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Filed Pursuant to Rule 424(b)(1)
FILE NO. 333-38945
PROSPECTUS
February 6, 1998
10,325,028 SHARES
[BERG ELECTRONICS LOGO]
COMMON STOCK
Of the 10,325,028 shares of common stock, par value $0.01 per share
("Common Stock"), of Berg Electronics Corp. (the "Company") offered hereby,
9,876,114 shares are being sold by certain stockholders of the Company (the
"Selling Stockholders") and 448,914 shares are being sold by the Company. The
Company will not receive any of the proceeds from the shares offered by the
Selling Stockholders. See "Principal and Selling Stockholders," "Underwriting"
and "Use of Proceeds."
The Common Stock is traded on the New York Stock Exchange under the symbol
"BEI." The last reported sale price of the Common Stock on February 5, 1998 was
$28 1/16 per share. See "Market for Common Stock and Dividend Policy." Each
share of Common Stock, under certain circumstances, entitles the registered
holder thereof to purchase 1/100th of a share of Series A Junior Preferred Stock
(as defined herein) of the Company. See "Description of Capital Stock -- Rights
Plan."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN
MATERIAL RISK FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
SHARES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PRICE UNDERWRITING PROCEEDS TO PROCEEDS TO
TO THE DISCOUNTS AND THE SELLING THE
PUBLIC COMMISSIONS(1) STOCKHOLDERS COMPANY(2)
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<S> <C> <C> <C> <C>
Per Share....................... $25.00 $0.75 $24.25 $24.25
Total(3)........................ $258,125,700 $7,743,771 $239,495,765 $10,886,164
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company, Berg Electronics Group, Inc. and the Selling Stockholders have
agreed to indemnify the Underwriter against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses, estimated at $680,000, which will be paid by the
Company.
(3) The Selling Stockholders and the Company granted to the Underwriter an
option, which the Underwriter has exercised in full, to purchase 897,829 and
448,914 shares of Common Stock, respectively, (representing an aggregate of
1,346,743 additional shares of Common Stock) at the Price to the Public less
Underwriting Discounts and Commissions for the purpose of covering
over-allotments. The information in the foregoing table reflects the
exercise in full of such option. See "Underwriting."
The shares of Common Stock are offered by the Underwriter, when, as and if
delivered to and accepted by the Underwriter and subject to various prior
conditions, including its right to reject orders in whole or part. It is
expected that delivery of the Common Stock will be made in New York, New York,
on or about February 11, 1998.
---------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
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[ARTWORK]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (together with all amendments
and exhibits thereto, the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the shares of Common
Stock being offered hereby (the "Shares"). This Prospectus does not include all
the information set forth in the Registration Statement, to which reference is
made for further information with respect to the Company.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder, and in accordance therewith files periodic reports,
proxy and information statements, and other information with the Commission. The
Registration Statement and all reports, proxy and information statements, and
other information filed by the Company with the Commission may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York 10048
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials may be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission also maintains a web site (http://www.sec.gov) that contains reports,
proxy and information statements, and other information regarding registrants,
such as the Company, that file electronically with the Commission. The Common
Stock is listed on the New York Stock Exchange (the "NYSE") and all reports,
proxy and information statements, and other information filed by the Company
with the Commission also may be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
REFERENCE DATA
Industry, market and market share information contained herein is based on
information appearing in publicly available reports. The Company has not
independently verified such information.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission are incorporated into
this Prospectus by reference:
(1) The Company's Registration Statement on Form 8-A filed on November 9,
1995;
(2) The Company's Proxy Statement for the year ended December 31, 1996
filed March 28, 1997;
(3) The Company's Current Report on Form 8-K dated December 22, 1997;
(4) The Company's Annual Report on Form 10-K for the year ended December
31, 1997; and
(5) The Company's Registration Statement on Form 8-A filed on January 8,
1998.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering made hereby (the "Offering") shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, upon the written or oral request of such
person, a copy of any and all of the documents which have been or may be
incorporated by reference into this Prospectus, except that exhibits to such
documents will not be provided unless they are specifically incorporated by
reference into such documents. Requests for copies of any such document should
be directed to Berg Electronics Corp., 101 South Hanley Road, Suite 400, St.
Louis, Missouri 63105, Attention: Investor Relations, telephone: (314) 746-2235.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, which appear elsewhere in the Prospectus.
References in this Prospectus to the "Company" mean Berg Electronics Corp. and
its subsidiaries, taken as a whole. Unless otherwise stated, the information in
this Prospectus (i) gives effect to the Company's 2-for-1 split of its Common
Stock and its Class A Common Stock, par value $0.01 per share (the "Class A
Common Stock"), through the payment of a 100% stock dividend paid on October 20,
1997 to holders of record on September 29, 1997 (the "1997 Stock Split") and
(ii) reflects as outstanding 1,908,554 shares of Common Stock issuable upon
conversion of the Class A Common Stock.
