Facility contains a number of covenants that, among other
things, restrict the ability of the Company and its subsidiaries to dispose of
assets, incur additional indebtedness, incur guarantee obligations, repay other
indebtedness or amend other debt instruments, pay dividends, create liens on
assets, enter into leases, make investments, loans or advances, make
acquisitions, engage in mergers or consolidations, make capital expenditures,
enter into sale and leaseback transactions, or engage in certain transactions
with subsidiaries and affiliates and otherwise restrict corporate activities. In
addition, under the Senior Bank Facility the Company is required to comply with
specified financial ratios and tests, including minimum interest coverage and
maximum leverage ratios and a trailing four quarter minimum EBITDA test.
The Senior Bank Facility also contains provisions that prohibit any
modification of the 11 3/4% Notes Indenture, the 11 3/4% Series B Notes
Indenture or the Indenture in any manner adverse to the lenders under the Senior
Bank Facility and that limit the Company's ability to refinance the 11 3/4%
Notes, the 11 3/4% Series B Notes or the Notes without the consent of such
lenders.
DESCRIPTION OF OTHER INDEBTEDNESS
The description set forth below does not purport to be complete and is
qualified in its entirety by reference to the 11 3/4% Notes, the 11 3/4% Notes
Indenture, the 11 3/4% Series B Notes and the 11 3/4% Series B Notes Indenture.
Capitalized terms used but not otherwise defined in this "Description of Other
Indebtedness" shall have the meanings ascribed to them in the 11 3/4% Notes
Indenture and the 11 3/4% Series B Notes Indenture, as applicable.
The Company currently has outstanding two issues of unsecured, Senior
Subordinated Indebtedness, other than the Notes: the $150.0 million aggregate
principal amount of 11 3/4% Notes and the $150.0 million aggregate principal
amount of 11 3/4% Series B Notes. The Notes rank pari passu with the 11 3/4%
Notes and the 11 3/4% Series B Notes. The 11 3/4% Notes and the 11 3/4% Series B
Notes are unconditionally guaranteed on an unsecured, senior subordinated basis,
by the Subsidiary Guarantors.
The 11 3/4% Notes were issued pursuant to the 11 3/4% Notes Indenture and
the 11 3/4% Series B Notes were issued pursuant to the 11 3/4% Series B Notes
Indenture. Except as described below, the 11 3/4% Notes Indenture and the
11 3/4% Series B Notes Indenture and the corresponding 11 3/4% Notes and 11 3/4%
Series B Notes are substantially identical to the Indenture and the Notes,
respectively, except that (i) the 11 3/4% Notes have been registered under the
Securities Act and, therefore, do not bear legends restricting their transfer
pursuant to the Securities Act and (ii) holders of the 11 3/4% Notes and the 14%
Notes will not be entitled to the rights of holders of the Notes offered hereby
under the Exchange and Registration Rights Agreement.
The 11 3/4% Notes and the 11 3/4% Series B Notes bear interest at the rate
of 11 3/4% per annum. The Notes bear interest at the rate of 14% per annum.
At any time and from time to time prior to June 1, 1998, the Company may
redeem in the aggregate up to $50.0 million principal amount of each of the
11 3/4% Notes and the 11 3/4% Series B Notes with the proceeds of one or more
Equity Offerings by the Company or Holding (to the extent, in the case of
Holding, that the net cash proceeds thereof are contributed to the equity
capital of the Company) so long as there is a Public Market at the time of such
redemption, at a redemption price (expressed as a percentage of principal
amount) of 110%, plus accrued and unpaid interest, if any, to the redemption
date, provided that at least $75.0 million, in the case of each of the 11 3/4%
Notes and the 11 3/4% Series B Notes remains outstanding after each such
redemption.
Pursuant to the 11 3/4% Notes Indenture, the Company is required, subject
to certain limitations and restrictions contained in the 11 3/4% Notes
Indenture, to make an offer to purchase the 11 3/4% Notes to the extent of Net
Available Cash from an Asset Disposition after application of such Net Available
Cash to
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<PAGE> 55
(i) prepay, repay or purchase Senior Indebtedness or Indebtedness of a
Wholly-Owned Subsidiary (in each case after other than Indebtedness owed to the
Company) or (ii) invest or acquire Additional Assets. The Indenture contains a
covenant identical to the 11 3/4% Notes Indenture described in the preceding
sentence, except that the Company is required, subject to certain limitations
and restrictions, described under "Description of the Notes -- Certain
Covenants -- Limitations on Sales of Assets and Subsidiary Stock," to make the
offer to purchase the Notes only to the extent of Net Available Cash after the
Company has made an offer to purchase the 11 3/4% Notes pursuant to the
provision of the 11 3/4% Notes Indenture described above. The 11 3/4% Series B
Indenture contains a covenant identical to the 11 3/4% Notes Indenture described
in the penultimate sentence, except that the Company is required, subject to
certain limitations and restrictions contained in the 11 3/4% Series B Notes
Indenture, to make the offer to purchase the 11 3/4% Series B Notes only to the
extent of Net Available Cash after the Company has made an offer to purchase the
11 3/4% Notes pursuant to the provision of the 11 3/4% Notes Indenture described
above and an offer to purchase the Notes pursuant to the provision of the
Indenture described above.
DESCRIPTION OF THE NOTES
GENERAL
The Notes are issued under an Indenture, dated as of February 12, 1997,
between the Company and IBJ Schroder Bank & Trust Company, as Trustee (the
"Trustee"). The following summary of certain provisions of the Indenture and the
Notes does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Indenture (including the
definitions of certain terms therein and those terms made a part thereof by the
Trust Indenture Act of 1939, as amended) and the Notes.
Principal of, premium, if any, and interest on the Notes is payable, and
the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially shall
be the corporate trust office of the Trustee, at One State Street, New York, New
York), except that, at the option of the Company, payment of interest may be
made by check mailed to the address of the holders as such address appears in
the Note Register.
The Notes were issued in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
TERMS OF NOTES
The Notes are unsecured senior subordinated obligations of the Company,
limited to $10 million aggregate principal amount, and will mature on June 1,
2005. Each Note bears interest at a rate of 14% per annum from the most recent
date to which interest has been paid or provided for, payable semiannually on
June 1 and December 1 of each year to holders of record at the close of business
on the May 15 or November 15 immediately preceding the interest payment date.
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OPTIONAL REDEMPTION
Except as set forth below, the Notes are not redeemable at the option of
the Company prior to June 1, 2000. On and after such date, the Notes are
redeemable, at the Company's option, in whole or in part, at any time upon not
less than 30 nor more than 60 days prior notice mailed by first-class mail to
each holder's registered address, at the following redemption prices (expressed
in percentages of principal amount), plus accrued and unpaid interest to the
redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date):
If redeemed during the 12-month period commencing on June 1 of the years
set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
2000...................................................... 105.875%
2001...................................................... 103.917%
2002...................................................... 101.958%
2003 and thereafter....................................... 100.000%
</TABLE>
In addition, the Indenture provides that at any time and from time to time
prior to June 1, 1998, the Company may redeem in the aggregate up to $3.0
million principal amount of Notes with the proceeds of one or more Equity
Offerings by the Company or Holding (to the extent, in the case of Holding, that
the net cash proceeds thereof are contributed to the equity capital of the
Company) so long as there is a Public Market at the time of such redemption, at
a redemption price (expressed as a percentage of principal amount) of 110%, plus
accrued and unpaid interest, if any, to the redemption date (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date); provided, however, that at least $5.0
million aggregate principal amount of the Notes must remain outstanding after
each such redemption. Following the Notes Repurchase, the only 14% Senior
Subordinated Notes of the Company remaining outstanding are represented by the
Notes in the aggregate principal amount of $5.0 million. Accordingly, this
redemption option is no longer available with respect to the Notes.
At any time on or prior to June 1, 2000, the Notes may also be redeemed as
a whole at the option of the Company upon the occurrence of a Change of Control,
upon not less than 30 nor more than 60 days prior notice (but in no event more
than 90 days after the occurrence of such Change of Control) mailed by first-
class mail to each holder's registered address, at a redemption price equal to
100% of the principal amount thereof plus the Applicable Premium as of, and
accrued and unpaid interest, if any, to, the date of redemption (the "Redemption
Date") (subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date).
"Applicable Premium" means, with respect to a Note at any Redemption Date,
the greater of (i) 1.0% of the principal amount of such Note and (ii) the excess
of (A) the present value at such time of (1) the redemption price of such Note
at June 1, 2000 (such redemption price being described under "-- Optional
Redemption") plus (2) all required interest payments due on such Note through
June 1, 2000, computed using a discount rate equal to the Treasury Rate plus 100
basis points, over (B) the principal amount of such Note.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) which
has become publicly available at least two business days prior to the Redemption
Date (or, if such Statistical Release is no longer published, any publicly
available source or similar market data)) most nearly equal to the period from
the Redemption Date to June 1, 2000; provided, however, that if the period from
the Redemption Date to June 1, 2000 is not equal to the constant maturity of a
United States Treasury security for which a weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the period
from the Redemption Date to June 1, 2000 is less than one year, the weekly
average yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.
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Selection. In the case of any partial redemption, selection of the Notes
for redemption will be made by the Trustee on a pro rata basis, by lot or by
such other method as the Trustee in its sole discretion shall deem to be fair
and appropriate, although no Note of $1,000 in original principal amount or less
will be redeemed in part. If any Note is to be redeemed in part only, the notice
of redemption relating to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof upon
cancellation of the original Note.
RANKING
The payment of the principal of, premium (if any), and interest on the
Notes is subordinated in right of payment, as set forth in the Indenture, to the
payment when due of all Senior Indebtedness of the Company. However, payment
from the money or the proceeds of U.S. Government Obligations held in any
defeasance trust described under "Defeasance" below is not subordinate to any
Senior Indebtedness or subject to the restrictions described herein. As of June
30, 1997, the aggregate principal amount of the Company's outstanding Senior
Indebtedness was approximately $201.0 million (excluding unused commitments of
$52.0 million under the Senior Bank Facility), and the aggregate principal
amount of the Company's outstanding Guarantor Senior Indebtedness was
approximately $208.5 million (including guarantees of the Senior Bank Facility).
Although the Indenture contains limitations on the amount of additional
Indebtedness that the Company may Incur, under certain circumstances the amount
of such Indebtedness could be substantial and, in any case, such Indebtedness
may be Senior Indebtedness. See "-- Certain Covenants -- Limitation on
Indebtedness" below. All the operations of the Company are conducted through its
subsidiaries. Each Subsidiary of the Company (other than foreign subsidiaries)
has guaranteed the Company's obligations under the Senior Bank Facility.
Although the Indenture limits the incurrence of Indebtedness of the Company's
subsidiaries, such limitation is subject to a number of significant
qualifications; moreover, the Indenture does not impose any limitation on the
incurrence by such subsidiaries of liabilities that are not considered
Indebtedness under the Indenture. See "-- Certain Covenants -- Limitation on
Indebtedness."
"Senior Indebtedness" is defined, whether outstanding on the Issue Date or
thereafter issued, as the Bank Indebtedness and all Indebtedness of the Company,
including interest and fees thereon, unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that the obligations in respect of such Indebtedness are not superior in right
of payment to the Notes; provided, however, that Senior Indebtedness will not
include (1) any obligation of the Company to any Subsidiary, (2) any liability
for Federal, state, foreign, local or other taxes owed or owing by the Company,
(3) any accounts payable or other liability to trade creditors arising in the
ordinary course of business (including Guarantees thereof or instruments
evidencing such liabilities), or (4) any Indebtedness, Guarantee or obligation
of the Company that is expressly subordinate or junior in right of payment to
any other Indebtedness, Guarantee or obligation of the Company, including any
Senior Subordinated Indebtedness and any Subordinated Obligations.
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Notes in accordance with the provisions of the Indenture. The
Notes will in all respects rank pari passu with all other Senior Subordinated
Indebtedness of the Company, including the 11 3/4% Notes and the 11 3/4% Series
B Notes. The Company has agreed in the Indenture that it will not Incur,
directly or indirectly, any Indebtedness that is subordinate or junior in
ranking in any respect to Senior Indebtedness unless such Indebtedness is Senior
Subordinated Indebtedness or is expressly subordinated in right of payment to
Senior Subordinated Indebtedness. In addition, no Subsidiary Guarantor shall
incur any Indebtedness if such Indebtedness is subordinate or junior in ranking
in any respect to any Guarantor Senior Indebtedness of such Subsidiary Guarantor
or is expressly subordinated in right of payment to Guarantor Senior
Subordinated Indebtedness of such Subsidiary Guarantor. Unsecured Indebtedness
is not deemed to be subordinate or junior to Secured Indebtedness merely because
it is unsecured.
The Company may not pay principal of, premium (if any), or interest on, the
Notes or make any deposit pursuant to the provisions described under Defeasance
below and may not otherwise purchase or retire any Notes (collectively, "pay the
Notes") if (i) any Senior Indebtedness is not paid when due or (ii) any other
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<PAGE> 58
default on Senior Indebtedness occurs and the maturity of such Senior
Indebtedness is accelerated in accordance with its terms unless, in either case,
the default has been cured or waived and any such acceleration has been
rescinded or such Senior Indebtedness has been paid in full. However, the
Company may pay the Notes without regard to the foregoing if the Company and the
Trustee receive written notice approving such payment from the Representative of
the Senior Indebtedness with respect to which either of the events set forth in
clause (i) or (ii) of the immediately preceding sentence has occurred and is
continuing. During the continuance of any default (other than a default
described in clause (i) or (ii) of the second preceding sentence) with respect
to any Designated Senior Indebtedness pursuant to which the maturity thereof may
be accelerated immediately without further notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable grace
periods, the Company may not pay the Notes for a period (a "Payment Blockage
Period") commencing upon the receipt by the Trustee (with a copy to the Company)
of written notice (a "Blockage Notice") of such default from the Representative
of the holders of such Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter (or earlier if
such Payment Blockage Period is terminated (i) by written notice to the Trustee
and the Company from the Person or Persons who gave such Blockage Notice, (ii)
because the default giving rise to such Blockage Notice is no longer continuing
or (iii) because such Designated Senior Indebtedness has been repaid in full).
Notwithstanding the provisions described in the immediately preceding sentence,
unless the holders of such Designated Senior Indebtedness or the Representative
of such holders have accelerated the maturity of such Designated Senior
Indebtedness, the Company may resume payments on the Notes after the end of such
Payment Blockage Period. Not more than one Blockage Notice may be given in any
consecutive 360-day period, irrespective of the number of defaults with respect
to Designated Senior Indebtedness during such period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization or bankruptcy of or
similar proceeding relating to the Company or its property, the holders of
Senior Indebtedness will be entitled to receive payment in full of the Senior
Indebtedness before the holders are entitled to receive any payment, and until
the Senior Indebtedness is paid in full, any payment or distribution to which
holders would be entitled but for the subordination provisions of the Indenture
will be made to holders of the Senior Indebtedness as their interests may
appear. If a distribution is made to holders that, due to the subordination
provisions, should not have been made to them, such holders are required to hold
it in trust for the holders of Senior Indebtedness and pay it over to them as
their interests may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness or the Representative of such holders of the acceleration.
The Company may not pay the Notes until five Business Days after such holders or
the Representative of the Designated Senior Indebtedness receive notice of such
acceleration and, thereafter, may pay the Notes only if the subordination
provisions of the Indenture otherwise permit payment at that time.
By reason of such subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than the Noteholders, and creditors of
the Company who are not holders of Senior Indebtedness or of Senior Subordinated
Indebtedness (including the Notes) may recover less, ratably, than holders of
Senior Indebtedness and may recover more, ratably, than the holders of Senior
Subordinated Indebtedness.
SUBSIDIARY GUARANTEE
Each Subsidiary Guarantor fully and unconditionally guarantees, jointly and
severally, to each holder and the Trustee, subject to subordination provisions
substantially the same as those described above, the full and prompt payment of
principal of and interest on the Notes, and of all other obligations under the
Indenture. The Subsidiary Guarantors are Camden, ECM Holding Company, Omega, OWI
Corporation, Wire Harness Industries, Inc., Wirekraft Employment Company,
Wirekraft and Wire Technologies. The only Subsidiaries of the Company which are
not Subsidiary Guarantors are ECM and Wirekraft Industries de Mexico, S.A. de
C.V. ("Wirekraft Mexico").
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<PAGE> 59
The Indebtedness evidenced by each Subsidiary Guarantee (including the
payment of principal of, premium, if any, and interest on the Notes) will be
subordinated to Guarantor Senior Indebtedness on the same basis as the Notes are
subordinated to Senior Indebtedness. As of June 30, 1997, the aggregate
principal amount of Guarantor Senior Indebtedness of the Subsidiary Guarantors
was approximately $208.5 million (including guarantees of the Senior Bank
Facility). See "-- Ranking" above.
The obligations of each Subsidiary Guarantor are limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor (including without limitation, any
guarantees under the Senior Bank Facility) and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Subsidiary Guarantee or pursuant to its contribution obligations under the
Indenture, result in the obligations of such Subsidiary Guarantor under the
Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law.
Each Subsidiary Guarantor may consolidate with or merge into or sell its
assets to the Company or another Subsidiary Guarantor without limitation. Each
Subsidiary Guarantor may consolidate with or merge into or sell all or
substantially all its assets to a corporation, partnership or trust other than
the Company or another Subsidiary Guarantor (whether or not affiliated with the
Subsidiary Guarantor). Upon the sale or disposition of a Subsidiary Guarantor
(or all or substantially all of its assets) to a Person (whether or not an
Affiliate of the Subsidiary Guarantor) which is not a Subsidiary of the Company,
which is otherwise in compliance with the Indenture, such Subsidiary Guarantor
shall be deemed released from all its obligations under the Indenture and its
Subsidiary Guarantee and such Subsidiary Guarantee shall terminate; provided,
however, that any such termination shall occur only to the extent that all
obligations of such Subsidiary Guarantor under the Senior Bank Facility and all
of its guarantees of, and under all of its pledges of assets or other security
interests which secure, Indebtedness of the Company shall also terminate upon
such release, sale or transfer.
The Subsidiary Guarantors are jointly and severally liable with respect to
the Company's obligations pursuant to the Notes, and such guarantees are full
and unconditional (subject to the fraudulent conveyance savings clause described
above). Given the size of the Non-Guarantor Subsidiaries relative to the Company
on a consolidated basis, separate financial statements of the respective
Subsidiary Guarantors are not presented because management has determined that
such information is not material in assessing the Subsidiary Guarantors.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each holder will have the right to require the Company to repurchase
all or any part of such holder's Notes at a purchase price in cash equal to 101%
of the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date):
(i) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the assets
of the Company and its Subsidiaries to any Person or group of related
Persons for purposes of Section 13(d) of the Exchange Act (a "Group")
(whether or not otherwise in compliance with the provisions of the
Indenture), other than to Hicks, Muse, Mills & Partners or any of their
Affiliates, officers and directors (the "Permitted Holders"); or
(ii) a majority of the Board of Directors of Holdings or the Company
shall consist of Persons who are not Continuing Directors; or
(iii) the acquisition by any Person or Group (other than the Permitted
Holders) of the power, directly or indirectly, to vote or direct the voting
of securities having more than 50% of the ordinary voting power for the
election of directors of Holding or the Company.
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Within 30 days following any Change of Control, unless the Company has
mailed a redemption notice with respect to all the outstanding Notes in
connection with such Change of Control, the Company shall mail a notice to each
holder with a copy to the Trustee stating: (1) that a Change of Control has
occurred and that such holder has the right to require the Company to purchase
such holder's Notes at a purchase price in cash equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of holders of record on a record date to receive interest
on the relevant interest payment date); (2) the repurchase date (which shall be
no earlier than 30 days nor later than 60 days from the date such notice is
mailed); and (3) the procedures determined by the Company, consistent with the
Indenture, that a holder must follow in order to have its Notes purchased.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of the Indenture, the Company will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations described in the Indenture by virtue thereof.
The occurrence of certain of the events that would constitute a Change of
Control would constitute a default under the Senior Bank Facility. Future Senior
Indebtedness of the Company and its Subsidiaries may contain prohibitions of
certain events that would constitute a Change of Control or require such Senior
Indebtedness to be repurchased upon a Change of Control. The occurrence of the
events that would constitute a Change of Control would also constitute a "Change
of Control" under the 11 3/4% Notes Indenture and the 11 3/4% Series B Notes
Indenture. In such a case, the Company would be subject to the same obligations
with respect to the 11 3/4% Notes and the 11 3/4% Series B Notes as the Company
would be subject to with respect to the Notes. Moreover, the exercise by the
holders of their right to require the Company to repurchase the Notes, the
11 3/4% Notes or the 11 3/4% Series B Notes could cause a default under such
Senior Indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchase on the Company. Finally, the Company's
ability to pay cash to the holders upon a repurchase may be limited by the
Company's then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
repurchases. Even if sufficient funds were otherwise available, the terms of the
Bank Indebtedness will prohibit the Company's prepayment of Notes prior to their
scheduled maturity. Consequently, if the Company is not able to prepay the Bank
Indebtedness and any other Senior Indebtedness containing similar restrictions
or obtain requisite consents, as described above, the Company will be unable to
fulfill its repurchase obligations if holders of Notes, 11 3/4% Notes or 11 3/4%
Series B Notes exercise their repurchase rights following a Change of Control,
thereby resulting in a default under the Indenture.
CERTAIN COVENANTS
The Indenture contains certain covenants including, among others, the
following:
Limitation on Indebtedness.
(a) The Company shall not, and shall not permit any of its
Subsidiaries to, Incur any Indebtedness; provided, however, that the
Company and any of its Subsidiaries may Incur Indebtedness if on the date
thereof the Consolidated Coverage Ratio would be greater than 2.00 : 1.00,
if such Indebtedness is Incurred on or prior to the second anniversary of
the Issue Date, and 2.25 : 1.00, if such Indebtedness is Incurred
thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Subsidiaries may Incur the following Indebtedness: (i) Indebtedness
Incurred pursuant to (A) the Credit Agreement (including, without
limitation, any renewal, extension, refunding, restructuring, replacement
or refinancing thereof referred to in clause (ii) of the definition
thereof) or (B) any other agreements or indentures governing Senior
Indebtedness; provided that the aggregate principal amount of all
Indebtedness Incurred pursuant to this clause (i) does not exceed $240.0
million at any time outstanding, less the aggregate principal amount
thereof repaid with the net proceeds of Asset Dispositions (to the extent,
in the case of a repayment of revolving credit Indebtedness, the commitment
to advance the loans repaid has been
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terminated); (ii) Indebtedness represented by Capitalized Lease
Obligations, mortgage financings or purchase money obligations, in each
case Incurred for the purpose of financing all or any part of the purchase
price or cost of construction or improvement of property used in a Related
Business or Incurred to Refinance any such purchase price or cost of
construction or improvement, in each case Incurred no later than 365 days
after the date of such acquisition or the date of completion of such
construction or improvement; provided, however, that the principal amount
of any Indebtedness Incurred pursuant to this clause (ii) shall not exceed
$10.0 million at any time outstanding; (iii) Permitted Indebtedness; and
(iv) Indebtedness (other than Indebtedness described in clauses (i)-(iii))
in a principal amount which, when taken together with the principal amount
of all other Indebtedness Incurred pursuant to this clause (iv) and then
outstanding, will not exceed $25.0 million.
(c) The Company shall not Incur any Indebtedness under paragraph (b)
above if the proceeds thereof are used, directly or indirectly, to
Refinance any Subordinated Obligations unless such Indebtedness shall be
subordinated to the Notes to at least the same extent as such Subordinated
Obligations. No Subsidiary Guarantor shall Incur any Indebtedness under
paragraph (b) above if the proceeds thereof are used, directly or
indirectly, to Refinance any Guarantor Subordinated Obligation of such
Subsidiary Guarantor unless such Indebtedness shall be subordinated to the
obligations of such Subsidiary Guarantor under the Subsidiary Guaranty to
at least the same extent as such Guarantor Subordinated Obligation.
(d) In addition, the Company shall not Incur any Secured Indebtedness
which is not Senior Indebtedness unless contemporaneously therewith
effective provision is made to secure the Notes equally and ratably with
such Secured Indebtedness for so long as such Secured Indebtedness is
secured by a Lien. No Subsidiary Guarantor shall Incur any Secured
Indebtedness which is not Guarantor Senior Indebtedness unless
contemporaneously therewith effective provision is made to secure such
Subsidiary Guarantor's obligations under the Subsidiary Guaranty equally
and ratably with such Secured Indebtedness for so long as such Secured
Indebtedness is secured by a Lien.
Limitation on Layering. The Company shall not Incur any Indebtedness if
such Indebtedness is subordinate or junior in ranking in any respect to any
Senior Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness
or is expressly subordinated in right of payment to Senior Subordinated
Indebtedness. No Subsidiary Guarantor shall Incur any Indebtedness if such
Indebtedness is subordinate or junior in ranking in any respect to any Guarantor
Senior Indebtedness of such Subsidiary Guarantor unless such Indebtedness is
Guarantor Senior Subordinated Indebtedness of such Subsidiary Guarantor or is
expressly subordinated in right of payment to Guarantor Senior Subordinated
Indebtedness of such Subsidiary Guarantor.
Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any of its Subsidiaries, directly or indirectly, to (i) declare or pay
any dividend or make any distribution on or in respect of its Capital Stock
(including any payment in connection with any merger or consolidation involving
the Company or any of its Subsidiaries) except (A) dividends or distributions
payable in its Capital Stock (other than Disqualified Stock) or in options,
warrants or other rights to purchase such Capital Stock, and (B) dividends or
distributions payable to the Company or a Subsidiary of the Company (and, if
such Subsidiary is not a Wholly-Owned Subsidiary, to its other stockholders on a
pro rata basis or on a basis no more favorable to such other stockholders), (ii)
purchase, redeem, retire or otherwise acquire for value any Capital Stock of the
Company held by Persons other than a Subsidiary of the Company or any Capital
Stock of a Subsidiary of the Company held by any Affiliate of the Company, other
than another Subsidiary (in either case, other than in exchange for its Capital
Stock (other than Disqualified Stock)), (iii) purchase, repurchase, redeem,
defease or otherwise acquire or retire for value, prior to scheduled maturity,
scheduled repayment or scheduled sinking fund payment, any Subordinated
Obligations (other than the purchase, repurchase or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of acquisition) or (iv) make any Investment (other than a
Permitted Investment) in any Person (any such dividend, distribution, purchase,
redemption, repurchase, defeasance, other acquisition, retirement or Investment
being herein referred to as a "Restricted Payment"), if at the time the Company
or such Subsidiary
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makes such Restricted Payment: (1) a Default shall have occurred and be
continuing (or would result therefrom); or (2) the Company is not able to incur
an additional $1.00 of Indebtedness pursuant to paragraph (a) under "Limitation
on Indebtedness"; or (3) the aggregate amount of such Restricted Payment and all
other Restricted Payments declared or made subsequent to the Issue Date would
exceed the sum of: (A) 50% of the Consolidated Net Income accrued during the
period (treated as one accounting period) from the Issue Date to the end of the
most recent fiscal quarter ending prior to the date of such Restricted Payment
as to which financial results are available (but in no event ending more than
135 days prior to the date of such Restricted Payment) (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B) the
aggregate Net Cash Proceeds received by the Company from the issue or sale of
its Capital Stock (other than Disqualified Stock) or other cash contributions to
its capital subsequent to the Issue Date (other than an issuance or sale to a
Subsidiary of the Company or an employee stock ownership plan or similar trust);
(C) the aggregate Net Cash Proceeds received by the Company from the issue or
sale of its Capital Stock (other than Disqualified Stock) to an employee stock
ownership plan or similar trust subsequent to the Issue Date; provided, however,
that if such plan or trust Incurs any Indebtedness to or Guaranteed by the
Company or any of its Subsidiaries to finance the acquisition of such Capital
Stock, such aggregate amount shall be limited to such Net Cash Proceeds less
such Indebtedness Incurred or Guaranteed by the Company or any of its
Subsidiaries and any increase in the Consolidated Net Worth of the Company
resulting from principal repayments made by such plan or trust with respect to
Indebtedness Incurred by it to finance the purchase of such Capital Stock; (D)
the amount by which Indebtedness of the Company is reduced on the Company's
balance sheet upon the conversion or exchange (other than by a Subsidiary of the
Company) subsequent to the Issue Date of any Indebtedness of the Company
convertible or exchangeable for Capital Stock of the Company (less the amount of
any cash, or other property, distributed by the Company upon such conversion or
exchange); and (E) the amount equal to the net reduction in Investments (other
than Permitted Investments) made by the Company or any of its Subsidiaries in
any Person resulting from repurchases or redemptions of such Investments by such
Person, proceeds realized upon the sale of such Investment to an unaffiliated
purchaser, repayments of loans or advances or other transfers of assets by such
Person to the Company or any Subsidiary of the Company; provided, however, that
no amount shall be included under this clause (E) to the extent it is already
included in Consolidated Net Income.
(b) The provisions of paragraph (a) shall not prohibit: (i) any purchase or
redemption of Capital Stock or Subordinated Obligations of the Company made by
exchange for, or out of the proceeds of the substantially concurrent sale of,
Capital Stock of the Company (other than Disqualified Stock and other than
Capital Stock issued or sold to a Subsidiary or an employee stock ownership plan
or similar trust); provided, however, that (A) such purchase or redemption shall
be excluded in the calculation of the amount of Restricted Payments and (B) the
Net Cash Proceeds from such sale shall be excluded from clause (3)(B) of
paragraph (a); (ii) any purchase or redemption of Subordinated Obligations of
the Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Subordinated Obligations of the Company; provided, however,
that such purchase or redemption shall be excluded in the calculation of the
amount of Restricted Payments; (iii) any purchase or redemption of Subordinated
Obligations from Net Available Cash to the extent permitted under "Limitation on
Sales of Assets and Subsidiary Stock" below; provided, however, that such
purchase or redemption shall be excluded in the calculation of the amount of
Restricted Payments; (iv) dividends paid within 60 days after the date of
declaration if at such date of declaration such dividend would have complied
with this provision; provided, however, that such dividend shall be included in
the calculation of the amount of Restricted Payments; (v) [intentionally
omitted]; (vi) payments by the Company to fund (A) out of pocket expenses of
Holding for administrative, legal and accounting services provided by third
parties, or to pay franchise fees and similar costs; provided, however, any such
administrative expenses shall not exceed an aggregate amount of $1,000,000 per
annum, and (B) taxes of Holding; (vii) payments by the Company to Holding
pursuant to the Monitoring and Oversight Agreement; (viii) payments of dividends
on the Company's common stock after an initial public offering of common stock
of the Company or of Holding in an annual amount not to exceed 6% of the gross
proceeds (before deducting underwriting discounts and commissions and other fees
and expenses of the offering) received by the Company (directly or as a common
equity contribution from Holding) from such initial public offering; (ix)
payments by the Company to repurchase, or to enable Holding to repurchase,
Capital Stock or other
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securities of Holding from members of management of Holding or the Company in an
aggregate amount not to exceed $7,500,000; (x) payments to enable Holding to
redeem or repurchase stock purchase or similar rights granted by Holding with
respect to its Capital Stock in an aggregate amount not to exceed $500,000; (xi)
payments, not to exceed $100,000 in the aggregate, to enable Holding to make
cash payments to holders of its Capital Stock in lieu of the issuance of
fractional shares of its Capital Stock; and (xii) payments made pursuant to any
merger, consolidation or sale of assets effected in accordance with the "Merger,
Consolidation and Sale of Assets" covenant; provided, however, that no such
payment may be made pursuant to this clause (xii) unless, after giving effect to
such transaction, the Consolidated Coverage Ratio of the Company would be
greater than 3.5 to 1.0; provided, further, that in the case of clauses (vii),
(viii), (ix), (x), (xi) and (xii) no Default or Event of Default (in the case of
clause (vii) such Default or Event of Default shall be limited to items (i) and
(ii) under "-- Defaults") shall have occurred or be continuing at the time of
such payment or as a result thereof.
Limitation on Restrictions on Distributions from Subsidiaries. The Company
shall not, and shall not permit any of its Subsidiaries to, create or permit to
exist or become effective any consensual encumbrance or restriction on the
ability of any such Subsidiary to (i) pay dividends or make any other
distributions on its Capital Stock or pay any Indebtedness or other obligation
owed to the Company, (ii) make any loans or advances to the Company or (iii)
transfer any of its property or assets to the Company; except: (a) any
encumbrance or restriction pursuant to an agreement in effect at or entered into
on the Issue Date, including the Credit Agreement; (b) any encumbrance of
restriction with respect to such a Subsidiary pursuant to an agreement relating
to any Indebtedness issued by such Subsidiary on or prior to the date on which
such Subsidiary was acquired by the Company and outstanding on such date (other
than Indebtedness issued as consideration in, or to provide all or any portion
of the funds or credit support utilized to consummate, the transaction or series
of related transactions pursuant to which such Subsidiary became a Subsidiary of
the Company or was acquired by the Company); (c) any encumbrance or restriction
with respect to such a Subsidiary pursuant to an agreement evidencing
Indebtedness Incurred without violation of the Indenture or effecting a
refinancing of Indebtedness issued pursuant to an agreement referred to in
clauses (a) or (b) or this clause (c) or contained in any amendment to an
agreement referred to in clauses (a) or (b) or this clause (c); provided,
however, that the encumbrances and restrictions with respect to such Subsidiary
contained in any of such agreement, refinancing agreement or amendment, taken as
a whole, are no less favorable to the holders in any material respect, as
determined in good faith by the senior management of the Company or Board of
Directors of the Company, than encumbrances and restrictions with respect to
such Subsidiary contained in agreements in effect at, or entered into on, the
Issue Date; (d) in the case of clause (iii), any encumbrance or restriction (A)
that restricts in a customary manner the subletting, assignment or transfer of
any property or asset that is a lease, license, conveyance or contract or
similar property or asset, (B) by virtue of any transfer of, agreement to
transfer, option or right with respect to, or Lien on, any property or assets of
the Company or any Subsidiary not otherwise prohibited by the Indenture, (C)
that is included in a licensing agreement to the extent such restrictions limit
the transfer of the property subject to such licensing agreement or (D) arising
or agreed to in the ordinary course of business and that does not, individually
or in the aggregate, detract from the value of property or assets of the Company
or any of its Subsidiaries in any manner material to the Company or any such
Subsidiary; (e) in the case of clause (iii) above, restrictions contained in
security agreements, mortgages or similar documents securing Indebtedness of a
Subsidiary to the extent such restrictions restrict the transfer of the property
subject to such security agreements; (f) any restriction with respect to such a
Subsidiary imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all the Capital Stock or assets of such
Subsidiary pending the closing of such sale or disposition and (g) encumbrances
or restrictions arising or existing by reason of applicable law.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall
not, and shall not permit any of its Subsidiaries to, make any Asset Disposition
unless (i) the Company or such Subsidiary receives consideration at the time of
such Asset Disposition at least equal to the fair market value, as determined in
good faith by the Company's senior management or the Board of Directors
(including as to the value of all non-cash consideration), of the shares and
assets subject to such Asset Disposition, (ii) at least 75% of the consideration
thereof received by the Company or such Subsidiary is in the form of cash or
cash equivalents
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and (iii) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Subsidiary, as, the case may be)
(A) first, to the extent the Company or any Subsidiary elects (or is required by
the terms of any Senior Indebtedness), to prepay, repay or purchase (x) Senior
Indebtedness or (y) Indebtedness of a Wholly-Owned Subsidiary (in each case
other than Indebtedness owed to the Company) within 180 days from the later of
the date of such Asset Disposition or the receipt of such Net Available Cash;
(B) second, within one year from the receipt of such Net Available Cash, to the
extent of the balance of such Net Available Cash after application in accordance
with clause (A), at the Company's election either (x) to the investment in or
acquisition of Additional Assets or (y) to prepay, repay or purchase (1) Senior
Indebtedness or (2) Indebtedness of a Wholly-Owned Subsidiary (in each case
other than Indebtedness owed to the Company); (C) third, within 45 days after
the later of the application of Net Available Cash in accordance with clauses
(A) and (B) and the date that is one year from the receipt of such Net Available
Cash, to the extent of the balance of such Net Available Cash after application
in accordance with clauses (A) and (B), to make an offer to purchase 11 3/4%
Notes at par plus accrued and unpaid interest, if any, thereon in accordance
with the provisions of the 11 3/4% Indenture; and (D) fourth, within 45 days of
the later of the application of Net Available Cash in accordance with clauses
(A), (B) and (C) and the date that is one year from the receipt of such Net
Available Cash, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B) and (C), to make an offer to
purchase the Notes at par plus accrued and unpaid interest, if any, thereon in
accordance with the provisions of the Indenture; and (E) fifth, to the extent of
the balance of such Net Available Cash after application in accordance with
clauses (A), (B), (C) and (D), to (w) the investment in or acquisition of
Additional Assets, (x) the making of Temporary Cash Investments, (y) the
prepayment, repayment or purchase of Indebtedness of the Company or Indebtedness
of any Subsidiary (other than Indebtedness owed to the Company) or (z) any other
purpose otherwise permitted under the Indenture, in each case within the later
of 45 days after the application of Net Available Cash in accordance with
clauses (A), (B), (C) and (D) or the date that is one year from the receipt of
such Net Available Cash; provided, however, that, in connection with any
prepayment, repayment or purchase of Indebtedness pursuant to clause (A), (B),
(C), (D) or (E) above, the Company or such Subsidiary shall retire such
Indebtedness and shall cause the related loan commitment (if any) to be
permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased. Notwithstanding the foregoing provisions, the Company and
its Subsidiaries shall not be required to apply any Net Available Cash in
accordance herewith except to the extent that the aggregate Net Available Cash
from all Asset Dispositions which are not applied in accordance with this
covenant at any time exceed $10 million. The Company shall not be required to
make an offer for Notes pursuant to this covenant if the Net Available Cash
available therefor (after application of the proceeds as provided in clauses
(A), (B) and (C)) is less than $10.0 million for any particular Asset
Disposition (which lesser amounts shall be carried forward for purposes of
determining whether an offer is required with respect to the Net Available Cash
from any subsequent Asset Disposition).