THE COMPANY
The Company is a leading global designer, manufacturer and marketer of
electronic connectors and cable assembly products for applications primarily in
the telecommunications, computer and industrial markets. The Company's
connectors and cable assemblies are used to conduct signals (primarily data,
video and voice) in a wide range of sophisticated electronic applications
including: (i) telecommunications products such as cellular phones, pagers and
transmission and switching equipment; (ii) personal computing equipment and
peripherals such as notebook and desktop computers, printers, disk drives and
workstations; and (iii) large data processing equipment such as servers,
supercomputers, data communications systems, mainframe computers and
mini-computers. For 1997, approximately 54% of the Company's net sales were for
telecommunications applications and 37% were for computer applications. The
balance of the Company's net sales represent connectors used in a variety of
industrial and instrumentation applications.
The Company believes it is one of the four largest electronic connector,
socket and cable assembly manufacturers in the world, one of the world's top two
manufacturers of connectors for the telecommunications market and one of the
world's top two manufacturers of connectors for the computer market. With 21
manufacturing and assembly facilities and three product development and
engineering facilities located in North America, Europe and Asia, the Company
sells its connector products to approximately 25,000 customers throughout the
world, including substantially all computer and telecommunications original
equipment manufacturers ("OEMs"), both directly through a Company-employed sales
force and indirectly through a global network of distributors and manufacturers'
representatives. For 1997, approximately 49% of the Company's net sales were in
North America, 28% in Europe and 23% in Asia. The Company's largest customers
include Alcatel, Compaq, Ericsson, Hewlett-Packard, IBM, Lucent, Motorola, NEC,
Northern Telecom, Philips, Quantum/MKE, SCI, Samsung, Seagate, Siemens GPT,
Solectron, Sun Microsystems, Viasystems and Western Digital.
Following the Company's acquisition in February 1993 of the Connector
Systems Business of the Electronics Division of E.I. du Pont de Nemours and
Company (the "Initial Acquisition"), the Company has increased net sales from
$526.3 million in 1994 to $785.2 million in 1997, and has increased EBITDA (as
defined herein) (excluding post-retirement benefit charges) from $86.1 million
to $157.1 million over the same period, largely due to strategies implemented
subsequent to the Initial Acquisition.
The Company's objectives include continuing to increase sales and earnings
and outpacing the growth of the industry. Key elements of the Company's strategy
are to continue to:
- Focus on the Telecommunications and Computer Markets. Management believes
that the telecommunications and computer markets offer the greatest
potential for consistent, long-term growth in connector demand by OEMs.
Based on industry data, the telecommunications and computer markets are
expected to grow over the next five years at a compound annual growth
rate of 10.8% and 6.2%, respectively. For 1997, 54% of the Company's
sales were to customers in the telecommunications market and 37% were to
customers in the computer market. The Company plans to continue to focus
on these markets in the implementation of its product development and
acquisition strategies. The Company has also experienced opportunities to
apply certain technologies developed through its product development
programs in the telecommunications and computer segments to industrial
and other end-use connector products.
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- Broaden Product Offering. The Company's internal new product development
program is focused on customer driven, applications-oriented research and
development structured to meet its customers' requirements for smaller,
faster and more rugged connector products, shorter product development
cycles and more rapid time to market with new products. Recent product
development efforts that have met specific customer needs have included
(i) the new high-density I-BEAM(TM)/MEG-Array(TM) family of products,
(ii) a broad offering of next-generation input/output connectors,
including fiberchannel, fiberoptic and other high-speed, high-density
input/output connectors and (iii) variations and extensions of industry
standard product lines, including a variety of 2mm Metral(TM) offerings,
a new continuous version of BergStik(TM), known as BergStrip(TM), and a
variety of modular jacks. Approximately 35% of the Company's net sales
for 1997 were attributable to products developed in the last five years.
Through acquisitions, the Company has expanded its product offerings from
a focus on computer printed circuit board ("PCB") connectors to a broad
array of computer and telecommunications PCB connectors, cable
assemblies, sockets and radio frequency and coaxial connectors. The
Company plans to continue to extend its product offerings through
internal new product development and strategic acquisitions.
- Strengthen Customer Relationships. The Company has enhanced its customer
relationships and expanded its preferred supplier status through several
initiatives, including by (i) becoming a partner in the design and
development of new products and applications for its leading customers,
(ii) providing global manufacturing and service capabilities, which
enable it to meet the geographically diverse needs of multinational
customers, (iii) accommodating its customers' supply channel preferences
through a unique path-to-market that relies on a cooperative combination
of a direct sales force, distributors and manufacturers' representatives
and (iv) designating global account managers to serve the worldwide needs
of its OEMs.