For the purposes of this covenant, the following will be deemed to be cash:
(x) the assumption by the transferee of Senior Indebtedness of the Company or
Indebtedness of any Subsidiary of the Company and the release of the Company or
such Subsidiary from all liability on such Senior Indebtedness or Indebtedness
in connection with such Asset Disposition (in which case the Company shall,
without further action, be deemed to have applied such assumed Indebtedness in
accordance with clause (A) of the preceding paragraph) and (y) securities
received by the Company or any Subsidiary of the Company from the transferee
that are promptly converted by the Company or such Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of
Notes pursuant to clause (a)(iii)(D), the Company will be required to purchase
Notes tendered pursuant to an offer by the Company for the Notes at a purchase
price of 100% of their principal amount plus accrued and unpaid interest, if
any, to the purchase date in accordance with the procedures (including prorating
in the event of oversubscription) set forth in the Indenture. If the aggregate
purchase price of the Notes tendered pursuant to the offer is less than the Net
Available Cash allotted to the purchase of the Notes, the Company will apply the
remaining Net Available Cash in accordance with clause (a)(iii)(E) above.
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(c) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to the
Indenture. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under the Indenture by virtue thereof.
Limitation on Affiliate Transactions. (a) The Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly, enter into or
conduct any transaction (including the purchase, sale, lease or exchange of any
property or the rendering of any service) with any Affiliate of the Company
other than a Wholly-Owned Subsidiary (an "Affiliate Transaction") unless: (i)
the terms of such Affiliate Transaction are no less favorable to the Company or
such Subsidiary, as the case may be, than those that could be obtained at the
time of such transaction in arm's-length dealings with a Person who is not such
an Affiliate; (ii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $2.5 million, the terms of such transaction have been
approved by a majority of the members of the Board of Directors of the Company
and by a majority of the disinterested members of such Board, if any (and such
majority or majorities, as the case may be, determines that such Affiliate
Transaction satisfies the criteria in (i) above); and (iii) in the event such
Affiliate Transaction involves an aggregate amount in excess of $10.0 million,
the Company has received a written opinion from an independent investment
banking firm of nationally recognized standing that such Affiliate Transaction
is fair to the Company or such Subsidiary, as the case may be, from a financial
point of view.
(b) The foregoing paragraph (a) shall not prohibit (i) any Restricted
Payment permitted to be made pursuant to the covenant described under
"Limitation on Restricted Payments," (ii) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise pursuant to, or the
funding of, employment arrangements, stock options and stock ownership plans
approved by the Board of Directors of the Company, (iii) loans or advances to
employees in the ordinary course of business of the Company or any of its
Subsidiaries, (iv) any transaction between Wholly-Owned Subsidiaries, (v) the
payment of fees and indemnities to directors, officers and employees of the
Company and its Subsidiaries in the ordinary course of business, (vi)
transactions pursuant to agreements as in existence on the Issue Date, (vii) any
employment agreements entered into by the Company or any of its Subsidiaries in
the ordinary course of business, (viii) the issuance of Capital Stock of the
Company (other than Disqualified Stock), and (ix) any obligations of the Company
pursuant to the Monitoring and Oversight Agreement.
Limitation on Preferred Stock of Subsidiaries. The Company will not permit
any of its Subsidiaries to issue any Preferred Stock (other than to the Company
or to a Wholly-Owned Subsidiary of the Company) or permit any Person (other than
the Company or a Wholly-Owned Subsidiary of the Company) to own any Preferred
Stock (other than Acquired Preferred Stock); provided that at the time the
issuer of such Acquired Preferred Stock becomes a Subsidiary of the Company or
merges with the Company or any of its Subsidiaries, and after giving effect to
such transaction, the Company shall be able to incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of "Limitation on Indebtedness" (treating
the amount of all obligations of such Subsidiary with respect to the redemption,
repayment of other repurchase of such Acquired Preferred Stock (but excluding
any accrued dividends thereon) as Indebtedness solely for purpose of such
calculation, but only to the extent that such obligations arise on or prior to
the first anniversary of the Stated Maturity of the Notes).
Limitation on Capital Stock of Subsidiaries. The Company will not permit
any of its Subsidiaries to issue any Capital Stock (other than Preferred Stock)
to any Person (other than to the Company or a Wholly-Owned Subsidiary of the
Company) or permit any Person (other than the Company or a Wholly-Owned
Subsidiary of the Company) to own any Capital Stock (other than Preferred Stock)
of a Subsidiary of the Company, if in either case as a result thereof such
Subsidiary would no longer be a Subsidiary of the Company; provided, however
that this provision shall not prohibit the Company or any of its Subsidiaries
from selling, leasing or otherwise disposing of all of the Capital Stock of any
Subsidiary.
SEC Reports. Notwithstanding that the Company may not be required to be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall file with the Commission, and
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within 15 days after such reports are filed, provide the Trustee and the holders
(at their addresses as set forth in the register of Notes) with the annual and
quarterly reports and the information, documents and other reports which are
otherwise required pursuant to Section 13 of the Exchange Act. In addition,
following the registration of the common stock of the Company pursuant to
Section 12(b) or 12(g) of the Exchange Act, the Company shall furnish to the
Trustee and the holders, promptly upon their becoming available, copies of the
Company's annual report to stockholders and any other information provided by
the Company to its public stockholders generally.
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease all or substantially all its assets
to, any Person, unless: (i) the resulting surviving or transferee Person (the
"Successor Company") shall be a corporation organized and existing under the
laws of the United States of America, any State thereof or the District of
Columbia and the Successor Company (if not the Company) shall expressly assume,
by supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the Notes
and the Indenture; (ii) immediately after giving effect to such transaction (and
treating any Indebtedness that becomes an obligation of the Successor Company or
any Subsidiary of the Successor Company as a result of such transaction as
having been incurred by the Successor Company or such Subsidiary at the time of
such transaction), no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction, the
Successor Company would be able to incur at least an additional $1.00 of
Indebtedness pursuant to paragraph (a) of "Limitation on Indebtedness"; and (iv)
the Company shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel each stating that such consolidation, merger or transfer and
such supplemental indenture (if any) comply with the Indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture, but the
predecessor, the Company, in the case of a lease of all or substantially all its
assets will not be released from the obligation to pay the principal of and
interest on the Notes.
Notwithstanding the foregoing clauses (ii) and (iii), (1) any Subsidiary of
the Company may consolidate with, merge into or transfer all or part of its
properties and assets to the Company and (2) the Company may merge with an
Affiliate incorporated solely for the purpose of reincorporating the Company in
another jurisdiction to realize tax or other benefits.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in any
payment of interest on any Note when due, continued for 30 days, whether or not
such payment is prohibited by the provisions described under "Ranking" above,
(ii) a default in the payment of principal of any Note when due at its Stated
Maturity, upon optional redemption, upon required repurchase, upon declaration
or otherwise, whether or not such payment is prohibited by the provisions
described under "Ranking" above, (iii) the failure by the Company to comply with
its obligations under "Certain Covenants -- Merger and Consolidation" above,
(iv) the failure by the Company to comply for 30 days after notice with any of
its obligations under the covenants described under "Change of Control" above or
under covenants described under "Certain Covenants" above (in each case, other
than a failure to purchase Notes which shall constitute an Event of Default
under clause (ii) above), other than "-- Merger and Consolidation," (v) the
failure by the Company to comply for 60 days after notice with its other
agreements contained in the Indenture, (vi) Indebtedness of the Company or any
Subsidiary is not paid within any applicable grace period after final maturity
or is accelerated by the holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $10 million and such
default shall not have been cured or such acceleration rescinded after a 10 day
period (the "cross acceleration provision"), (vii) certain events of bankruptcy,
insolvency or reorganization of the Company or a Significant Subsidiary (the
"bankruptcy provisions") or (viii) any judgment or decree for the payment of
money in excess of $10 million (to the extent not covered by insurance) is
rendered against the Company or a Significant Subsidiary and such judgment or
decree shall remain undischarged or unstayed for a period of 60 days after such
judgment becomes final and nonappealable (the "judgment default provision").
However, a default under clauses (iv) and (v) will not constitute an Event of
Default until the Trustee or the holders of 25% in
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principal amount of the outstanding Notes notify the Company of the default and
the Company does not cure such default within the time specified in clauses (iv)
and (v) hereof after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes by notice to the
Company may declare the principal of and accrued and unpaid interest, if any, on
all the Notes to be due and payable. Upon such a declaration, such principal and
accrued and unpaid interest shall be due and payable immediately. If an Event of
Default relating to certain events of bankruptcy, insolvency or reorganization
of the Company occurs and is continuing, the principal of and accrued and unpaid
interest on all the Notes will become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any holders. Under
certain circumstances, the holders of a majority in principal amount of the
outstanding Notes may rescind any such acceleration with respect to the Notes
and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the holders unless such holders have
offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such holders have offered the
Trustee reasonable security or indemnity against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity and (v) the
holders of a majority in principal amount of the outstanding Notes have not
given the Trustee a direction that, in the opinion of the Trustee, is
inconsistent with such request within such 60-day period. Subject to certain
restrictions, the holders of a majority in principal amount of the outstanding
Notes are given the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or of exercising any trust or
power conferred on the Trustee. The Trustee, however, may refuse to follow any
direction that conflicts with law or the Indenture or that the Trustee
determines is unduly prejudicial to the rights of any other holder or that would
involve the Trustee in personal liability. Prior to taking any action under the
Indenture, the Trustee shall be entitled to indemnification satisfactory to it
in its sole discretion against all losses and expenses caused by taking or not
taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of, premium (if any) or interest on any Note, the Trustee may
withhold notice if and so long as a committee of its Trust officers in good
faith determines that withholding notice is in the interests of the Noteholders.
In addition, the Company is required to deliver to the Trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the signers
thereof know of any Default that occurred during the previous year. The Company
also is required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any events which would constitute certain Defaults,
their status and what action the Company is taking or proposes to take in
respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Notes then
outstanding and any past default or compliance with any provisions may be waived
with the consent of the holders of a majority in principal amount of the Notes
then outstanding. However, without the consent of each holder of an outstanding
Note affected, no amendment may, among other things, (i) reduce the amount of
Notes whose holders must consent to an amendment, (ii) reduce the rate of or
extend the time for payment of interest on any Note, (iii) reduce the principal
of or extend the Stated Maturity of any Note, (iv) reduce the premium payable
upon the redemption of any Note or change the time at which any Note may be
redeemed as described under "Optional Redemption" above, (v) make any Note
payable in money other than that stated in the Note, (vi) impair the right of
any holder to receive payment of principal of and interest on such holder's
Notes on or after the due dates therefor or to
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institute suit for the enforcement of any payment on or with respect to such
holder's Notes or (vii) make any change in the amendment provisions which
require each holder's consent or in the waiver provisions.
Without the consent of any holder, the Company and the Trustee may amend
the Indenture to cure any ambiguity, omission, defect or inconsistency, to
provide for the assumption by a successor corporation of the obligations of the
Company under the Indenture, to provide for uncertificated Notes in addition to
or in place of certificated Notes (provided that the uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Notes are described in Section 163(f)(2)(B)
of the Code), to add further Guarantees with respect to the Notes, to secure the
Notes, to add to the covenants of the Company for the benefit of the Noteholders
or to surrender any right or power conferred upon Company, to make any change
that does not adversely affect the rights of any holder or to comply with any
requirement of the Commission in connection with the qualification of the
Indenture under the Trust Indenture Act. However, no amendment may be made to
the subordination provisions of the Indenture that adversely affects the rights
of any holder of Senior Indebtedness then outstanding unless the holders of such
Senior Indebtedness (or any group or representative thereof authorized to give a
consent) consent to such change.
The consent of the holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to the holders a notice briefly describing such amendment.
However, the failure to give such notice to all the holders, or any defect
therein, will not impair or affect the validity of the amendment.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under covenants
described under "Certain Covenants" (other than "Merger and Consolidation"), the
operation of the cross acceleration provision, the bankruptcy provisions with
respect to Significant Subsidiaries and the judgment default provision described
under "Defaults" above and the limitations contained in clauses (iii) and (iv)
under "Certain Covenants -- Merger and Consolidation" above ("covenant
defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Significant Subsidiaries), or (viii) under "Defaults" above or because of the
failure of the Company to comply with clause (iii) or (iv) under "Certain
Covenants -- Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and defeasance and will be subject to Federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
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CONCERNING THE TRUSTEE
IBJ Schroder Bank & Trust is the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the Notes.
The Trustee is also the trustee under the 11 3/4% Notes Indenture and the
11 3/4% Series B Notes Indenture.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"11 3/4% Notes" means the Company's 11 3/4% Senior Subordinated Notes due
2005 issued pursuant to the 11 3/4% Notes Indenture.
"11 3/4% Notes Guarantee" means the Guarantee of the Subsidiary Guarantors
(as defined in the 11 3/4% Notes Indenture) set forth in Article XI of the
11 3/4% Notes Indenture.
"11 3/4% Notes Indenture" means the Indenture, dated June 12, 1995, among
the Company, the Subsidiary Guarantors (as therein defined) and IBJ Schroder
Bank & Trust Company, as Trustee, as the same may be amended, supplemented or
otherwise modified from time to time.
"Acquired Preferred Stock" means Preferred Stock of any Person which was
issued and outstanding at the time such Person becomes a Subsidiary of the
Company or at the time it merges or consolidates with the Company or any of its
Subsidiaries and not issued by such Person in connection with, or in
anticipation or contemplation of, such acquisition, merger or consolidation.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of
a Person that becomes a Subsidiary as a result of the acquisition of such
Capital Stock by the Company or a Subsidiary of the Company; (iii) Capital Stock
constituting a minority interest in any Person that at such time is a Subsidiary
of the Company; or (iv) Permitted Investments of the type and in the amounts
described in clause (viii) of the definition thereof; provided, however, that,
in the case of clauses (ii) and (iii), such Subsidiary is primarily engaged in a
Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of a
Subsidiary (other than directors' qualifying shares), property or other assets
(each referred to for the purposes of this definition as a "disposition") by the
Company or any of its Subsidiaries (including any disposition by means of a
merger, consolidation or similar transaction) other than (i) a disposition by a
Subsidiary to the Company or by the Company or a Subsidiary to a Wholly-Owned
Subsidiary, (ii) a disposition of inventory in the ordinary course of business,
(iii) a disposition of obsolete or worn out equipment or equipment that is no
longer useful in the conduct of the business of the Company and its Subsidiaries
and that is disposed of in each case in the ordinary course of business, (iv)
dispositions of property for net proceeds less than $2.5 million in the
aggregate in any calendar year, and (v) transactions permitted under "Certain
Covenants -- Merger and Consolidation" above.
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the Notes, compounded annually) of the total obligations
of the lessee for rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction (including any period for which such
lease has been extended).
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"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing (i) the sum of the products of
the numbers of years from the date of determination to the dates of each
successive scheduled principal payment of such Indebtedness or redemption
multiplied by the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts, whether outstanding on the
Issue Date or thereafter incurred, payable by the Company under or in respect of
the Credit Agreement and any related notes, collateral documents, letters of
credit and guarantees, including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post filing interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, guarantees and all other amounts payable
thereunder or in respect thereof.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP, and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date such lease may be terminated without penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Consolidated Cash Flow" for any period means the Consolidated Net Income
for such period plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense, (iv) amortization expense, (v) exchange or
translation losses on foreign currencies, and (vi) all other non-cash items
reducing Consolidated Net Income (excluding any non-cash item to the extent it
represents an accrual of or reserve for cash disbursements for any subsequent
period prior to the Stated Maturity of the Notes) and less, to the extent added
in calculating Consolidated Net Income (x) exchange or translation gains on
foreign currencies and (y) non-cash items (excluding non-cash items to the
extent they represent an accrual for cash receipts reasonably expected to be
received prior to the Stated Maturity of the Notes), in each case for such
period. Notwithstanding the foregoing, the income tax expense, depreciation
expense and amortization expense of a Subsidiary of the Company shall be
included in Consolidated Cash Flow only to the extent (and in the same
proportion) that the net income of such Subsidiary was included in calculating
Consolidated Net Income.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated Cash Flow for the period of
the most recent four consecutive fiscal quarters ending prior to the date of
such determination and as to which financial statements are available to (ii)
Consolidated Interest Expense for such four fiscal quarters: provided, however,
that (1) if the Company or any of its Subsidiaries has Incurred any Indebtedness
since the beginning of such period that remains outstanding or if the
transaction giving rise to the need to calculate Consolidated Coverage Ratio is
an Incurrence of Indebtedness, or both, Consolidated Cash Flow and Consolidated
Interest Expense for such period shall be calculated after giving effect on a
pro forma basis to (A) such Indebtedness as if such Indebtedness had been
Incurred on the first day of such period (provided that if such Indebtedness is
Incurred under a revolving credit facility (or similar arrangement or under any
predecessor revolving credit or similar arrangement) only that portion of such
Indebtedness that constitutes the one year projected minimum balance of such
Indebtedness (as determined in good faith by senior management of the Company
and assuming a constant level of sales) shall be deemed outstanding for purposes
of this calculation) and (B) the discharge of any other Indebtedness repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new
Indebtedness as if such discharge had occurred on the first day of such period,
(2) if since the beginning of such period any Indebtedness of the Company or any
of its Subsidiaries has been repaid, repurchased, defeased or otherwise
discharged (other than Indebtedness under a revolving credit or similar
arrangement unless such revolving credit Indebtedness has been permanently
repaid and has not been replaced), Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto as if
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such Indebtedness had been repaid, repurchased, defeased or otherwise discharged
on the first day of such period, (3) if since the beginning of such period the
Company or any of its Subsidiaries shall have made any Asset Disposition or if
the transaction giving rise to the need to calculate the Consolidated Coverage
Ratio is an Asset Disposition, Consolidated Cash Flow for such period shall be
reduced by an amount equal to the Consolidated Cash Flow (if positive)
attributable to the assets which are the subject of such Asset Disposition for
such period or increased by an amount equal to the Consolidated Cash Flow (if
negative) attributable thereto for such period, and Consolidated Interest
Expense for such period shall be (i) reduced by an amount equal to the
Consolidated Interest Expense attributable to any Indebtedness of the Company or
any of its Subsidiaries repaid, repurchased, defeased or otherwise discharged
with respect to the Company and its continuing Subsidiaries in connection with
such Asset Disposition for such period (or, if the Capital Stock of any
Subsidiary of the Company is sold, the Consolidated Interest Expense for such
period directly attributable to the Indebtedness of such Subsidiary to the
extent the Company and its continuing Subsidiaries are no longer liable for such
Indebtedness after such sale) and (ii) increased by interest income attributable
to the assets which are the subject of such Asset Disposition for such period,
(4) if since the beginning of such period the Company or any of its Subsidiaries
(by merger or otherwise) shall have made an Investment in any Subsidiary of the
Company (or any Person which becomes a Subsidiary of the Company) or an
acquisition of assets, including any Investment in a Subsidiary of the Company
or any acquisition of assets occurring in connection with a transaction causing
a calculation to be made hereunder, which constitutes all or substantially all
of an operating unit of a business, Consolidated Cash Flow and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto (including the Incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such period and (5) if
since the beginning of such period any Person (that subsequently became a
Subsidiary of the Company or was merged with or into the Company or any
Subsidiary of the Company since the beginning of such period) shall have made
any Asset Disposition, Investment or acquisition of assets that would have
required an adjustment pursuant to clause (3) or (4) above if made by the
Company or a Subsidiary of the Company during such period, Consolidated Cash
Flow and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto as if such Asset Disposition, Investment or
acquisition occurred on the first day of such period. For purposes of this
definition, whenever pro forma effect is to be given to an acquisition of
assets, the amount of income or earnings relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting officer of the Company. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining term in excess
of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Subsidiaries, plus, to the extent not included in
such interest expense, (i) interest expense attributable to capital leases, (ii)
amortization of debt discount, (iii) capitalized interest, (iv) non-cash
interest expense, (v) commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing, (vi)
interest actually paid by the Company or any such Subsidiary under any Guarantee
of Indebtedness or other obligation of any other Person, (vii) net payments
(whether positive or negative) pursuant to Interest Rate Agreements, and (viii)
the cash contributions to any employee stock ownership plan or similar trust to
the extent such contributions are used by such plan or trust to pay interest or
fees to any Person (other than the Company) in connection with Indebtedness
Incurred by such plan or trust and less (a) to the extent included in such
interest expense, the amortization of capitalized debt issuance costs and (b)
interest income. Notwithstanding the foregoing, the Consolidated Interest
Expense with respect to any Subsidiary of the Company, that was not a
Wholly-Owned Subsidiary, shall be included only to the extent (and in the same
proportion) that the net income of such Subsidiary was included in calculating
Consolidated Net Income.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its consolidated Subsidiaries; provided, however, that there
shall not be included in such Consolidated Net Income: (i) any net income (loss)
of any person acquired by the Company or any of its Subsidiaries in a
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pooling of interests transaction for any period prior to the date of such
acquisition, (ii) any net income of any Subsidiary of the Company if such
Subsidiary is subject to restrictions, directly or indirectly, on the payment of
dividends or the making of distributions by such Subsidiary directly or
indirectly, to the Company (other than restrictions in effect on the Issue Date
with respect to a Subsidiary of the Company and other than restrictions that are
created or exist in compliance with the "Limitation on Restrictions on
Distributions from Subsidiaries covenant), (iii) any gain or loss realized upon
the sale or other disposition of any assets of the Company or its consolidated
Subsidiaries (including pursuant to any Sale/Leaseback Transaction) which are
not sold or otherwise disposed of in the ordinary course of business and any
gain or loss realized upon the sale or other disposition of any Capital Stock of
any Person, (iv) any extraordinary gain or loss, (v) the cumulative effect of a
change in accounting principles, and (vi) the net income of any Person, other
than a Subsidiary, except to the extent of the lesser of (A) dividends or
distributions paid to the Company or any of its Subsidiaries by such Person and
(B) the net income of such Person (but in no event less than zero), and the net
loss of such Person shall be included only to the extent of the aggregate
Investment of the Company or any of its Subsidiaries in such Person.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending prior to the taking of any action for the
purpose of which the determination is being made and for which financial
statements are available (but in no event ending more than 135 days prior to the
taking of such action), as (i) the par or stated value of all outstanding
Capital Stock of the Company plus (ii) paid-in capital or capital surplus
relating to such Capital Stock plus (iii) any retained earnings or earned
surplus less (A) any accumulated deficit and (B) any amounts attributable to
Disqualified Stock.
"Continuing Director" means, as of the date of determination, any person
who (i) was a member of the Board of Directors of Holding or the Company on the
date of the Indenture, (ii) was nominated for election or elected to the Board
of Directors of Holding or the Company with the affirmative vote of a majority
of the Continuing Directors who were members of such Board of Directors at the
time of such nomination or election, or (iii) is a representative of a Permitted
Holder.
"Credit Agreement" means (i) the Credit Agreement, dated as of March 5,
1996, among Holding, the Company, Chemical Bank, as Administrative Agent,
Bankers Trust Company, as Documentation Agent, and the lenders party thereto
from time to time, as the same may be amended, supplemented or otherwise
modified from time to time and (ii) any renewal, extension, refunding,
restructuring, replacement or refinancing thereof (whether with the original
Administrative Agent and lenders or another administrative agent or agents or
other lenders and whether provided under the original Credit Agreement or any
other credit or other agreement or indenture).
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii)
any other Senior Indebtedness which, at the date of determination, has an
aggregate principal amount outstanding of, or under which, at the date of
determination, the holders thereof are committed to lend up to, at least $20
million and is specifically designated by the Company in the instrument
evidencing or governing such Senior Indebtedness as "Designated Senior
Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
of such Person which by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock (excluding capital stock which is convertible or exchangeable
solely at the option of the Company or a Subsidiary) or (iii) is redeemable at
the option of the holder thereof, in whole or in part, in each case on or prior
to the Stated
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Maturity of the Notes, provided, that only the portion of Capital Stock which so
matures or is mandatorily redeemable, is so convertible or exchangeable or is so
redeemable at the option of the holder thereof prior to such Stated Maturity
shall be deemed to be Disqualified Stock.
"Equity Offering" means an offering for cash by Holding or the Company of
its common stock, or options, warrants or rights with respect to its common
stock.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date of the Indenture, including those set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
the Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Guarantor Senior Indebtedness" means, with respect to a Subsidiary
Guarantor, whether outstanding on the Issue Date or thereafter issued, the
Guarantee of the Bank Indebtedness by such Subsidiary Guarantor, all other
Guarantees by such Subsidiary Guarantor of Senior Indebtedness of the Company
and all Indebtedness of such Subsidiary Guarantor, including interest and fees
thereon, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that the obligations of such
Subsidiary Guarantor in respect of such Indebtedness are not superior in right
of payment to the obligations of such Subsidiary Guarantor under the Subsidiary
Guarantee; provided, however, that Guarantor Senior Indebtedness shall not
include (1) any obligation of such Subsidiary Guarantor to the Company or any
other Subsidiary of the Company, (2) any liability for Federal, state, local or
other taxes owed or owing by such Subsidiary Guarantor, (3) any accounts payable
or other liability to trade creditors arising in the ordinary course of business
(including Guarantees thereof or instruments evidencing such liabilities) or (4)
any Indebtedness, Guarantee or obligation of such Subsidiary Guarantor that is
expressly subordinate or junior in right of payment to any other Indebtedness,
Guarantee or obligation of such Subsidiary Guarantor, including any Guarantor
Senior Subordinated Indebtedness and Guarantor Subordinated Obligations of such
Subsidiary Guarantor.
"Guarantor Senior Subordinated Indebtedness" means, with respect to a
Subsidiary Guarantor, the obligations of such Subsidiary Guarantor under the
11 3/4% Subsidiary Guarantee, the Subsidiary Guarantee and any other
Indebtedness of such Subsidiary Guarantor that specifically provides that such
Indebtedness is to rank pari passu in right of payment with the obligations of
such Subsidiary Guarantor under the Subsidiary Guarantee and is not subordinated
by its terms in right of payment to any Indebtedness or other obligation of such
Subsidiary Guarantor which is not Guarantor Senior Indebtedness of such
Subsidiary Guarantor.
"Guarantor Subordinated Obligation" means, with respect to a Subsidiary
Guarantor, any Indebtedness of such Subsidiary Guarantor (whether outstanding on
the Issue Date or thereafter Incurred) which is subordinate or junior in right
of payment to the obligations of such Subsidiary Guarantor under the Subsidiary
Guarantee pursuant to a written agreement.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such person becomes a Subsidiary
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(whether by merger, consolidation, acquisition or otherwise) shall be deemed to
be incurred by such Subsidiary at the time it becomes a Subsidiary.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money, (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto) (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in clauses (i), (ii) and (v)) entered into in the ordinary
course of business of such Person to the extent that such letters of credit are
not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed
no later than the third business day following receipt by such Person of a
demand for reimbursement following payment on the letter of credit), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services (except trade payables and accrued expenses incurred in the
ordinary course of business), which purchase price is due more than six months
after the date of placing such property in service or taking delivery and title
thereto or the completion of such services, (v) all Capitalized Lease
Obligations and all Attributable Indebtedness of such Person, (vi) all
Indebtedness of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person, (vii) all
Indebtedness of other Persons to the extent Guaranteed by such Person and (viii)
to the extent not otherwise included in this definition, obligations under
Currency Agreements and Interest Rate Agreements. The amount of Indebtedness of
any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability, upon the
occurrence of the contingency giving rise to the obligation, of any contingent
obligations at such date.
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts payable on the balance sheet of such Person) or other
extension of credit (including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit other
than a time deposit) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person.
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Monitoring and Oversight Agreement" means the Monitoring and Oversight
Agreement among Hicks Muse Partners, the Company and Holding as in effect on the
Issue Date.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to such properties or assets or received in any other noncash form) therefrom,
in each case net of (i) all legal, title and recording tax expenses, commissions
and other fees and expenses incurred, and all Federal, state, foreign and local
taxes required to be paid or accrued as a liability under GAAP, as a consequence
of such Asset Disposition, (ii) all payments made on any Indebtedness which is
secured by any assets subject to such Asset Disposition, in accordance with the
terms of any Lien upon such assets, or which must by its terms, or in order to
obtain a necessary consent to such Asset Disposition, or by applicable law, be
repaid out of the proceeds from such Asset Disposition, (iii) all distributions
and other payments required to be made to any Person owning a
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beneficial interest in assets subject to sale or minority interest holders in
Subsidiaries or joint ventures as a result of such Asset Disposition, (iv) the
deduction of appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the assets
disposed of in such Asset Disposition and retained by the Company or any
Subsidiary of the Company after such Asset Disposition and (v) any portion of
the purchase price from an Asset Disposition placed in escrow (whether as a
reserve for adjustment of the purchase price, for satisfaction of indemnities in
respect of such Asset Disposition or otherwise in connection with such Asset
Disposition); provided, however, that upon the termination of such escrow, Net
Available Cash shall be increased by any portion of funds therein released to
the Company or any Subsidiary.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
"Permitted Indebtedness" means (i) Indebtedness of the Company owing to and
held by any Wholly-Owned Subsidiary or Indebtedness of a Subsidiary owing to and
held by the Company or any Wholly-Owned Subsidiary; provided, however, that any
subsequent issuance or transfer of any Capital Stock or any other event which
results in any such Wholly-Owned Subsidiary ceasing to be a Wholly-Owned
Subsidiary or any subsequent transfer of any such Indebtedness (except to the
Company or a Wholly-Owned Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Indebtedness by the issuer thereof; (ii)
Indebtedness represented by (x) the Notes, (y) any Indebtedness (other than the
Indebtedness described in clauses (i), (ii) and (iv) of paragraph (b) of the
covenant described under "Limitation on Indebtedness" and other than
Indebtedness Incurred pursuant to clause (i) above or clauses (iv), (v) or (vi)
below) outstanding on the Issue Date and (z) any Refinancing Indebtedness
Incurred in respect of any Indebtedness described in this clause (ii) or
Incurred pursuant to paragraph (a) of the covenant described under "Limitation
on Indebtedness"; (iii) (A) Indebtedness of a Subsidiary Incurred and
outstanding on the date on which such Subsidiary was acquired by the Company
(other than Indebtedness Incurred as consideration in, or to provide all or any
portion of the funds or credit support utilized to consummate, the transaction
or series of related transactions pursuant to which such Subsidiary became a
Subsidiary or was otherwise acquired by the Company); provided, however, that at
the time such Subsidiary is acquired by the Company, the Company would have been
able to Incur $1.00 of additional Indebtedness pursuant to paragraph (a) of the
description of "Limitation on Indebtedness" above after giving effect to the
Incurrence of such Indebtedness pursuant to this clause (iii) and (B)
Refinancing Indebtedness Incurred by a Subsidiary in respect of Indebtedness
Incurred by such Subsidiary pursuant to this clause (iii); (iv) Indebtedness (A)
in respect of performance bonds, bankers' acceptances and surety or appeal bonds
provided by the Company or any of its Subsidiaries to their customers in the
ordinary course of their business, (B) in respect of performance bonds or
similar obligations of the Company or any of its Subsidiaries for or in
connection with pledges, deposits or payments made or given in the ordinary
course of business in connection with or to secure statutory, regulatory or
similar obligations, including obligations under health, safety or environmental
obligations, (C) arising from Guarantees to suppliers, lessors, licensees,
contractors, franchisees or customers of obligations (other than Indebtedness)
incurred in the ordinary course of business and (D) under Currency Agreements
and Interest Rate Agreements; provided, however, that in the case of Currency
Agreements and Interest Rate Agreements, such Currency Agreements and Interest
Rate Agreements are entered into for bona fide hedging purposes of the Company
or its Subsidiaries (as determined in good faith by the Board of Directors or
senior management of the Company) and correspond in terms of notional amount,
duration, currencies and interest rates, as applicable, to Indebtedness of the
Company or its Subsidiaries Incurred without violation of the Indenture or to
business transactions of the Company or its Subsidiaries on customary terms
entered into in the ordinary course of business; (v) Indebtedness arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of credits, surety bonds or
performance bonds securing any obligations of the Company or any of its
Subsidiaries pursuant to such agreements, in each case incurred in connection
with the disposition of any business assets or Subsidiary of the Company (other
than Guarantees of Indebtedness or other obligations Incurred by any person
acquiring all or any portion of such business assets or Subsidiary of the
Company for the purpose of financing such acquisition) in a principal
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amount not to exceed the gross proceeds actually received by the Company or any
of its Subsidiaries in connection with such disposition; provided, however, that
the principal amount of any Indebtedness Incurred pursuant to this clause (v),
when taken together with all Indebtedness Incurred pursuant to this clause (v)
and then outstanding, shall not exceed $10 million; and (vi) Indebtedness
consisting of (A) Guarantees by the Company or a Subsidiary of Indebtedness
Incurred by a Wholly-Owned Subsidiary without violation of the Indenture and (B)
Guarantees by a Subsidiary of Senior Indebtedness Incurred by the Company
without violation of the Indenture (so long as such Subsidiary could have
Incurred such Indebtedness directly without violation of the Indenture).
"Permitted Investment" means an Investment by the Company or any of its
Subsidiaries in (i) a Wholly-Owned Subsidiary of the Company; provided, however,
that the primary business of such Subsidiary is a Related Business; (ii) another
Person if as a result of such Investment such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all its
assets to, the Company or a Subsidiary of the Company; provided, however, that
such Person's primary business is a Related Business; (iii) Temporary Cash
Investments; (iv) receivables owing to the Company or any of its Subsidiaries,
if created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; (v) payroll, travel and
similar advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses for accounting purposes and that are made
in the ordinary course of business; (vi) loans or advances to employees for
purposes of purchasing the Company's common stock in an aggregate amount
outstanding at any one time not to exceed $5 million and other loans and
advances to employees made in the ordinary course of business consistent with
past practices of the Company or such Subsidiary; (vii) stock, obligations or
securities received in settlement of debts created in the ordinary course of
business and owing to the Company or any of its Subsidiaries or in satisfaction
of judgments or claims; (viii) a Person engaged in a Related Business or a loan
or advance to the Company the proceeds of which are used solely to make an
Investment in a Person engaged in a Related Business or a Guarantee by the
Company of Indebtedness of any Person in which such Investment has been made;
provided, however, that no Permitted Investments may be made pursuant to this
clause (viii) to the extent the amount thereof would, when taken together with
all other Permitted Investments made pursuant to this clause (viii), exceed $20
million in the aggregate (plus, to the extent not previously reinvested, any
return of capital realized on Permitted Investments made pursuant to this clause
(viii), or any release or other cancellation of any Guarantee constituting such
Permitted Investment); (ix) Persons to the extent such Investment is received by
the Company or any Subsidiary as consideration for asset dispositions effected
in compliance with "Limitations on Sales of Assets and Subsidiary Stock"; (x)
prepayments and other credits to suppliers made in the ordinary course of
business consistent with the past practices of the Company and its Subsidiaries;
and (xi) Investments in connection with pledges, deposits, payments or
performance bonds made or given in the ordinary course of business in connection
with or to secure statutory, regulatory or similar obligations, including
obligations under health, safety or environmental obligations.
"Person" means any individual, corporation, partnerships joint venture,
association, joint-stock company, trust, unincorporated organizations government
or any agency or political subdivision thereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
A "Public Market" exists at any time with respect to the common stock of
Holding or the Company if (a) the common stock of Holding or the Company, as
applicable, is then registered with the Securities Exchange Commission pursuant
to Section 12(b) or 12(g) of Exchange Act and traded either on a national
securities exchange or in the National Association of Securities Dealers
Automated Quotation System and (b) at least 15% of the total issued and
outstanding common stock of Holding or the Company, as applicable, has been
distributed prior to such time by means of an effective registration statement
under the Securities Act of 1933.
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"Refinancing Indebtedness" means Indebtedness that refunds, refinances,
replaces, renews, repays or extends (including pursuant to any defeasance or
discharge mechanism) (collectively "refinances," and "refinanced" shall have a
correlative meaning) any Indebtedness existing on the date of the Indenture or
Incurred in compliance with the Indenture (including Indebtedness of the Company
that refinances Indebtedness of any Subsidiary and Indebtedness of any
Subsidiary that refinances Indebtedness of another Subsidiary) including
Indebtedness that refinances Refinancing Indebtedness; provided, however, that
(i) the Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being refinanced, (ii) the Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being refinanced, and (iii) such Refinancing Indebtedness is Incurred in an
aggregate principal amount (or if issued with original issue discount, an
aggregate issue price) that is equal to (or 101% of, in the case of a
refinancing of the Notes in connection with a Change of Control) or less than
the sum of the aggregate principal amount (or if issued with original issue
discount, the aggregate accreted value) then outstanding of the Indebtedness
being refinanced.
"Related Business" means any business which is the same as or related,
ancillary or complementary to any of the businesses of the Company and its
Subsidiaries on the date of the Indenture, as reasonably determined by the
Company's Board of Directors.
"Representative" means any trustee, agent or representative (if any) of an
issue of Senior Indebtedness.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Subsidiary transfers such
property to a Person and the Company or a Subsidiary leases it from such Person.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Senior Subordinated Indebtedness" means the 11 3/4% Notes, the Notes and
any other Indebtedness of the Company that specifically provides that such
Indebtedness is to rank pari passu with the Notes in right of payment and is not
subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company which is not Senior Indebtedness.
"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X
promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and one
or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such
Person. Unless otherwise specified herein, each reference to a Subsidiary shall
refer to a Subsidiary of the Company.
"Subsidiary Guarantors" means each Subsidiary of the Company in existence
on the Issue Date (other than ECM and Wirekraft Mexico) and each Subsidiary
(other than foreign Subsidiaries) created or acquired by the Company after the
Issue Date and which becomes a party to the Indenture pursuant to Section 11.7
thereof.
"Temporary Cash Investments" means any of the following: (i) any Investment
in direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of
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America or any agency thereof, (ii) Investments in time deposit accounts,
certificates of deposit and money market deposits maturing within 180 days of
the date of acquisition thereof issued by a bank or trust company which is
organized under the laws of the United States of America, any state thereof or
any foreign country recognized by the United States of America having capital,
surplus and undivided profits aggregating in excess of $250 million (or the
foreign currency equivalent thereof) and whose long-term debt, or whose parent
holding company's long-term debt, is rated "A" (or such similar equivalent
rating) or higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act), (iii) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above, (iv) Investments in commercial
paper, maturing not more than 180 days after the date of acquisition, issued by
a corporation (other than an Affiliate of the Company) organized and in
existence under the laws of the United States of America or any foreign country
recognized by the United States of America with a rating at the time as of which
any investment therein is made of "P-1" (or higher) according to Moody's
Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's
Ratings Group, (v) Investments in securities with maturities of six months or
less from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by Standard &
Poor's Ratings Group or "A" by Moody's Investors Service, Inc. and (vi)
Investments in mutual funds whose investment guidelines restrict such funds'
investments to those satisfying the provisions of clauses (i) through (v) above.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly-Owned Subsidiary" means a Subsidiary of the Company, at least 99%
of the Capital Stock of which (other than directors' qualifying shares) is owned
by the Company or another Wholly-Owned Subsidiary.