Subsequent to the Initial Acquisition, the Company has made seven strategic
acquisitions. The most significant of these were the acquisitions of the captive
U.S. connector business of the Microelectronics Division (the "AT&T Connector
Business") of AT&T Corp. (the "Lucent Acquisition") in May 1994 and the captive
connector business of Ericsson Telecom AB located in Sweden (the "Ericsson
Acquisition") in December 1996. These acquisitions significantly expanded the
Company's presence in the telecommunications sector, broadened the Company's
product lines and established the Company as a preferred supplier with these two
key customers. The other five acquisitions expanded both the Company's customer
base and its offerings of cable assemblies (used in both telecommunications
equipment and computers), sockets (used in computers) and radio frequency and
microwave connectors (used in telecommunications and other equipment).
Management plans to continue to pursue acquisitions that add product or process
technologies, new customers or increased exposure to existing customers and
expanded geographic presence.
In addition to expansion through its strategic acquisitions, the Company
has opened facilities in Juarez, Mexico, in Nantong, People's Republic of China
and in Fermoy, Ireland. These new plants, together with the relocation of the
AT&T Connector Business to a new facility in Huntingdon County, Pennsylvania,
have reduced the Company's production costs. Management plans to continue to
seek lower cost alternatives for production sites for future expansion needs.
RECENT DEVELOPMENTS
On August 7, 1997, the Company entered into a new credit facility agreement
(the "Credit Facility") consisting of a $250.0 million term loan and a $300.0
million revolving credit loan. The Credit Facility reduces the Company's
borrowing costs, improves the Company's liquidity by increasing its borrowing
capacity and provides the Company greater flexibility in making acquisitions and
capital expenditures. The refinancing resulted in an extraordinary charge of
$6.0 million of deferred financing costs, net of applicable income taxes, during
the quarter ended September 30, 1997. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
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On October 20, 1997, the Company completed a 2-for-1 split of the Common
Stock and Class A Common Stock through the payment of a 100% stock dividend to
holders of record on September 29, 1997.
On December 22, 1997, the Company entered into a rights agreement (the
"Rights Agreement") designed to protect Company stockholders in the event of
takeover action. Pursuant to the Rights Agreement, on January 8, 1998, the
Company distributed one right for each share of the Company's Common Stock and
Class A Common Stock to holders of record on that date. See "Description of
Capital Stock -- Rights Plan."
THE OFFERING
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Common Stock offered in the Offering(1).............. 10,325,028 shares
Common Stock to be outstanding after the
Offering(2)........................................ 41,008,345 shares
Use of proceeds...................................... The Company will not receive any portion of
the net proceeds from the sale of the Shares
by the Selling Stockholders. The proceeds
received by the Company from the sale of
shares of Common Stock as a result of the
exercise of the over-allotment option granted
by the Company to the Underwriter in
connection with the Offering will be used by
the Company to reduce indebtedness under the
Credit Facility and for other general
corporate purposes. See "Use of Proceeds."
NYSE Symbol.......................................... BEI
</TABLE>
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(1) Gives effect to the full exercise of the Underwriter's over-allotment
option. See "Underwriting."
(2) Excludes (i) 1,433,523 shares of Common Stock issuable upon exercise of
outstanding employee stock options under the Company's 1993 Stock Option
Plan (the "Stock Option Plan"), (ii) 48,660 shares of Common Stock issuable
upon exercise of outstanding options granted to one of the Company's
directors and (iii) 528,687 shares of Common Stock in respect of which
options may be granted under the Stock Option Plan.
RISK FACTORS
Prospective investors should carefully consider all the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors set forth under "Risk Factors" for risks involved with an investment in
the Shares.
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SUMMARY HISTORICAL FINANCIAL DATA
Set forth below are summary historical financial data of the Company for
the three years ended December 31, 1997. The summary historical financial data
of the Company for the three years ended December 31, 1997 have been derived
from the consolidated financial statements of the Company audited by Arthur
Andersen LLP. The following information should be read in conjunction with the
audited consolidated financial statements of the Company, including, in each
case, the related notes thereto, included elsewhere herein, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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YEARS ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales................................................... $667,249 $704,669 $785,150
Gross profit................................................ 224,973 248,800 279,444
Operating income............................................ 56,764 77,835 92,269
Interest expense............................................ 34,609 28,350 26,755
Income before extraordinary items........................... 9,329 28,945 38,190
Extraordinary items (1)..................................... -- (18,664) (5,964)
Net income.................................................. 9,329 10,281 32,226
Preferred stock requirements (2)............................ (14,741) (27,335) --
Net income (loss) applicable to common shares............... $ (5,412) $(17,054) $ 32,226
======== ======== ========
Diluted earnings (loss) per common share (3)................ $ (0.21) $ (0.44) $ 0.78
======== ======== ========
Diluted common shares outstanding (3)....................... 25,978,648 38,773,287 41,396,543
OTHER DATA:
EBITDA (excluding PBC)(4)................................... $112,978 $135,355 $157,086
EBITDA (excluding PBC) margin (% of net sales)(4)........... 16.9% 19.2% 20.0%
Depreciation................................................ 42,761 44,237 47,578
Amortization of intangible assets........................... 11,182 12,011 15,409
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents................................................................................... $ 11,994
Working capital............................................................................................. 42,705
Total assets................................................................................................ 704,646
Long-term obligations (including current maturities)........................................................ 343,330
Total stockholders' equity.................................................................................. 135,884
</TABLE>
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(1) Reflects (i) the write-off of $8,071 (net of income tax of $5,381) in
prepayment costs paid in connection with the redemption of $100,000 of the
11 3/8% Guaranteed Senior Subordinated Debentures Due 2003 of the Company's
wholly-owned subsidiary, Berg Electronics Group, Inc.(the "Debentures"), in
March and April 1996, (ii) the write-off of $10,593 (net of income tax of
$7,062) in deferred financing costs in March 1996 relating to the
refinancing of the Company's then existing credit facility and the
redemption of the Debentures and (iii) the write-off of $5,964 (net of
income tax of $3,734) in deferred financing costs in August 1997 relating to
the refinancing of the Company's then existing credit facility (the "Prior
Credit Facility").
(2) Consists of dividends on the Series B Preferred Stock, par value $0.01 per
share (the "Series B Preferred Stock"), of the Company and the Series E
Preferred Stock, par value $0.01 per share (the "Series E Preferred Stock"),
of the Company, plus accretion of original issue discount on the Series B
Preferred Stock and $21,866 of premium paid in 1996 in connection with the
redemption and purchase and cancellation of all of the outstanding shares of
each of the Series B Preferred Stock and the Series E Preferred Stock in
March 1996 and is a reduction from net income to determine net loss
applicable to common shares.
(3) Per share data is determined by dividing the weighted average number of
shares of Common Stock outstanding during the period into net income (loss)
applicable to common shares and has been adjusted to reflect (i) the 1997
Stock Split and (ii) the assumed exercise of outstanding options, using the
treasury method, if not anti-dilutive.
(4) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
includes operating income adjusted to exclude depreciation, amortization of
intangible assets and noncash net periodic post-retirement benefit charges
("PBC") ($2,271, $1,272 and $1,830 for the years ended December 31, 1995,
1996 and 1997, respectively). The Company believes that EBITDA provides
additional information to assist investors in determining its ability to
meet future debt service requirements. However, EBITDA is not a defined term
under generally accepted accounting principles ("GAAP") and is not
indicative of operating income or cash flow from operations as determined
under GAAP.
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RISK FACTORS
Prospective investors should consider carefully, in addition to the other
information contained in this Prospectus, the following factors before
purchasing the Shares offered hereby. Information contained or incorporated by
reference in this Prospectus is based on beliefs of, and information currently
available to, the Company's management as well as estimates and assumptions made
by the Company's management, and may contain "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). When used in this Prospectus, words such as "may," "will," "expect,"
"intend," "anticipate," "estimate" or "continue" or the negative thereof or
other variations thereon or comparable terminology, as they relate to the
Company or the Company's management, identify forward-looking terminology. The
following matters and certain other factors noted throughout this Prospectus
constitute cautionary statements identifying important factors with respect to
any such forward-looking statements, including certain risks and uncertainties
that could cause actual results to differ materially from those in such
forward-looking statements.
TECHNOLOGICAL EVOLUTION
The rapid technological evolution characteristic of the electronics
industry requires the Company to anticipate and respond rapidly to changes in
industry standards and customer needs and to develop and introduce new and
enhanced products on a timely and cost-effective basis. The Company must manage
effectively transitions from products using older technology to those utilizing
up-to-date technology in order to maintain and increase sales and profitability,
minimize disruptions in customer orders and avoid excess inventory of products
that are less responsive to customer demand. There can be no assurance that the
Company's existing customers will continue to utilize the Company's products,
that the technologies used by such customers will continue to employ the
Company's products or that new products developed by the Company will achieve
market acceptance. Further, shifts in demand for the technologies and products
of the Company's customers, including telecommunications products, computer
mainframes and other computer systems, may have an adverse effect on demand for
the Company's products. See "Business -- New Product Development" and "-- Sales
and Marketing."