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SELLING SECURITYHOLDER AND PLAN OF DISTRIBUTION
The following table sets forth the name of the Selling Securityholder, the
principal amount of the securities that the Selling Securityholder may offer and
sell pursuant to this Prospectus, and the securities beneficially owned by the
Selling Securityholder. Because the Selling Securityholder may sell all or a
portion of its securities at any time and from time to time after the date
hereof, no estimate can be made of the amount of securities offered hereby that
the Selling Securityholder may retain upon completion of the offering to which
this Prospectus relates. The Selling Securityholder has not had any material
relationship with the Company except as set forth in the notes to the table
below and as more fully described elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF SECURITIES
-------------------------------
BENEFICIAL
OWNERSHIP OF
NAME OF BENEFICIAL OWNER NOTES OFFERED NOTES
------------------------ -------------- -------------
<S> <C> <C>
Chase Equity Associates(1).................................. $5,000,000 $5,000,000
</TABLE>
- ---------------
(1) Chase Equity Associates owns warrants to purchase less than 4% of the
outstanding shares of Holding Common Stock and is an affiliate of The Chase
Manhattan Bank, which is Administrative Agent and a lender under the Senior
Bank Facility. Chase Securities Inc., an affiliate of Chase Equity
Associates, served as an initial purchaser in the Rule 144A Offering. An
affiliate of Chase Equity Associates is a limited partner of HM Fund II. In
addition, The Chase Manhattan Bank and its affiliates participate on a
regular basis in various general financing, advisory and banking
transactions for Hicks, Muse and its affiliates, including the Company. See
"Description of Senior Bank Facility."
The Company will not receive any proceeds from the offering to which this
Prospectus relates. The Selling Securityholder may sell the securities offered
hereby through underwriters or dealers, through brokers or other agents, or
directly to one or more purchasers in one or more transactions in the
over-the-counter market, if such a market develops, or in privately negotiated
transactions, or in a combination of such transactions. Such transactions may be
effected by the Selling Securityholder at market prices prevailing at the time
of sale, at prices related to such prevailing market prices, at negotiated
prices, or at fixed prices, which may be changed. Such underwriters, dealers,
brokers or other agents may receive compensation in the form of discounts or
commissions from the Selling Securityholder and may receive commissions from the
purchasers of such securities for whom they act as agent.
The Selling Securityholder and any dealer, broker or other agent selling
securities offered hereby for the Selling Securityholder or purchasing any such
securities from the Selling Securityholder for purposes of resale may be deemed
to be an underwriter under the Securities Act and any compensation received by
the Selling Securityholder, dealer, broker or other agent may be deemed
underwriting compensation. Neither the Company nor the Selling Securityholder
can presently estimate the amount of such compensation. The Company knows of no
existing arrangements between the Selling Securityholder and any dealer, or
broker or other agent.
To comply with certain states' securities laws, if applicable, the
securities offered hereby may be sold in such states only through brokers or
dealers. In addition, in certain states the securities may not be sold unless
they have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with.
In accordance with the provisions contained in the Preferred Stock and
Warrant Purchase Agreement dated as of March 5, 1996, by and among Holding, the
Company, Chase Equity Associates and HM Fund II ("the Preferred Stock and
Warrant Purchase Agreement") pursuant to which the Registration Statement of
which this Prospectus is a part has been filed, the Company is obligated under
certain circumstances to indemnify the Selling Securityholder, its officers,
directors and agents, and controlling persons, and each underwriter in an
offering or sale of such securities, against certain liabilities related to such
sale or disposition, including liabilities arising under the Securities Act or
to contribute to payments which such persons or
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<PAGE> 80
entities may be required to make in respect thereof. In accordance with the
Preferred Stock and Warrant Purchase Agreement, the Company may, in certain
circumstances, also be entitled to indemnification or contribution by the
Selling Securityholder or underwriters participating in an offering of the
securities to which this Prospectus relates.
Pursuant to the Preferred Stock and Warrant Purchase Agreement, the Company
has agreed to pay, with certain limited exceptions, all the expenses incurred in
connection with the preparation and filing of this Prospectus and the related
Registration Statement, including without limitation, all registration, filing,
securities exchange listing and fees of any applicable stock exchange, all
registration, filing, qualification and other fees and expenses of complying
with securities or blue sky laws, all word processing, duplicating and printing
expenses, messenger and delivery expenses, and the fees and disbursements of
counsel for the Company and of its independent public accountants, including the
expenses of any special audits or "cold comfort" letters required by or incident
to such performance and compliance, but excluding underwriting discounts and
commissions, the fees and disbursements of counsel retained by the holders of
the Notes being registered and transfer taxes, if any, in respect of Notes,
which shall be borne by the sellers of the Notes. The Company estimates that the
foregoing expenses in connection with the registration of the securities will be
approximately $293,000.
The Notes are a new issue of securities for which there is no public
market. The Company does not intend to list the Notes on any securities
exchange. Accordingly, no assurance can be given as to (i) the likelihood that
an active market for the Notes will develop, (ii) the liquidity of any such
market, (iii) the ability of holders to sell their Notes or (iv) the prices that
they may obtain for their Notes upon any sale. Future trading prices for the
Notes will depend upon many factors, including, among others, the Company's
operating results, the market for similar securities and fluctuating interest
rates.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material United States Federal
income tax considerations generally applicable to holders acquiring the Notes,
but does not purport to be a complete analysis of all potential consequences.
The discussion is based upon the Code, Treasury regulations, Internal Revenue
Service ("IRS") rulings and judicial decisions now in effect, all of which are
subject to change at any time by legislative, judicial or administrative action.
Any such changes may be applied retroactively in a manner that could adversely
affect a holder of the Notes.
The discussion assumes that the holders of the Notes will hold them as
"capital assets" within the meaning of Section 1221 of the Code. The Company
intends to treat the Notes as indebtedness for federal income tax purposes, and
the balance of the discussion is based on the assumption that such treatment
will be respected. The discussion is not binding on the IRS or the courts. The
Company has not sought and will not seek any rulings from the IRS with respect
to the positions of the Company discussed herein, and there can be no assurance
that the IRS will not take a different position concerning the tax consequences
of the purchase, ownership or disposition of the Notes or that any such position
would not be sustained.
The tax treatment of a holder of the Notes may vary depending on such
holder's particular situation or status. Certain holders (including S
corporations, insurance companies, tax-exempt organizations, financial
institutions, broker-dealers and taxpayers subject to alternative minimum tax)
may be subject to special rules not discussed below. The following discussion is
limited to the United States Federal income tax consequences relevant to a
holder of the Notes that is an individual who is a citizen or resident of the
United States, a corporation or partnership created or organized under the laws
of the United States, or any political subdivision thereof, or an estate or
trust otherwise subject to U.S. Federal income taxation of its worldwide income.
The following discussion does not consider all aspects of United States Federal
income tax that may be relevant to the purchase, ownership and disposition of
the Notes by a holder in light of such holder's personal circumstances. In
addition, the discussion does not consider the effect of any applicable foreign,
state, local or other tax laws or estate or gift tax considerations.
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<PAGE> 81
STATED INTEREST ON NOTES
A holder of a Note will be required for federal income tax purposes to
report stated interest on the Note as income in accordance with the holder's
method of accounting for tax purposes.
ISSUE PRICE OF NOTES
The "issue price" of a debt instrument issued in exchange for property
generally should equal its stated principal amount, as long as the debt
instrument provides for "adequate stated interest." In certain "potentially
abusive" situations, such as when a debt instrument provides for "clearly
excessive" interest, the "issue price" of a debt instrument may be determined by
reference to the fair market value of the property acquired in exchange
therefor. Because the Notes provide for "adequate stated interest," the Company
believes that the issue price of the Notes is their stated principal amount.
Accordingly, because interest payments with respect to the Notes should qualify
as "qualified stated interest," the "stated redemption price at maturity" of the
Notes should equal the "issue price" of the Notes, and therefore the Notes
should not have any original issue discount.
AMORTIZABLE BOND PREMIUM ON NOTES
If the holder's basis in the Notes exceeds the amount payable at the
maturity date (or earlier call date, if appropriate), such excess will be
deductible by the holder of the Notes as amortizable bond premium over the term
of the Notes (taking into account earlier call dates, as appropriate), under a
yield-to-maturity formula, if an election by the holder under section 171 of the
Code is made or is already in effect. An election under section 171 of the Code
is available only if the Notes are held as capital assets. This election is
revocable only with the consent of the IRS and applies to all obligations owned
or acquired by the holder on or after the first day of the taxable year to which
the election applies. To the extent the excess is deducted as amortizable bond
premium, the holder's adjusted tax basis in the Notes will be reduced. Except
any may otherwise be provided in future Treasury Regulations, the amortizable
bond premium will be treated as an offset to interest income on the Exchange
Debentures rather than as a separate deduction item. Recently proposed Treasury
Regulations, which are not yet effective, would modify the described rules under
section 171 in order to coordinate such rules with the rules relating to
original issue discount.
MARKET DISCOUNT
The market discount rules generally provide that, if a holder of a debt
instrument purchases it at a "market discount" and thereafter realizes gain upon
a disposition or a retirement of the debt instrument, the lesser of such gain or
the portion of the market discount that has accrued on a straight-line basis (or
on a constant interest rate basis, if such alternative rate of accrual has been
elected by the holder under section 1276(b) of the Code) while the debt
instrument was held by such holder will be taxed as ordinary income at the time
of such disposition. "Market discount" with respect to a Note will be the
amount, if any, by which the "stated redemption price at maturity" of the Note
exceeds the holder's basis in the Note immediately after such holder's
acquisition, subject to a de minimis exception.
A holder who acquires a Note at a market discount will also be required to
defer a portion of any interest expense that otherwise may be deductible on any
indebtedness incurred or maintained to purchase or carry such Note until the
holder disposes of the Note in a taxable transaction. Moreover, to the extent of
any accrued market discount on such Notes, any partial principal payment with
respect to the Notes will be includible as ordinary income upon receipt, as will
the Note's fair market value on certain otherwise non-taxable transfers (such as
gifts).
A holder of Notes acquired at a market discount may elect for federal
income tax purposes to include market discount in gross income as the discount
accrues, either on a straight-line basis or on a constant interest rate basis.
This current inclusion election, once made, applies to all market discount
obligations acquired on or after the first day of the first taxable year to
which the election applies, and may not be revoked without the consent of the
IRS. If a holder of Notes makes such an election, the foregoing rules with
respect to the recognition of ordinary income on sales and other disposition of
such debt instruments, and with respect
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<PAGE> 82
to the deferral of interest deductions on indebtedness incurred or maintained to
purchase or carry such Notes, would not apply.
REDEMPTION, SALE OR EXCHANGE OF NOTES
Generally, any redemption, sale or exchange of Notes by a holder would
result in taxable gain or loss equal to the difference between the sum of amount
of cash and the fair market value of other property received (except to the
extent that cash received is attributable to accrued interest, which portion of
the consideration would be taxed as ordinary income if such interest was
previously untaxed) and the holder's adjusted tax basis in the Notes. Subject to
the above discussion of market discount, such gain or loss would be capital gain
or loss, long-term if the holder's holding period for the Notes exceeds one
year.
BACKUP WITHHOLDING
Under the Code, a holder of Notes may be subject, under certain
circumstances, to "backup withholding" at a 31% rate with respect to interest
payments or gross proceeds. This withholding generally applies only if the
holder (i) fails to furnish its social security or other taxpayer identification
number ("TIN") within a reasonable time after the request therefor, (ii)
furnishes an incorrect TIN, (iii) is notified by the Internal Revenue Service
that it has failed to report properly interest or dividends, or (iv) fails,
under certain circumstances, to provide a certified statement, signed under
penalty of perjury, that the TIN provided is its correct number and that it is
not subject to backup withholding. Any amount withheld from a payment to a
holder under the backup withholding rules is allowable as a credit against such
holder's federal income tax liability, provided that the required information is
furnished to the Internal Revenue Service. Corporations and certain other
entities described in the Code and Treasury Regulations are exempt from such
withholding if their exempt status is properly established. Holders of Notes
should consult their tax advisors as to their qualifications for exemption from
withholding and the procedure for obtaining such exemption.
THE FOREGOING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION ONLY.
ACCORDINGLY, EACH PURCHASER OF NOTES SHOULD CONSULT WITH ITS OWN TAX ADVISOR AS
TO THE SPECIFIC TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF THE NOTES,
INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX LAWS.
LEGAL MATTERS
The validity of the issuance of the securities offered hereby has been
passed upon for the Company by Weil, Gotshal & Manges LLP, New York, New York
and Dallas, Texas. R. Scott Cohen, who is a partner in Weil, Gotshal & Manges
LLP, owns 12,000 shares of Holding Common Stock. Other than the foregoing, no
attorney of Weil, Gotshal & Manges LLP owns any shares of Holding Common Stock
or otherwise has a substantial interest in the Company.
80
<PAGE> 83
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996 and 1995, for the year ended December 31, 1996 and the seven months ended
December 31, 1995, have been included herein in reliance on the report of
Coopers & Lybrand L.L.P., independent certified public accountants, given on the
authority of that firm as experts in accounting and auditing. The financial
statements of Camden as of January 25, 1997 and January 27, 1996 and for each of
the years ended January 25, 1997, January 27, 1996 and January 28, 1995, have
been included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent certified public accountants, given on the authority of that firm as
experts in accounting and auditing. The combined financial statements of Dekko
as of December 28, 1995 and for each of the years ended December 28, 1995 and
December 29, 1994, have been included herein in reliance on the report of
Coopers & Lybrand L.L.P., independent certified public accountants, given on the
authority of that firm as experts in accounting and auditing. The consolidated
financial statements of Wirekraft Holdings Corp. for the six months ended May
31, 1995 and for the year ended November 30, 1994, have been included herein in
reliance on the report of Coopers & Lybrand L.L.P., independent certified public
accountants, given on the authority of that firm as experts in accounting and
auditing. The consolidated financial statements of Omega for the two months
ended May 31, 1995, have been included herein in reliance on the report of
Coopers & Lybrand L.L.P., independent certified public accountants, given on the
authority of that firm as experts in accounting and auditing. The consolidated
financial statements of THL-Omega for the three months ended March 31, 1995,
have been included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent certified public accountants, given on the authority of that firm as
experts in accounting and auditing. The consolidated financial statements of
THL-Omega for the year ended December 31, 1994, have been included herein in
reliance on the report of Price Waterhouse LLP, independent certified public
accountants, given on the authority of that firm as experts in accounting and
auditing. The statement of direct revenues and expenses for ECM for the period
January 1, 1994 through November 30, 1994, has been included herein in reliance
on the report of Coopers & Lybrand L.L.P., independent certified public
accountants, given on the authority of that firm as experts in accounting and
auditing.
81
<PAGE> 84
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTERNATIONAL WIRE GROUP, INC.
Report of Coopers & Lybrand L.L.P., Independent Public
Accountants............................................ F-3
Consolidated Balance Sheets as of December 31, 1996 and
December 31, 1995...................................... F-4
Consolidated Statements of Operations for the year ended
December 31, 1996 and seven months ended December 31,
1995................................................... F-5
Consolidated Statements of Stockholder's Equity (Deficit)
for the year ended December 31, 1996 and seven months
ended December 31, 1995................................ F-6
Consolidated Statements of Cash Flows for the year ended
December 31, 1996 and seven months ended December 31,
1995................................................... F-7
Notes to Consolidated Financial Statements................ F-8
Consolidated Balance Sheet as of June 30, 1997
(unaudited)............................................ F-27
Consolidated Statements of Operations for the six months
ended June 30, 1997 and 1996 (unaudited)............... F-28
Consolidated Statements of Cash Flows for the six months
ended June 30, 1997 and 1996 (unaudited)............... F-29
Notes to Consolidated Financial Statements (unaudited).... F-30
CAMDEN WIRE CO., INC.
Report of Coopers & Lybrand L.L.P., Independent Public
Accountants............................................ F-40
Balance Sheets as of January 25, 1997 and January 27,
1996................................................... F-41
Statements of Operations for the years ended January 25,
1997, January 27, 1996 and January 28, 1995............ F-42
Statements of Stockholder's Equity for years ended January
25, 1997, January 27, 1996 and January 28, 1995........ F-43
Statements of Cash Flows for the years ended January 25,
1997, January 27, 1996 and January 28, 1995............ F-44
Notes to Financial Statements............................. F-45
DEKKO WIRE TECHNOLOGIES
Report of Coopers & Lybrand L.L.P., Independent Public
Accountants............................................ F-50
Combined Balance Sheet as of December 28, 1995............ F-51
Combined Statements of Income, for the two years ended
December 28, 1995 and December 29, 1994................ F-52
Combined Statements of Shareholders' Equity for the two
years ended December 28, 1995 and December 29, 1994.... F-53
Combined Statements of Cash Flows for the two years ended
December 28, 1995 and December 29, 1994................ F-54
Notes to Combined Financial Statements.................... F-55
WIREKRAFT HOLDINGS CORP. (FORMERLY WB HOLDINGS INC.)
Report of Coopers & Lybrand L.L.P., Independent Public
Accountants............................................ F-62
Consolidated Statements of Operations for the six months
ended May 31, 1995 and the year ended November 30,
1994................................................... F-63
Consolidated Statements of Stockholders' Equity for the
six months ended May 31, 1995 and the year ended
November 30, 1994...................................... F-64
Consolidated Statements of Cash Flows for the six months
ended May 31, 1995 and the year ended November 30,
1994................................................... F-65
Notes to Consolidated Financial Statements................ F-66
</TABLE>
F-1
<PAGE> 85
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
OMEGA WIRE CORP.
Report of Coopers & Lybrand L.L.P., Independent Public
Accountants............................................ F-74
Consolidated Statement of Operations for the two months
ended May 31, 1995..................................... F-75
Consolidated Statement of Stockholders' Equity for the two
months ended May 31, 1995.............................. F-76
Consolidated Statement of Cash Flows for the two months
ended May 31, 1995..................................... F-77
Notes to Consolidated Financial Statements................ F-78
THL-OMEGA HOLDING CORPORATION
Report of Coopers & Lybrand L.L.P., Independent Public
Accountants............................................ F-82
Consolidated Statement of Operations and Retained Earnings
for the three months ended March 31, 1995.............. F-83
Consolidated Statement of Cash Flows for the three months
ended March 31, 1995................................... F-84
Notes to Consolidated Financial Statements................ F-85
Report of Price Waterhouse LLP, Independent Public
Accountants............................................ F-88
Consolidated Statement of Operations and Retained Earnings
for the year ended December 31, 1994................... F-89
Consolidated Statement of Cash Flows for the year ended
December 31, 1994...................................... F-90
Notes to Consolidated Financial Statements................ F-91
ELECTRO COMPONENTES DE MEXICO, S.A. DE C.V. AND CERTAIN
RELATED ASSETS OF GENERAL ELECTRIC COMPANY
Report of Coopers & Lybrand L.L.P., Independent Public
Accountants............................................ F-94
Statement of Direct Revenues and Expenses for the eleven
months ended November 30, 1994......................... F-95
Notes to Financial Statements............................. F-96
</TABLE>
F-2
<PAGE> 86
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
International Wire Group, Inc.:
We have audited the accompanying consolidated balance sheets of
International Wire Group, Inc. and subsidiaries as of December 31, 1996 and
December 31, 1995, and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for the year ended December 31,
1996 and seven months ended December 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of International
Wire Group, Inc. and subsidiaries as of December 31, 1996 and December 31, 1995,
and the consolidated results of their operations and their cash flows for the
year ended December 31, 1996 and the seven months ended December 31, 1995, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
St. Louis, Missouri
February 28, 1997
F-3
<PAGE> 87
INTERNATIONAL WIRE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Accounts receivable, less allowance of $1,363, and $860... $ 71,181 $ 47,180
Inventories............................................... 60,362 57,777
Prepaid expenses and other................................ 5,060 2,733
Deferred income taxes..................................... 4,741 125
-------- --------
Total current assets.............................. 141,344 107,815
Property, plant and equipment, net........................ 118,551 82,259
Deferred financing costs, net............................. 21,222 16,688
Intangible assets, net.................................... 244,655 215,400
Other assets.............................................. 5,248 5,758
-------- --------
Total assets...................................... $531,020 $427,920
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term obligations............... $ 20,948 $ 12,662
Accounts payable.......................................... 45,832 37,627
Accrued and other liabilities............................. 33,150 20,323
Customers' deposits....................................... 8,033 5,688
Accrued interest.......................................... 4,648 2,516
-------- --------
Total current liabilities......................... 112,611 78,816
Long-term obligations, less current maturities.............. 426,719 326,015
Deferred income taxes....................................... 14,719 8,194
Other long-term liabilities................................. 12,162 4,897
-------- --------
Total liabilities................................. 566,211 417,922
-------- --------
Stockholders' equity (deficit):
Common stock, $.01 par value, 1,000 shares authorized,
issued and outstanding................................. -- --
Series A senior cumulative exchangeable redeemable
preferred stock, $.01 par value, $25 liquidation value,
400,000 shares authorized, issued and outstanding...... 4 --
Contributed capital....................................... 125,340 81,051
Carryover of predecessor basis............................ (67,762) (67,762)
Accumulated deficit....................................... (92,773) (3,291)
-------- --------
Total stockholders' equity (deficit).............. (35,191) 9,998
-------- --------
Total liabilities and stockholders' equity
(deficit)....................................... $531,020 $427,920
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements
F-4
<PAGE> 88
INTERNATIONAL WIRE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Net sales.................................................. $546,981 $245,583
Operating expenses:
Cost of goods sold....................................... 420,823 195,221
Selling, general and administrative...................... 43,885 17,129
Depreciation and amortization............................ 31,341 11,020
Impairment, unusual and plant closing charges............ 84,250 1,750
Inventory valuation adjustment........................... 8,500 --
-------- --------
Operating income (loss).................................... (41,818) 20,463
Other income (expense):
Interest expense......................................... (43,013) (19,931)
Amortization of deferred financing costs................. (3,701) (1,468)
Other, net............................................... 312 (158)
-------- --------
Loss before income tax provision........................... (88,220) (1,094)
Income tax provision....................................... 1,262 2,197
-------- --------
Net loss................................................... $(89,482) $ (3,291)
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements
F-5
<PAGE> 89
INTERNATIONAL WIRE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE
SEVEN MONTHS ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
CARRYOVER
OF
COMMON PREFERRED CONTRIBUTED PREDECESSOR ACCUMULATED
STOCK STOCK CAPITAL BASIS DEFICIT TOTAL
------- --------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Capital contributed.......... $ -- $-- $ 81,951 $ -- $ -- $ 81,951
Issuance costs............... -- -- (900) -- -- (900)
Carryover of predecessor
basis...................... -- -- -- (67,762) -- (67,762)
Net loss..................... -- -- -- -- (3,291) (3,291)
------- --- -------- -------- -------- --------
Balance December 31, 1995.... -- -- 81,051 (67,762) (3,291) 9,998
Capital contributed.......... -- -- 35,493 -- -- 35,493
Issuance of preferred
stock...................... -- 4 9,996 -- -- 10,000
Issuance costs............... -- -- (1,200) -- -- (1,200)
Net loss..................... -- -- -- -- (89,482) (89,482)
------- --- -------- -------- -------- --------
Balance December 31, 1996.... $ -- $ 4 $125,340 $(67,762) $(92,773) $(35,191)
======= === ======== ======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements
F-6
<PAGE> 90
INTERNATIONAL WIRE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Cash flows provided by (used in)
operating activities:
Net loss.............................. $ (89,482) $ (3,291)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization......... 31,341 11,020
Impairment and unusual charges........ 78,250 --
Amortization of deferred financing
costs.............................. 3,701 1,468
Inventory valuation adjustment........ 8,500 --
Deferred income taxes................. 3,184 274
Change in assets and liabilities, net
of acquisitions:
Accounts receivable................ (1,878) 12,094
Inventories........................ (3,645) (9,590)
Prepaid expenses and other......... (4,829) (846)
Accounts payable................... 1,216 1,232
Accrued and other liabilities...... 2,299 (2,084)
Accrued interest................... 2,132 2,516
Income taxes payable/refundable.... 1,914 778
Other long-term liabilities........ (723) (237)
--------- ---------
Net cash from operating activities...... 31,980 13,334
--------- ---------
Cash flows provided by (used in)
investing activities:
Acquisitions, net of cash............. (160,259) (341,046)
Capital expenditures, net............. (15,849) (5,751)
--------- ---------
Net cash used in investing activities... (176,108) (346,797)
--------- ---------
Cash flows provided by (used in)
financing activities:
Equity proceeds....................... 45,039 15,048
Proceeds from issuance of long-term
obligations........................ 128,200 337,500
Repayment of long-term obligations.... (21,311) (5,085)
Financing fees and other.............. (7,800) (14,000)
--------- ---------
Net cash from financing activities...... 144,128 333,463
--------- ---------
Net change in cash...................... -- --
Cash at beginning of the period......... -- --
--------- ---------
Cash at end of the period............... $ -- $ --
========= =========
</TABLE>
See accompanying notes to the consolidated financial statements
F-7
<PAGE> 91
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996 AND
SEVEN MONTHS ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
1. THE COMPANY
International Wire Group, Inc. ("Group" or the "Company"), a Delaware
corporation, was formed to participate in the transactions contemplated by the
Wirekraft/Omega Acquisitions (as described below). On June 12, 1995, Wirekraft
Holdings Corp. ("Wirekraft"), Omega Wire Corp. ("Omega"), International Wire
Holding Company ("Holding"), the sole common stockholder of Group, Wirekraft
Acquisition Company and certain shareholders of Wirekraft and Omega entered into
a series of acquisitions and mergers (the "Acquisitions") pursuant to which
Group acquired all of the common equity securities (and all securities
convertible into such securities) of Wirekraft and all of the common equity
securities of Omega. The Company has designated June 1, 1995, as the effective
date of the Acquisitions for financial reporting purposes. The Company through
its two segments, the Wire segment and the Harness segment, is engaged in the
design, manufacture and marketing of non-insulated and insulated copper wire and
wire harnesses. The Company's products are used by a wide variety of customers
primarily in the appliance, computer and data communications, automotive and
industrial equipment industries.
The total purchase price of the Acquisitions was approximately $420,591,
which included the redemption of certain equity securities, the retirement of
existing indebtedness of Wirekraft and Omega and the payment of related fees and
costs, is summarized as follows:
<TABLE>
<S> <C>
Redemption of common stock, equity
rights, warrants and options.......... $104,810
Repayment of existing indebtedness...... 275,460
Redemption of preferred stock........... 26,321
Fees and costs.......................... 14,000
--------
$420,591
========
</TABLE>
In accordance with EITF 88-16, "Basis in Leveraged Buy Out Transactions,"
the Acquisitions have been accounted for at "predecessor basis". The total
acquisition costs have been allocated to the acquired net assets as follows:
<TABLE>
<S> <C>
Current assets.......................... $117,504
Property, plant and equipment........... 83,253
Goodwill................................ 209,818
Fees and costs.......................... 19,000
Other assets............................ 3,749
Current liabilities..................... (58,707)
Other liabilities....................... (21,788)
Carryover predecessor basis............. 67,762
--------
$420,591
========
</TABLE>
Unaudited pro forma data, which present condensed results of operations for
the twelve months ended December 31, 1995 as though the Acquisitions and related
financing had occurred at the beginning of the period, is as follows:
<TABLE>
<S> <C>
Net sales.................................................. $454,693
Net income................................................. $ 3,406
</TABLE>
F-8
<PAGE> 92
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. DWT ACQUISITION
On March 5, 1996, Wire Technologies, Inc. ("Wire Technologies"), a
wholly-owned subsidiary of the Company, acquired the businesses of Hoosier Wire,
Inc., Dekko Automotive Wire, Inc., Albion Wire, Inc. and Silicones, Inc., a
group of affiliated companies operating together under the trade name Dekko Wire
Technology Group (the "DWT Acquisition"). The total consideration of $173,239
paid in connection with the DWT Acquisition including fees, expenses and certain
adjustments consisted of (i) cash and (ii) warrants for the purchase of
2,000,000 shares of Common Stock, par value $.01 per share, of Holding. The DWT
Acquisition and the related transaction fees and expenses were funded with (i)
$128,200 of senior debt under the Amended Credit Agreement, (ii) $35,000 from
the issuance of 35,000,000 shares of Common Stock, par value $.01 per share, of
Holding, (iii) $39 from the issuance of 3,888,889 shares of Class A Common
Stock, par value $.01 per share, of Holding, and (iv) $10,000 from the issuance
of 400,000 shares of Series A Senior Cumulative Exchangeable Redeemable
Preferred Stock, par value $.01 per share, of the Company (sold in units
together with warrants for the purchase of shares of Common Stock, par value
$.01 per share, of Holding).
The DWT Acquisition was accounted for using the purchase method of
accounting whereby the total acquisition cost has been allocated to the
consolidated assets and liabilities based upon their estimated respective fair
values. The total acquisition cost is allocated to the acquired net assets as
follows:
<TABLE>
<S> <C>
Current assets............................................. $ 37,669
Property, plant and equipment.............................. 36,020
Goodwill................................................... 105,041
Other, non-current......................................... 3,515
Fees and costs............................................. 7,800
Current liabilities........................................ (15,306)
Other liabilities.......................................... (1,500)
--------
$173,239
========
</TABLE>
Unaudited pro forma results of operations of the Company for the years
ended December 31, 1996 and December 31, 1995, are included below. Such pro
forma presentation has been prepared assuming that the DWT Acquisition and
related financing had occurred as of January 1, 1996 and January 1, 1995,
respectively, and that the Acquisitions (as described in Note 1) had occurred as
of January 1, 1995.
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Net sales................................................... $574,827 $601,709
Net income (loss)........................................... $(88,994) $ (2,613)
</TABLE>
3. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Group and its
wholly-owned subsidiaries. All material intercompany balances and transactions
have been eliminated in consolidation.
Revenue Recognition
Sales and related cost of goods sold are included in income when goods are
shipped to customers.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
using the last-in, first-out ("LIFO") method.
F-9
<PAGE> 93
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is calculated
using the straight-line method. The average estimated lives utilized in
calculating depreciation are as follows: building -- 25 to 40 years; building
improvements -- 15 years; machinery and equipment -- 3 to 11 years; and
furniture and fixtures -- 5 years. Leasehold improvements are amortized over the
shorter of the term of the respective lease or the life of the respective
improvement. In fiscal 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS No. 121
requires impairment losses to be recorded on long-lived assets used in
operations when indications of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
Intangible Assets
Intangible assets consist principally of goodwill arising from the excess
of cost over the value of net assets acquired which is amortized using the
straight-line method over forty years. In fiscal 1996, the Company completed a
review of the carrying value of goodwill, which resulted in an impairment charge
(see Note 10). Accumulated amortization aggregated $18,182 and $8,783 at
December 31, 1996 and December 31, 1995, respectively.
The Company periodically evaluates goodwill to assess recoverability. The
Company considers various factors in determining if goodwill may be impaired.
These factors include reductions in estimated future cash flows, significant
events impacting the Company's business and changes in the business environment.
The Company further assesses the recoverability of goodwill by comparing the
value of goodwill as indicated by a discounted cash flow analysis to the
carrying value of goodwill. The discounted cash flow analysis consists of
discounted free cash flows for a projection period plus a terminal value, which
is calculated by dividing estimated annual unlevered net income by the weighted
average cost of capital less an assumed growth rate. Upon consideration of these
factors, if the Company determines that an impairment has occurred, the Company
determines the impairment charge by comparing the carrying value of goodwill to
the adjusted fair value of the Company, as calculated through a discounted cash
flow analysis. In fiscal 1996, the Company completed a review of the carrying
value of goodwill, which resulted in an impairment charge (see Note 10).
Deferred Financing Costs
Deferred financing costs, consisting of fees and other expenses associated
with the debt financing are amortized over the term of the related debt using
the effective interest method and the straight-line method which approximates
the effective interest method. Accumulated amortization aggregated $5,169 and
$1,468 at December 31, 1996 and December 31, 1995, respectively.
Foreign Currency
For operations in Mexico, the Company's functional currency is the U.S.
dollar. Gains and losses from translation and transactions are determined using
a combination of current and historical rates and are included in net income.
Interest Rate Hedging Arrangement
In 1996, the Company entered into an interest rate hedging arrangement for
the purpose of hedging against rising interest rates. The company paid a fee of
approximately $200 for the arrangement. This fee is included in deferred
financing fees and amortized on a straight-line basis over the life of the
arrangement, through May 1998. The interest rate hedging arrangement provides a
ceiling interest rate of 7.0% on $55,000 of indebtedness through May 1997 and a
ceiling interest rate of 8.0% on $63,500 of indebtedness thereafter
F-10
<PAGE> 94
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
through May 1998. The Company estimates that fair value approximates carrying
value of the interest rate hedging arrangement, due to the short life of the
arrangement and the relative stability of interest rates in 1996.
Fair Value of Financial Instruments
The Company's financial instruments, excluding the Senior Notes (as
hereinafter defined) are carried at fair value or amounts that approximate fair
value. The Company has estimated the fair value of the Senior Notes using
current market data. At December 31, 1996, the estimated fair market value of
the Senior Notes was $162,000.
Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Statement of Cash Flows
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid investments purchased with maturities of three
months or less to be cash equivalents. Interest paid for the year ended December
31, 1996 and seven months ended December 31, 1995 was $40,881 and $17,415,
respectively. Taxes refunded, net of payments for the year ended December 31,
1996 and taxes paid for the seven months ended December 31, 1995 were $4,073 and
$1,145, respectively.
During the year ended December 31, 1996 and seven months ended December 31,
1995, the Company entered into certain non-cash investing and financing
activities. In connection with the Acquisitions, certain shares of Omega and
Wirekraft common stock and Class A common stock were exchanged for shares of
Holding common stock. The total amount of shares exchanged was $66,903. In
fiscal 1996 and 1995, the Company recorded capital lease obligations of $2,348
and $680 respectively, for property, plant and equipment.
Significant Customer
A significant portion of the Company's sales were to a major customer
within the Harness segment. Sales to this customer represented 18% and 19% of
net sales for the year ended December 31, 1996 and the seven months ended
December 31, 1995, respectively.
4. INVENTORIES
The composition of inventories is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Raw materials.............................................. $26,191 $19,451
Work-in-process............................................ 14,908 15,916
Finished goods............................................. 19,263 22,410
------- -------
Total inventories................................ $60,362 $57,777
======= =======
</TABLE>
F-11
<PAGE> 95
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The current cost of inventories is approximately $57,267 and $56,035 at
December 31, 1996 and December 31, 1995.
In connection with the decline in the average price of copper during fiscal
1996 the Company recorded an $8,500 pre-tax inventory valuation charge to reduce
the LIFO valuation of copper in inventory.
5. PROPERTY, PLANT AND EQUIPMENT
The composition of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Land....................................................... $ 2,797 $ 2,061
Buildings and improvements................................. 31,546 20,848
Machinery and equipment.................................... 121,013 76,668
-------- --------
155,356 99,577
Less: accumulated depreciation............................. (36,805) (17,318)
-------- --------
$118,551 $ 82,259
======== ========
</TABLE>
6. FINANCING COSTS AND RELATED PARTY TRANSACTIONS
In connection with the Acquisitions, the Company incurred aggregate fees
and costs of $14,000. Costs of $13,100 related to the Senior Notes and Credit
Agreement (see Note 7) are included in deferred financing costs and are being
amortized over the terms of the related borrowings. Costs of $900 related to the
issuance of Holding's common stock have been deducted from the proceeds to
reduce the carrying value of the common stock. In connection with the DWT
Acquisition, the Company incurred aggregate fees and costs of $7,800. Costs of
$6,600 related to the Amended Credit Agreement (as hereinafter defined) are
included in deferred financing costs and are being amortized over the terms of
the related borrowings. Costs of $1,200 related to the issuance of Holding's
common stock and the Preferred Stock (as defined in Note 8) have been deducted
from the proceeds to reduce the carrying value of the common and preferred
stock.
In connection with the Acquisitions and the related financing, the Company
entered into a Monitoring and Oversight Agreement ("Agreement") with Hicks, Muse
& Co. Partners, L.P. ("Hicks, Muse") (an affiliate of the Company) pursuant to
which the Company paid Hicks, Muse a cash fee of $3,725 as compensation for
financial advisory services. Pursuant to the Agreement, the Company paid Hicks,
Muse a cash fee of $2,500 as compensation for financial advisory services
received in connection with the DWT Acquisition. The fees have been allocated
based upon the issuance proceeds to the debt and equity securities issued in
connection with the Acquisitions and the DWT Acquisition as deferred financing
costs or as a deduction from the cash proceeds received from the sale of the
common stock of Holding. The Agreement further provides that the Company shall
pay Hicks, Muse an annual fee of $500, for ten years for monitoring and
oversight services adjusted annually at the end of each fiscal year to an amount
equal to .1% of the consolidated net sales of the Company, but in no event less
than $500 annually. The obligation under the Agreement and the related deferred
financing costs have been recorded in the consolidated balance sheets.
F-12
<PAGE> 96
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM OBLIGATIONS
The composition of long-term obligations is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1996
------------ ------------
<S> <C> <C>
Credit Agreement:
Revolver................................................. $ 18,990 $ 19,000
Term Facility............................................ 271,404 163,813
Senior Subordinated Notes.................................. 150,000 150,000
Capital lease and other obligations........................ 7,273 5,864
-------- --------
447,667 338,677
Less, current maturities................................... (20,948) (12,662)
-------- --------
$426,719 $326,015
======== ========
</TABLE>
The schedule of principal payments for long-term obligations at December
31, 1996 is as follows:
<TABLE>
<S> <C>
1997...................................................... $ 20,948
1998...................................................... 23,782
1999...................................................... 29,123
2000...................................................... 58,568
2001...................................................... 41,457
Thereafter................................................ 273,789
--------
Total........................................... $447,667
========
</TABLE>
Credit Agreement
In connection with the DWT Acquisition, Group and Holding entered into an
Amended Credit Agreement (the "Amended Credit Agreement") dated as of March 5,
1996 with certain financial institutions. Borrowings under the Amended Credit
Agreement are collateralized by first priority mortgages and liens on all of the
assets of Group. In addition, borrowings under the Amended Credit Agreement are
guaranteed by Holding.