CYCLICALITY MAY LEAD TO FLUCTUATIONS IN DEMAND
Historically, the electronics industry has been cyclical, affected by both
general economic conditions and industry-specific cycles. Depressed general
economic conditions and cyclical downturns in the electronics industry have each
had an adverse effect on sales of electronic equipment, OEMs and their
suppliers, including the Company. In addition, the life cycles of existing
electronic products and the timing of new product development and introductions
can affect demand for electronic components. The electronic connector industry
is expected to be subject to fluctuations in demand for electronic products in
the future. Reduced demand for electronic products or their components could
have a material adverse effect on the Company. Over 90% of the Company's sales
are concentrated in two industries. As a result, any cyclical downturn in either
of the telecommunications or computer markets could have a material adverse
effect on the Company.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE REQUIREMENTS
The Company has, and will continue to have, substantial indebtedness. As of
December 31, 1997, the Company had total long-term indebtedness, including
current maturities, of $343.3 million and a debt-to-equity ratio of 2.5 to 1.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The degree to which the Company is leveraged could have important
consequences to holders of Common Stock, including the following: (i) the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general corporate purposes or other
purposes may be impaired; (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 for its operations;
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(iii) certain of the Company's borrowings are and will continue to be at
variable rates of interest, which cause the Company to be vulnerable to
increases in interest rates; and (iv) such indebtedness contains numerous
financial and other restrictive covenants, including those restricting the
incurrence of indebtedness, the creation or existence of liens, the declaration
or payment of dividends, the making of certain investments, the acquisition of
securities of the Company and its subsidiaries and certain extraordinary
corporate transactions. Failure by the Company to comply with such covenants or
to make its scheduled debt payments under the Credit Facility or its other
indebtedness may result in an event of default which could have a material
adverse effect on the Company.
SIGNIFICANT COMPETITION
The electronic connector industry is highly competitive and fragmented,
with approximately 2,000 manufacturers worldwide. The Company believes that
competition in its targeted segments is primarily based on quality, reliability,
design capability, delivery time and price. The Company's significant
competitors, some of which are larger than the Company, are as technologically
advanced as the Company and have significant financial resources.
CONCENTRATION OF BUSINESS WITH LUCENT
As a result of the Lucent Acquisition, Lucent became the Company's largest
customer. At the time of the Lucent Acquisition, the Company entered into a
five-year supply agreement with Lucent's predecessor, AT&T Corp. In 1995, 1996
and 1997, sales to Lucent accounted for approximately 17%, 18% and 11%,
respectively, of the Company's total net sales. The Company believes that the
decline of Lucent business as a percentage of net sales from 1996 to 1997
represents the sale by Lucent of a portion of its business to Viasystems,
another customer of the Company. See "Certain Relationships and Related
Transactions." If, for any reason, Lucent were to purchase fewer of the
Company's products in the future, such decreased level of purchases could have a
material adverse effect on the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH FOREIGN OPERATIONS
The Company's products are manufactured and assembled at the Company's
facilities in the United States, Mexico, France, The Netherlands, Ireland,
Sweden, Japan, Taiwan, Singapore, Korea, India and People's Republic of China
and exported to and imported from a large number of countries. Although the
Company has not experienced significant problems in conducting its foreign
operations, changes in local economic or political conditions could impact the
Company's production capabilities and its sales and adversely affect the
Company. In addition, the Company's sales and expenses are frequently
denominated in local currencies. The Company, from time to time, engages in
hedging operations, such as forward exchange contracts, to reduce its exposure
to foreign currency fluctuations, although there can be no assurance that such
measures will eliminate or substantially reduce such risk. Such hedging
operations historically have not been material, and gains and losses from such
operations have not been significant. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
CONTROL BY PRINCIPAL STOCKHOLDERS
After completion of the sale of the Shares, certain affiliates of Hicks,
Muse, Tate & Furst Incorporated ("Hicks, Muse") will continue to beneficially
own or control approximately 20% of the outstanding voting stock of the Company
and, accordingly, will be able to influence the outcome of any corporate or
other matter submitted to the Company's stockholders for approval, including any
merger, consolidation, sale of all or substantially all of the Company's assets
or "going private" transaction. See "Principal and Selling Stockholders."
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LIMITATION ON DIVIDENDS
The Company has not paid any cash dividends on its Common Stock since its
incorporation in 1992 and has no current intention to do so. In addition, the
Credit Facility imposes restrictions on the ability of the Company's operating
subsidiary to make cash distributions on its capital stock, which the Company
expects would be the principal source of funds for any cash dividends on the
Common Stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
BYLAWS; RIGHTS PLAN
The Company's Certificate of Incorporation (the "Certificate of
Incorporation") and Bylaws (the "Bylaws") include certain provisions that may be
deemed to have anti-takeover effects and may delay, defer or prevent a takeover
attempt that a stockholder might consider in its best interest. These provisions
(i) classify the Company's Board of Directors into three classes, (ii) provide
that only the Board of Directors, the Chairman of the Board of Directors or the
holders of 25% of the outstanding voting capital stock may call special meetings
of the stockholders, (iii) eliminate the ability of the stockholders to take any
action without a meeting, (iv) limit the ability of the stockholders to amend or
repeal provisions of the Certificate of Incorporation or Bylaws, except with the
consent of the holders of at least two-thirds of the Company's outstanding
voting securities, and (v) establish certain advance notice procedures for
nomination of candidates for election as directors and for stockholder proposals
to be considered at stockholders' meetings. See "Description of Capital
Stock -- Special Provisions of the Certificate of Incorporation and Bylaws of
the Company." In addition, the Company has issued certain rights to holders of
its Common Stock and Class A Common Stock in connection with the Rights
Agreement. Such rights may have anti-takeover effects. See "Description of
Capital Stock -- Rights Plan."
10
<PAGE> 11
USE OF PROCEEDS
The Company will not receive any portion of the net proceeds from the sale
of the Shares by the Selling Stockholders. The proceeds received by the Company
from the sale of shares of Common Stock as a result of the exercise of the
over-allotment option granted by the Company to the Underwriter in connection
with the Offering will be used by the Company to reduce indebtedness under the
Credit Facility and for other general corporate purposes. See "Management's
Discussion and Analysis Of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Underwriting."
MARKET FOR COMMON STOCK AND DIVIDEND POLICY
The Common Stock is traded on the NYSE under the symbol "BEI." The table
below sets forth the high and low sales prices per share for the Common Stock on
the NYSE during the periods indicated. On February 5, 1998, the reported last
sale price of the Common Stock on the NYSE was $28 1/16, and there were
approximately 282 holders of record of Common Stock.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK(1)
------------------------
HIGH LOW
<S> <C> <C>
Year Ended December 31, 1996:
First Quarter from March 1 through March 31............... $13 $ 11 3/16
Second Quarter............................................ 14 5/16 11 3/8
Third Quarter............................................. 14 10 1/8
Fourth Quarter............................................ 16 1/4 12 9/16
Year Ended December 31, 1997:
First Quarter............................................. 15 15/16 13 5/8
Second Quarter............................................ 18 1/16 13 7/8
Third Quarter............................................. 26 7/8 17 15/16
Fourth Quarter............................................ 28 31/32 18 1/2
Year Ended December 31, 1998:
First Quarter through February 5, 1998.................... 28 1/16 23 1/16
</TABLE>
- ---------------
(1) Prices adjusted to reflect the 1997 Stock Split.
The Company has not paid any cash dividends on its Common Stock since its
incorporation in November 1992 and has no current intention to do so. In
addition, the Credit Facility imposes restrictions on the ability of the
Company's operating subsidiary to make cash distributions on its capital stock,
which the Company expects would be the principal source of funds for any cash
dividends on the Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
11
<PAGE> 12
SELECTED HISTORICAL FINANCIAL DATA
The following table presents selected historical financial data of the
Company for the periods indicated. The historical financial data of the Company
for the three years ended December 31, 1997 have been derived from the
consolidated financial statements of the Company audited by Arthur Andersen LLP.
The following information should be read in conjunction with the audited
consolidated financial statements of the Company, including, in each case, the
related notes thereto, included elsewhere herein, and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales.............................................. $667,249 $704,669 $785,150
Cost of goods sold..................................... 442,276 455,869 505,706
Selling, general and administrative expenses........... 154,756 157,682 169,936
Amortization of intangible assets...................... 11,182 12,011 15,409
Net periodic postretirement benefits................... 2,271 1,272 1,830
-------- -------- --------
Operating income....................................... 56,764 77,835 92,269
Other income (expense):
Interest expense..................................... (34,609) (28,350) (26,755)
Amortization of deferred financing costs............. (6,286) (3,388) (2,019)
Other, net........................................... (738) 1,239 (1,185)
-------- -------- --------
Income before income taxes and extraordinary items..... 15,131 47,336 62,310
Income tax provision................................... 5,802 18,391 24,120
-------- -------- --------
Income before extraordinary items...................... 9,329 28,945 38,190
Extraordinary items(1)................................. -- (18,664) (5,964)
-------- -------- --------
Net income............................................. 9,329 10,281 32,226
Preferred stock requirements(2)........................ (14,741) (27,335) --
-------- -------- --------
Net income (loss) applicable to common shares.......... $ (5,412) $(17,054) $ 32,226
======== ======== ========
Diluted earnings (loss) per common share(3)............ $ (0.21) $ (0.44) $ 0.78
======== ======== ========
Diluted common shares outstanding(3)................... 25,978,648 38,773,287 41,396,543
OTHER DATA:
EBITDA (excluding PBC)(4).............................. $112,978 $135,355 $157,086
Depreciation........................................... 42,761 44,237 47,578
BALANCE SHEET DATA (END OF PERIOD):
Cash and cash equivalents....................................................... $ 11,994
Working capital................................................................. 42,705
Total assets.................................................................... 704,646
Long-term obligations (including current maturities)............................ 343,330
Total stockholders' equity...................................................... 135,884
</TABLE>
- ---------------
(1) Reflects (i) the $8,071 write-off (net of income tax of $5,381) in
prepayment costs paid in connection with the redemption of the Debentures in
March and April 1996, (ii) the write-off of $10,593 (net of income tax of
$7,062) in deferred financing costs in March 1996 relating to the
refinancing of the Company's then existing credit facility and the
redemption of the Debentures and (iii) the write-off of $5,964 (net of
income tax of $3,734) in deferred financing costs in August 1997 relating to
the refinancing of the Prior Credit Facility.