The Amended Credit Agreement consists of an $111,000 term loan (the "Term A
Loan"), an $82,500 term loan (the "Term B Loan"), a $95,000 term loan (the "Term
C Loan", collectively, the "Term Facility") and a $75,000 revolving credit
facility (the "Revolver"). The Revolver provides that up to $10,000 of such
facilities may be used for the issuance of letters of credit. At December 31,
1996, Group had $930 in outstanding letters of credit and $55,966 of unused
borrowing capacity under the Amended Credit Agreement. A commitment fee on the
unused portion of the Revolver of .5% is payable quarterly. The Amended Credit
Agreement contains several financial covenants which, among other things,
require Group to maintain certain financial ratios and restrict Group's ability
to incur indebtedness, make capital expenditures and pay dividends.
Mandatory principal payments of the Term Facility are due in quarterly
installments. The final installment on the Term A Loan is due on September 30,
2000 at which time the Revolver is also due. The final installment on the Term B
Loan is due on September 30, 2002, and the final installment on the Term C Loan
is due on September 30, 2003. The Amended Credit Agreement requires annual
prepayments of the Term Facility based on "Excess Cash Flow" (as defined in the
Amended Credit Agreement).
Borrowings under the Term A Loan and Revolver bear interest, at the option
of Group, at a rate per annum equal to (a) the Alternate Base Rate (as defined
in the Amended Credit Agreement) plus 1.5% or (b) the Eurodollar Rate (as
defined in the Amended Credit Agreement) plus 2.5%. Borrowings under the
F-13
<PAGE> 97
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Term B Loan bear interest, at the option of Group, at a rate per annum equal to
(a) the Alternate Base Rate (as defined in the Amended Credit Agreement) plus
2.0% or (b) the Eurodollar Rate (as defined in the Amended Credit Agreement)
plus 3.0%. Borrowings under the Term C Loan bear interest, at the option of
Group, at a rate per annum equal to (a) the Alternate Base Rate (as defined in
the Amended Credit Agreement plus 2.5% or (b) the Eurodollar Rate (as defined in
the Amended Credit Agreement) plus 3.5%. The Alternate Base Rate and Eurodollar
Rate margins are established quarterly based on a formula as defined in the
Amended Credit Agreement. Interest payment dates vary depending on the interest
rate option to which the Term Facility and the Revolver are tied, but generally
interest is payable quarterly. The weighted average interest rate on outstanding
borrowings was 8.75% and 8.59% at December 31, 1996 and December 31, 1995,
respectively.
Senior Subordinated Notes
The Senior Subordinated Notes due 2005 ("the Senior Notes") were issued
under an indenture, dated June 12, 1995 (the "Indenture") in connection with the
Acquisitions. The Senior Notes represent unsecured general obligations of Group
and are subordinated to all Senior Debt (as defined in the Indenture) of Group.
The Senior Notes, which were originally sold pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended, were
exchanged for identical notes registered under such Act in November 1995.
The Senior Notes are fully and unconditionally (as well as jointly and
severally) guaranteed on an unsecured, senior subordinated basis by each
subsidiary of the Company (the "Guarantor Subsidiaries") other than Electro
Componentes de Mexico, S.A. de C.V. and Wirekraft Industries de Mexico, S.A. de
C.V. (The "Non-Guarantor Subsidiaries"). Each of the Guarantor Subsidiaries and
Non-Guarantor Subsidiaries is wholly owned by the Company (see Note 14).
The Senior Notes mature on June 1, 2005. Interest on the Senior Notes is
payable semi-annually on each June 1 and December 1. The Senior Notes bear
interest at the rate of 11 3/4% per annum. The Senior Notes may not be redeemed
prior to June 1, 2000, except in the event of a Change of Control (as defined)
or Initial Public Offering (as defined) and at such applicable premium (as
defined). The Senior Notes are redeemable, at the Company's option, at the
redemption prices of 105.875% at June 1, 2000, and at decreasing prices to 100%
at June 1, 2003, and thereafter, with accrued interest. In addition, prior to
June 1, 1998, the Company may redeem, within guidelines specified in the
Indenture, up to $50,000 of the Senior Notes with the proceeds of one or more
Equity Offerings (as defined) by the Company or Holding at a redemption price of
110%, with accrued interest.
The Senior Notes restrict, among other things, the incurrence of additional
indebtedness by the Company, the payment of dividends and other distributions in
respect of the Company's capital stock, the payment of dividends and other
distributions by the Company's subsidiaries, the creating of liens on the
properties and the assets of the Company to secure certain subordinated debt and
certain mergers, sales of assets and transactions with affiliates.
8. PREFERRED STOCK
In connection with the DWT Acquisition, the Company issued 400,000 shares
of Series A Senior Cumulative Exchangeable Redeemable Preferred Stock (the
"Preferred Stock"). In accordance with the Certificate of Designation of the
Preferred Stock (the "Certificate of Designation"), cumulative dividends are
payable quarterly at the rate of 14% per annum. Dividend rates could increase
upon the occurrence of any Event of Non-Compliance (as defined in the
Certificate of Designation). At December 31, 1996, dividends in arrears were
$1,200 or $2.99 per share. The Preferred Stock has a liquidation preference of
$25.00 per share and a par value of $.01 per share. The Preferred Stock is
exchangeable, at the option of the Company, for 14.0% Senior Subordinated
Exchange Notes due June 1, 2005 (the "Exchange Notes") (see Note 15). The
F-14
<PAGE> 98
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Preferred Stock ranks with respect to the payment of dividends and the
distribution of assets upon dissolution, liquidation, or winding up of the
Company, prior to all other capital stock of the Company.
The Company may redeem the Preferred Stock, in whole or in part, at any
time. If such redemption occurs prior to December 31, 1997, the redemption price
shall equal the Makewhole Price (as defined in the Certificate of Designation).
If such redemption occurs on or after December 31, 1997, the redemption price
shall equal the product of the liquidation preference plus all accrued and
unpaid dividends, multiplied by the applicable Redemption Percentage (as defined
in the Certificate of Designation).
9. INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109. The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Current:
State.................................................. $ 935 $1,262
Foreign................................................ 264 661
------ ------
1,199 1,923
------ ------
Deferred:
Federal................................................ (64) (530)
State.................................................. 127 804
------ ------
63 274
------ ------
Total:......................................... $1,262 $2,197
====== ======
</TABLE>
Reconciliation between the statutory income tax rate and effective tax rate
is summarized below:
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
U.S. Federal statutory rate.............................. $(30,877) $ (372)
State taxes, net of federal effect....................... 690 1,364
Foreign taxes............................................ (430) 789
Nondeductible expenses................................... 31,814 397
Other.................................................... 65 19
-------- ------
$ 1,262 $2,197
======== ======
</TABLE>
F-15
<PAGE> 99
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of significant temporary differences representing deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEVEN MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable reserves........................ $ 477 $ 298
Accrued liabilities not yet deductible.............. 3,497 2,540
Inventories......................................... 3,381 --
Net operating loss carry forward.................... -- 3,544
Other............................................... 227 87
------- -------
7,582 6,469
------- -------
Deferred tax liabilities:
Depreciation and amortization....................... 14,684 11,809
Inventories......................................... 2,176 2,523
Other............................................... 700 206
------- -------
17,560 14,538
------- -------
Net deferred tax liability.......................... $ 9,978 $ 8,069
======= =======
</TABLE>
10. IMPAIRMENT, UNUSUAL AND PLANT CLOSING CHARGES
Commencing in the first quarter of 1996, the Company began a comprehensive
review of the strategic position of its individual business units. The original
goodwill related to the original Wirekraft acquisition recognized long-term
customer relationships and plant locations that were strategically sized,
located and customer focused. Due to intense competition in the appliance and
automotive markets and the loss of the portion of the business from a major
appliance customer in 1995, the Company developed and executed new business
strategies in 1996, including the DWT Acquisition, to maintain customer volume
levels, meet competitive pressures and address key changes within the
marketplace. As a result, the Company embarked on a major plant consolidation
program including the utilization of facilities purchased in the DWT Acquisition
and transitioning of business from the Midwest to the Southwest and Mexico. To
this end, six plants were closed in 1995 and another six plants were closed in
1996.
F-16
<PAGE> 100
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company recorded a pre-tax charge to operations of $6,000 in 1996 and
$1,750 in 1995 to provide for the plant closing costs. The plant closing costs
include provisions for shut-down costs from the period of the plant closure to
the date of disposal, commitment costs for leased property and key personnel and
severance related costs. During 1996 and 1995, plant closing actions resulted in
the reduction of approximately 45 and 55 employees, respectively. Plant closing
costs accrued at December 31, 1996 and December 31, 1995 were $2,462 and $700,
respectively. There have been no adjustments to amounts charged to expense.
Following is a summary of activity in the accounts related to the plant closing
costs accrued:
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Balance, beginning of period............................... $ 700 $ --
Charges to operations:
Facility shut-down costs................................. 3,872 731
Lease commitments........................................ 773 67
Key personnel and severance costs........................ 1,355 952
------- ------
6,000 1,750
Costs incurred:
Facility shut-down costs................................. (3,017) (339)
Lease commitments........................................ (134) (67)
Key personnel and severance costs........................ (1,087) (644)
------- ------
(4,238) (1,050)
------- ------
Balance, end of period..................................... $ 2,462 $ 700
======= ======
</TABLE>
In December 1996, the Company completed its review of the carrying value of
goodwill, resulting in an impairment charge of $78,250. In determining the
goodwill impairment charge, the Company completed financial projections through
the year 2000. These projections reflect the Company's business strategies and
were based on current industry trends, forecasts and expected developments. A
discounted cash flow analysis of the consolidated entity was used to calculate
the fair market value of the Company and was based upon the Company's
acquisition strategy which focuses on the identification and realization of
certain synergies existing between the acquired businesses. The calculated fair
value of the Company is determined as the sum of discounted free cash flows
through the year 2000 plus a terminal value, which is calculated using a
discounted cash flow terminal value approach, determined by capitalizing
unlevered net income in the last year of the projection by dividing unlevered
net income by the weighted average cost of capital, less an assumed future
growth rate. The calculated fair market value was compared to net tangible
assets (net working capital and net property, plant and equipment). The
difference between net tangible assets and the fair market value was compared to
net goodwill to determine the goodwill impairment charge.
In connection with this review and impairment charge, the Company has
provided for anticipated losses of $4,201 related to product liability claims
associated with the period preceding the original acquisition of Wirekraft in
1992. These claims are for a non-wire product in the appliance industry that the
Company has not manufactured since 1992. The Company's policy is to record the
probable and reasonably estimable loss related to product liability claims. In
1996, the claims significantly increased as a result of the receipt of claims
accumulated by insurance companies related to prior periods. Accordingly, the
Company revised its estimated liability outstanding on actual claims reported
and its estimate of claims incurred but not reported. In developing its
estimated liability outstanding on actual claims reported, the Company
considered historical settlement rates. The Company has estimated its liability
outstanding on actual claims reported to be $1,500. In determining its estimate
of claims incurred but not reported, the Company considered historical claim
levels and amounts relative to total product shipped. Additionally, the Company
considered historical
F-17
<PAGE> 101
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
settlement rates to develop its estimate for incurred but not reported claims of
$2,701. Due to the uncertainties associated with these product claims, the
future cost of final settlement of these claims may differ from the liability
currently accrued. However, in the Company's opinion, the impact of final
settlement of these claims on future operations, financial position and cash
flows will not be material.
11. RETIREMENT BENEFITS AND STOCK OPTION PLANS
The Company sponsors a number of defined contribution retirement plans
which provide retirement benefits for eligible employees. Company contribution
expense related to these retirement plans for the year ended December 31, 1996
and seven months ended December 31, 1995 amounted to approximately $1,208 and
$902, respectively.
Holding's Qualified and Non-qualified Stock Option Plan (the "Option Plan")
provides for the granting of up to 4,795,322 shares of common stock to officers
and key employees of Holding and the Company. Under the plan, options granted
approximate market value of the common stock at the date of grant. Such options
vest ratably over a five year period commencing on the first anniversary date
after the date of grant, and vested options are exercisable at the discretion of
the committee appointed to administer the Option Plan. Generally, an option may
be exercised only if the holder is an officer or employee of Holding or the
Company at the time of exercise. Options granted under the Option Plan are not
transferable, except by will and the laws of descent and distribution.
Holding and the Company have also granted Performance Options (the
"Performance Options") to certain key executives. The Performance Options are
exercisable only on the occurrence of certain events. The exercise price for the
Performance Options is initially equal to $1.00 per share and, effective each
anniversary of the grant date, the per share exercise price for the Performance
Options is equal to the per share exercise price for the prior year multiplied
by 1.09. The Performance Options terminate on the tenth anniversary date of the
date of grant.
In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation",
the Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for the Option Plan.
Accordingly, no compensation cost has been recognized for the Option Plan and
the Performance Options. There may be compensation expense in future periods
when the Performance Options become exercisable to the extent that the fair
value of the stock exceeds the exercise price of the Performance Options. Had
compensation cost for the Option Plan and the Performance Options been
determined based upon the fair value at the grant date for awards under these
plans consistent with the methodology prescribed under SFAS No. 123, the
Company's net loss would approximate the following:
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
As reported........................................ $(89,482) $(3,291)
Pro forma.......................................... $(89,759) $(3,329)
</TABLE>
The minimum value of each option grant is estimated on the date of grant
with the following assumptions in 1996 and 1995, respectively: (i) risk-free
interest rates of 5.9% in 1995 and ranging from 5.9% to 6.5% in 1996 and (ii)
expected life of 10 years.
F-18
<PAGE> 102
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. Additional awards in future years are anticipated.
Changes in the status of the Option Plan are summarized below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE PRICE OPTIONS OPTIONS
PER SHARE GRANTED VESTED
-------------- ---------- -------
<S> <C> <C> <C>
June 1, 1995............................ -- -- --
Granted............................... $1.00 3,400,000 --
Vested................................ -- -- --
----- ---------- -------
December 31, 1995....................... $1.00 3,400,000 --
Granted............................... $1.02 1,865,249
Vested................................ $1.00 -- 495,249
Forfeiture............................ $1.00 (1,250,000) --
----- ---------- -------
December 31, 1996....................... $1.01 4,015,249 495,249
===== ========== =======
</TABLE>
Changes in the status of the Performance Options are summarized below:
<TABLE>
<S> <C> <C> <C>
June 1, 1995............................ -- -- --
Granted............................... $1.00 2,966,178
----- ---------- -------
December 31, 1995....................... $1.00 2,966,178 --
Granted............................... $1.00 1,236,566 --
----- ---------- -------
December 31, 1996....................... $1.06 4,202,744 --
===== ========== =======
</TABLE>
The weighted average grant-date fair value of options granted during 1996
and 1995 was $0.48 and $0.44 per share, respectively. Of the options outstanding
under the Option Plan at December 31, 1996, 4,350,000 and 65,249 have exercise
prices of $1.00 and $1.625 respectively, and have weighted average remaining
contractual lives of between 9 and 10 years. The weighted average exercise price
of options vested at December 31, 1996 is $1.00 per share.
Of the Performance Options outstanding at December 31, 1996, 2,966,178 and
1,235,566 have exercise prices of $1.09 and $1.00 respectively, and have
weighted average remaining contractual lives of between 9 and 10 years.
F-19
<PAGE> 103
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES
The Company leases certain property, transportation vehicles and other
equipment. Total rental expense under operating leases was $2,237 and $1,420 for
the year ended December 31, 1996 and seven months ended December 31, 1995.
Future minimum lease payments under capital and operating leases for years
ending are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
<S> <C> <C>
1997........................................................ $ 1,416 $2,706
1998........................................................ 1,416 2,401
1999........................................................ 1,416 1,453
2000........................................................ 1,376 1,128
2001........................................................ 970 927
Thereafter.................................................. 3,010 437
------- ------
Total minimum lease payments...................... 9,604 $9,052
======
Less amount representing interest................. (2,705)
-------
Present value of net minimum lease payments....... $ 6,899
=======
</TABLE>
The Company is subject to legal proceedings and claims which arise in the
normal course of business. In the opinion of management, the ultimate
liabilities with respect to these actions will not have a material adverse
effect on the Company's financial condition, results of operations or cash
flows.
The Company has agreed in principal to participate in an international
expansion project with one of the Wire segment's largest customers. The Company
estimates its financial commitment for property, plant and equipment to be
approximately $13,000.
F-20
<PAGE> 104
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. BUSINESS SEGMENT INFORMATION
Certain information concerning the Company's operating segments for the
year ended December 31, 1996 and the seven months ended December 31, 1995 is
presented below. Total revenue by segment includes both sales to customers and
intersegment sales, which are accounted for at prices charged to customers and
eliminated in consolidation.
<TABLE>
<CAPTION>
WIRE HARNESS CONSOLIDATED
---- ------- ------------
<S> <C> <C> <C>
Year Ended December 31, 1996
Total revenue................................... $406,026 $161,354
Intersegment sales.............................. 20,399 --
-------- --------
Sales to customers.............................. $385,627 $161,354 $546,981
Operating loss.................................. $(29,443) $(12,375) $(41,818)
Identifiable assets............................. $437,524 $ 93,496 $531,020
Depreciation and amortization................... $ 24,880 $ 6,461 $ 31,341
Capital expenditures, net....................... $ 13,060 $ 2,789 $ 15,849
Seven Months Ended December 31, 1995
Total revenue................................... $167,082 $ 84,288
Intersegment sales.............................. 5,341 446
-------- --------
Sales to customers.............................. $161,741 $ 83,842 $245,583
Operating income................................ $ 10,937 $ 9,526 $ 20,463
Identifiable assets............................. $295,671 $132,249 $427,920
Depreciation and amortization................... $ 7,442 $ 3,578 $ 11,020
Capital expenditures, net....................... $ 4,991 $ 760 $ 5,751
</TABLE>
14. GUARANTOR SUBSIDIARIES
The Senior Notes are fully and unconditionally (as well as jointly and
severally) guaranteed on an unsecured, senior subordinated basis by each
subsidiary of the Company (the "Guarantor Subsidiaries") other than Electro
Componentes de Mexico, S.A. de C.V. and Wirekraft Industries de Mexico, S.A. de
C.V. (the "Non-Guarantor Subsidiaries"). Each of the Guarantor Subsidiaries and
Non-Guarantor Subsidiaries is wholly owned by the Company.
The following condensed, consolidating financial statements of the Company
include the accounts of the Company, the combined accounts of the Guarantor
Subsidiaries and the combined accounts of the Non-Guarantor Subsidiaries. Given
the size of the Non-Guarantor Subsidiaries relative to the Company on a
consolidated basis, separate financial statements of the respective Guarantor
Subsidiaries are not presented because management has determined that such
information is not material in assessing the Guarantor Subsidiaries.
F-21
<PAGE> 105
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
TOTAL TOTAL
COMPANY GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
--------- --------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
As of December 31, 1996:
ASSETS
Cash........................... $ -- $ (138) $ 138 $ -- $ --
Accounts receivable............ -- 70,010 1,902 (731) 71,181
Inventory...................... -- 59,648 714 -- 60,362
Other assets................... 5,375 4,314 112 -- 9,801
--------- --------- ------- --------- ---------
Total current assets... 5,375 133,834 2,866 (731) 141,344
Property plant and equipment,
net......................... -- 109,774 8,777 -- 118,551
Intangible assets, net......... 19,722 246,155 -- -- 265,877
Investment in subsidiaries..... 534,857 -- -- (534,857) --
Other assets................... -- 4,368 880 -- 5,248
--------- --------- ------- --------- ---------
Total assets........... $ 559,954 $ 494,131 $12,523 $(535,588) $ 531,020
========= ========= ======= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities............ $ 24,620 $ 85,866 $ 2,856 $ (731) $ 112,611
Long term obligations, less
current maturities.......... 420,422 6,297 -- -- 426,719
Other long-term liabilities.... 6,081 20,790 10 -- 26,881
Intercompany (receivable)
payable..................... 76,260 (85,366) 9,106 -- --
--------- --------- ------- --------- ---------
Total liabilities...... 527,383 27,587 11,972 (731) 566,211
Stockholders' equity
Common stock................ -- -- -- -- --
Preferred stock............. 4 -- -- -- 4
Contributed capital......... 125,340 572,012 18 (572,030) 125,340
Predecessor carryover....... -- (67,762) -- -- (67,762)
Accumulated deficit......... (92,773) (37,706) 533 37,173 (92,773)
--------- --------- ------- --------- ---------
Total stockholders'
equity (deficit)..... 32,571 466,544 551 (534,857) (35,191)
--------- --------- ------- --------- ---------
Total liabilities and
stockholders' equity
(deficit)............ $ 559,954 $ 494,131 $12,523 $(535,588) $ 531,020
========= ========= ======= ========= =========
</TABLE>
F-22
<PAGE> 106
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
TOTAL TOTAL
COMPANY GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
--------- --------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
For the year ended December 31,
1996:
Net sales........................ $ -- $ 546,981 $34,757 $ (34,757) $ 546,981
Operating expenses
Cost of goods sold............. -- 435,164 20,416 (34,757) 420,823
Selling, general and
administration.............. -- 33,384 10,501 -- 43,885
Depreciation and
amortization................ -- 29,688 1,653 -- 31,341
Impairment, unusual and plant
closing charges............. -- 84,250 -- -- 84,250
Inventory valuation
adjustment.................. -- 8,500 -- -- 8,500
--------- --------- ------- --------- ---------
Operating income (loss).......... -- (44,005) 2,187 -- (41,818)
Other income (expense)
Interest expense............... (41,187) (1,410) (416) -- (43,013)
Amortization of deferred
financing fees.............. (3,701) -- -- -- (3,701)
Equity in net loss of
subsidiaries................ (46,794) -- -- 46,794 --
Other.......................... -- 243 69 -- 312
--------- --------- ------- --------- ---------
Income (loss) before income tax
provision...................... (91,682) (45,172) 1,840 46,794 (88,220)
Income tax provision............. (2,200) 3,197 265 -- 1,262
--------- --------- ------- --------- ---------
Net income (loss)................ $ (89,482) $ (48,369) $ 1,575 $ 46,794 $ (89,482)
========= ========= ======= ========= =========
STATEMENT OF CASH FLOWS
For the year ended December 31,
1996:
Net cash from operating
activities..................... $ 16,189 $ 12,881 $ 2,910 $ -- $ 31,980
--------- --------- ------- --------- ---------
Cash flows provided by (used in)
investing activities:
Acquisition, net of cash....... (160,259) -- -- -- (160,259)
Capital expenditures, net...... -- (13,048) (2,801) -- (15,849)
--------- --------- ------- --------- ---------
Net cash used in investing
activities..................... (160,259) (13,048) (2,801) -- (176,108)
--------- --------- ------- --------- ---------
Cash flows provided by (used in)
financing activities:
Equity proceeds................ 44,289 750 -- -- 45,039
Proceeds from issuance of
long-term obligations....... 128,200 -- -- -- 128,200
Repayment of long-term
obligations................. (20,619) (692) -- -- (21,311)
Financing fees and other....... (7,800) -- -- -- (7,800)
--------- --------- ------- --------- ---------
Net cash from financing
activities..................... 144,070 58 -- -- 144,128
--------- --------- ------- --------- ---------
Net change in cash............... $ -- $ (109) $ 109 $ -- $ --
========= ========= ======= ========= =========
</TABLE>
F-23
<PAGE> 107
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
TOTAL TOTAL
COMPANY GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
--------- --------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
As of December 31, 1995:
ASSETS
Cash............................ $ -- $ (29) $ 29 $ -- $ --
Accounts receivable............. -- 46,945 1,012 (777) 47,180
Inventory....................... -- 57,777 -- -- 57,777
Other assets.................... -- 2,858 -- -- 2,858
--------- -------- ------- --------- ---------
Total current assets.... -- 107,551 1,041 (777) 107,815
Property plant and equipment,
net.......................... -- 74,630 7,629 -- 82,259
Intangible assets, net.......... 16,688 215,400 -- -- 232,088
Investment in subsidiaries...... 416,212 -- -- (416,212) --
Other assets.................... -- 5,565 193 -- 5,758
--------- -------- ------- --------- ---------
Total assets............ $ 432,900 $403,146 $ 8,863 $(416,989) $ 427,920
========= ======== ======= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities............. $ 15,815 $ 62,537 $ 1,241 $ (777) $ 78,816
Long term obligations, less
current maturities........... 321,001 5,014 -- -- 326,015
Other long-term liabilities..... (3,615) 16,706 -- -- 13,091
Intercompany (receivable)
payable...................... 21,939 (30,585) 8,646 -- --
--------- -------- ------- --------- ---------
Total liabilities....... 355,140 53,672 9,887 (777) 417,922
Stockholders' equity
Common stock................. -- -- -- -- --
Preferred stock.............. -- -- -- -- --
Contributed capital.......... 81,051 406,573 18 (406,591) 81,051
Predecessor carryover........ -- (67,762) -- -- (67,762)
Accumulated deficit.......... (3,291) 10,663 (1,042) (9,621) (3,291)
--------- -------- ------- --------- ---------
Total stockholders'
equity................ 77,760 349,474 (1,024) (416,212) 9,998
--------- -------- ------- --------- ---------
Total liabilities and
stockholders'
equity................ $ 432,900 $403,146 $ 8,863 $(416,989) $ 427,920
========= ======== ======= ========= =========
</TABLE>
F-24
<PAGE> 108
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
TOTAL TOTAL
COMPANY GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
--------- --------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
For the seven months ended
December 31, 1995:
Net sales......................... $ -- $245,583 $ 8,240 $ (8,240) $ 245,583
Operating expenses
Cost of goods sold.............. -- 198,958 4,503 (8,240) 195,221
Selling, general and
administration............... -- 13,259 3,870 -- 17,129
Depreciation and amortization... -- 10,927 93 -- 11,020
Impairment, unusual and plant
closing charges.............. -- 1,750 -- -- 1,750
Inventory valuation
adjustment................... -- -- -- -- --
--------- -------- ------- --------- ---------
Operating income (loss)........... -- 20,689 (226) -- 20,463
Other income (expense)
Interest expense................ (18,960) (815) (156) -- (19,931)
Amortization of deferred
financing fees............... (1,468) -- -- -- (1,468)
Equity in net loss of
subsidiaries................. 9,621 -- -- (9,621) --
Other........................... -- (158) -- -- (158)
--------- -------- ------- --------- ---------
Income (loss) before income tax
provision....................... (10,807) 19,716 (382) (9,621) (1,094)
Income tax provision.............. (7,516) 9,053 660 -- 2,197
--------- -------- ------- --------- ---------
Net income (loss)................. $ (3,291) $ 10,663 $(1,042) $ (9,621) $ (3,291)
========= ======== ======= ========= =========
STATEMENT OF CASH FLOWS
For the seven months ended
December 31, 1995:
Net cash from operating
activities...................... $ 108 $ 7,945 $ 5,281 $ -- $ 13,334
--------- -------- ------- --------- ---------
Cash flows provided by (used in)
investing activities:
Acquisition, net of cash........ (341,046) -- -- -- (341,046)
Capital expenditures, net....... -- (5,482) (269) -- (5,751)
--------- -------- ------- --------- ---------
Net cash used in investing
activities...................... (341,046) (5,482) (269) -- (346,797)
--------- -------- ------- --------- ---------
Cash flows provided (used in)
financing activities:
Equity proceeds 15,048 -- -- -- 15,048
Proceeds from issuance of
long-term obligations........ 337,500 -- -- -- 337,500
Repayment of long-term
obligations.................. -- (450) (4,635) -- (5,085)
Financing fees and other........ (14,000) -- -- -- (14,000)
--------- -------- ------- --------- ---------
Net cash from financing
activities...................... 338,548 (450) (4,635) -- 333,463
--------- -------- ------- --------- ---------
Net change in cash................ $ (2,390) $ 2,013 $ 377 $ -- $ --
========= ======== ======= ========= =========
</TABLE>
F-25
<PAGE> 109
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. SUBSEQUENT EVENTS
On February 4, 1997, the Board of Directors approved the exchange of the
Preferred Stock for Exchange Notes, and voted to pay all dividends in arrears
related to the Preferred Stock.
On February 12, 1997, the Company completed the purchase of the stock and
business activities of Camden Wire Co. for approximately $65,000, including fees
and expenses, subject to certain purchase price adjustments (the "Camden
Acquisition"). The Camden Acquisition and related transaction fees and expenses
were funded with $65,000 of senior debt under the Amended Credit Agreement
pursuant to an amendment dated February 12, 1997 (the "Credit Agreement").
F-26
<PAGE> 110
INTERNATIONAL WIRE GROUP, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
1997
---------
<S> <C>
Current assets:
Accounts receivable, less allowance of $1,418............. $100,307
Inventories............................................... 65,066
Prepaid expenses and other................................ 11,119
Deferred income taxes..................................... 4,741
--------
Total current assets.............................. 181,233
Property, plant and equipment, net........................ 156,513
Deferred financing costs, net............................. 24,890
Intangible assets, net.................................... 244,931
Other assets.............................................. 7,229
--------
Total assets...................................... $614,796
========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term obligations............... $ 4,463
Accounts payable.......................................... 42,065
Accrued and other liabilities............................. 53,706
Accrued interest.......................................... 2,716
--------
Total current liabilities......................... 102,950
Long-term obligations, less current maturities............ 521,296
Deferred income taxes..................................... 14,719
Other long-term liabilities............................... 19,746
--------
Total liabilities................................. 658,711
--------
Stockholder's equity (deficit):
Common stock, $.01 par value, 1,000 shares authorized,
issued and outstanding................................. --
Contributed capital....................................... 114,193
Carryover of predecessor basis............................ (67,762)
Accumulated deficit....................................... (90,346)
--------
Total stockholder's equity (deficit).............. (43,915)
--------
Total liabilities and stockholder's equity
(deficit)......................................... $614,796
========
</TABLE>
See accompanying notes to the consolidated financial statements
F-27
<PAGE> 111
INTERNATIONAL WIRE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
<S> <C> <C>
Net sales................................................... $365,551 $266,116
Operating expenses:
Cost of goods sold........................................ 284,378 207,968
Selling, general and administrative....................... 27,719 20,578
Depreciation and amortization............................. 16,167 12,946
Inventory valuation adjustment............................ -- 8,500
Expenses related to plant closings........................ 500 4,000
-------- --------
Operating income............................................ 36,787 12,124
Other income (expense):
Interest expense.......................................... (25,380) (20,583)
Amortization of deferred financing costs.................. (2,057) (1,814)
Other, net................................................ 11 132
-------- --------
Income (loss) before income tax provision................... 9,361 (10,141)
Income tax provision........................................ 3,943 575
-------- --------
Income (loss) before extraordinary item..................... 5,418 (10,716)
Extraordinary item (loss related to early extinguishment of
debt, net of income taxes of $1,995)...................... (2,991) --
-------- --------
Net income (loss)........................................... $ 2,427 $(10,716)
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements
F-28
<PAGE> 112
INTERNATIONAL WIRE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss)......................................... $ 2,427 $ (10,716)
Adjustment to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 16,167 12,946
Amortization of deferred financing costs.................. 2,057 1,814
Extraordinary loss on early extinguishment of debt........ 4,986 --
Inventory valuation adjustment............................ -- 8,500
Change in assets and liabilities, net of acquisitions:
Accounts receivable.................................... (13,654) (11,380)
Inventories............................................ 20,482 5,541
Prepaid expenses and other............................. (4,220) (2,751)
Accounts payable....................................... (17,522) (8,546)
Accrued and other liabilities.......................... (2,284) 3,111
Accrued interest....................................... (1,932) 1,161
Income taxes payable/refundable........................ -- 4,001
Other long-term liabilities............................ 1,824 (203)
--------- ---------
Net cash provided by operating activities................... 8,331 3,478
--------- ---------
Cash flows provided by (used in) investing activities:
Acquisitions, net of cash................................. (58,996) (160,259)
Capital expenditures...................................... (7,679) (5,486)
--------- ---------
Net cash from investing activities.......................... (66,675) (165,745)
--------- ---------
Cash flows provided by (used in) financing activities:
Equity proceeds........................................... -- 45,039
Proceeds from issuance of long-term obligations........... 228,125 128,200
Borrowing of long-term obligations........................ (162,992) (336)
Cash dividends paid on preferred stock.................... (1,378) --
Financing fees and other.................................. (5,411) (7,800)
--------- ---------
Net cash from financing activities.......................... 58,344 165,103
--------- ---------
Net change in cash.......................................... -- 2,836
Cash at beginning of the period............................. -- --
--------- ---------
Cash at end of the period................................... $ -- $ 2,836
========= =========
</TABLE>
See accompanying notes to the consolidated financial statements
F-29
<PAGE> 113
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
(UNAUDITED)
1. THE COMPANY
International Wire Group, Inc. ("Group" or the "Company"), a Delaware
corporation, was formed to participate in the transactions contemplated by the
IW Acquisition (as described below). On June 12, 1995, Wirekraft Holdings Corp.
("Wirekraft"), Omega Wire Corp. ("Omega"), International Wire Holding Company
("Holding", the parent company of Group), Group, Wirekraft Acquisition Company
and certain shareholders of Wirekraft and Omega entered into a series of
acquisitions and mergers (the "IW Acquisition") pursuant to which Group acquired
all of the common equity securities (and all securities convertible into such
securities) of Wirekraft and all of the common equity securities of Omega. On
March 5, 1996, Wire Technologies, Inc. ("Wire Technologies"), a wholly-owned
subsidiary of the Company, acquired the businesses of Hoosier Wire, Inc., Dekko
Automotive Wire, Inc., Albion Wire, Inc. and Silicones, Inc., a group of
affiliated companies operating together under the tradename Dekko Wire
Technology Group (the "DWT Acquisition"). On February 12, 1997, the Company
acquired all of the issued and outstanding common stock of Camden Wire, Co.,
Inc. ("Camden Wire") a wholly-owned subsidiary of Oneida LTD. (the "Camden
Acquisition"). See Note 3.
The Company through its two segments, the wire segment and the harness
segment, is engaged in the design, manufacture and marketing of non-insulated
and insulated copper wire and wire harnesses. The Company's products are used by
a wide variety of customers primarily in the automotive, appliance, computer and
data communications and industrial equipment industries.
2. BASIS OF PRESENTATION
Unaudited Interim Consolidated Financial Statements
The unaudited interim consolidated financial statements reflect all
adjustments consisting only of normal recurring adjustments which are, in the
opinion of management, necessary for a fair presentation of financial position
and results of operations. The results for the six months ended June 30, 1997
are not necessarily indicative of the results that may be expected for a full
fiscal year.
Statement of Cash Flows
Interest and taxes paid for the six months ended June 30, 1997 were $27,312
and $1,721, respectively.
Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income, is effective for years beginning after December 15, 1997.
This statement requires that an enterprise classify items of other comprehensive
income by their nature in the financial statements and display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of the statement of position.
Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information, is effective for years
beginning after December 15, 1997. This statement requires that a public
business enterprise report financial and descriptive information about its
reportable business segments.
The Company believes that the future adoption of these statements will not
have a significant impact on the results of operations or financial position but
will have disclosure requirements.
F-30
<PAGE> 114
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. CAMDEN ACQUISITION
On February 12, 1997, the Company completed the Camden Acquisition. The
total consideration of $65,000 paid in connection with the Camden Acquisition,
including fees and expenses, consisted of (i) cash and (ii) the assumption of
debt related to Industrial Revenue Bonds. The cash portion of the consideration
paid and the transaction fees and expenses incurred in connection with the
Camden Acquisition were funded with $65,000 of senior debt under the Amended and
Restated Credit Agreement.
The Camden Acquisition was accounted for using the purchase method of
accounting whereby the total acquisition cost has been preliminarily allocated
to the consolidated assets and liabilities based upon their estimated respective
fair values. The purchase price allocations are still in process. It is not
expected that the final allocation of the purchase cost will result in a
materially different allocation than is presented herein. The total acquisition
cost is preliminarily allocated to the acquired net assets as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 48,033
Property, plant & equipment................................. 42,041
Goodwill.................................................... 3,802
Other, non-current.......................................... 1,696
Fees and costs.............................................. 3,250
Current liabilities......................................... (28,062)
Other liabilities........................................... (5,760)
--------
$ 65,000
========
</TABLE>
Unaudited pro forma results of operations of the Company for the six months
ended June 30, 1997 and June 30, 1996 are included below. Such pro forma
presentation has been prepared assuming that the Camden Acquisition and related
financing had occurred as of January 1, 1997 and January 1, 1996, respectively,
and that the DWT Acquisition and related financing had occurred as of January 1,
1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1997 1996
---------- ----------
<S> <C> <C>
Net sales................................................... $384,542 $363,134
Income (loss) before extraordinary item..................... $ 4,327 $ (6,551)
Net income (loss)........................................... $ 1,366 $ (6,551)
</TABLE>
4. INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
using the last-in, first-out ("LIFO") method.
The composition of inventories at June 30, 1997 is as follows:
<TABLE>
<S> <C>
Raw materials............................................... $26,033
Work-in-process............................................. 18,305
Finished goods.............................................. 20,728
-------
Total............................................. $65,066
=======
</TABLE>
F-31
<PAGE> 115
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM OBLIGATIONS
The composition of long-term obligations at June 30, 1997 is as follows:
<TABLE>
<S> <C>
Credit Agreement:
Revolving credit facility................................. $ --
Term facility............................................. 185,500
Senior Subordinated Notes................................... 150,000
Series B Senior Subordinated Notes.......................... 150,000
Series B Senior Subordinated Notes Premium.................. 13,036
Exchange notes.............................................. 5,000
Industrial revenue bonds.................................... 15,500
Other....................................................... 6,723
--------
525,759
Less, current maturities.................................... 4,463
--------
$521,296
========
</TABLE>
The schedule of principal payments for long-term obligations at June 30,
1997 is as follows:
<TABLE>
<S> <C>
1997.............................................. $ 2,251
1998.............................................. 4,424
1999.............................................. 5,674
2000.............................................. 6,924
2001.............................................. 8,174
Thereafter........................................ 485,276
--------
Total................................... $512,723
========
</TABLE>
During the second quarter of 1997 the Company issued $150,000 of 11.75%
Series B Senior Subordinated Notes due June 2005, priced at 108.75%. The
proceeds of this issuance were used to pay down the term facility of the Credit
Agreement.