(2) Consists of dividends on the Series B Preferred Stock and the Series E
Preferred Stock, plus accretion of original issue discount on the Series B
Preferred Stock and $21,866 of premium paid in 1996 in connection with the
redemption and purchase and cancellation of all of the outstanding shares of
each of the Series B Preferred Stock and the Series E Preferred Stock in
March 1996 and is a reduction of net income to determine net loss applicable
to common shares.
(3) Per share data is determined by dividing the weighted average number of
shares of Common Stock outstanding during the period into net income (loss)
applicable to common shares and has been adjusted to reflect (i) the 1997
Stock Split and (ii) the assumed exercise of outstanding options, using the
treasury method, if not anti-dilutive.
(4) EBITDA includes operating income adjusted to exclude depreciation,
amortization of intangible assets and PBC. The Company believes that EBITDA
provides additional information to assist investors in determining its
ability to meet future debt service requirements. However, EBITDA is not a
defined term under GAAP and is not indicative of operating income or cash
flow from operations as determined under GAAP.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements, including the notes thereto, appearing
elsewhere herein.
Certain information presented herein includes "forward-looking statements"
within the meaning of the Reform Act. However, there can be no assurance that
the Company's actual results will not differ materially from its expectations.
The matters referred to in forward-looking statements may be affected by risks
and uncertainties affecting the Company's business, including those set forth in
"Risk Factors."
OVERVIEW
The Company's net sales increases since 1994 have principally reflected
increased unit volumes. As new products gain market acceptance and their unit
volumes increase, these products have tended to experience downward price
pressure. The gross margin effect of this pressure has been historically
mitigated or eliminated by increased manufacturing efficiencies and economies of
scale associated with higher volume production of such products. In addition,
the pricing pressure experienced by the Company with respect to its mature
products has also been mitigated by the Company's frequent introduction of new
higher margin products. Subsequent to the Initial Acquisition, the Company has
completed seven strategic acquisitions that have broadened its product offerings
and enabled the Company to penetrate new markets.
Since the Initial Acquisition, the Company has devoted a significant
portion of its operating income to debt service. The Company's net income
applicable to common shares prior to its 1996 recapitalization had also been
reduced as a result of significant preferred stock requirements. As a result of
the Recapitalization (as defined in Note 1 in the Notes to the Consolidated
Financial Statements), the debt service requirements relating to the Debentures
and the requirements relating to the Series B Preferred Stock and Series E
Preferred Stock have been eliminated. Nevertheless, debt service expense remains
significant.
The Company manufactures connectors in various regions of the world and
exports and imports these products to and from a large number of countries.
Sales and expenses are frequently denominated in local currencies. The Company's
net sales and net income may be affected as currency fluctuations affect the
Company's product prices and operating costs. The Company, from time to time,
engages in hedging operations, such as forward exchange contracts, to reduce its
exposure to foreign currency fluctuations. Such hedging operations historically
have not been material, and gains and losses from such operations have not been
significant. There can be no assurance that such hedging operations will
eliminate or substantially reduce such risk.
Generally, the prices at which the Company purchases precious metals are
based upon market prices of such metals at the time of purchase. For the years
ended December 31, 1995, 1996 and 1997 the cost of gold and other precious
metals accounted for approximately 7%, 7% and 7%, respectively, of the Company's
cost of goods sold.
Demand for the Company's products has increased significantly since its
formation in 1993, and production equipment for certain of the Company's
products is operating at or near capacity. A significant portion of the
Company's planned capital expenditures for 1998 is directed toward expansion of
production capacity to meet increased demand. The Company anticipates making
total capital expenditures of approximately $90.0-$100.0 million in 1998 for
facilities, equipment and information systems. In particular, the Company
anticipates increasing production capabilities in connection with the Company's
agreement in August 1997 to supply high-density MEG-Array(TM) interconnect
systems for use in the modular packaging of microprocessors to a leading
producer of microprocessors.
Management has implemented a Company-wide initiative to ensure that the
Company's information systems and systems applications are capable of processing
data and transactions pertaining to the year 2000. The initiative utilizes both
Company resources and external resources to identify systems and applications
effected, to correct existing systems or to acquire replacement systems, and to
test the systems and applications for compliance with the requirements for
processing year 2000 information. The Company will
13
<PAGE> 14
capitalize and depreciate replacement systems consistent with its existing
capital expenditure policies, and will report expenses as incurred for the costs
of modification and maintenance of existing systems. Management believes that a
substantial portion of the costs for the new systems and the modifications will
not represent incremental costs to the Company, but rather will represent the
reallocation of existing and planned information technology resources. The
amounts expensed in 1997 were immaterial, and management expects that amounts
required to be expensed in future periods will not have a material effect on its
financial position or results of operations.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997, COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net sales for the year ended December 31, 1997 were $785.2 million,
representing an $80.5 million, or 11.4%, increase over the year ended December
31, 1996. The increase was primarily attributable to growth in unit volumes,
partially offset by a decline in the average selling prices of the Company's
products. The increase was also due in part to the Ericsson Acquisition on
December 31, 1996.