Credit Agreement
In connection with the Series B Senior Subordinated Note issuance, the
Company amended the Amended and Restated Credit Agreement dated June 17, 1997,
with certain financial institutions. This amendment to the Amended and Restated
Credit Agreement provides senior secured financing of up to $260,500, consisting
of a $25,000 Term A loan and a $160,500 Term B loan (collectively called the
"Term Facility") and a $75,000 revolving loan and letter of credit facility (the
"Revolver"). Mandatory principal payments of the Term Facility are due in
quarterly installments. The final installment on the Term A loan is due
September 30, 2002 at which time the Revolver is also due. The final installment
on the Term B Loan is due September 30, 2003.
Borrowings under the Term A Loan and Revolver bear interest, at the option
of Group, at a rate per annum equal to (a) the Alternate Base Rate (as defined
in the Amended Credit Agreement) plus .5% or (b) the Eurodollar Rate (as defined
in the Amended Credit Agreement) plus 1.5%. Borrowings under the Term B Loan
bear interest, at the option of Group, at a rate per annum equal to (a) the
Alternate Base Rate (as defined in the Amended Credit Agreement) plus 1.0% or
(b) the Eurodollar Rate (as defined in the Amended Credit Agreement) plus 2.0%.
The Alternate Base Rate and Eurodollar Rate margins are established quarterly
based on a formula as defined in the Amended and Restated Credit Agreement.
Interest payment dates vary depending on the interest rate option to which the
Term Facility and the Revolver are tied,
F-32
<PAGE> 116
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
but generally interest is payable quarterly. The Amended and Restated Credit
Agreement contains several financial covenants which, among other things,
require Group to maintain certain financial ratios and restrict Group's ability
to incur indebtedness, make capital expenditures and pay dividends.
Senior Subordinated Notes
The Senior Subordinated Notes issued in connection with the Acquisitions
and the Series B Senior Subordinated Notes issued in connection with refinancing
of the Term Facility (collectively called the "Senior Notes") were issued under
similar indentures (the "Indentures") dated June 12, 1995 and June 17, 1997
respectively. The Senior Notes represent unsecured general obligations of Group
and are subordinated to all Senior Debt (as defined in the Indenture) of Group.
The Senior Notes are fully and unconditionally (as well as jointly and
severally) guaranteed on an unsecured, senior subordinated basis by each
subsidiary of the Company (the "Guarantor Subsidiaries") other than Electro
Componentes de Mexico, S.A. de C.V. and Wirekraft Industries de Mexico, S.A. de
C.V. (the "Non-Guarantor Subsidiaries"). Each of the Guarantor Subsidiaries and
Non-Guarantor Subsidiaries is wholly owned by the Company.
Exchange Notes
In February 1997, the Company exchanged $10,000 of Series A Senior
Cumulative Exchangeable Redeemable Preferred Stock (the "Preferred Stock") for
14.0% Senior Subordinated Notes due June 1, 2005 (the "Exchange Notes") and paid
all dividends in arrears related to the Preferred Stock. The Exchange Notes were
issued under an indenture dated February 12, 1997 (the "Exchange Indenture").
The Exchange Notes represent unsecured general obligations of Group, are
subordinated to all Senior Indebtedness (as defined in the Exchange Indenture)
of Group and rank on equal terms with the Senior Notes.
In June 1997, the Company offered to repurchase its Exchange Notes for a
cash price of 113% of principal amount, plus accrued interest. As a result of
this offer, the Company acquired $5,000 principal amount of these notes.
The Exchange Notes are fully and unconditionally (as well as jointly and
severally) guaranteed on an unsecured, senior subordinated basis by each
Guarantor Subsidiary other than the Non-Guarantor Subsidiaries. Each of the
Guarantor Subsidiaries and Non-Guarantor Subsidiaries is wholly owned by the
Company.
The Exchange Notes mature on June 1, 2005. Interest on the Exchange Notes
is payable semi-annually on each June 1 and December 1. The Exchange Notes bear
interest at the rate of 14.0% per annum. The Exchange Notes may not be redeemed
prior to June 1, 2000, except in the event of a Change of Control (as defined)
and at such applicable premium (as defined). The Exchange Notes are redeemable,
at the Company's option, at the redemption prices of 105.875% at June 1, 2000,
and at decreasing prices to 100% at June 1, 2003, and thereafter, with accrued
interest.
Industrial Revenue Bonds
In connection with the Camden Acquisition the company assumed debt related
to two Industrial Revenue Bonds (the "IRB's") totaling $15,500. The IRB's are
due in August 2005 and March 2016 in the amounts of $9,000 and $6,500
respectively. The IRB's bear interest at a rate per annum which is tied to the
Tax Exempt Money Market Index. Rates change weekly and interest is paid monthly.
F-33
<PAGE> 117
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. PLANT CLOSING EXPENSE
In March 1997, the Company recorded a pretax charge to operations of $500
to provide for plant closing costs. The plant closing costs relate to
consolidating a wire segment facility and include provisions for certain
shut-down and severance related costs. A summary of activity related to plant
closing is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1997 1996
------- ------
<S> <C> <C>
Balance beginning of period................................. $ 2,462 $ 700
Charges to operations:
Facility shut-down costs.................................. 375 2,500
Lease commitments......................................... 570
Key personnel and severance costs......................... 125 930
------- ------
500 4,000
Costs incurred:
Facility shut-down costs.................................. (1,128) (202)
Lease commitments......................................... (114) --
Key personnel and severance costs......................... (202) --
------- ------
(1,444) (202)
------- ------
Balance, end of period...................................... $ 1,518 $4,498
======= ======
</TABLE>
7. INCOME TAXES
Wirekraft's U.S. income tax returns for the years 1993-1995 are being
reviewed by the Internal Revenue Service. The proposed settlement is being
reviewed by the Joint Tax Committee. The Company believes that final settlement
will not have a material adverse effect and that adequate amounts of taxes and
related interest, if any, have been provided.
8. EXTRAORDINARY ITEMS -- LOSS RELATED TO EARLY RETIREMENT OF DEBT
In June 1997, the Company refinanced debt under the Credit Agreement.
Accordingly, the Company recorded an extraordinary loss of $2,601, net of income
tax related to the write-off of deferred financing fees. In addition, the
Company repurchased $5,000 of the Exchange Notes. An extraordinary loss of $390,
net of income tax, was recognized related to a prepayment premium.
9. GUARANTOR SUBSIDIARIES
The Senior Notes are fully and unconditionally (as well as jointly and
severally) guaranteed on an unsecured, senior subordinated basis by each
subsidiary of the Company (the "Guarantor Subsidiaries") other than Electro
Componentes de Mexico, S.A. de C.V. and Wirekraft Industries de Mexico, S.A. de
C.V. (the "Non-Guarantor Subsidiaries"). Each of the Guarantor Subsidiaries and
Non-Guarantor Subsidiaries is wholly owned by the Company.
The following condensed, consolidating financial statements of the Company
include the accounts of the Company, the combined accounts of the Guarantor
Subsidiaries and the combined accounts of the Non-Guarantor Subsidiaries. Given
the size of the Non-Guarantor Subsidiaries relative to the Company on a
consolidated basis, separate financial statements of the respective Guarantor
Subsidiaries are not presented because management has determined that such
information is not material in assessing the Guarantor Subsidiaries.
F-34
<PAGE> 118
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
TOTAL TOTAL
COMPANY GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
-------- --------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
As of June 30, 1997
ASSETS
Cash.................................. $ -- $ (79) $ 79 $ -- $ --
Accounts receivable................... -- 100,191 1,434 (1,318) 100,307
Inventory............................. -- 65,066 -- -- 65,066
Other assets.......................... 4,741 11,119 -- -- 15,860
-------- -------- ------- --------- --------
Total current assets.......... 4,741 176,297 1,513 (1,318) 181,233
Property, plant and equipment, net...... -- 147,234 9,279 -- 156,513
Intangible assets, net.................. 24,890 244,931 -- -- 269,821
Investment in subsidiaries.............. 567,712 -- -- (567,712) --
Other assets............................ -- 6,370 859 -- 7,229
-------- -------- ------- --------- --------
Total assets.................. $597,343 $574,832 $11,651 $(569,030) $614,796
======== ======== ======= ========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities................... $ 6,216 $ 95,290 $ 2,762 $ (1,318) $102,950
Long-term obligations, less current
maturities......................... 500,036 21,260 -- -- 521,296
Other long-term liabilities........... 14,719 19,746 -- -- 34,465
Intercompany (receivable) payable..... 52,525 (58,110) 5,585 -- --
-------- -------- ------- --------- --------
Total liabilities............. 573,496 78,186 8,347 (1,318) 658,711
Stockholders' equity
Common stock....................... -- -- -- -- --
Contributed capital................ 114,193 572,012 18 (572,030) 114,193
Carryover of predecessor basis..... -- (67,762) -- -- (67,762)
Accumulated deficit................ (90,346) (7,604) 3,286 4,318 (90,346)
-------- -------- ------- --------- --------
Total stockholder's equity.... 23,847 496,646 3,304 (567,712) (43,915)
-------- -------- ------- --------- --------
Total liabilities and
stockholder's equity........ $597,343 $574,832 $11,651 $(569,030) $614,796
======== ======== ======= ========= ========
</TABLE>
F-35
<PAGE> 119
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
TOTAL TOTAL
COMPANY GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
--------- --------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
For the six months ended June
30, 1997
Net sales....................... $ -- $365,551 $18,023 $(18,023) $365,551
Operating expenses
Cost of goods sold............ -- 294,794 7,607 (18,023) 284,378
Selling, general and
administrative............. -- 21,369 6,350 -- 27,719
Depreciation and
amortization............... -- 15,118 1,049 -- 16,167
Inventory valuation
adjustment................. -- -- -- -- --
Expenses related to plant
closings................... -- 500 -- -- 500
--------- -------- ------- -------- --------
Operating income (loss)......... -- 33,770 3,017 -- 36,787
Other income (expense)
Interest expense.............. (25,380) -- -- -- (25,380)
Amortization of deferred
financing costs............ (2,057) -- -- -- (2,057)
Equity in net income (loss) of
subsidiaries............... 32,855 -- -- (32,855) --
Other......................... -- 10 1 -- 11
--------- -------- ------- -------- --------
Income (loss) before income tax
provision..................... 5,418 33,780 3,018 (32,855) 9,361
Income tax provision............ -- 3,678 265 -- 3,943
--------- -------- ------- -------- --------
Income (loss) before
extraordinary item............ 5,418 30,102 2,753 (32,855) 5,418
Extraordinary item, net of
income taxes.................. (2,991) -- -- -- (2,991)
--------- -------- ------- -------- --------
Net income (loss)............... $ 2,427 $ 30,102 $ 2,753 $(32,855) $ 2,427
========= ======== ======= ======== ========
</TABLE>
F-36
<PAGE> 120
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
TOTAL TOTAL
COMPANY GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
--------- --------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF CASH FLOWS
For the six months ended June 30,
1997
Net cash from operating activities.... $ (42,084) $ 48,923 $ 1,492 $ -- $ 8,331
--------- -------- ------- ------- ---------
Cash flows provided by (used in)
investing activities:
Acquisition, net of cash............ -- (58,996) -- -- (58,996)
Capital expenditures................ -- (6,128) (1,551) -- (7,679)
--------- -------- ------- ------- ---------
Net cash from investing activities.... -- (65,124) (1,551) -- (66,675)
--------- -------- ------- ------- ---------
Cash flows provided by (used in)
financing activities
Equity proceeds..................... -- -- -- -- --
Proceeds from issuance of long-term
obligations...................... 211,614 16,511 -- -- 228,125
Repayment of long-term
obligations...................... (162,741) (251) -- -- (162,992)
Cash dividends paid on preferred
stock............................ (1,378) -- -- -- (1,378)
Financing fees and other............ (5,411) -- -- -- (5,411)
--------- -------- ------- ------- ---------
Net cash from financing activities.... 42,084 16,260 -- -- 58,344
--------- -------- ------- ------- ---------
Net change in cash.................... $ -- $ 59 $ (59) $ -- $ --
========= ======== ======= ======= =========
</TABLE>
F-37
<PAGE> 121
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
TOTAL
TOTAL NON-
COMPANY GUARANTOR GUARANTOR ELIMINATIONS TOTAL
-------- --------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
For the six months ended June 30,
1996
Net sales........................... $ -- $266,116 $16,096 $(16,096) $ 266,116
Operating expenses
Cost of goods sold................ -- 215,573 8,491 (16,096) 207,968
Selling, general and
administrative................. -- 15,491 5,087 -- 20,578
Depreciation and amortization..... -- 12,200 746 -- 12,946
Inventory valuation adjustment.... -- 8,500 -- -- 8,500
Expenses related to plant
closings....................... -- 4,000 -- -- 4,000
-------- -------- ------- -------- ---------
Operating income (loss)............. -- 10,352 1,772 -- 12,124
Other income (expense)
Interest expense.................. (20,583) -- -- -- (20,583)
Amortization of deferred financing
costs.......................... (1,814) -- -- -- (1,814)
Equity in net income (loss) of
subsidiaries................... 11,681 -- -- (11,681) --
Other............................. -- 132 -- -- 132
-------- -------- ------- -------- ---------
Income (loss) before income tax
provision......................... (10,716) 10,484 1,772 (11,681) (10,141)
Income tax provision................ -- 409 166 -- 575
-------- -------- ------- -------- ---------
Net income (loss)................... $(10,716) $ 10,075 $ 1,606 $(11,681) $ (10,716)
======== ======== ======= ======== =========
</TABLE>
F-38
<PAGE> 122
INTERNATIONAL WIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
TOTAL TOTAL
COMPANY GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
--------- --------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF CASH FLOWS
For the six months ended June 30,
1996
Net cash from operating activities.... $ (5,069) $ 6,627 $ 1,920 $ -- $ 3,478
--------- ------- ------- ---- ---------
Cash flows provided by (used in)
investing activities:
Acquisition, net of cash............ (160,259) -- -- -- (160,259)
Capital expenditures................ -- (3,679) (1,807) -- (5,486)
--------- ------- ------- ---- ---------
Net cash used in investing
activities.......................... (160,259) (3,679) (1,807) -- (165,745)
--------- ------- ------- ---- ---------
Cash flows provided by (used in)
financing activities
Equity proceeds..................... 45,039 -- -- -- 45,039
Proceeds from issuance of long-term
obligations...................... 128,200 -- -- -- 128,200
Repayment of long-term
obligations...................... (111) (225) -- -- (336)
Cash dividends paid on preferred
stock............................ -- -- -- -- --
Financing fees and other............ (7,800) -- -- -- (7,800)
--------- ------- ------- ---- ---------
Net cash from financing activities.... 165,328 (225) -- -- 165,103
--------- ------- ------- ---- ---------
Net change in cash.................... $ -- $ 2,723 $ 113 $ -- $ 2,836
========= ======= ======= ==== =========
</TABLE>
F-39
<PAGE> 123
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of:
International Wire Group, Inc.
St. Louis, Missouri
and
Camden Wire Co., Inc.
Camden, New York:
We have audited the balance sheets of Camden Wire Co., Inc. (the Company)
as of January 25, 1997 and January 27, 1996 and the related statements of
operations, stockholder's equity, and cash flows for the years ended January 25,
1997, January 27, 1996 and January 28, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Camden Wire Co., Inc. as of
January 25, 1997 and January 27, 1996 and the results of its operations and its
cash flows for the years ended January 25, 1997, January 27, 1996 and January
28, 1995 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Syracuse, New York
October 31, 1997
F-40
<PAGE> 124
CAMDEN WIRE CO., INC.
BALANCE SHEETS
AS OF JANUARY 25, 1997 AND JANUARY 27, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JANUARY 25, JANUARY 27,
1997 1996
----------- -----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 3 $ 3
Accounts receivable, less allowance of $233 and $650 in
1997 and 1996, respectively............................ 16,100 14,818
Inventories, net.......................................... 19,878 16,102
Deferred taxes............................................ 1,126 631
Prepaid expenses and other................................ 3,427 3,276
------- -------
Total current assets.............................. 40,534 34,830
Property, plant and equipment, net.......................... 41,738 35,519
Restricted cash and cash equivalents........................ 1,306 --
Other assets................................................ 572 1,585
------- -------
Total assets...................................... $84,150 $71,934
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $19,273 $13,259
Accrued and other liabilities............................. 3,269 4,127
Intercompany payable (Oneida Ltd.)........................ 8,953 5,602
------- -------
Total current liabilities......................... 31,495 22,988
Long-term obligations, less current maturities.............. 15,500 9,000
Deferred taxes.............................................. 1,709 2,665
Postretirement benefit liability............................ 11,457 10,868
------- -------
Total liabilities................................. 60,161 45,521
------- -------
Common stock, no par value, $1,000 stated value, 1,000
shares authorized, 1 share issued and outstanding......... 1 1
Retained earnings........................................... 23,988 26,412
------- -------
Total stockholder's equity........................ 23,989 26,413
------- -------
Total liabilities and stockholder's equity........ $84,150 $71,934
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-41
<PAGE> 125
CAMDEN WIRE CO., INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JANUARY 25, 1997, JANUARY 27, 1996 AND JANUARY 28, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 25, JANUARY 27, JANUARY 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales................................................... $137,960 $149,989 $157,124
Operating expenses:
Cost of goods sold........................................ 121,825 128,302 132,825
Selling, general and administrative....................... 10,275 10,892 12,668
Depreciation and amortization............................. 5,092 4,787 4,633
-------- -------- --------
Operating income....................................... 768 6,008 6,998
Other income (expense):
Interest expense.......................................... (1,046) (860) (862)
Other, net................................................ (494) (45) (117)
-------- -------- --------
Income (loss) before income tax provision (benefit).... (772) 5,103 6,019
Income tax provision (benefit).............................. (298) 1,900 2,266
-------- -------- --------
Net income (loss)...................................... $ (474) $ 3,203 $ 3,753
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-42
<PAGE> 126
CAMDEN WIRE CO., INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED JANUARY 25, 1997,
JANUARY 27, 1996 AND JANUARY 28, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON COMMON RETAINED
SHARES STOCK EARNINGS TOTAL
------ ------ -------- -------
<S> <C> <C> <C> <C>
Balance, January 29, 1994........................... 1 $ 1 $24,656 $24,657
Net income........................................ 3,753 3,753
Dividends declared and paid....................... (2,600) (2,600)
-- --- ------- -------
Balance, January 28, 1995........................... 1 1 25,809 25,810
Net income........................................ 3,203 3,203
Dividends declared and paid....................... (2,600) (2,600)
-- --- ------- -------
Balance, January 27, 1996........................... 1 1 26,412 26,413
Net loss.......................................... (474) (474)
Dividends declared and paid....................... (1,950) (1,950)
-- --- ------- -------
Balance, January 25, 1997........................... 1 $ 1 $23,988 $23,989
== === ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-43
<PAGE> 127
CAMDEN WIRE CO., INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 25, 1997, JANUARY 27, 1996 AND JANUARY 28, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 25, JANUARY 27, JANUARY 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss)......................................... $ (474) $ 3,203 $ 3,753
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 5,092 4,787 4,633
Deferred income taxes.................................. (1,451) (304) (457)
Change in assets and liabilities:
Accounts receivable.................................. (1,282) 8,416 (6,535)
Inventories.......................................... (3,776) 2,946 (1,547)
Prepaid expenses and other........................... 862 (258) (360)
Accounts payable..................................... 6,014 (2,614) 889
Accrued and other liabilities........................ (858) (83) 663
Intercompany payables................................ 3,351 (7,160) 6,808
Postretirement benefit liability..................... 589 420 491
-------- ------- -------
Net cash from operating activities................... 8,067 9,353 8,338
-------- ------- -------
Cash flows used in investing activities:
Capital expenditures...................................... (11,311) (6,753) (5,738)
Cash restricted for capital expenditures.................. (1,306) -- --
-------- ------- -------
Net cash from investing activities................ (12,617) (6,753) (5,738)
-------- ------- -------
Cash flows provided by (used in) financing activities:
Proceeds from issuance of long-term obligations........... 6,500 -- --
Dividends declared and paid............................... (1,950) (2,600) (2,600)
-------- ------- -------
Net cash from financing activities................ 4,550 (2,600) (2,600)
-------- ------- -------
Net change in cash................................ -- -- --
Cash, beginning of period................................... 3 3 3
-------- ------- -------
Cash, end of period......................................... $ 3 $ 3 $ 3
======== ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-44
<PAGE> 128
CAMDEN WIRE CO., INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. THE COMPANY:
Nature of Business: As of January 25, 1997, and for all years presented,
Camden Wire Co., Inc. (the "Company") was a wholly-owned subsidiary of Oneida
Ltd. ("Oneida"). The Company is an independent non-insulated copper wire
fabricator, manufacturing current carrying and signal carrying conductor
products for original equipment manufacturers. The Company's primary markets
include the electronics, transportation and consumer products industries.
Basis of Presentation: The accompanying financial statements reflect the
financial position, results of operations and cash flows for the periods
presented. The financial statements have been prepared as if the Company had
operated as a stand-alone entity for all periods presented, and include those
assets, liabilities, revenues and expenses directly attributable to the
operations of the Company. The determination and presentation of assets,
liabilities, revenues and expenses of the Company have been made on a basis
consistent with the policies of Oneida used for purposes of consolidation.
Historically, Camden operated as a stand-alone company. However, as a
wholly-owned subsidiary, Camden did receive certain services from Oneida which
included general treasury services and other miscellaneous corporate and general
and administrative costs, which are not deemed material to the on-going
operation of Camden. The financial information included herein may not
necessarily be considered indicative of future operating results of the Company
on a stand-alone basis.
On February 12, 1997, International Wire Group, Inc. ("International
Wire"), an unrelated third party, acquired Oneida's interest in the Company for
approximately $43,500 in cash and the assumption of the Industrial Revenue Bonds
("IRB's"). In conjunction with the transaction, the Company paid all outstanding
intercompany obligations, Oneida was released as guarantor on one IRB and
International Wire was added as guarantor, and the letter of credit provided by
Oneida in support of the New York State workers' compensation liability was
replaced with a letter of credit from International Wire. The Company also
became a guarantor of certain debt obligations of International Wire. The
accompanying financial statements do not reflect any adjustments resulting from
this change of ownership.
2. SIGNIFICANT ACCOUNTING POLICIES:
Revenue Recognition: Sales and related cost of goods sold are included in
income when the goods are shipped to the customers.
Inventory: Inventories are valued at the lower of cost (determined on the
last-in, first-out method) or market. If the first-in, first-out method had been
used, inventory would have been approximately $2,845 and $6,923 higher than
reported at January 25, 1997 and January 27, 1996, respectively.
Property, Plant and Equipment: Property, plant and equipment are stated at
cost. Cost includes expenditures for improvements and replacements and the net
amount of interest cost associated with capital additions. Capitalized interest
was $140 and $92 for the years ended January 25, 1997 and January 27, 1996. No
interest was capitalized for the year ended January 28, 1995.
Depreciation is calculated using the straight-line method. The average
estimated lives utilized in calculating depreciation are as follows:
buildings -- 25-40 years; building improvements -- 20-40 years; and machinery
and equipment -- 2-16 years. Leasehold improvements are amortized over the
shorter of the term of the respective lease or the life of the respective
improvement.
Restricted Cash: Restricted cash is comprised of the unexpended portion of
proceeds obtained from the issuance of the Company's IRB's.
Income Taxes: The Company joins in the filing of consolidated income tax
returns of with Oneida and its subsidiaries. For financial reporting purposes,
the Company prepares its provision for income taxes on a
F-45
<PAGE> 129
CAMDEN WIRE CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
separate return basis. The provision for income taxes prepared on a separate
basis may differ, however, from the Company's share of the consolidated Oneida
tax provision. Deferred tax liabilities and assets are determined based on
temporary differences between the bases of certain assets and liabilities for
income tax and financial reporting purposes.
Statements of Cash Flows: For purposes of the statements of cash flows,
cash includes all cash that is not legally restricted for capital expenditures.
Interest paid for the years ended January 25, 1997, January 27, 1996 and January
28, 1995 was $1,058, $823 and $998, respectively. Taxes paid for the years ended
January 25, 1997, January 27, 1996 and January 28, 1995 was $1,870, $2,350 and
$2,763, respectively.
As described in Note 6, the Company participates in a centralized cash
management system.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the balance sheets. Actual results could differ from those estimates.
Fair Value of Financial Instruments: The estimated fair values of the
Company's financial instruments approximate their recorded values.
Concentrations of Risk: A significant portion of the Company's sales were
to a major customer. Sales to this customer represented 13%, 17% and 13% of net
sales for the years ended January 25, 1997, January 27, 1996, and January 28,
1995.
Recently Issued Accounting Standards: Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income, is effective for years
beginning after December 15, 1997. This statement requires that an enterprise
classify items of other comprehensive income by their nature in the financial
statements and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of the statement of position. The Company believes that the future
adoption of this statements will not have a significant impact on the results of
operations or financial position.
3. INVENTORIES:
The composition of inventories consists of the following:
<TABLE>
<CAPTION>
JANUARY 25, JANUARY 27,
1997 1996
----------- -----------
<S> <C> <C>
Raw materials............................................... $ 3,901 $ 2,388
Work-in-process............................................. 6,973 5,676
Finished goods.............................................. 9,004 8,038
------- -------
Total inventories................................. $19,878 $16,102
======= =======
</TABLE>
F-46
<PAGE> 130
CAMDEN WIRE CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT:
The major classes of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
JANUARY 25, JANUARY 27,
1997 1996
----------- -----------
<S> <C> <C>
Land and improvements....................................... $ 1,565 $ 767
Buildings and improvements.................................. 15,531 14,947
Machinery and equipment..................................... 60,345 50,408
------- -------
77,441 66,122
Less accumulated depreciation and amortization.............. 35,703 30,603
------- -------
$41,738 $35,519
======= =======
</TABLE>
5. LONG-TERM OBLIGATIONS:
The Company has been financed principally by intercompany borrowings (Note
6) and by the issuance of IRB's. During the year ended January 25, 1997, the
Company issued a $6,500 IRB for the construction of a facility in El Paso,
Texas.
The Company has long-term debt related to IRB's totaling $15,500 at January
25, 1997 and $9,000 at January 27, 1996. The IRB's are due in August, 2005 and
March, 2016 in the amounts of $9,000 and $6,500, respectively. The IRB's bear
interest at a rate per annum that is tied to the Tax Exempt Money Market Index.
Rates change weekly and interest is paid monthly. For the years ended January
25, 1997, January 27, 1996, and January 28, 1995, the effective interest rates
on the $9,000 IRB were 3.55%, 4.26% and 2.76%, respectively. For the $6,500 IRB,
the effective interest rate was 3.11% for the year ended January 25, 1997. The
IRB's are guaranteed by Oneida and collateralized with letters of credit
totaling $15,500. The IRB's are subject to certain financial covenants that are
calculated based on the consolidated financial information of Oneida.
6. RELATED PARTY TRANSACTIONS:
The Company participates in a centralized cash management system with
Oneida whereby substantially all cash is processed through the system. When
borrowed, the cash management system incurs interest at a variable interest rate
which is based on the federal funds rate. At January 25, 1997 and January 27,
1996, the effective interest rates on intercompany borrowings were 5.72% and
5.90%, respectively. The Company pays interest to Oneida based on the actual
daily rate of the system. Interest expense incurred on intercompany borrowings,
included in interest expense in the Statements of Operations, for the years
ended January 25, 1997, January 27, 1996 and January 28, 1995 approximated $445,
$538 and $584, respectively.
Oneida is named as guarantor of the IRB's. Oneida was released as guarantor
at the closing of the sale of the Company to International Wire Group, Inc. for
one of the guarantees and holds a letter of credit in support of the other
guarantee.
Oneida provides a letter of credit in support of the Company's New York
State workers' compensation liability.
7. EMPLOYEE BENEFITS:
The Company reimburses a portion of the health care and life insurance
benefits for the majority of its retired employees who have attained specified
age and service requirements.
F-47
<PAGE> 131
CAMDEN WIRE CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic postretirement benefit cost for the year ended January 25,
1997, January 27, 1996 and January 28, 1995 included the following components:
<TABLE>
<CAPTION>
1997 1996 1995
------ ---- ----
<S> <C> <C> <C>
Service cost of benefits earned............................ $ 363 $257 $307
Interest cost on accumulated postretirement benefit
obligation............................................... 783 703 665
Net amortization and deferral.............................. (74) (99) (93)
------ ---- ----
Net periodic postretirement benefit cost................... $1,072 $861 $879
====== ==== ====
</TABLE>
The following table sets forth the status of the Company's postretirement
plan, which is unfunded:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $ 4,952 $ 4,316
Fully eligible active plan participants................... 2,088 1,730
Other active plan participants............................ 4,073 3,059
------- -------
Accrued postretirement benefit cost.................... 11,113 9,105
Unrecognized prior service cost............................. 1,111 1,210
Unrecognized net gain (loss)................................ (767) 553
------- -------
Accrued postretirement benefit cost.................... $11,457 $10,868
======= =======
</TABLE>
The assumed weighted-average discount rates used in the calculations were
7.1% and 8.4% as of January 25, 1997 and January 27, 1996. The assumed annual
increase in health care cost (healthcare inflation rates) as of January 25, 1997
and January 27, 1996 was 9.0%. This rate was assumed to decrease gradually to
5.0% by the year 2003 and remain at that level thereafter. An increase in the
assumed health care inflation rates by 1% per year could increase the
accumulated postretirement benefit obligation at January 25, 1997 by
approximately $1,594, and the service and interest cost components of the net
periodic postretirement benefit cost for the year ended January 25, 1997 by
approximately $176.
The Company also maintains a defined contribution plan (the "Plan")
covering substantially all employees. Contributions made to the Plan by the
Company are primarily based upon operating income. Company contribution expense
related to these retirement plans for the years ended January 25, 1997, January
27, 1996 and January 28, 1995 amounted to approximately $116, $517 and $676,
respectively.
8. INCOME TAXES:
The income tax provision (benefit) for the years ended January 25, 1997,
January 27, 1996 and January 28, 1995 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Current:
Federal $ 977 $ 1,943 $2,370
State 176 261 353
------- ------- ------
1,153 2,204 2,723
------- ------- ------
Deferred:
Federal (1,238) (268) (420)
State (213) (36) (37)
------- ------- ------
(1,451) (304) (457)
------- ------- ------
$ (298) $ 1,900 $2,266
======= ======= ======
</TABLE>
F-48
<PAGE> 132
CAMDEN WIRE CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The reasons for differences between the Company's effective income tax rate
and the statutory rate for 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ------ ------
<S> <C> <C> <C>
Federal income tax calculated at statutory rate (34% for
1997, 1996 and 1995).................................... $(262) $1,735 $2,046
State income tax, net of federal benefit, and other....... (36) 165 220
----- ------ ------
Income tax provision.................................... $(298) $1,900 $2,266
===== ====== ======
</TABLE>
The primary sources of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at January 25, 1997 and
January 27, 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $ 128 $ 134
LIFO reserve.............................................. 321 327
Postretirement benefits................................... 4,239 4,173
Accrued liabilities....................................... 853 680
------- -------
5,541 5,314
------- -------
Deferred tax liabilities:
Property, plant and equipment............................. (5,948) (6,758)
Prepaid expenses and other................................ (176) (590)
------- -------
(6,124) (7,348)
------- -------
Net deferred tax liability............................. $ (583) $(2,034)
======= =======
</TABLE>
9. LEASE COMMITMENTS:
The Company leases certain facilities and equipment used in its operations
which are accounted for as operating leases. The rental expense for the
Company's operating leases for the years ended January 25, 1997, January 27,
1996 and January 28, 1995 was approximately $2,563, $1,630 and $2,200,
respectively.
Future minimum rental commitments for long-term noncancelable operating
leases as of January 25, 1997 are approximately:
<TABLE>
<S> <C>
1998........................................................ $1,609
1999........................................................ 1,462
2000........................................................ 976
2001........................................................ 122
2002........................................................ 65
------
$4,234
======
</TABLE>
10. CONTINGENCIES:
The Company is subject to various lawsuits and claims with respect to such
matters as contract disputes, governmental regulations and other actions arising
in the normal course of business. In the opinion of the Company's management,
the ultimate liabilities arising from such lawsuits and claims will not have a
material adverse effect on the Company's financial condition and results of
operations.
F-49
<PAGE> 133
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of each of the Companies comprising
Dekko Wire Technologies:
We have audited the accompanying combined balance sheet of Dekko Wire
Technologies (the "Company") as of December 28, 1995 and the related combined
statements of income, shareholders' equity and cash flows for each of the years
in the two years ended December 28, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements of the Company referred to above
present fairly, in all material respects, the financial position of Dekko Wire
Technologies as of December 28, 1995 and the results of their operations and
their cash flows for each of the two years in the period ended December 28,
1995.
Coopers & Lybrand L.L.P.
Fort Wayne, Indiana
January 30, 1996, except for
Note 10, as to which the date
is February 6, 1996
F-50
<PAGE> 134
DEKKO WIRE TECHNOLOGIES
COMBINED BALANCE SHEET
AS OF DECEMBER 28, 1995
(DOLLAR AMOUNTS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1995
-------
<S> <C>
Current assets:
Cash and cash equivalents................................. $ 2,949
Accounts receivable, trade................................ 19,295
Inventories:
Raw materials.......................................... 8,945
Work in progress....................................... 160
Finished goods......................................... 4,459
-------
13,564
LIFO reserve........................................... 2,292
-------
11,272
Prepaid expenses.......................................... 209
-------
Total current assets.............................. 33,725
Property, plant and equipment:
Land...................................................... 1,339
Buildings................................................. 10,581
Machinery and equipment................................... 26,190
Construction in progress.................................. 677
-------
38,787
Less accumulated depreciation............................. 8,636
-------
30,151
Intangible assets........................................... 400
Undisbursed bond funds...................................... 2,108
Other assets................................................ 305
-------
$66,689
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current portion........................... $ 2,545
Accounts payable, trade................................... 7,695
Accrued expenses.......................................... 2,787
Customer deposits......................................... 912
-------
Total current liabilities......................... 13,939
Long-term debt, less current portion...................... 26,403
-------
Total liabilities................................. 40,342
Redeemable common stock................................... 289
Shareholders' Equity
Common stock.............................................. 5,055
Paid-in capital........................................... 2,263
Retained earnings......................................... 21,381
-------
28,699
-------
Less treasury stock....................................... (2,641)
-------
26,058
-------
$66,689
=======
</TABLE>
The accompanying notes are an integral part of the financial statements
F-51
<PAGE> 135
DEKKO WIRE TECHNOLOGIES
COMBINED STATEMENTS OF INCOME
FOR EACH OF THE TWO YEARS IN THE
PERIOD ENDED DECEMBER 28, 1995
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Net sales................................................... $154,321 $131,832
Cost of sales............................................... 127,898 107,228
-------- --------
Gross profit.............................................. 26,423 24,604
Other operating revenues, rentals and administrative
services............................................... 437 458
Selling, general and administrative expenses.............. 6,889 5,506
-------- --------
Operating income.......................................... 19,971 19,556
Other income (expenses):
Interest income........................................... 438 134
Interest expense.......................................... (1,679) (1,314)
Gain (loss) on sale of property, plant and equipment...... (14) 51
Other income (expense).................................... (200) (114)
-------- --------
Net income............................................. $ 18,516 $ 18,313
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-52
<PAGE> 136
DEKKO WIRE TECHNOLOGIES
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
FOR EACH OF THE TWO YEARS ENDED DECEMBER 28, 1995
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON PAID-IN TREASURY SUBSCRIBED SUBSCRIPTIONS RETAINED
STOCK CAPITAL STOCK STOCK RECEIVABLE EARNINGS TOTAL
------- ------- -------- ---------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance on December 30,
1993........................ $1,410 $ 116 $(1,396) $ 2,411 $(2,411) $ 11,432 $ 11,562
Net income.................. 18,313 18,313
Distributions to
shareholders............. (11,987) (11,987)
Common stock issued......... 229 1,792 390 (2,411) 2,411 2,411
Common stock subscribed..... 483 (483)
Stock redemption............ 357 (26) (1,613) 851 (431)
Elimination of El Paso Wire
Division Retained
Earnings................. (3,532) (3,532)
------ ------ ------- ------- ------- -------- --------
Balance on December 29,
1994........................ 1,996 1,882 (2,619) 483 (483) 15,077 16,336
Net income.................. 18,516 18,516
Distributions to
shareholders............. (10,409) (10,409)
Common stock issued......... 3,022 406 55 (483) 483 3,483
Common stock subscribed..... 3 (3) --
Stock redemption............ 34 (25) (74) (223) (288)
Elimination of Albion Wire
Division Retained
Earnings................. (1,580) (1,580)
------ ------ ------- ------- ------- -------- --------
Balance on December 28,
1995........................ $5,055 $2,263 $(2,641) $ -- $ -- $ 21,381 $ 26,058
====== ====== ======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-53
<PAGE> 137
DEKKO WIRE TECHNOLOGIES
COMBINED STATEMENT OF CASH FLOWS
FOR EACH OF THE TWO YEARS ENDED DECEMBER 28, 1995
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 18,516 $ 18,313
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 2,729 1,189
(Gain) loss on sale of property, plant and equipment...... 14 (51)
(Gain) loss on investment in Group Dekko Services LLC..... (362) 179
Change in assets and liabilities:
Accounts receivable.................................... 643 (3,994)
Inventory.............................................. (760) 3,454
Prepaid expenses....................................... 291 19
Accounts payable....................................... (670) 1,614
Accrued expenses....................................... 1,235 130
Customer deposits...................................... (91) 180
-------- --------
Net cash provided by operating activities......... 21,545 21,033
-------- --------
Cash flows from investing activities:
Property, plant and equipment acquired.................... (4,792) (751)
Proceeds from sale of property, plant and equipment....... 136 124
Investment in Group Dekko Services LLC.................... (100)
Distribution from investment in Group Dekko Services
LLC.................................................... 392
Other assets acquired..................................... (59) (109)
Acquisition of businesses................................. (6,550) (2,790)
Change in undisbursed bond funds.......................... 4,745
-------- --------
Net cash used in investing activities............. (6,128) (3,626)
-------- --------
Cash flows from financing activities:
Net borrowings (payments) on lines of credit.............. (1,640) (300)
Proceeds from short-term debt............................. 2,671
Payments on short-term debt............................... (1,671) (1,500)
Proceeds from long-term debt.............................. 3,100 6,200
Payments on long-term debt................................ (5,521) (7,176)
Stock redemption.......................................... (431) (5,243)
Proceeds from sale of stock............................... 3,483 2,411
Distribution to shareholders.............................. (10,409) (11,987)
-------- --------
Net cash used in financing activities............. (13,089) (14,924)
-------- --------
Acquisition adjustment...................................... (1,580) (3,532)
-------- --------
Net change in cash and cash equivalents..................... 748 (1,049)
Cash and cash equivalents, beginning of year................ 2,201 3,250
-------- --------
Cash and cash equivalents, end of year...................... $ 2,949 $ 2,201
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-54
<PAGE> 138
DEKKO WIRE TECHNOLOGIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
1. BASIS OF PRESENTATION
These combined financial statements and the accompanying notes for the
years ended December 28, 1995 ("1995") and December 29, 1994 ("1994"), reflect
the operations of Dekko Wire Technologies ("DWT"). DWT supplies high-quality
insulated wire products and fabricated bare wire products primarily to the
automotive, appliance, marine and electronic industries. DWT is part of a
federation of companies known as "Group Dekko" and is comprised of the
following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C>
- - Albion Wire, Inc. - Albion Wire, a division of Group
- - Dekko Automotive Wire, Inc. Dekko International, Inc.
- - Hoosier Wire, Inc. - Dekko Automotive Wire, Inc.
- - Silicones, Inc. - Hoosier Wire, Inc.
- Silicones, Inc.
</TABLE>
Albion Wire, a division of Group Dekko International, Inc. (GDI), was
purchased by Albion Wire, Inc. on December 30, 1994, the first day of 1995, by
leveraged buy-out. The product lines of El Paso Wire, a division of GDI, were
purchased by Dekko Automotive Wire, Inc. on December 31, 1993, the first day of
1994. For comparability, the operations of Albion Wire (1994) have been included
in these combined financial statements. As a division of GDI, Albion Wire shared
common management with DWT during 1994. Wire Tech, Inc. was merged into Hoosier
Wire, Inc. on the first day of 1994 and continues to operate as a division of
Hoosier Wire, Inc.
DWT businesses are also known in their industries as "Wire Tech,"
"Masterwire," and "National Reel Services."
2. RELATED PARTY TRANSACTIONS
DWT and the other Group Dekko companies have common executive management
and most have common ownership. DWT owns 26.5% of Group Dekko Services LLC, a
company providing administrative services to its members.
With the exception of Wire Tech, Inc., each of the entitles comprising DWT
was once owned GDI. DWT entitles separated from GDI in several transactions as
follows:
1994 and 1995
- Albion Wire, a division of GDI, was purchased by Albion Wire, Inc. on the
first day of 1995, by leveraged buy-out totaling $19,663. The purchase of
product lines and property, plant and equipment were financed with the
assumption of certain industrial revenue bonds totaling $9,800 from GDI,
capital from shareholders, and cash flows from operations. The accounts
receivable and inventory associated with the product lines were acquired
at GDI's basis which approximated fair market value. The property, plant
and equipment were acquired at fair market value.
- The product lines of El Paso Wire, a division of GDI, were purchased by
Dekko Automotive Wire, Inc. on the first day of 1994 for $3,885. The
accounts receivable and inventory associated with these product lines
were acquired at GDI's basis which approximated fair market value. The
purchase was financed with a $2,671 note payable to GDI, cash flows from
operations and draws on the revolving credit agreement. Dekko Automotive
Wire, Inc. continued to lease property, plant and equipment used by the
El Paso Wire Division from GDI under one-year renewable operating leases.
F-55
<PAGE> 139
DEKKO WIRE TECHNOLOGIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
- The property, plant and equipment leased from GDI by Dekko Automotive
Wire, Inc.'s Alabama Wire Division was purchased by Dekko Automotive
Wire, Inc. on the first day of 1994 for $13,751. The purchase was
financed with the assumption of certain industrial revenue bonds totaling
$11,105 from GDI, cash flows from operations and draws on the revolving
line of credit. The property, plant and equipment were acquired at fair
market value.
- Certain property, plant and equipment leased by Hoosier Wire, Inc. from
GDI was purchased by Hoosier Wire, Inc. on the first day of 1994 for
$4,131. The purchase was financed with the transfer of an industrial
revenue bond in the amount of $3,945 and cash flows from operations. The
property, plant and equipment were acquired at fair market value.
The following table summaries non-cash investing and financing activities
related to the acquisitions described above:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Fair value of assets acquired............................... $19,663 $21,767
Less: cash paid............................................. 9,863 4,046
------- -------
Liabilities incurred or assumed............................. $ 9,800 $17,721
======= =======
</TABLE>
DWT continues to lease certain equipment and manufacturing facilities from
GDI under one-year renewable operating leases. Rent expense paid to GDI is
included in the table below. Total rent expense charged to operations is
disclosed in Note 8.
DWT has significant transactions with Group Dekko companies described as
follows:
- Group Dekko Services LLC, a company wholly-owned by DWT and the other
Group Dekko companies, provides DWT with certain administrative services,
including: financial, tax, and accounting; employee benefit
administration; legal counsel; facilities management; marketing and
corporate planning; human resources management; information and
communication systems; environmental and safety; risk management; and
corporate records.
- Group Dekko Logistics LLC, owned by Group Dekko Services LLC and GDI,
provides transportation management and trucking services to DWT.
- Certain DWT companies make payments to GDI on sales agreements for the
purchase of intangible assets such as customer lists, trade names,
patents, etc.
F-56
<PAGE> 140
DEKKO WIRE TECHNOLOGIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DWT transactions with other Group Dekko companies are summarized as
follows:
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
INCOME STATEMENT
Trade sales................................................. $7,605 $5,256
Rent paid on facilities and equipment....................... 1,203 2,617
Rental income............................................... 334 349
Administrative services purchased........................... 1,822 2,403
Interest expense on notes payable........................... 91 339
Materials purchased......................................... 4,889 2,582
Labor purchased............................................. 269 1,078
Transportation services purchased........................... 506 876
Accrual on intangible assets................................ 59 64
Capital distribution from Group Dekko Services LLC.......... 392 --
Gain/(loss) on investment in Group Dekko Services LLC....... 362 (179)
BALANCE SHEET
Notes payable, balance at year end.......................... -- 1,671
Accounts payable, balance at year end....................... 1,088 747
Accounts receivable, balance at year end.................... 637 601
</TABLE>
3. ACCOUNTING POLICIES
Principles of Combination -- The combined financial statements include the
accounts of the companies comprising DWT as detailed in Note 1. All significant
intercompany transactions have been eliminated in combination.
Cash and Cash Equivalents -- Cash and cash equivalents include all cash
balances and highly liquid investments with original maturities of three months
or less. Interest paid during 1995 and 1994 was $1,657 and $1,270, respectively.
Inventories -- DWT used the last-in, first-out (LIFO) cost method of
valuing its inventories for approximately 86% and 95% of total inventories at
December 28, 1995 and December 29, 1994, respectively. The remainder are stated
at cost using the first-in, first-out (FIFO) method. On the first day of 1994,
Dekko Automotive Wire, Inc., adopted the LIFO method of accounting. The
cumulative effect of this accounting change for years prior to 1994 is not
determinable, nor are the pro forma effects of retroactive application of the
LIFO method to prior years. This change decreased 1994 net income by $1,565.
Property, Plant and Equipment -- Assets are recorded at cost. Upon sale or
retirement of property, plant and equipment, the asset cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is included in income.
Depreciation on assets is calculated by declining balance and straight-line
methods over estimated lives principally as follows: buildings -- 15 to 39
years; machinery and equipment -- 5 to 7 years.
Intangible Assets -- As part of various sales agreements, DWT has purchased
customer lists, trade names, patents, etc., from GDI. Acceleration clauses in
the agreements dictate that unpaid amounts are due immediately upon sale,
liquidation, merger or other triggering event The assets are amortized over 15
years. Unpaid amounts under these agreements approximated $200 as of December
28, 1995.
Financial Instruments -- The carrying amounts of financial instruments
including cash equivalents, certificates of deposit, receivables, and accounts
payable approximated fair value as of December 28, 1995, because of the
relatively short maturities of these instruments. The carrying value of
long-term debt, including
F-57
<PAGE> 141
DEKKO WIRE TECHNOLOGIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
current maturities, approximated fair value as of December 28, 1995, based upon
terms and conditions currently available to the Company in comparison to terms
and conditions of the long-term debt.
Use of Estimates in the Preparation of Financial Statements -- The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995
-------
<S> <C>
Unsecured revolving and reducing line of credit Available
$5,500, of which $3,850 was unused at December 28, 1995.
Bank advances on the line of credit carry an interest rate
of the bank's Reference Rate. Agreement was refinanced on
April 25, 1995 and the new interest rate is the bank's
Reference Rate minus one percent. At December 28, 1995,
the effective rate was 7.5%. ............................. $ 1,650
Unsecured revolving and reducing line of credit Available:
$5,000 of which $1,900 was unused at December 28, 1995.
Bank advances on the line of credit carry an interest rate
of the bank's Reference Rate minus three-quarters of a
percent. Effective rate at December 28, 1995 was
7.75%. ................................................... 3,100
Unsecured revolving line of credit Available for one year:
$500 of which $340 was unused at December 28, 1995. Bank
advances on the line of credit are payable on demand and
carry an interest rate based on prime minus one percent.
Effective rate at December 28, 1995 was 7.5%. ............ 160
Harris Bank, El Paso County, Texas, Series 1994 Variable
Rate Demand Industrial Development Revenue Bonds Interest
payable monthly, repriced weekly. Effective rate: December
28, 1995: 5.4% Average rate: 1995: 4.15% Principal due
annually through December 1, 2007, in payment ranging from
$500 to $800. ............................................ 8,000
Town of Avilla, Indiana, Series "A" and "B" 1990 Adjustable
Rates Industrial Refunding Revenue Bonds. Interest payable
monthly, repriced weekly. Effective rate: December 28,
1995: 5.35% Average rate: 1995: 3.86% Principal due
annually through September 1, 2005, in payments ranging
from $260 to $455. ....................................... 3,478
Indiana Development Finance Authority -- Dekalb County
Adjustable Rate Industrial Development Refunding Bonds
Interest payable monthly, repriced weekly Effective rate:
December 28, 1995: 5.2% Average rate: 1995: 3.50%
Principal due annually through March 1, 2006, in payments
ranging from $115 to $210. ............................... 1,750
Harris Bank, Town of Elkmont, Alabama, Series 1989
Variable/Fixed Rate Industrial Development Bonds Interest
payable monthly, repriced weekly Effective rate: December
28, 1995: 5.4% Average rate: 1995: 4.17% Principal due
annually through September 1, 2004, in payments ranging
from $525 to $765. ....................................... 5,500
Harris Bank, City of Kendallville, Indiana, Series 1987
Variable/Fixed Rate Economic Development Revenue Bonds
Interest payable monthly, repriced weekly. Effective rate:
December 28, 1995: 5.25% Average rate: 1995: 4.69%
Principal due annually through February 1, 2000 in
payments of $300 each. ................................... 1,500
</TABLE>
F-58
<PAGE> 142
DEKKO WIRE TECHNOLOGIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1995
-------
<S> <C>
Bank One, Town of Ardmore, Alabama, Series 1989
Variable/Fixed Rate Industrial Development Bonds Interest
payable monthly, repriced weekly. Effective rate: December
28, 1995: 5.35% Average rate: 1995: 4.34% Principal due
annually through June 1, 2004, in payments ranging from
$460 to $660. ............................................ $ 3,810
-------
28,948
Less current portion...................................... 2,545
-------
$26,403
=======
</TABLE>
The industrial revenue bonds are collateralized by land, buildings and
machinery and equipment of the Company totaling $30,132 at December 28, 1995. As
additional collateral on all bonds, all rights and interest on leases entered
into with respect to the above land, buildings and machinery and equipment have
been assigned to the holders of the bonds.
Certain of the debt agreements contain restrictive covenants which include,
among other things, minimum tangible net worth, maintenance of minimum working
capital and requirements to maintain certain financial ratios. At certain
measurement dates in 1994, DWT was not in compliance with certain covenants.
These events of noncompliance were waived by the lending institutions.
The aggregate amount of long-term debt maturing in each of the five years
following December 28, 1995, is as follows $2,545, $3,345, $4,310, $4,050, and
$2,610.
5. SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEKKO AUTOMOTIVE
HOOSIER WIRE, INC. SILICONES, INC. WIRE, INC. ALBION WIRE, INC.
------------------- ---------------- ------------------- -----------------
SHARE COMMON TREASURY COMMON TREASURY COMMON TREASURY COMMON TREASURY
INFORMATION: STOCK STOCK STOCK STOCK STOCK STOCK STOCK STOCK
------------ -------- --------- ------ -------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Par value................ No Par $10 $10 $10
Shares authorized........ 500,000 60,000 1,000,000 500,000
======= ====== ========= ======= =======
Shares issued as of
December 29, 1994...... 359,059 248,074 45,953 13,834 97,910 -- -- --
Redemption............... 5,050 2,333 333
Sale..................... (3,266) (1,917) 2,225 (333) 300,000
------- ------- ------ ------ --------- ---- ------- -------
Shares issued as of
December 28, 1995...... 359,059 249,858 45,953 14,250 100,135 -- 300,000 --
======= ======= ====== ====== ========= ==== ======= =======
</TABLE>
The amounts corresponding to the common stock redemption and sale
transactions in the schedule above are reflected as redeemable common stock and
subscribed stock, respectively, in the balance sheet in the year immediately
prior to the redemption or sale transaction, as these transactions had been
approved by the Board of Directors. Common stock redemptions are reflected in
the statement of shareholders' equity in the year the transaction was approved
by the Board of Directors. Common stock sales are reflected as common stock
subscribed in the statement of shareholders' equity in the year the transaction
was approved by the Board of Directors and as common stock issued in the year
the transaction was executed.
As discussed in Note 1, two divisions of GDI have been included in these
combined financial statements for comparability. The acquisition of these
divisions by DWT requires the elimination of the amounts accumulated by the
division as retained earnings. These eliminations are reflected in the statement
of shareholders' equity during the year the division was acquired by DWT.
F-59
<PAGE> 143
DEKKO WIRE TECHNOLOGIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
The shareholders of each of the respective companies comprising DWT have
elected S Corporation status for federal and state income tax purposes, whereby
profits and losses are passed directly to them for inclusion in their personal
tax returns. Accordingly, no liability or provision for federal or state income
taxes is included in the accompanying financial statements. The pro forma
amounts below reflect the income taxes that would have been reported had DWT
been subject to federal and state income taxes and if the DWT companies had
filed separate income tax returns during those years. There are no material
timing differences which would give rise to deferred tax assets or liabilities.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Combined income before income taxes......................... $18,516 $18,313
Pro forma federal and state income taxes.................... 7,272 7,430
------- -------
Pro forma net income........................................ $11,244 $10,883
======= =======
</TABLE>
Texas franchise taxes included in selling, general and administrative
expenses were $491 and $10 in 1995 and 1994, respectively.
7. PROFIT SHARING RETIREMENT PLAN
DWT participates in a profit sharing retirement plan of GDI which covers
substantially all employees. Under the plan employees may, but are not required
to, make contributions. DWT contributions under the plan are at the discretion
of the Board of Directors and cannot exceed 15% of the annual compensation of
the participating employees.
Total profit sharing plan expense charged to operations in fiscal years
1995 and 1994 amounted to approximately $1,066 and $892, respectively.
8. LEASING TRANSACTIONS
DWT leases certain equipment and manufacturing facilities under renewable
operating leases. Total rent expense charged to operations was $1,712 and $3,059
in 1995 and 1994, respectively. Rent paid to related parties is summarized in
Note 2. The aggregate amount of minimum operating lease payments in each of the
four years following December 28, 1995, is as follows: $353, $352, $299, and
$114.
9. SIGNIFICANT CUSTOMER
Sales to a single customer approximated 39% and 29% of total 1995 and 1994,
sales, respectively. Accounts receivable from this customer at December 28, 1995
approximated 29% of total trade receivables. Sales to the automotive and
appliance industries were 51% and 47%, of total sales, respectively, in 1995 and
1994.
10. SUBSEQUENT EVENTS
On February 6, 1996, the Boards of Directors of each of the companies
comprising DWT approved, subject to approval by the shareholders of the
respective companies, certain Purchase Agreements whereby International Wire
Group, Inc. (International Wire) would:
- acquire substantially all of the assets and assume certain of the
liabilities of Dekko Automotive Wire, Inc., Albion Wire, Inc., and
Silicones, Inc.
- acquire all of the issued and outstanding common shares of Hoosier Wire,
Inc.
F-60
<PAGE> 144
DEKKO WIRE TECHNOLOGIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Consideration for the above mentioned acquisition is to be in the form of
cash and warrants to purchase shares in International Wire Holding Company, the
parent of International Wire as follows:
<TABLE>
<CAPTION>
GROSS CASH WARRANTS
---------- --------
<S> <C> <C>
Dekko Automotive Wire, Inc.................................. $ 64,665 779,092
Albion Wire, Inc............................................ 47,288 569,732
Silicones, Inc.............................................. 7,624 91,850
Hoosier Wire, Inc........................................... 46,423 559,326
-------- ---------
Total............................................. $166,000 2,000,000
</TABLE>
The consideration described above is subject to certain adjustments
prescribed by the Purchase Agreements and the payment of all outstanding debt
and certain retained liabilities at the date of closing, as well as an aggregate
escrow amount of $10 million. Closing is expected to occur prior to March 31,
1996.
F-61
<PAGE> 145
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Wirekraft Holdings Corp.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Wirekraft Holdings Corp. and
subsidiaries (formerly WB Holdings, Inc.) for the six months ended May 31, 1995
and the year ended November 30, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of Wirekraft Holdings Corp. and subsidiaries for the six months ended May 31,
1995 and the year ended November 30, 1994, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
St. Louis, Missouri
January 27, 1996
F-62
<PAGE> 146
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1995 NOVEMBER 30, 1994
---------------- -----------------
<S> <C> <C>
Net sales................................................... $168,053 $240,972
Operating expenses:
Cost of goods sold........................................ 138,851 201,602
Selling, general and administrative....................... 13,301 14,319
Depreciation and amortization............................. 6,474 6,435
Compensation expense...................................... 895 --
Expenses related to sale.................................. 501 --
Expenses related to plant closings........................ 2,000 --
-------- --------
Operating income............................................ 6,031 18,616
Other income (expense):
Interest expense.......................................... (8,020) (10,565)
Amortization of deferred financing costs.................. (1,657) (1,995)
-------- --------
Income (loss) before income tax provision and extraordinary
item...................................................... (3,646) 6,056
Income tax provision (benefit).............................. (2,114) 3,023
-------- --------
Income (loss) before extraordinary item..................... (1,532) 3,033
Extraordinary item -- loss due to early extinguishment of
debt, net of income tax of $4,930......................... (7,835) --
-------- --------
Net income (loss)........................................... $ (9,367) $ 3,033
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements
F-63
<PAGE> 147
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED MAY 31, 1995 AND
THE YEAR ENDED NOVEMBER 30, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A ADDITIONAL RETAINED
PREFERRED COMMON COMMON PAID-IN EARNINGS
STOCK STOCK STOCK CAPITAL (DEFICIT) TOTAL
--------- ------ ------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance November 30, 1993....... $-- $200 $24 $22,576 $ 2,541 $25,341
Net income...................... -- -- -- -- 3,033 3,033
--- ---- --- ------- ------- -------
Balance November 30, 1994....... -- 200 24 22,576 5,574 28,374
Issuance of preferred stock..... 10 -- -- 24,990 -- 25,000
Issuance of common stock........ -- 3 -- 747 -- 750
Issuance costs.................. -- -- -- (300) -- (300)
Net loss........................ -- -- -- -- (9,367) (9,367)
--- ---- --- ------- ------- -------
Balance May 31, 1995............ $10 $203 $24 $48,013 $(3,793) $44,457
=== ==== === ======= ======= =======
</TABLE>
See accompanying notes to the consolidated financial statements
F-64
<PAGE> 148
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1995 NOVEMBER 30, 1994
---------------- -----------------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss)......................................... $ (9,367) $ 3,033
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Extraordinary item.......................................... 12,765 --
Depreciation and amortization............................... 6,474 6,435
Amortization of deferred financing costs.................... 1,493 1,667
Accretion of debt discount.................................. 164 328
Deferred income taxes....................................... (4,282) (325)
Change in assets and liabilities, net of acquisitions:
Accounts receivable....................................... (9,863) (7,928)
Inventories............................................... (824) (6,622)
Prepaid expenses and other................................ (166) (2,951)
Accounts payable.......................................... (617) 8,231
Accrued and other liabilities............................. 2,628 (281)
Accrued interest.......................................... 1,276 (1,217)
Income taxes payable/refundable........................... (3,366) 2,443
Other long-term liabilities............................... (236) (495)
-------- --------
Net cash from operating activities................ (3,921) 2,318
-------- --------
Cash flows provided by (used in) financing activities:
Acquisitions, net of cash................................. (44,973) (11,754)
Capital expenditures, net................................. (2,914) (6,248)
-------- --------
Net cash from investing activities................ (47,887) (18,002)
-------- --------
Cash flows provided by (used in) financing activities:
Proceeds from issuance of long-term obligations........... 24,000 12,674
Equity proceeds........................................... 25,750 --
Borrowings of long-term obligations....................... 19,639 22,995
Repayment of long-term obligations........................ (14,226) (17,481)
Financing fees and other.................................. (3,500) (691)
-------- --------
Net cash from financing activities................ 51,663 17,497
-------- --------
Net change in cash and cash equivalents..................... (145) 1,813
Cash and cash equivalents at beginning of the period........ 2,053 240
-------- --------
Cash and cash equivalents at end of the period.............. $ 1,908 $ 2,053
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements
F-65
<PAGE> 149
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MAY 31, 1995, AND
THE YEAR ENDED NOVEMBER 30, 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
1. THE COMPANY
WB Holdings Inc. ("Holdings"), a Delaware corporation, was formed to
participate in the December 21, 1992 Acquisition (defined below). Holdings had
no operations prior to December 21, 1992.
On December 2, 1994, Holdings, through a series of mergers, became a
wholly-owned subsidiary of Wirekraft Holdings Corp. ("New Holdings" together
with Holdings, the "Company"). Pursuant to the mergers, the existing
stockholders of Holdings exchanged their Holdings securities for New Holdings
securities that have terms identical to the exchanged Holdings securities. New
Holdings, a Delaware corporation, was formed to participate in the acquisition
of Electro Componentes de Mexico S.A. de C.V. ("ECM") as discussed in Note 2.
New Holdings had no operations prior to December 2, 1994. Holdings and New
Holdings have a fiscal year-end of November 30.
On December 21, 1992, Holdings, through a series of acquisitions and
mergers, acquired all of the issued and outstanding common stock of Bristol
Holding Corporation and Burcliff Holdings Corporation, the parent companies of
the general partners of Kirtland Indiana, Limited Partnership for a total
consideration of $116,997 (the "Acquisition"). Through a related series of
mergers after the Acquisition, Bristol Holding Corporation became the surviving
entity. Bristol Holding Corporation was later renamed Wirekraft Industries, Inc.
("Wirekraft") (together with Holdings, the "Company"). Wirekraft through its two
segments, the Wire segment and the Harness segment, is engaged in the
manufacture, design and distribution of insulated wire and wire harnesses used
primarily in the appliance and automobile markets. The Company markets and
distributes its products through a combination of internal sales representatives
and independent sales representatives, selling primarily to original equipment
manufacturers.
The total cost of the Acquisition consisted of $57,967 for issued and
outstanding common stock, $42,877 for the retirement of existing indebtedness,
$1,175 for outstanding warrants and $14,978 for fees and expenses. The
Acquisition was accounted for using the purchase method of accounting whereby
the total acquisition cost was allocated to the acquired net assets based on
their respective fair values.
The total acquisition cost was allocated to the acquired net assets as
follows:
<TABLE>
<S> <C>
Current assets............................................ $ 29,461
Property, plant and equipment............................. 19,980
Goodwill.................................................. 80,319
Fees and costs............................................ 9,580
Other non-current assets.................................. 386
Current liabilities....................................... (16,365)
Other liabilities......................................... (6,364)
--------
$116,997
========
</TABLE>
2. ECM ACQUISITION
On December 2, 1994, through a series of acquisitions and transfers from
New Holdings, Wirekraft acquired the stock of ECM and certain assets from
General Electric Company. The purchase price, including fees and expenses, was
approximately $49,550. The purchase price consisted of $20,000 in cash,
1,000,000 shares of Series A Senior Preferred Stock, par value $.01 per share,
$25 liquidation preference and 275,758 shares of common stock on New Holdings.
F-66
<PAGE> 150
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisition of ECM was accounted for using the purchase method of
accounting whereby the total acquisition cost was allocated to the acquired net
assets based on their respective fair values. The total acquisition cost was
allocated to the acquired net assets as follows:
<TABLE>
<S> <C>
Current assets............................................. $ 8,211
Property, plant and equipment.............................. 8,288
Intangibles................................................ 37,958
Fees and costs............................................. 3,500
Current liabilities and other reserves..................... (8,407)
-------
$49,550
=======
</TABLE>
Unaudited pro forma data, which show condensed results of operations for
the year ended November 30, 1994 as though the acquisition and related financing
of ECM had occurred at the beginning of the period is as follows:
<TABLE>
<S> <C>
Net sales................................................. $319,486
Net income................................................ $ 5,758
</TABLE>
3. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements for the year ended November 30, 1994
include the accounts of Holdings and its wholly-owned subsidiary, Wirekraft. The
consolidated financial statements for the six months ended May 31, 1995 include
the accounts of New Holdings and its wholly-owned subsidiary, Holdings. All
material intercompany balances and transactions have been eliminated in
consolidation.
Revenue Recognition
Sales and related costs of goods sold are included in income when goods are
shipped to customers.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
using the last-in, first-out ("LIFO") method.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is calculated
using the straight-line method. The average estimated lives utilized in
calculating depreciation are as follows: building and improvements -- 25 years;
machinery and equipment -- 7 years; and furniture and fixtures -- 5 years.
Leasehold improvements are amortized over the shorter of the term of the
respective lease or life of the respective improvement.
Intangible Assets
Intangible assets, which consist principally of goodwill arising from the
excess of cost over the value of net assets acquired, are amortized using the
straight-line method over forty years. Accumulated amortization aggregated
$4,040 at November 30, 1994.
F-67
<PAGE> 151
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred Financing Costs
Deferred financing costs, which consists of fees and other expenses
associated with the debt financing, are amortized over the term of the related
debt using the effective interest method and the straight-line method which
approximates the effective interest method.
Income Taxes
Deferred income taxes are determined using the liability method.
Statement of Cash Flows
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments purchased with maturities of three
months or less to be cash equivalents. Interest paid for the six months ended
May 31, 1995 and the year ended November 30, 1994 was approximately $6,744 and
$11,803, respectively. Taxes paid for the six months ended May 31, 1995 and the
year ended November 30, 1994 were approximately $604 and $905, respectively. In
connection with the Acquisition, the Company assumed liabilities aggregating
$22,729, which is a non-cash investing activity.
During the six months ended May 31, 1995, the Company entered into a
capital lease obligation of $4,714 for new equipment.
Fair Value of Financial Instruments
The fair market values of the financial instruments included in the
consolidated financial statements approximate the carrying values of the
financial instruments.
Concentration of Credit Risk
Accounts receivable from companies located throughout the United States in
the appliance and automotive industries amounted to approximately $12,397 and
$15,684, respectively at November 30, 1994. Sales to the Company's five largest
customers represented 61% of net sales for the six months ended May 31, 1995 and
51% and 56% of net sales in 1994 and 1993, respectively. A significant portion
of the Company's sales are to three major customers within the Harness Segment.
Sales to one of these customers represented 25% of net sales for the six months
ended May 31, 1995. The Company has entered into a supply contract with this
customer expiring in 2002. Sales to the Company's two other major customers
represented 12% and 7% of net sales for the six months ended May 31, 1995, 17%
and 11% of net sales in 1994. In 1995, a supply contract with one of the above
mentioned customers expired. A supply contract was subsequently renegotiated
through December, 1998.
4. FINANCING COSTS AND RELATED PARTY TRANSACTIONS
In connection with the Acquisition and ECM acquisition, the Company
incurred aggregate fees and costs of $11,900. Costs of $11,100 related to the
12% Senior Subordinated Notes due 2003 and Credit Agreement are included in
deferred financing costs and are amortized over the term of the related
borrowings. Costs of $800 related to the issuance of Holding's common stock have
been deducted from the proceeds to reduce the carrying value of the common
stock.
In connection with the Acquisition and the related financing, Holdings and
Wirekraft entered into a Monitoring and Oversight Agreement ("Agreement") with
Hicks, Muse & Co., Incorporated ("Hicks, Muse") (an affiliate of the Company)
pursuant to which the Company paid Hicks, Muse a financial advisory fee of
$1,725. The fees, which also include $200 paid in connection with the
acquisition of Ristance and $750
F-68
<PAGE> 152
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
paid in connection with the acquisition of ECM, have been allocated to the
Company's debt and equity securities as deferred financing costs or as a
deduction from the cash proceeds received from the sale of stock. The Agreement
further provides that the Company shall pay Hicks, Muse an annual fee of $115
(subject to adjustment), for ten years, for monitoring and oversight services.
Such Agreement was amended and restated in connection with the acquisition of
ECM to increase the annual fee for financial advisory services to $200 (subject
to adjustment). The obligation under the Agreement, as amended, and the related
deferred financing costs have been recorded in the consolidated balance sheet.
5. STOCKHOLDERS' EQUITY
The authorized capital stock of the Company at May 31, 1995 consists of
50,000,000 shares of common stock, 3,000,000 shares of Class A common stock, and
10,000,000 shares of preferred stock. In connection with the financing of the
Acquisition, the Company issued 20,000,000 shares of common stock, 2,402,402
shares of Class A common stock and 1,621,622 warrants to purchase common stock.
Each warrant represents the right to purchase one share of the Company's common
stock for $1.00 per warrant. The warrants expire on December 31, 2002. As of May
31, 1995, no warrants had been exercised. On December 2, 1994, in connection
with the acquisition of ECM, the Company issued 1,000,000 shares of Series A
Senior Preferred Stock and 275,758 shares of common stock.
The Class A common stock may be converted into shares of common stock at
the option of the holder at any time. In addition, shares of the Class A common
stock (i) may be converted into common stock at the option of the Company
effective immediately prior to the occurrence of a Triggering Event (as defined
in the Company's Certificate of Incorporation) or (ii) shall automatically be
converted on December 31, 2002. Such conversions are based on a formula set
forth in the Company's Certificate of Incorporation.
Dividends are payable to holders of the common stock and Class A common
stock in amounts as and when declared by the Company's board of directors,
subject to legally available funds and certain agreements governing the
Company's indebtedness. In the event of any liquidation, dissolution or winding
up of the Company, before any payment or distribution of the assets of the
Company shall be made to the holders of the Class A common stock, each share of
common stock shall be entitled to a liquidation preference based on a formula
set forth in the Company's Certificate of Incorporation. The common stock and
the Class A common stock are entitled to one vote per share on all matters
submitted to a vote of stockholders.
The Company has adopted a qualified and non-qualified incentive stock
option plan (the "Option Plan") for officers and key employees of Holdings. A
total of 1,471,000 shares of the Company's common stock has been reserved for
issuance under the Option Plan. Under the Option Plan, eligible participants may
receive qualified and non-qualified options to purchase shares of the Company's
common stock.
Options are exercisable at such time and on such terms as the committee
appointed to administer the Option Plan (the "Committee") determines. The
exercise price for the options granted under the Option Plan may not be less
than the fair market value of the underlying share, as determined by the
Committee on the date of grant. Generally, an option may be exercised only if
the holder is an officer or employee of the Company at the time of exercise.
Options granted under the Option Plan are not transferable, except by will and
the laws of descent and distribution. During the year ended November 30, 1994,
the Company granted options to purchase 75,000 shares of common stock at $2.74
per share and canceled 235,200 options. No options were exercised during the
year. During the six months ended May 31, 1995, the Company granted options to
purchase 100,000 shares of common stock at $2.74 per share, canceled 188,800
shares and 20,000 options were exercised. At May 31, 1995, there were 764,000
options available for issuance under the Option Plan.
F-69
<PAGE> 153
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1995 NOVEMBER 30, 1994
---------------- -----------------
<S> <C> <C>
Current:
Federal........................................... $ 1,022 $2,741
State............................................. 892 607
Foreign........................................... 254 --
------- -------
2,168 3,348
------- -------
Deferred:
Federal........................................... (3,159) (124)
State............................................. (1,123) (201)
------- -------
(4,282) (325)
------- -------
Total..................................... $(2,114) $3,023
======= =======
</TABLE>
Reconciliation between the Federal statutory income tax rate and the
effective tax rate is summarized below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1995 NOVEMBER 30, 1994
---------------- -----------------
<S> <C> <C>
Federal taxes at statutory rate (34%)............... $(1,240) $2,059
State taxes, net of federal effect.................. 210 268
Foreign............................................. (1,468) --
Nondeductible assets................................ 340 680
Other............................................... 44 16
------- -------
Provision (benefit) for income taxes................ $(2,114) $3,023
======= =======
</TABLE>
7. PLANT CLOSING EXPENSE
In May 1995, the Company recorded a pre-tax charge to operations of $2,000
to provide for plant closing costs. The Company's decision to shut-down certain
harness segment plants was the result of a customer transitioning certain wire
harness purchases to its own captive operations in Mexico and other third party
suppliers. The plant closing costs include provisions for shut-down costs from
the period of the plant closure to the date of disposal, commitment costs for
leased equipment and severance related costs.
8. RETIREMENT BENEFITS
Employees of Wire division, who are eligible under Section 414(q) of the
Internal Revenue Code, may participate in the profit sharing plan sponsored by
the Company. The plan qualifies under the Internal Revenue Code section 401(k),
and the Company may at its discretion make contributions on a matching or
non-matching basis. Employees of the Wire Division with approximately one year
of service may also participate in a money purchase pension plan sponsored by
the Company. The Company is required to make contributions to the money purchase
pension plan equal to 3% of an employee's eligible compensation as defined in
the plan document. Expense under these two plans amounted to approximately $363
and $451 for the six months ended May 31, 1995 and the year ended November 30,
1994, respectively.
F-70
<PAGE> 154
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LEASES
The Company leases certain of its manufacturing facilities and equipment
under long-term lease agreements with lease terms expiring through February
2004. Rent expense applicable to the noncancelable operating leases aggregated
$505, $436 and $431 for the six months ended May 31, 1995 and for the year ended
November 30, 1994.
The schedule of future minimum lease payments by calendar year under
operating leases at November 30, 1994 is as follows:
<TABLE>
<S> <C>
1995........................................................ $1,645
1996........................................................ 1,607
1997........................................................ 1,567
1998........................................................ 1,324
1999........................................................ 1,234
Thereafter.................................................. 1,723
</TABLE>
10. CONTINGENCIES
The Company is subject to various lawsuits and claims with respect to such
matters as patents, product liabilities, government regulations, and other
actions arising in the normal course of business. In the opinion of management,
the ultimate liabilities resulting from such lawsuits and claims will not have a
material adverse effect on the Company's consolidated financial conditions and
results of operations.
11. OTHER ACQUISITIONS
On December 10, 1993, Wirekraft acquired certain assets and related
liabilities of the wire business of the Ristance division of Echlin Corporation
("Ristance"). The purchase price, including fees and expenses, paid in cash, was
approximately $11,800 which was funded through additional borrowings under the
Credit Agreement. The acquisition of Ristance was accounted for using the
purchase method of accounting and, accordingly, the purchase price was allocated
to assets and liabilities acquired based upon their fair value at the date of
the acquisition.
F-71
<PAGE> 155
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. BUSINESS SEGMENT INFORMATION
Certain information concerning the Company's operating segments for the six
months ended May 31, 1995 and the year ended November 30, 1994 is presented
below. Total revenue by segment includes both sales to customers and
intersegment sales, which are accounted for at prices charged to customers and
eliminated in consolidation.
<TABLE>
<CAPTION>
WIRE HARNESS CONSOLIDATED
-------- -------- ------------
<S> <C> <C> <C>
Six Months Ended May 31, 1995
Total revenue........................................... $ 88,488 $ 88,620
Intersegment sales...................................... 7,807 1,248
-------- --------
Sales to customers...................................... $ 80,681 $ 87,372 $168,053
======== ========
Operating income........................................ 1,320 4,711 6,031
Depreciation and amortization........................... 2,534 3,940 6,474
Capital expenditures, net............................... 1,636 1,278 2,914
Year Ended November 30, 1994
Total revenue........................................... $153,014 $101,167
Intersegment sales...................................... 13,209 --
-------- --------
Sales to customers...................................... $139,805 $101,167 $240,972
======== ========
Operating income........................................ 9,433 9,183 18,616
Depreciation and amortization........................... 4,451 1,984 6,435
Capital expenditures, net............................... 5,819 429 6,248
</TABLE>
13. SUBSEQUENT EVENT
On June 12, 1995, International Wire Holding Company, through a series of
mergers and acquisitions acquired all of the outstanding common stock of New
Holdings (the "Transaction"). The Company has designated June 1, 1995, as the
effective date of the Transaction for financial reporting purposes. In
connection with the Transaction, the majority of the Company's long-term debt
was repaid, the common stock of New Holdings was redeemed at $51,751, the Series
A Senior Preferred Stock issued as part of the ECM acquisition (see Note 2) was
redeemed at a liquidation value of $26,250 plus accrued dividends of $71 and the
warrants and equity rights were retired at $10,133. As a result of the early
repayment of certain long-term debt, $7,909 of deferred financing costs and
$2,456 of OID were charged off and included as an extraordinary item in the
accompanying Statements of Operations for the six months ended May 31, 1995. In
addition, the Company paid a prepayment penalty of $2,400 to holders of
subordinated notes. This amount has also been included in the accompanying
statements of operations as an extraordinary item. The stock options granted
pursuant to the Company's stock option plan were canceled for payment to the
option holders who received cash. This amount totaled approximately $895 and has
been included in the Statements of Operations as compensation expense for the
six months ended May 31, 1995. In connection with the sale, the Company incurred
expenses of $501 which has been recorded in the Statements of Operations as
expenses related to sale.
14. RESTATEMENT OF FINANCIAL INFORMATION
The Company has restated its previously issued financial statements for the
six months ended May 31, 1995 to reflect certain adjustments. These adjustments
relate primarily to corrections of certain depreciation and interest expenses
and recognition of certain costs associated with plant closings. Additionally,
adjustments were made to correct for the effective tax rate and tax benefit
obtained as a result of the extraordinary item.
F-72
<PAGE> 156
WIREKRAFT HOLDINGS CORP.
(FORMERLY WB HOLDINGS INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The impact of these adjustments on the Company's financial results as originally
reported is summarized below:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDING
MAY 31, 1995
----------------------------
AS REPORTED AS RESTATED
----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Income (loss) before income taxes and extraordinary
item.............................................. $ (1,099) $(3,646)
Net income (loss)................................... $(14,491) $(9,367)
Retained earnings (deficit)......................... $ (8,917) $(3,793)
</TABLE>
These adjustments are reflected in the Company's accompanying consolidated
statements of operations.
F-73
<PAGE> 157
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Omega Wire Corp.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Omega Wire Corp. and subsidiaries for
the two months ended May 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of Omega Wire Corp. and subsidiaries for the two months ended May 31, 1995, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
St. Louis, Missouri
January 27, 1996
F-74
<PAGE> 158
OMEGA WIRE CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
TWO MONTHS ENDED MAY 31, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
Net sales................................................... $23,295
Operating expenses:
Cost of goods sold........................................ 17,512
Selling, general and administrative....................... 1,639
Depreciation and amortization............................. 1,233
-------
Operating income............................................ 2,911
Other income (expense):
Interest expense.......................................... (1,797)
Amortization of deferred financing costs.................. (238)
-------
Income before income tax provision and extraordinary item... 876
Income tax provision........................................ 171
-------
Income before extraordinary item............................ 705
Extraordinary item -- loss due to early extinguishment of
debt net of income tax of $2,082.......................... (4,044)
-------
Net loss.................................................... $(3,339)
=======
</TABLE>
See accompanying notes to the consolidated financial statements
F-75
<PAGE> 159
OMEGA WIRE CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
TWO MONTHS ENDED MAY 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A CARRYOVER OF
COMMON COMMON PAID-IN PREDECESSOR ACCUMULATED
STOCK STOCK CAPITAL BASIS DEFICIT TOTAL
------ ------- ------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock... $420 $-- $41,580 $ -- $ -- $ 42,000
Issuance of Class A common
stock.................... -- 63 -- -- -- 63
Issuance costs............. -- -- (675) -- -- (675)
Carryover of predecessor
basis.................... -- -- -- (20,000) -- (20,000)
Net loss................... -- -- -- -- (3,339) (3,339)
---- --- ------- -------- ------- --------
Balance May 31, 1995....... $420 $63 $40,905 $(20,000) $(3,339) $ 18,049
==== === ======= ======== ======= ========
</TABLE>
See accompanying notes to the consolidated financial statements
F-76
<PAGE> 160
OMEGA WIRE CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
TWO MONTHS ENDED MAY 31, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows provided by (used in) operating activities:
Net loss.................................................. $ (3,339)
Adjustment to reconcile net loss to net cash provided by
(used in) operating activities:
Extraordinary item........................................ 6,126
Depreciation and amortization............................. 1,233
Amortization of deferred financing costs.................. 238
Deferred income taxes..................................... 120
Change in assets and liabilities, net of acquisitions:
Accounts receivable.................................... 1,528
Inventories............................................ (510)
Prepaid expenses and other............................. (231)
Accounts payable....................................... 919
Accrued and other liabilities.......................... 10
Accrued interest....................................... 952
Income taxes payable/refundable........................ (2,033)
Other long-term liabilities............................ (26)
---------
Net cash from operating activities................ 4,987
---------
Cash flows provided by (used in) investing activities:
Acquisition, net of cash.................................. (159,080)
Capital expenditures, net................................. (581)
---------
Net cash from investing activities................ (159,661)
---------
Cash flows provided by (used in) financing activities:
Proceeds from issuance of long-term obligations........... 135,000
Contributed capital....................................... 34,653
Repayment of long-term obligations........................ (7,979)
Financing fees and other.................................. (7,000)
---------
Net cash from financing activities................ 154,674
---------
Net change in cash.......................................... --
Cash at beginning of the period............................. --
---------
Cash at end of the period................................... $ --
=========
</TABLE>
See accompanying notes to the consolidated financial statements
F-77
<PAGE> 161
OMEGA WIRE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWO MONTHS ENDED MAY 31, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
1. THE COMPANY
Omega Wire Corp. ("Omega" or the "Company"), a Delaware corporation, was
formed to participate in the Acquisition (defined below). Omega had no
operations prior to the Acquisition.
On March 31, 1995, Omega acquired all of the issued and outstanding common
stock of THL-Omega Holding Corporation ("THL-Omega") for a total consideration
$167,300 (the "Acquisition"). Omega, through its subsidiaries, is engaged in the
manufacturing and marketing of non-insulated copper wire and cable products. The
Company's products are used by a wide variety of customers primarily in the
automotive and computer and data communications industries. Omega has a fiscal
year-end of December 31.
The total purchase price of the Acquisition of approximately $174,300,
which included the retirement of existing indebtedness and related fees and
costs, is summarized as follows:
<TABLE>
<S> <C>
Cash paid for all issued and outstanding common stock..... $102,762
Cash paid to retire existing indebtedness................. 55,439
Common stock of Omega issued.............................. 7,410
Fees and costs............................................ 8,689
--------
$174,300
========
</TABLE>
The Acquisition was accounted for using the purchase method of accounting
whereby the total acquisition cost has been preliminarily allocated to the
consolidated assets and liabilities based on their estimated respective fair
values. In accordance with EITF 88-16, "Basis in Leveraged Buyout Transactions",
a portion of the Acquisition has been accounted for at "predecessor basis". The
application of predecessor basis reduced stockholders' equity and goodwill by
$20,000. The purchase price allocations are still in process. It is not expected
that the final allocation of the purchase cost will result in a materially
different allocation than is presented herein.
The total acquisition costs have been preliminarily allocated to the
acquired net assets as follows:
<TABLE>
<S> <C>
Current assets............................................ $ 40,802
Property, plant and equipment............................. 38,974
Goodwill.................................................. 96,701
Fees and costs............................................ 9,000
Other assets.............................................. 54
Current liabilities....................................... (21,906)
Other liabilities......................................... (9,325)
Carryover of predecessor basis............................ 20,000
--------
$174,300
========
</TABLE>
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Omega and its
wholly-owned subsidiaries. All material intercompany balances and transactions
have been eliminated in consolidation.
Revenue Recognition
Sales and related cost of goods sold are included in income when goods are
shipped to customers.
F-78
<PAGE> 162
OMEGA WIRE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
using the last-in, first-out ("LIFO") method.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is calculated
using the straight-line method. The average estimated lives utilized in
calculating depreciation are as follows: buildings -- 25 to 40 years; building
improvements 15 years; machinery and equipment -- 3 to 11 years; and furniture
and fixtures -- 5 years. Leasehold improvements are amortized over the shorter
of the term of the respective lease or the life of the respective improvement.
Intangible Assets
Intangible assets consist principally of goodwill arising from the excess
of cost over the value of net assets acquired, which is being amortized using
the straight-line method over forty years. Amortization of intangible assets
amounted to $384 for the two months ended May 31, 1995.
Deferred Financing Costs
Deferred financing costs, consisting of fees and other expenses associated
with the debt financing are amortized over the term of the related debt using
the effective interest method and the straight-line method which approximates
the effective interest method.
Statement of Cash Flows
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid investments purchased with maturities of three
months or less to be cash equivalents. Interest and taxes paid for the two
months ended May 31, 1995 were $845 and $2, respectively.
In connection with the Acquisition, certain shares of common stock of
THL-Omega were exchanged for common stock of Omega. The total amount of shares
exchanged were $7,410, which was a non-cash investing and financing activity.
3. FINANCING COSTS AND RELATED PARTY TRANSACTIONS
In connection with the Acquisition, the Company incurred aggregate fees and
costs of $7,000. Costs of $6,325 related to the debt financing are being
amortized over the terms of the related borrowings. Costs of $675 related to the
issuance of Omega's common stock have been deducted from the proceeds to reduce
the carrying value of the common stock.
In connection with the Acquisition and obtaining the related financing,
Omega entered into a Monitoring and Oversight Agreement ("Agreement") with
Hicks, Muse & Co. Partners, L.P. ("Hicks, Muse") (an affiliate of the Company)
pursuant to which the Company paid Hicks, Muse a cash fee of $2,525 as
compensation for financial advisory services. The fees have been allocated to
the debt and equity securities issued in connection with the Acquisition as
deferred financing costs or as a deduction from the cash proceeds received from
the sale of the common stock of Omega. The agreement further provides that the
Company shall pay Hicks, Muse an annual fee of $200, for ten years for
monitoring and oversight services adjusted annually at the end of each fiscal
year to an amount equal to .1% of the consolidated net sales of the Company, but
in no event less than $200 annually.
F-79
<PAGE> 163
OMEGA WIRE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. STOCKHOLDERS' EQUITY
The authorized capital stock of the Company consists of 100,000,000 shares
of common stock, 6,333,333 shares of Class A common stock, and 10,000,000 shares
of preferred stock. In connection with the financing of the Acquisition, the
Company issued 42,000,000 shares of common stock and 6,333,333 shares of Class A
common stock.
The Class A common stock may be converted into shares of common stock at
the option of the holder at any time. In addition, shares of the Class A common
stock (i) may be converted into common stock at the option of the Company
effective immediately prior to the occurrence of a Triggering Event (as defined
in the Company's Certificate of Incorporation) or (ii) shall automatically be
converted on March 31, 2005. Such conversions are based on a formula set forth
in the Company's Certificate of Incorporation.
Dividends are payable to holders of the common stock and Class A common
stock in amounts as and when declared by the Company's board of directors,
subject to legally available funds and certain agreements governing the
Company's indebtedness. In the event of any liquidation, dissolution or winding
up of the Company, before any payment or distribution of the assets of the
Company shall be made to the holders of the Class A common stock, each share of
common stock shall be entitled to a liquidation preference based on a formula
set forth in the Company's Certificate of Incorporation. The common stock and
the Class A common stock are entitled to one vote per share on all matters
submitted to a vote of stockholders.
5. INCOME TAXES
The Company accounts for income taxes in accordance with provisions of SFAS
No. 109. The provision for income taxes for the two months ended May 31, 1995 is
as follows:
<TABLE>
<S> <C>
Current:
Federal................................................... $ 51
----
Deferred:
Federal................................................... 55
State..................................................... 65
----
120
----
$171
====
</TABLE>
Reconciliation between the federal statutory income tax rate and the
effective tax rate is summarized below:
<TABLE>
<S> <C>
Federal taxes at statutory rate (34%)....................... $ 297
State taxes, net of federal effect.......................... 43
Other....................................................... (169)
-----
Provision for income taxes.................................. $ 171
=====
</TABLE>
6. RETIREMENT PLANS
The Company has a profit sharing plan covering substantially all employees
of Omega Wire Corp. Contributions are made to a trusteed fund to accumulate as a
retirement benefit for employees. The profit sharing expense amounted to $113
for the two months ended May 31, 1995.
Effective January 1, 1995, the Company implemented a savings plan
permitting substantially all employees to contribute up to 15% of their salary
on a pre-tax basis to any of the six investment options available. There are no
required Company contributions to the plan.
F-80
<PAGE> 164
OMEGA WIRE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS
The Company leases certain property, transportation vehicles and other
equipment under operating leases. Total lease expense for the two months ended
May 31, 1995 was approximately $290.
Under the terms of the agreements in effect at May 31, 1995, the Company
has future minimum lease commitments as follows:
<TABLE>
<S> <C>
1995....................................................... $ 979
1996....................................................... 1,262
1997....................................................... 1,202
1998....................................................... 1,159
1999....................................................... 1,108
Later years................................................ 9,198
-------
Total minimum lease commitments............................ $14,908
=======
</TABLE>
8. CONTINGENCIES
The Company is subject to various lawsuits and claims with respect to such
matters as patents, product liabilities, government regulations, and other
actions arising in the normal course of business. In the opinion of management,
the ultimate liabilities resulting from such lawsuits and claims will not have a
material adverse effect on the Company's consolidated financial conditions and
results of operations.
9. SUBSEQUENT EVENT
On June 12, 1995, International Wire Holding Company ("Holdings"), through
a series of mergers and acquisitions acquired all of the outstanding common
stock of the Company in exchange for certain of its common equity securities
(the "Transaction"). In connection with the Transaction the Company has been
renamed "International Wire Group, Inc." The Company has designated June 1,
1995, as the effective date of the Transaction for financial reporting purposes.
In connection with the Transaction the Company's long-term debt was repaid. As a
result of the early repayment of long-term debt, approximately $6,126 of
deferred financing costs were charged off and included as an extraordinary item
in the accompanying Statement of Operations.
10. RESTATEMENT OF FINANCIAL INFORMATION
The Company has restated its previously issued financial statements for the
two months ended May 31, 1995 to reflect adjustments principally related to
correct for the effective tax rate and tax benefit obtained as a result of the
extraordinary items. The impact of these adjustments on the Company's financial
results as originally reported is summarized below:
<TABLE>
<CAPTION>
FOR THE TWO MONTHS ENDING
MAY 31, 1995
----------------------------
AS REPORTED AS RESTATED
----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Income (loss) before income taxes and extraordinary
item............................................... $ 876 $ 876
Net income (loss).................................... $(5,750) $(3,339)
Retained earnings (deficit).......................... $(5,750) $(3,339)
</TABLE>
These adjustments are reflected in the Company's accompanying consolidated
statements of operations.
F-81
<PAGE> 165
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
THL-Omega Holding Corporation:
We have audited the accompanying consolidated statements of operations and
retained earnings and cash flows of THL-Omega Holding Corporation and its
subsidiaries for the three months ended March 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit of these statements 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,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of THL-Omega Holding Corporation and subsidiaries for the three months ended
March 31, 1995, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND, L.L.P.
St. Louis, Missouri
January 27, 1996
F-82
<PAGE> 166
THL-OMEGA HOLDING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
THREE MONTHS ENDED MARCH 31, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
Net sales................................................... $38,736
Costs and expenses:
Cost of products sold..................................... 30,638
Selling expenses.......................................... 1,430
General and administrative expenses....................... 1,493
Compensation expense...................................... 9,715
Expenses related to sale of Company....................... 1,689
-------
Loss from operations........................................ (6,229)
Interest expense............................................ (1,478)
Other income................................................ 32
-------
Loss before income taxes and extraordinary item............. (7,675)
Provision for income taxes.................................. 484
-------
Loss before extraordinary item.............................. (8,159)
Extraordinary item -- loss due to early extinguishment of
debt net of income tax of $765............................ (1,148)
-------
Net loss.................................................... (9,307)
Retained earnings -- beginning of the year.................. 13,284
-------
Retained earnings -- March 31, 1995......................... $ 3,977
=======
</TABLE>
See accompanying notes to the consolidated financial statements
F-83
<PAGE> 167
THL-OMEGA HOLDING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows provided by (used in) operating activities:
Net loss.................................................. $(9,307)
Adjustment to reconcile net loss to net cash provided by
(used in) operating activities:
Extraordinary item..................................... 1,913
Compensation expense................................... 9,715
Depreciation and amortization.......................... 1,509
Change in assets and liabilities:
Accounts receivable.................................. 1,222
Inventories.......................................... 2,826
Prepaid and other current assets..................... (485)
Accounts payable..................................... (3,714)
Accrued expenses..................................... (90)
Income taxes payable................................. (5)
Deferred compensation................................ 20
-------
Net cash from operating activities.......................... 3,604
-------
Cash flows provided by (used) investing activities:
Capital expenditures, net................................. (1,597)
-------
Net cash from investing activities.......................... (1,597)
-------
Cash flows provided by (used in) financing activities:
Repayment of long-term debt............................... (1,500)
Net borrowing (repayment) under revolving credit
facility............................................... (656)
Issuance of notes payable, net............................ 678
Redemption of common stock................................ (58)
-------
Net cash from financing activities.......................... (1,536)
-------
Net increase in cash........................................ 471
Cash at beginning of period................................. 339
-------
Cash at end of period....................................... $ 810
=======
</TABLE>
See accompanying notes to the consolidated financial statements
F-84
<PAGE> 168
THL-OMEGA HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(IN THOUSANDS)
1. THE COMPANY
THL-Omega Holding Corporation and its subsidiaries ("THL-Omega" or the
"Company") are engaged in the manufacturing and marketing of non-insulated
copper wire and cable products. The Company's products are used by a wide
variety of customers primarily in the automotive and computer and data
communications industries. THL-Omega has a fiscal year-end of December 31.
2. SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of THL-Omega and
its wholly-owned subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation.
Revenue Recognition
Sales and related cost of goods sold are included in income when goods are
shipped to customers.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
primarily using the last-in, first-out ("LIFO") method.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is calculated
using the straight-line method. The average estimated lives utilized in
calculating depreciation are as follows: buildings -- 25 to 40 years; building
improvements -- 15 years; machinery and equipment -- 3 to 11 years; and
furniture and fixtures -- 5 years. Leasehold improvements are amortized over the
shorter of the term of the respective lease or the life of the respective
improvement.
Intangible Assets
Intangible assets consist principally of goodwill arising from the excess
of cost over the value of net assets acquired, which is being amortized using
the straight-line method over forty years.
Deferred Financing Costs
Deferred financing costs, consisting of fees and other expenses associated
with the debt financing are amortized over the term of the related debt using
the effective interest method and the straight-line method which approximates
the effective interest method.
Statement of Cash Flows
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid investments purchased with maturities of three
months or less to be cash equivalents. Interest and taxes paid for the three
months ended March 31, 1995 were $1,548 and $33, respectively.
F-85
<PAGE> 169
THL-OMEGA HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109. The provision for income taxes for the three months ended March
31, 1995 is as follows:
<TABLE>
<S> <C>
Current:
Federal................................................... $384
State..................................................... 100
----
$484
====
</TABLE>
Reconciliation between the statutory income tax rate and effective tax rate
for the three months ended March 31, 1995 is summarized below:
<TABLE>
<S> <C>
Statutory U.S. federal tax rate............................ $(2,610)
State taxes, net of federal benefit........................ 66
Amortization on non-deductible goodwill and non-deductible
expenses................................................. 3,028
-------
$ 484
=======
</TABLE>
4. RETIREMENT PLANS
The Company has a profit sharing plan covering substantially all employees
of THL-Omega. Contributions are made to a trusteed fund to accumulate as a
retirement benefit for employees. The profit sharing expense amounted to $249
for the three months ended March 31, 1995.
5. COMMITMENTS AND CONTINGENCIES
The Company leases certain property, transportation vehicles and other
equipment under operating leases. Rent expense for these operating leases for
the three months ended March 31, 1995 was approximately $433.
Under the terms of the agreements in effect at March 31, 1995, the Company
has future minimum lease commitments as follows:
<TABLE>
<S> <C>
1995....................................................... $ 979
1996....................................................... 1,262
1997....................................................... 1,202
1998....................................................... 1,159
1999....................................................... 1,108
Later years................................................ 9,198
-------
Total minimum lease commitments.......................... $14,908
=======
</TABLE>
The Company is subject to legal proceedings and claims which arise in the
normal course of business. In the opinion of management, the ultimate
liabilities with respect to these actions will not have a material adverse
effect on the Company's financial condition or results of operations.
6. ACQUISITION
On March 31, 1995, ownership of the Company transferred pursuant to the
terms of a Stock Purchase Agreement. Substantially all of the Company's
long-term debt has been repaid. As a result of the early repayment of certain
long-term debt, $1,013 of deferred financing costs was charged off and included
as an
F-86
<PAGE> 170
THL-OMEGA HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
extraordinary item in the accompanying Statement of Operations and Retained
Earnings for the three months ended March 31, 1995. In addition, the Company
paid a prepayment penalty of $900 to holders of the subordinated notes. This
amount also has been included in the accompanying Statement of Operations and
Retained Earnings as an extraordinary item. Immediately prior to the sale of the
Company, the Company sold common stock and granted stock options to certain
officers and shareholders for consideration less than the fair value of the
common stock. The difference between the fair value and the amount paid by the
officers and shareholders has been included in the Statement of Operations and
Retained Earnings as compensation expense for the three months ended March 31,
1995. In connection with the sale, the Company incurred expenses of $1,689 which
has been included in the Statement of Operations and Retained Earnings as
expenses related to the sale of the Company.
7. RESTATEMENT OF FINANCIAL INFORMATION
The Company has restated its previously issued financial statements for the
three months ended March 31, 1995 to reflect adjustments principally related to
correct for the effective tax rate and tax benefit obtained as a result of the
extraordinary item. The impact of these adjustments on the Company's financial
results as originally reported is summarized below:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDING
MARCH 31, 1995
-----------------------------
AS REPORTED AS RESTATED
----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Income (loss) before income taxes and extraordinary
item............................................. $(7,675) $(7,675)
Net income (loss).................................. $(7,307) $(9,307)
Retained earnings.................................. $ 5,977 $ 3,977
</TABLE>
These adjustments are reflected in the Company's accompanying consolidated
statements of operations.
F-87
<PAGE> 171
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
THL-Omega Holding Corporation:
In our opinion, the accompanying consolidated statements of operations and
retained earnings and of cash flows for the year ended December 31, 1994 present
fairly, in all material respects, the results of operations and cash flows of
THL-Omega Holding Corporation and its subsidiaries for the year ended December
31, 1994, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above. We have not audited the financial statements of THL-Omega Holding
Corporation for any period subsequent to December 31, 1994.
PRICE WATERHOUSE LLP
Syracuse, New York
February 10, 1995
F-88
<PAGE> 172
THL-OMEGA HOLDING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<S> <C>
Net sales................................................... $134,457
Costs and expenses:
Cost of products sold..................................... 103,100
Selling expenses.......................................... 5,938
General and administrative expenses....................... 5,836
--------
Income from operations...................................... 19,583
Interest expense............................................ (5,932)
Other income (expense)...................................... 296
--------
Income before income taxes.................................. 13,947
Provision for income taxes.................................. (5,787)
--------
Net income.................................................. 8,160
Retained earnings -- beginning of year...................... 5,124
--------
Retained earnings -- end of year............................ $ 13,284
========
</TABLE>
See accompanying notes to the consolidated financial statements
F-89
<PAGE> 173
THL-OMEGA HOLDING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 8,160
Adjustments to reconcile net income (loss) to net cash from
operating activities:
Depreciation and amortization............................. 6,023
Deferred income taxes..................................... 2,258
Deferred compensation..................................... 81
Effect of changes in current assets and liabilities (Note
1)..................................................... (5,458)
-------
Net cash provided by (used in) operating activities......... 11,064
-------
Cash flows from investing activities:
Additions to property, plant and equipment, net........... (8,667)
-------
Net cash provided by (used in) investing activities......... (8,667)
-------
Cash flows from financing activities:
Repayment of long-term debt............................... (6,042)
Net borrowing (repayment) under revolving credit
facility............................................... 206
Issuance of notes payable, net............................ 3,755
-------
Net cash provided by (used in) financing activities......... (2,081)
-------
Net increase in cash........................................ 316
Cash at beginning of period................................. 23
-------
Cash at end of period....................................... $ 339
=======
</TABLE>
See accompanying notes to the consolidated financial statements
F-90
<PAGE> 174
THL-OMEGA HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THL-Omega Holding Corporation and its subsidiaries (the "Company") are
engaged in the manufacturing and marketing on non-insulated copper wire and
cable products.
Consolidation
The consolidated financial statements of THL-Omega Holding Corporation
include the accounts of Omega Wire, Inc. and its wholly-owned subsidiaries,
Auburn Wire Division, Inc., Auburn Wire, Inc., Continental Cordage Corporation
and OWI Corporation. All significant intercompany transactions have been
eliminated.
Inventories
Inventories are carried at the lower of cost or market, cost being
determined using the last-in, first-out method, except for Continental Cordage
Corporation which uses the first-in, first-out method. Continental Cordage
Corporation's cost of products sold represents less than 10% of the Company's
aggregate cost of products sold.
In 1994, OWI Corporation changed its method of accounting for inventory
from the first-in, first-out method of inventory valuation to the last-in,
first-out method of inventory valuation. The Company believes the last-in,
first-out method will produce a better matching of current costs and current
revenues due to the volatility of copper prices. The effect of this change in
1994 was to decrease inventories and to increase cost of products sold by $349.
The retroactive adjustment of prior year statements is insignificant for
restatement.
During 1994, the Company entered into a futures contract providing for the
sale of 10,000 pounds of copper in March 1995 at a fixed price. This future
contract is accounted for as a hedge of the Company's current inventories. At
December 31, 1994, the Company had incurred an approximate $1,052 unrealized
loss on this contract, which served to increase inventory.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, net of accumulated
depreciation. Maintenance and repair costs are charged to expense as incurred.
Depreciation expense is computed using the straight-line method for financial
reporting and accelerated methods for tax purposes. Property, plant and
equipment is depreciated over the following estimated useful lives for financial
reporting purposes.
<TABLE>
<S> <C>
Buildings................................................... 25 to 40 years
Building improvements....................................... 15 years
Machinery and equipment..................................... 3 to 11 years
</TABLE>
Goodwill and Debt Issue Costs
Goodwill is being amortized on a straight-line basis over 40 years.
Amortization expense was $673 for the year ended December 31, 1994. Cost related
to the issuance of debt amounting to $2,257 at December 31, 1994 has been
deferred and amortized on a straight-line basis over the term of the debt.
Amortization expense was $262 for the year ended December 31, 1994.
Income Tax Accounting
The Company accounts for income taxes in accordance with provision of
Statement of Financial Accounting Standards No. 109 (FAS 109), Accounting for
Income Taxes.
F-91
<PAGE> 175
THL-OMEGA HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash Flow Information
For purposes of reporting cash flows, the Company considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents. The effect on cash flow of changes in current assets and
liabilities is as follows for the year ended December 31, 1994:
<TABLE>
<CAPTION>
1994
-------
<S> <C>
Accounts receivable......................................... $(7,183)
Inventories................................................. (6,450)
Prepaid and other current assets............................ 454
Accounts payable............................................ 5,577
Accrued expenses............................................ 1,639
Income taxes payable........................................ (281)
Customers' deposits on spools and reels..................... 786
-------
$(5,458)
=======
</TABLE>
Cash payments for income taxes were $3,808 for the year ended December 31,
1994. Interest paid was $5,873 for the year ended December 31, 1994.
2. INCOME TAXES
The components of the provision for income taxes are as follows for the
year ended December 31, 1994.
<TABLE>
<S> <C>
Current:
Federal..................................................... $2,979
State....................................................... 550
------
3,529
Deferred.................................................... 2,258
------
Total............................................. $5,787
======
</TABLE>
The total income tax provision differed from total tax expense as computed
by applying the statutory federal income tax rate to income before taxes. The
reasons were:
<TABLE>
<S> <C>
Statutory U.S. federal tax rate............................. 34.0%
State taxes, net of federal benefit......................... 2.7
Amortization of non-deductible goodwill..................... 1.5
Other....................................................... 3.3
----
41.5%
====
</TABLE>
3. RETIREMENT PLANS
The Company has a profit sharing plan covering substantially all employees
of THL-Omega Holding Corporation. Contributions are made to a trusteed fund to
accumulate as a retirement benefit for employees. The profit sharing expense
amounted to $996 for the year ended December 31, 1994.
Effective January 1, 1995, the Company implemented a savings plan
permitting substantially all employees to contribute up to 15% of their salary
on a pretax basis to any of the six investment options available. There are no
required Company contributions to the plan.
F-92
<PAGE> 176
THL-OMEGA HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. STOCKHOLDERS' EQUITY
A leveraged buy out transaction occurred effective January 1, 1989 that
resulted in the application of "predecessor basis" accounting as prescribed by
the Emerging Issues Task Force (EITF) of the Financial Accounting Standards
Board. The application of predecessor basis reduced stockholders' equity and
goodwill by $5,850.
5. COMMITMENTS AND CONTINGENCIES
Operating Lease Agreements
The Company leases certain property, transportation vehicles and other
equipment under operating leases. Total lease expense for the year ended
December 31, 1994 was approximately $1,481.
Under the terms of the agreements in effect at December 31, 1994, the
Company has future minimum lease commitments as follows:
<TABLE>
<S> <C>
1995....................................................... $ 1,305
1996....................................................... 1,262
1997....................................................... 1,202
1998....................................................... 1,159
1999....................................................... 1,108
Later years................................................ 9,198
-------
Total minimum lease commitments............................ $15,234
=======
</TABLE>
Employment Agreements
The Company has consulting and non-competition agreements with two of its
former employees which expire in 1995 and 1997, respectively. Compensation under
the agreements is payable at annual rates of $65 and $95, respectively.
Management Fee
Management fees not exceeding $200 are payable to Thomas H. Lee Company
annually. Payments were $120 for the year ended December 31, 1994.
Joint Venture
During 1992, the Company acquired a 20% interest in Changzhou Omega Copper
Wire Co., Ltd. (the joint venture), a newly-formed joint venture based in the
People's Republic of China, in exchange for certain equipment and technology.
Given the uncertainties surrounding the recoverability of this investment, the
Company's investment in the joint venture was recorded at no value.
During the initial fifteen-year term of the joint venture, the Company has
the exclusive authority to sell the products manufactured by the joint venture
within its sales territory and has agreed to purchase a specified quantity of
product from the joint venture each year. The Company has the option of renewing
these purchase provisions for an additional fifteen-year term upon the
expiration of the initial term. The Company's purchases from the joint venture
amounted to $3,300 in 1994. There were no such purchases in 1993.
6. SUBSEQUENT EVENT
In March 1995, ownership of the Company transferred pursuant to the terms
of a Stock Purchase Agreement. The majority of the Company's long-term debt,
consisting of the Credit Agreement, Subordinated Notes and Term Loans have
subsequently been repaid.
F-93
<PAGE> 177
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of
Electro Componentes de Mexico S.A. de C.V.:
We have audited the accompanying statement of direct revenues and expenses
of Electro Componentes de Mexico S.A. de C.V. (collectively, "ECM") for the
eleven months ended November 30, 1994. This statement is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
statement based on our audit.
We conducted our audit 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 statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial statements. We
believe that our audit provides a reasonable basis for our opinion.
The accompanying financial statement was prepared to present the results of
the direct revenues and expenses of ECM pursuant to the acquisition agreement
described in Note 1, and are not intended to be a complete presentation of ECM's
results of operations or cash flows.
In our opinion, the accompanying financial statements referred to above
present fairly, in all material respects, the statement of direct revenues and
expenses for the eleven months ended November 30, 1994, pursuant to the
acquisition agreement referred to in Note 1, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
El Paso, Texas
April 24, 1995
F-94
<PAGE> 178
ELECTRO COMPONENTES DE MEXICO, S.A. DE C.V. AND
CERTAIN RELATED ASSETS OF GENERAL ELECTRIC COMPANY
STATEMENT OF DIRECT REVENUES AND EXPENSES
FOR THE ELEVEN MONTHS ENDED NOVEMBER 30, 1994
(IN THOUSANDS)
<TABLE>
<S> <C>
Direct revenues............................................. $73,549
Direct expenses:
Cost of goods sold........................................ 51,981
Selling, general and administrative....................... 14,588
-------
Direct revenues in excess of direct expenses................ 6,980
Other income................................................ 242
-------
Direct revenues in excess of direct expenses before income
tax provision............................................. 7,222
Income tax provision at statutory rate...................... 2,787
-------
Net direct revenues in excess of direct expenses............ $ 4,435
=======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-95
<PAGE> 179
ELECTRO COMPONENTES DE MEXICO, S.A. DE C.V. AND
CERTAIN RELATED ASSETS OF GENERAL ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE ELEVEN MONTHS ENDED NOVEMBER 30, 1994
(IN THOUSANDS)
1. BACKGROUND AND BASIS OF PRESENTATION
Pursuant to an Acquisition Agreement (the "Agreement") dated December 2,
1994, between General Electric Company ("GE"), Wirekraft Industries, Inc.
("Wirekraft") and certain affiliates of GE and Wirekraft, Wirekraft acquired the
stock of Electro Componentes de Mexico S.A., de C.V. ("Electro Componentes de
Mexico") and certain related assets from GE (collectively, "ECM").
Electro Componentes de Mexico, a "maquiladora," operates under Mexico's
in-bond manufacturing program. ECM manufactures wire harnesses used in the
appliance industry solely for GE.
The accompanying Statement of Direct Revenue and Expenses for the eleven
months ended November 30, 1994, has been derived from the historical books and
records of Electro Componentes de Mexico and GE. This statement has been
prepared to reflect certain historical information relating to the direct
revenues and expenses of ECM for the purpose of meeting certain reporting
requirements of the Securities and Exchange Commission. Separate records of
ECM's assets and liabilities and revenues and expenses have not been maintained
by GE. As such, it is impracticable to prepare full financial statements for
ECM. The accompanying financial statement has been prepared on a basis which
includes certain costs which have been charged or allocated by GE, and excludes
certain other costs which have not been charged or allocated by GE, such as
corporate overhead, employee benefits, interest and financing costs. The
financial statement does not purport to present the results of operations of ECM
as if it had been operated as a separate, unaffiliated entity, rather than as a
wholly-owned subsidiary of GE during the period presented.
2. SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
using the first-in, first-out ("FIFO") method.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is calculated
using a modified sum of the years digits method. The average estimated lives
utilized in calculating depreciation are as follows: buildings and
improvements -- 25 years; machinery and equipment -- 10 years; and furniture and
fixtures -- 10 years. Leasehold improvements are amortized on the straight-line
method over the shorter of the term of the respective lease or the life of the
respective improvement.
Foreign Currency Translation
The "functional" currency of ECM is U.S. dollars. The historical books and
records of Electro Componentes de Mexico are maintained in Mexican pesos and
have been translated into U.S. dollars in accordance with the Statement of
Financial Accounting Standards No. 52, "Foreign Currency Translation."
Monetary assets and liabilities are converted at the rate of exchange in
effect at the date of acquisition of the asset, and revenue and expense accounts
are converted using a weighted average exchange rate for the period. Translation
gains and losses are included in income currently.
Income Taxes
ECM is not a separate taxable entity for federal, state or local income tax
purposes. Mexican income taxes, amounting to $649, are included in the provision
for income taxes based upon the separate tax return calculation of Electro
Componentes de Mexico for the period presented. ECM's U.S. operations are
included in the consolidated GE tax returns and GE has not historically
allocated U.S. income taxes to ECM. For purposes of the income tax computation,
the provision for income taxes for ECM's U.S. operations,
F-96
<PAGE> 180
ELECTRO COMPONENTES DE MEXICO, S.A. DE C.V. AND
CERTAIN RELATED ASSETS OF GENERAL ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
amounting to $2,138, is based on an assumed combined statutory federal and state
tax rate of 40% for the period presented. Current and deferred portions of the
provision for income taxes have not been determined.
3. TRANSACTIONS WITH AFFILIATES
ECM, through the normal course of business, conducts transactions with GE
and its affiliates. All of ECM's sales and cost of goods sold relate to sales to
GE and its affiliates.
Receipts and disbursements of ECM have been managed by GE through a
centralized treasury system. Accordingly, cash generated by ECM flow directly to
GE and cash requirements are disbursed directly by GE. There is no direct
interest cost allocation to ECM with respect to borrowings, if any, and,
accordingly, the Statement of Direct Revenues and Expenses do not include any
financing costs.
4. RETIREMENT BENEFITS
Seniority premiums to which Mexican employees are entitled upon retirement
after fifteen years or more of service, in accordance with the Mexican Federal
Labor Law, are recognized as cost over the years in which services are rendered,
based on actuarial computations. To this effect, Electro Componentes de Mexico
has established an irrevocable trust fund. Payments to this fund, charged to
operations, were $46 for the eleven months ended November 30, 1994.
5. LEASES
ECM leases certain of its manufacturing facilities and equipment under
long-term lease agreements with lease terms expiring through 2002. Rent expense
applicable to these noncancelable leases aggregated $657 for the eleven months
ended November 30, 1994.
Future minimum lease payments under operating leases for the years ended
November 30 are:
<TABLE>
<S> <C>
1995........................................................ $ 671
1996........................................................ 582
1997........................................................ 536
1998........................................................ 486
1999........................................................ 468
Thereafter.................................................. 1,279
------
$4,022
======
</TABLE>
Total lease expense under operating leases, including amounts previously
noted as well as month-to-month leases, aggregated $1,276 for the eleven months
ended November 30, 1994.
6. CONTINGENCIES
ECM is subject to various lawsuits and claims with respect to such matters
as patents, product liabilities, government regulations, and other actions
arising in the normal course of business. In the opinion of management, the
ultimate liabilities resulting from such lawsuits and claims will not have a
material adverse effect on ECM's financial condition or results of operations.
F-97
<PAGE> 181
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses payable in connection with the
offering of the securities to be registered and offered hereby. All of such
expenses are estimates, other than the registration fee payable to the
Securities and Exchange Commission. The Company has agreed to pay all expenses
related to the registration of the Notes.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee..... $ 3,030.30
Printing and Engraving Expenses......................... 100,000.00
Legal Fees and Expenses................................. 110,000.00
Accounting Fees and Expenses............................ 60,000.00
Miscellaneous........................................... 20,000.00
-----------
Total......................................... $293,030.30
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Delaware law authorizes corporations to limit or to eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. The Certificate of
Incorporation of the Company limits the liability of the Company's directors to
the Company or its stockholders to the fullest extent permitted by the Delaware
statute as in effect from time to time. Specifically, directors of the Company
will not be personally liable for monetary damages for breach of a director's
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Delaware law, or (iv) for any
transaction from which the director derived an improper personal benefit.
The Certificate of Incorporation of the Company provides that Company shall
indemnify its officers and directors and former officers and directors to the
fullest extent permitted by the General Corporation Law of the State of
Delaware. Pursuant to the provisions of Section 145 of the General Corporation
Law of the State of Delaware, the Company has the power to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit, or proceeding (other than an action by or in
the right of the Company) by reason of the fact that he is or was a director,
officer, employee, or agent of the Company, against any and all expenses,
judgments, fines, and amounts paid in settlement actually and reasonably
incurred in connection with such action, suit, or proceeding. The power to
indemnify applies only if such person acted in good faith and in a manner he
reasonably believed to be in the best interest, or not opposed to the best
interest, of the Company and with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful.
The power to indemnify applies to actions brought by or in the right of the
Company as well, but only to the extent of defense and settlement expenses and
not to any satisfaction of a judgment or settlement of the claim itself, and
with the further limitation that in such actions no indemnification shall be
made in the event of any adjudication of negligence or misconduct unless the
court, in its discretion, believes that in light of all the circumstances
indemnification should apply.
The statute further specifically provides that the indemnification
authorized thereby shall not be deemed exclusive of any other rights to which
any such officer or direct may be entitled under any bylaws, agreements, vote of
stockholders or disinterested directors, or otherwise.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission, such indemnifica-
II-1
<PAGE> 182
tion is against public policy as expressed in the Act and is therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person thereof in the successful defense
of any action, suit or proceeding) is asserted by a director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On March 31, 1995, the Company (then known as Omega Wire Corp.) issued and
sold 42,000,000 shares of its common stock, 6,333,333 shares of its class A
common stock and $15,000,000 aggregate principal amount of its 13% Junior
Subordinated Notes due 2010 ("Junior Notes") to affiliates of, and persons
associated with, Hicks, Muse and Mills & Partners in connection with the
acquisition of THL-Omega Holding Corporation. The consideration for the issuance
of the common stock consisted of $34,590,000 in cash and certain equity
securities of THL-Omega Holding Corporation. The consideration for the issuance
of the class A common stock and the Junior Notes consisted of $63,333 in cash
and $15,000,000 in cash, respectively.
Exemption from registration with respect to the above-described sales by
the Company was claimed under Section 4(2) of the Securities Act regarding
transactions by an issuer not involving any public offering.
On June 12, 1995, the Company sold $150,000,000 aggregate principal amount
of 11 3/4% Senior Subordinated Notes due 2005 (the "11 3/4% Notes") in a private
placement in reliance of Section 4(2) under the Securities Act, at a price equal
to 100% of the stated principal amount of such 11 3/4% Notes. The 11 3/4% Notes
were immediately resold by the initial purchasers thereof in reliance on Rule
144A promulgated under the Securities Act.
On March 5, 1996, the Company sold 35,000,000 shares of Holding Common
Stock, 3,888,889 shares of Class A Common Stock and 400,000 shares of Preferred
Stock sold in units together with warrants for the purchase of shares of Common
Stock of Holding ("Units") to Chase Equity Associates and to certain affiliates
of, and persons associated with, Hicks, Muse. The consideration for the issuance
of the Holding Common Stock consisted of $35,000,000 in cash. The consideration
for the issuance of the Class A Common Stock consisted of $38,889 in cash. The
consideration for the issuance of the Units consisted of $10,000,000 in cash.
Exemption from registration with respect to the sales was claimed under Section
4(2) of the Securities Act.
On February 12, 1997, the Company exchanged the Preferred Stock for
$10,000,000 in aggregate principal amount of the Company's 14% Senior
Subordinated Notes due 2005, including the Notes to be registered and offered
hereby. Exemption from registration with respect to such exchange was claimed
under Section 3(a)(9) of the Securities Act.
On June 17, 1997, the Company sold $150,000,000 aggregate principal amount
of 11 3/4% Series B Senior Subordinated Notes due 2005 ("11 3/4% Series B
Notes") in a private placement in reliance on Section 4(2) under the Securities
Act, at a price equal to 108 3/4% of the stated principal amount of such 11 3/4%
Series B Notes. The 11 3/4% Series B Notes were immediately resold by the
initial purchasers thereof in reliance on Rule 144A promulgated under the
Securities Act.
II-2
<PAGE> 183
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
<C> <S>
2.1 -- Agreement and Plan of Merger dated as of June 2, 1995,
among Omega Wire Corp., Wirekraft Holdings Corp.,
International Wire Holding Company, International Wire
Group, Inc. and Wirekraft Acquisition Company.(1)
2.2 -- Agreement and Plan of Merger, dated as of March 5, 1996,
among Hoosier Wire, Inc., International Wire Group, Inc.,
and Wire Technologies, Inc.(2)
2.3 -- Asset Purchase Agreement, dated as of March 5, 1996,
among Dekko Automotive Wire, Inc., International Wire
Holding Company, International Wire Group, Inc., and Wire
Technologies, Inc.(2)
2.4 -- Asset Purchase Agreement, dated as of March 5, 1996,
among Albion Wire, Inc. International Wire Holding
Company, International Wire Group, Inc., and Wire
Technologies, Inc.(2)
2.5 -- Asset Purchase Agreement, dated as of March 5, 1996,
among Silicones, International Wire Holding Company,
International Wire Group, Inc., and Wire Technologies,
Inc.(2)
2.6 -- Stock Purchase Agreement dated as of January 2, 1997,
among International Wire Group, Inc., Camden Wire Co.,
Inc. and Oneida Ltd.*
3.1 -- Restated Certificate of Incorporation of International
Wire Group, Inc.(4)
3.2 -- By-Laws of International Wire Group, Inc.(1)
3.7 -- Certificate of Incorporation of Camden Wire Co., Inc.*
3.8 -- Bylaws of Camden Wire Co., Inc.*
3.9 -- Certificate of Incorporation of ECM Holding Company.(1)
3.10 -- Bylaws of ECM Holding Company.(1)
3.11 -- Certificate of Incorporation, as amended, of Omega Wire,
Inc. (formerly known as THL-Omega Holding
Corporation).(1)
3.12 -- Bylaws, as amended, of Omega Wire, Inc. (formerly known
as THL-Omega Holding Corporation).(1)
3.13 -- Certificate of Incorporation, as amended, of OWI
Corporation.(1)
3.14 -- Bylaws of OWI Corporation.(1)
3.15 -- Certificate of Incorporation of Wirekraft Employment
Company.(1)
3.16 -- Bylaws of Wirekraft Employment Company.(1)
3.17 -- Certificate of Incorporation of Wire Harness Industries,
Inc.*
3.18 -- Bylaws of Wire Harness Industries, Inc.*
3.19 -- Certificate of Incorporation, as amended, of Wirekraft
Industries, Inc.(1)
3.20 -- Bylaws of Wirekraft Industries, Inc.(1)
3.21 -- Articles of Incorporation of Wire Technologies, Inc.*
3.22 -- Bylaws of Wire Technologies, Inc.*
4.1 -- Indenture, dated as of June 12, 1995, among International
Wire Group, Inc., as Issuer, the Subsidiary Guarantors
(as therein defined) and IBJ Schroder Bank & Trust
Company, as Trustee.(1)
4.2 -- Form of the 11 3/4% Note (included in Exhibit 4.1,
Exhibit B).
4.3 -- Exchange and Registration Rights Agreement, dated as of
June 12, 1995, among International Wire Group, Inc., the
Subsidiary Guarantors (as therein defined), Chemical
Securities Inc. and BT Securities Corporation.(1)
</TABLE>
II-3
<PAGE> 184
<TABLE>
<CAPTION>
<C> <S>
4.4 -- First Supplemental Indenture, dated as of March 5, 1996,
by and among International Wire Group, Inc., Wire
Technologies, Inc., the subsidiary guarantors party
thereto, and IBJ Schroder Bank & Trust Company, as
Trustee.(2)
4.5 -- Certificate of Designation of Series A Senior Cumulative
Exchangeable Redeemable Preferred Stock of International
Wire Group, Inc.(2)
4.6 -- Second Supplemental Indenture, dated as of December 20,
1996, by International Wire Group, Inc. the subsidiary
guarantors party thereto, and IBJ Schroder Bank and Trust
Company, as Trustee.(5)
4.7 -- Indenture, dated as of February 12, 1997, among
International Wire Group, Inc., as Issuer, the Subsidiary
Guarantors (as therein defined) and IBJ Schroder Bank &
Trust Company, as Trustee.*
4.8 -- Form of 14% Note (included in Exhibit 4.7, Exhibit A).
4.9 -- Preferred Stock and Warrant Purchase Agreement dated as
of March 5, 1996, by and among International Wire Holding
Company, International Wire Group, Inc., Chemical Equity
Associates and Hicks, Muse, Tate & First Equity Fund II,
L.P.*
4.10 -- Third Supplemental Indenture, dated as of February 12,
1997, by and among International Wire Group, Inc., the
subsidiary guarantors party thereto, and IBJ Schroder
Bank & Trust Company, as Trustee.*
4.11 -- First Supplemental Indenture, dated as of June 10, 1997,
by and among International Wire Group, Inc., the
subsidiary guarantors party thereto, and IBJ Schroder
Bank & Trust Company, as Trustee.*
4.12 -- Indenture, dated as of June 17, 1997, among International
Wire Group, Inc., as Issuer, the Subsidiary Guarantors
(as therein defined) and IBJ Schroder Bank & Trust
Company, as Trustee.*
4.13 -- Form of 11 3/4% Series B Note (included in Exhibit 4.11,
Exhibit A).
5.1 -- Opinion of Weil, Gotshal & Manges LLP as to the
securities registered hereby.*
10.1 -- Parts Sourcing Contract, dated as of December 2, 1994,
among Wirekraft Industries, Inc. and General Electric
Company (Confidential treatment has been granted with
respect to certain portions of this exhibit).(1)
10.2 -- Schedule of Substantially Identical Domestic Subsidiary
Security Agreements.(1)
10.3 -- Agreement of Sublease, dated as of December 31, 1991,
between Oneida County Industrial Development Agency and
OWI Corporation.(1)
10.4 -- Agreement of Sublease, dated as of December 31, 1991,
between Onondaga County Industrial Development Agency and
OWI Corporation.(1)
10.5 -- Sublease Agreement, dated as of March 31, 1994, between
Productos de Control, S.A. de C.V. and Wirekraft
Industries, Inc.(1)
10.6 -- Lease Contract, dated as of August 1, 1994, between
Parques Industriales Mexicanos, S.A. de C.V. and Electro
Componentes de Mexico, S.A. de C.V.(1)
10.7 -- Employment Agreement, dated as of June 12, 1995, among
International Wire Holding Company, International Wire
Group Inc. and certain of its subsidiaries and James N.
Mills.(4)
10.8 -- Employment Agreement, dated as of June 12, 1995, among
International Wire Holding Company, International Wire
Group Inc. and certain of its subsidiaries and David M.
Sindelar.(4)
10.9 -- Employment Agreement, dated as of March 14, 1995, between
Omega Wire, Inc. and Rodney D. Kent.(1)
10.10 -- Employment Agreement, dated as of February 6, 1995,
between Wirekraft Holdings Corp. and William J. Kriss.(1)
</TABLE>
II-4
<PAGE> 185
<TABLE>
<S> <C>
10.11 -- Option Agreement, dated as of March 31, 1995, between
Omega Wire Corp. and James N. Mills.(1)
10.12 -- Option Agreement, dated as of March 31, 1995, between
Omega Wire Corp. and David M. Sindelar.(1)
10.13 -- Option Agreement dated as of June 12, 1995, between Omega
Wire Corp. and David M. Sindelar.(1)
10.14 -- Option Agreement dated as of June 12, 1995, between
International Wire Group, Inc. and David M. Sindelar.(1)
10.15 -- Option Agreement dated as of August 28, 1995, between
International Wire Group, Inc. and Larry S. Bacon.(3)
10.16 -- Stockholders Agreement dated as of June 12, 1995, among
International Wire Holding Company and the Stockholders
signatories thereto.(1)
10.17 -- Monitoring and Oversight Agreement dated as of June 12,
1995, among International Wire Holding Company,
International Wire Group, Inc. and Hicks, Muse & Co.
Partners, L.P.(1)
10.18 -- Option Agreement dated as of August 28, 1995 between
International Wire Group, Inc. and W. Thomas McGhee.(3)
10.19 -- 1995 Stock Option Plan of International Wire Holding
Company.(4)
10.20 -- Form of Option Agreement of International Wire Holding
Company under 1995 Stock Option Plan.(4)
10.21 -- Agreement dated as of December 29, 1995 among Wirekraft
Industries, Inc. and General Electric Company
(Confidential treatment has been granted with respect to
certain portions of this exhibit).(4)
10.22 -- Amended and Restated Credit Agreement, dated as of
February 12, 1997, among International Wire Group, Inc.,
International Wire Holding Company, the several lenders
from time to time parties thereto, The Chase Manhattan
Bank, as Administrative Agent, and Bankers Trust Company,
as Documentation Agent.(5)
10.23 -- Employment Agreement, dated as of September 25, 1996,
among International Wire Holding Company and
International Wire Group, Inc. and Joseph M. Fiamingo.(5)
10.24 -- Employment Agreement, dated as of March 5, 1996, among
International Wire Holding Company and International Wire
Group, Inc. and Robert C. Kozlowski. (5)
10.25 -- Option Agreement, dated as of November 5, 1995, between
International Wire Holding Company and Joseph M.
Fiamingo.(5)
10.26 -- Option Agreement, dated as of March 5, 1996, between
International Wire Holding Company and Robert C.
Kozlowski.(5)
10.27 -- Option Agreement, dated as of November 6, 1996, between
International Wire Holding Company and Joseph M.
Fiamingo.(5)
10.28 -- First Amendment to Amended and Restated Credit Agreement,
dated as of June 17, 1997, among International Wire
Group, Inc., International Wire Holding Company, the
Several Lenders from time to time parties thereto, The
Chase Manhattan Bank, as Administrative Agent, and
Bankers Trust Company, as Documentation Agent.*
12.1 -- Computation of Ratio of Earnings to Fixed Charges of
Wirekraft Holdings Corporation.(1)
</TABLE>
II-5
<PAGE> 186
<TABLE>
<S> <C>
12.2 -- Computation of Ratio of Earnings to Fixed Charges of
THL-Omega Holding Corporation.(1)
12.3 -- Computation of Ratio of Earnings to Fixed Charges of
Omega Wire Corporation.(1)
12.4 -- Computation of Deficiency of Earnings to Cover Fixed
Charges of International Wire Group, Inc.(1)
12.5 -- Computation of Ratio of Earnings to Fixed Charges of
International Wire Group, Inc.*
21.1 -- Subsidiaries of International Wire Group, Inc.(5)
23.1 -- Consent of Weil, Gotshal & Manges LLP (included in the
opinion filed as Exhibit 5.1 to this Registration
Statement).
23.2 -- Consent of Coopers & Lybrand L.L.P., independent
certified public accountants.**
23.3 -- Consent of Coopers & Lybrand L.L.P., independent
certified public accountants.**
23.4 -- Consent of Coopers & Lybrand L.L.P., independent
certified public accountants.**
23.5 -- Consent of Coopers & Lybrand L.L.P., independent
certified public accountants.**
23.6 -- Consent of Coopers & Lybrand L.L.P., independent
certified public accountants.**
23.7 -- Consent of Price Waterhouse LLP, independent certified
public accountants.**
23.8 -- Consent of Coopers & Lybrand L.L.P., independent
certified public accountants.**
23.9 -- Consent of Coopers & Lybrand L.L.P., independent
certified public accountants.**
24.1 -- Powers of Attorney.*
25.1 -- Form T-1 of IBJ Schroder Bank & Trust Company, as Trustee
under the Indenture filed as Exhibit 4.7.*
</TABLE>
- ---------------
(1) Incorporated by reference to the Registration Statement on Form S-1
(33-93970) of International Wire Group, Inc. as declared effective by the
Securities and Exchange Commission on September 29, 1995.
(2) Incorporated by reference to the Current Report on Form 8-K of International
Wire Group, Inc. as filed with the Securities Exchange Commission on March
20, 1996.
(3) Incorporated by reference to the Quarterly Report on Form 10-Q of
International Wire Group, Inc. for the fiscal quarter ended September 30,
1995.
(4) Incorporated by reference to the Annual Report on Form 10-K of International
Wire Group, Inc. for the fiscal year ended December 31, 1995.
(5) Incorporated by reference to the Annual Report on Form 10-K of International
Wire Group, Inc. for the fiscal year ended December 31, 1996.
* Previously filed.
** Filed herewith.
(b) FINANCIAL STATEMENT SCHEDULES
The following Financial Statement Schedules are included in Part II of this
Registration Statement:
INTERNATIONAL WIRE GROUP, INC.
Report of Independent Accountants
Schedule II -- Valuation and Qualifying Accounts
II-6
<PAGE> 187
ITEM 17. UNDERTAKINGS.
(a) The undersigned Co-Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a) (3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post- effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3, Form S-8 or Form F-3,
and the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it becomes effective.
(b) See Item 14.
II-7
<PAGE> 188
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Co-Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the City of St.
Louis, State of Missouri, on the 12th day of November, 1997.
INTERNATIONAL WIRE GROUP, INC.
By: /s/ DAVID M. SINDELAR
----------------------------------
David M. Sindelar
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board, Chief November 12, 1997
- ----------------------------------------------------- Executive Officer and
James N. Mills Director of the
Co-Registrant listed above
(Principal Executive
Officer)
/s/ DAVID M. SINDELAR Senior Vice President of November 12, 1997
- ----------------------------------------------------- each of the Co-Registrants
David M. Sindelar listed above (Principal
Financial and Accounting
Officer)
* President, Chief Operating November 12, 1997
- ----------------------------------------------------- Officer and Director of
Joseph M. Fiamingo the Co-Registrant listed
above
* Director of the November 12, 1997
- ----------------------------------------------------- Co-Registrant listed above
Richard W. Vieser
* Director of the November 12, 1997
- ----------------------------------------------------- Co-Registrant listed above
Thomas P. Danis
* Director of the November 12, 1997
- ----------------------------------------------------- Co-Registrant listed above
Jack D. Furst
* Director of the November 12, 1997
- ----------------------------------------------------- Co-Registrant listed above
John A. Gavin
* Director of the November 12, 1997
- ----------------------------------------------------- Co-Registrant listed above
Rodney D. Kent
* Director of the November 12, 1997
- ----------------------------------------------------- Co-Registrant listed above
Charles W. Tate
* /s/ DAVID M. SINDELAR
- -----------------------------------------------------
David M. Sindelar
Attorney-In-Fact
</TABLE>
II-8
<PAGE> 189
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Co-Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the City of St.
Louis, State of Missouri, on the 12th day of November, 1997.
OMEGA WIRE, INC.
OWI CORPORATION
By: /s/ DAVID M. SINDELAR
----------------------------------
David M. Sindelar
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* President, Chief Executive November 12, 1997
- ----------------------------------------------------- Officer and Director of
Rodney D. Kent each of the Co-Registrants
listed above (Principal
Executive Officer)
/s/ DAVID M. SINDELAR Senior Vice President and November 12, 1997
- ----------------------------------------------------- Director of each of the
David M. Sindelar Co-Registrants listed
above (Principal Financial
and Accounting Officer)
* Director of each of the November 12, 1997
- ----------------------------------------------------- Co-Registrants listed
James N. Mills above
* /s/ DAVID M. SINDELAR
- -----------------------------------------------------
David M. Sindelar
Attorney-In-Fact
</TABLE>
II-9
<PAGE> 190
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Co-Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the City of St.
Louis, State of Missouri, on the 12th day of November, 1997.
ECM HOLDING COMPANY
WIRE HARNESS INDUSTRIES, INC.
WIREKRAFT EMPLOYMENT COMPANY
WIREKRAFT INDUSTRIES, INC.
WIRE TECHNOLOGIES, INC.
By: /s/ DAVID M. SINDELAR
----------------------------------
David M. Sindelar
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board, Chief November 12, 1997
- ----------------------------------------------------- Executive Officer and
James N. Mills Director of each of the
Co-Registrants listed
above (Principal Executive
Officer)
/s/ DAVID M. SINDELAR Senior Vice President of November 12, 1997
- ----------------------------------------------------- each of the Co-Registrants
David M. Sindelar listed above (Principal
Financial and Accounting
Officer)
* /s/ DAVID M. SINDELAR
- -----------------------------------------------------
David M. Sindelar
Attorney-In-Fact
</TABLE>
II-10
<PAGE> 191
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Co-Registrants have duly caused this Registration Statement to be signed on
their behalf by the undersigned, thereunto duly authorized, in the City of St.
Louis, State of Missouri, on the 12th day of November, 1997.
CAMDEN WIRE CO., INC.
By: /s/ DAVID M. SINDELAR
----------------------------------
David M. Sindelar
President and Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DAVID M. SINDELAR President and Director of November 12, 1997
- ----------------------------------------------------- each of the Co-Registrants
David M. Sindelar listed above (Principal
Executive, Financial and
Accounting Officer)
</TABLE>
II-11
<PAGE> 192
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
International Wire Group, Inc.:
Our report on the consolidated financial statements of International Wire
Group, Inc. and subsidiaries is included on page S-2 of this Form S-1. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule listed in the index on page F-1 of this
Form S-1.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
St. Louis, Missouri
February 28, 1997
S-1
<PAGE> 193
INTERNATIONAL WIRE GROUP, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ALLOWANCE FOR DOUBTFUL COLLECTION OF
ACCOUNTS -- DEDUCTED BALANCE AT PREVIOUSLY BALANCE AT
FROM RECEIVABLES IN THE BEGINNING WRITTEN OFF END OF
BALANCE SHEET OF PERIOD PROVISION WRITEOFFS ACCOUNTS ACQUISITIONS PERIOD
----------------------- ---------- --------- --------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Seven months ended December 31,
1995............................ $845 $ 33 $(53) $35 $ -- $ 860
Year ended December 31, 1996...... $860 $337 $(71) $12 $225 $1,363
</TABLE>
S-2
<PAGE> 194
INTERNATIONAL WIRE GROUP, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ALLOWANCE FOR DOUBTFUL COLLECTION OF
ACCOUNTS -- DEDUCTED BALANCE AT PREVIOUSLY BALANCE AT
FROM RECEIVABLES IN THE BEGINNING WRITTEN OFF END OF
BALANCE SHEET OF PERIOD PROVISION WRITEOFFS ACCOUNTS ACQUISITIONS PERIOD
----------------------- ---------- --------- --------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Six months ended June 30, 1997.... $1,363 $175 $(320) $-- $200 $1,418
</TABLE>
S-3
<PAGE> 195
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 -- Agreement and Plan of Merger dated as of June 2, 1995,
among Omega Wire Corp., Wirekraft Holdings Corp.,
International Wire Holding Company, International Wire
Group, Inc. and Wirekraft Acquisition Company.(1)
2.2 -- Agreement and Plan of Merger, dated as of March 5, 1996,
among Hoosier Wire, Inc., International Wire Group, Inc.,
and Wire Technologies, Inc.(2)
2.3 -- Asset Purchase Agreement, dated as of March 5, 1996,
among Dekko Automotive Wire, Inc., International Wire
Holding Company, International Wire Group, Inc., and Wire
Technologies, Inc.(2)
2.4 -- Asset Purchase Agreement, dated as of March 5, 1996,
among Albion Wire, Inc. International Wire Holding
Company, International Wire Group, Inc., and Wire
Technologies, Inc.(2)
2.5 -- Asset Purchase Agreement, dated as of March 5, 1996,
among Silicones, International Wire Holding Company,
International Wire Group, Inc., and Wire Technologies,
Inc.(2)
2.6 -- Stock Purchase Agreement dated as of January 2, 1997,
among International Wire Group, Inc., Camden Wire Co.,
Inc. and Oneida Ltd.*
3.1 -- Restated Certificate of Incorporation of International
Wire Group, Inc.(4)
3.2 -- By-Laws of International Wire Group, Inc.(1)
3.7 -- Certificate of Incorporation of Camden Wire Co., Inc.*
3.8 -- Bylaws of Camden Wire Co., Inc.*
3.9 -- Certificate of Incorporation of ECM Holding Company.(1)
3.10 -- Bylaws of ECM Holding Company.(1)
3.11 -- Certificate of Incorporation, as amended, of Omega Wire,
Inc. (formerly known as THL-Omega Holding
Corporation).(1)
3.12 -- Bylaws, as amended, of Omega Wire, Inc. (formerly known
as THL-Omega Holding Corporation).(1)
3.13 -- Certificate of Incorporation, as amended, of OWI
Corporation.(1)
3.14 -- Bylaws of OWI Corporation.(1)
3.15 -- Certificate of Incorporation of Wirekraft Employment
Company.(1)
3.16 -- Bylaws of Wirekraft Employment Company.(1)
3.17 -- Certificate of Incorporation of Wire Harness Industries,
Inc.*
3.18 -- Bylaws of Wire Harness Industries, Inc.*
3.19 -- Certificate of Incorporation, as amended, of Wirekraft
Industries, Inc.(1)
3.20 -- Bylaws of Wirekraft Industries, Inc.(1)
3.21 -- Articles of Incorporation of Wire Technologies, Inc.*
3.22 -- Bylaws of Wire Technologies, Inc.*
4.1 -- Indenture, dated as of June 12, 1995, among International
Wire Group, Inc., as Issuer, the Subsidiary Guarantors
(as therein defined) and IBJ Schroder Bank & Trust
Company, as Trustee.(1)
4.2 -- Form of the 11 3/4% Note (included in Exhibit 4.1,
Exhibit B).
4.3 -- Exchange and Registration Rights Agreement, dated as of
June 12, 1995, among International Wire Group, Inc., the
Subsidiary Guarantors (as therein defined), Chemical
Securities Inc. and BT Securities Corporation.(1)
</TABLE>
<PAGE> 196
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
4.4 -- First Supplemental Indenture, dated as of March 5, 1996,
by and among International Wire Group, Inc., Wire
Technologies, Inc., the subsidiary guarantors party
thereto, and IBJ Schroder Bank & Trust Company, as
Trustee.(2)
4.5 -- Certificate of Designation of Series A Senior Cumulative
Exchangeable Redeemable Preferred Stock of International
Wire Group, Inc.(2)
4.6 -- Second Supplemental Indenture, dated as of December 20,
1996, by International Wire Group, Inc. the subsidiary
guarantors party thereto, and IBJ Schroder Bank and Trust
Company, as Trustee.(5)
4.7 -- Indenture, dated as of February 12, 1997, among
International Wire Group, Inc., as Issuer, the Subsidiary
Guarantors (as therein defined) and IBJ Schroder Bank &
Trust Company, as Trustee.*
4.8 -- Form of 14% Note (included in Exhibit 4.7, Exhibit A).
4.9 -- Preferred Stock and Warrant Purchase Agreement dated as
of March 5, 1996, by and among International Wire Holding
Company, International Wire Group, Inc., Chemical Equity
Associates and Hicks, Muse, Tate & First Equity Fund II,
L.P.*
4.10 -- Third Supplemental Indenture, dated as of February 12,
1997, by and among International Wire Group, Inc., the
subsidiary guarantors party thereto, and IBJ Schroder
Bank & Trust Company, as Trustee.*
4.11 -- First Supplemental Indenture, dated as of June 10, 1997,
by and among International Wire Group, Inc., the
subsidiary guarantors party thereto, and IBJ Schroder
Bank & Trust Company, as Trustee.*
4.12 -- Indenture, dated as of June 17, 1997, among International
Wire Group, Inc., as Issuer, the Subsidiary Guarantors
(as therein defined) and IBJ Schroder Bank & Trust
Company, as Trustee.*
4.13 -- Form of 11 3/4% Series B Note (included in Exhibit 4.11,
Exhibit A).
5.1 -- Opinion of Weil, Gotshal & Manges LLP as to the
securities registered hereby.*
10.1 -- Parts Sourcing Contract, dated as of December 2, 1994,
among Wirekraft Industries, Inc. and General Electric
Company (Confidential treatment has been granted with
respect to certain portions of this exhibit).(1)
10.2 -- Schedule of Substantially Industrial Domestic Subsidiary
Security Agreements.(1)
10.3 -- Agreement of Sublease, dated as of December 31, 1991,
between Oneida County Industrial Development Agency and
OWI Corporation.(1)
10.4 -- Agreement of Sublease, dated as of December 31, 1991,
between Onondaga County Industrial Development Agency and
OWI Corporation.(1)
10.5 -- Sublease Agreement, dated as of March 31, 1994, between
Productos de Control, S.A. de C.V. and Wirekraft
Industries, Inc.(1)
10.6 -- Lease Contract, dated as of August 1, 1994, between
Parques Industriales Mexicanos, S.A. de C.V. and Electro
Componentes de Mexico, S.A. de C.V.(1)
10.7 -- Employment Agreement, dated as of June 12, 1995, among
International Wire Holding Company, International Wire
Group Inc. and certain of its subsidiaries and James N.
Mills.(4)
10.8 -- Employment Agreement, dated as of June 12, 1995, among
International Wire Holding Company, International Wire
Group Inc. and certain of its subsidiaries and David M.
Sindelar.(4)
10.9 -- Employment Agreement, dated as of March 14, 1995, between
Omega Wire, Inc. and Rodney D. Kent.(1)
10.10 -- Employment Agreement, dated as of February 6, 1995,
between Wirekraft Holdings Corp. and William J. Kriss.(1)
</TABLE>
<PAGE> 197
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.11 -- Option Agreement, dated as of March 31, 1995, between
Omega Wire Corp. and James N. Mills.(1)
10.12 -- Option Agreement, dated as of March 31, 1995, between
Omega Wire Corp. and David M. Sindelar.(1)
10.13 -- Option Agreement dated as of June 12, 1995, between Omega
Wire Corp. and David M. Sindelar.(1)
10.14 -- Option Agreement dated as of June 12, 1995, between
International Wire Group, Inc. and David M. Sindelar.(1)
10.15 -- Option Agreement dated as of August 28, 1995, between
International Wire Group, Inc. and Larry S. Bacon.(3)
10.16 -- Stockholders Agreement dated as of June 12, 1995, among
International Wire Holding Company and the Stockholders
signatories thereto.(1)
10.17 -- Monitoring and Oversight Agreement dated as of June 12,
1995, among International Wire Holding Company,
International Wire Group, Inc. and Hicks, Muse & Co.
Partners, L.P.(1)
10.18 -- Option Agreement dated as of August 28, 1995 between
International Wire Group, Inc. and W. Thomas McGhee.(3)
10.19 -- 1995 Stock Option Plan of International Wire Holding
Company.(4)
10.20 -- Form of Option Agreement of International Wire Holding
Company under 1995 Stock Option Plan.(4)
10.21 -- Agreement dated as of December 29, 1995 among Wirekraft
Industries, Inc. and General Electric Company
(Confidential treatment has been granted with respect to
certain portions of this exhibit).(4)
10.22 -- Amended and Restated Credit Agreement, dated as of
February 12, 1997, among International Wire Group, Inc.,
International Wire Holding Company, the several lenders
from time to time parties thereto, The Chase Manhattan
Bank, as Administrative Agent, and Bankers Trust Company,
as Documentation Agent.(5)
10.23 -- Employment Agreement, dated as of September 25, 1996,
among International Wire Holding Company and
International Wire Group, Inc. and Joseph M. Fiamingo.(5)
10.24 -- Employment Agreement, dated as of March 5, 1996, among
International Wire Holding Company and International Wire
Group, Inc. and Robert C. Kozlowski. (5)
10.25 -- Option Agreement, dated as of November 5, 1995, between
International Wire Holding Company and Joseph M.
Fiamingo.(5)
10.26 -- Option Agreement, dated as of March 5, 1996, between
International Wire Holding Company and Robert C.
Kozlowski.(5)
10.27 -- Option Agreement, dated as of November 6, 1996, between
International Wire Holding Company and Joseph M.
Fiamingo.(5)
10.28 -- First Amendment to Amended and Restated Credit Agreement,
dated as of June 17, 1997, among International Wire
Group, Inc., International Wire Holding Company, the
Several Lenders from time to time parties thereto, The
Chase Manhattan Bank, as Administrative Agent, and
Bankers Trust Company, as Documentation Agent.*
12.1 -- Computation of Ratio of Earnings to Fixed Charges of
Wirekraft Holdings Corporation.(1)
12.2 -- Computation of Ratio of Earnings to Fixed Charges of
THL-Omega Holding Corporation.(1)
</TABLE>
<PAGE> 198
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
12.3 -- Computation of Ratio of Earnings to Fixed Charges of
Omega Wire Corporation.(1)
12.4 -- Computation of Deficiency of Earnings to Cover Fixed
Charges of International Wire Group, Inc.(1)
12.5 -- Computation of Ratio of Earnings to Fixed Charges of
International Wire Group, Inc.*
21.1 -- Subsidiaries of International Wire Group, Inc.(5)
23.1 -- Consent of Weil, Gotshal & Manges LLP (included in the
opinion filed as Exhibit 5.1 to this Registration
Statement).
23.2 -- Consent of Coopers & Lybrand L.L.P., independent
certified public accountants.**
23.3 -- Consent of Coopers & Lybrand L.L.P., independent
certified public accountants.**
23.4 -- Consent of Coopers & Lybrand L.L.P., independent
certified public accountants.**
23.5 -- Consent of Coopers & Lybrand L.L.P., independent
certified public accountants.**
23.6 -- Consent of Coopers & Lybrand L.L.P., independent
certified public accountants.**
23.7 -- Consent of Price Waterhouse LLP, independent certified
public accountants.**
23.8 -- Consent of Coopers & Lybrand L.L.P., independent
certified public accountants.**
23.9 -- Consent of Coopers & Lybrand L.L.P., independent
certified public accountants.**
24.1 -- Powers of Attorney.*
25.1 -- Form T-1 of IBJ Schroder Bank & Trust Company, as Trustee
under the Indenture filed as Exhibit 4.7.*
</TABLE>
- ---------------
(1) Incorporated by reference to the Registration Statement on Form S-1
(33-93970) of International Wire Group, Inc. as declared effective by the
Securities and Exchange Commission on September 29, 1995.
(2) Incorporated by reference to the Current Report on Form 8-K of International
Wire Group, Inc. as filed with the Securities Exchange Commission on March
20, 1996.
(3) Incorporated by reference to the Quarterly Report on Form 10-Q of
International Wire Group, Inc. for the fiscal quarter ended September 30,
1995.
(4) Incorporated by reference to the Annual Report on Form 10-K of International
Wire Group, Inc. for the fiscal year ended December 31, 1995.
(5) Incorporated by reference to the Annual Report on Form 10-K of International
Wire Group, Inc. for the fiscal year ended December 31, 1996.
* Previously filed.
** Filed herewith.
<PAGE> 1
EXHIBIT 23.2
TO THE BOARD OF DIRECTORS OF
INTERNATIONAL WIRE GROUP, INC.:
We consent to the inclusion in this Registration Statement on Form S-1 of
our report dated February 28, 1997 on our audits of the consolidated financial
statements and financial statement schedules of International Wire Group, Inc.
We also consent to the reference to our Firm as experts under the caption
"Experts."
COOPERS & LYBRAND L.L.P
St. Louis, Missouri
November 12, 1997
<PAGE> 1
EXHIBIT 23.3
To the Board of Directors of
each of the companies comprising
Dekko Wire Technologies:
We consent to the inclusion in this Registration Statement on Form S-1 of
our report dated January 30, 1996, except for Note 10, as to which the date is
January 30, 1996, except for Note 10, as to which the date is February 6, 1996,
on our audits of the consolidated financial statements of Dekko Wire
Technologies as of December 28, 1995, and the related combined statements of
income, shareholders' equity and cash flows for each of the years in the two
years ended December 28, 1995. We also consent to the reference to our Firm as
experts under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Fort Wayne, Indiana
November 12, 1997
<PAGE> 1
EXHIBIT 23.4
To the Board of Directors of
Wirekraft Holdings Corp.:
We consent to the inclusion in this Registration Statement on Form S-1 of
our report dated January 27, 1996 on our audits of the consolidated statements
of operations, stockholders' equity and cash flows of Wirekraft Holdings Corp.
and Subsidiaries (formerly WB Holdings, Inc.) for the six months ended May 31,
1995 and the year ended November 30, 1994. We also consent to the reference to
our Firm as experts under the caption "Experts."
COOPERS & LYBRAND L.L.P.
St. Louis, Missouri
November 12, 1997
<PAGE> 1
EXHIBIT 23.5
To the Board of Directors of
Omega Wire Corp.:
We consent to the inclusion in this Registration Statement on Form S-1 of
our report dated January 27, 1996 on our audits of the consolidated statements
of operations, stockholders' equity and cash flows of Omega Wire Corp. for the
two months ended May 31, 1995. We also consent to the reference to our Firm as
experts under the caption "Experts."
COOPERS & LYBRAND L.L.P.
St. Louis, Missouri
November 12, 1997
<PAGE> 1
EXHIBIT 23.6
To the Stockholders of
Electro Componentes de Mexico S.A. de C.V.:
We consent to the inclusion in this Registration Statement on Form S-1 of
our report dated April 24, 1995 on our audit of the statement of direct revenues
and expenses of Electro Componentes de Mexico S.A. de C.V. for the eleven months
ended November 30, 1994. We also consent to the reference to our Firm under the
caption "Experts."
COOPERS & LYBRAND L.L.P.
El Paso, Texas
November 12, 1997
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 10, 1995
relating to the financial statements of THL-Omega Holding Corporation, which
appears in such Prospectus. We also consent to the reference to us under the
heading Experts in such Prospectus.
PRICE WATERHOUSE LLP
Syracuse, New York
November 12, 1997
<PAGE> 1
EXHIBIT 23.8
To the Shareholders of
THL-Omega Holding Corporation:
We consent to the inclusion in this Registration Statement on Form S-1 of
our report dated January 27, 1996 on our audit of the financial statements of
operations and retained earnings and cash flows of THL-Omega Holding Corporation
for the three months ended March 31, 1995. We also consent to the reference of
our Firm as experts under the caption "Experts."
COOPERS & LYBRAND L.L.P.
St. Louis, Missouri
November 12, 1997
<PAGE> 1
EXHIBIT 23.9
To the Board of Directors of
Camden Wire Company, Inc.:
We consent to the inclusion in this Registration Statement on Form S-1 of
our report dated October 31, 1997 on our audits of the financial statements of
Camden Wire Company, Inc. We also consent to the reference to our Firm as
experts under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Syracuse, New York
November 12, 1997