North American sales were approximately $384.9 million for the year ended
December 31, 1997, representing a $2.9 million, or 0.8%, increase versus North
American sales for the year ended December 31, 1996. The increase reflects a
broadening customer base and strong demand in the telecom, mobile, datacom,
personal computer and networking markets, offset in part by weakness in demand
for the Company's high-end data processing products and in part by the transfer
of certain customer programs to the Company's European and Asia Pacific
locations in 1997 versus 1996.
Sales in Europe were approximately $216.8 million for the year ended
December 31, 1997, representing a $61.7 million, or 39.8%, increase over
European sales for the year ended December 31, 1996. The increase was due in
part to the Ericsson Acquisition, in part to greater demand for the Company's
products in most end-user (primarily telecom and mobile) and geographic markets,
and in part to the transfer of certain customer programs to European sources in
1997 versus U.S. sales sources for these programs in 1996. These increases were
partially offset by the unfavorable effects of currency changes between years in
most countries in the region. Sales in Asia Pacific were approximately $183.5
million for the year ended December 31, 1997, representing a $15.9 million, or
9.5%, increase versus sales in the region for the year ended December 31, 1996.
The improvement in Asia Pacific sales was primarily due to increased demand for
the Company's products in end-user markets (both computer and telecom) and in
part to the transfer of certain customer programs to Asia Pacific sources in
1997 versus U.S. sales sources for these programs in 1996. These increases were
partially offset by the unfavorable effects of changing currencies between
years, primarily in Japan early in the year and throughout the region during the
final months of 1997. Changing currencies adversely impacted sales reported in
both Europe and Asia Pacific, reducing reported growth by approximately 9.0%, on
a combined basis for the two regions, for 1997 versus 1996.
Due primarily to increased sales volumes, cost of goods sold for the year
ended December 31, 1997 increased by $49.8 million, or 10.9%, over cost of goods
sold for the year ended December 31, 1996. The increase was partially offset by
the favorable impact of the stronger U.S. dollar against currencies in Europe
and Asia Pacific. As a result of cost containment and reduction activities and
the spreading of fixed costs over higher sales, cost of goods sold as a percent
of net sales improved to 64.4% of net sales for the year ended December 31,
1997, compared to 64.7% for the year ended December 31, 1996.
Selling, general and administrative expenses and other operating expenses
for the year ended December 31, 1997 increased by $16.2 million, or 9.5%, over
selling, general and administrative expenses and other operating expenses for
the year ended December 31, 1996, but as percentage of sales improved to 23.8%
of 1997 sales from 24.3% of 1996 sales. The increase in costs was generally due
to increased sales volumes, partially offset by the favorable impact of the
stronger U.S. dollar against currencies in Europe and Asia Pacific. The decrease
in costs as a percent of sales was due in part to cost reduction and containment
activities and in part to the spreading of fixed costs over a higher sales
volumes.
14
<PAGE> 15
Other expenses decreased $0.5 million, or 1.8%, for the year ended December
31, 1997, from $30.5 million in 1996, primarily as a result of reduced borrowing
costs under the Company's primary credit facility due to a refinancing in March
1996 and the subsequent replacement of that credit facility in August 1997.
YEAR ENDED DECEMBER 31, 1996, COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net sales for the year ended December 31, 1996 were $704.7 million,
representing a $37.4 million, or 5.6%, increase over the year ended December 31,
1995. In general, the Company's growth in net sales during 1996 was attributable
to growth in unit volume partially offset by a decline in the average prices of
the Company's products.
North American sales were $382.0 million for the year ended December 31,
1996, representing a $42.7 million, or 12.6%, increase versus North American
sales for the year ended December 31, 1995. This increase was due primarily to a
$27.2 million, or 26.6%, increase in telecommunications products sales resulting
from stronger demand than in the prior year for backplanes used in switching and
transmission equipment, which translated into strong demand for the Berg
connectors used in these applications.
Sales in Europe were $155.1 million for the year ended December 31, 1996,
representing a $4.4 million, or 2.8%, decrease from European sales for the year
ended December 31, 1995. This decrease was due primarily to the strengthening of
the U.S. dollar against certain European currencies. Sales in Asia Pacific
totalled $167.6 million for the year ended December 31, 1996, representing a
$0.9 million, or 0.5%, decrease from the year ended December 31, 1995. The
decrease in the Asia Pacific region was primarily due to the effects of the weak
Japanese yen versus the U.S. dollar, offset by increased demand in the Company's
major end-user markets (computers and telecommunications). Changing currencies
adversely impacted sales recorded in Europe and Asia, reducing sales by
approximately 4.0% on a combined basis, for the year ended December 31, 1996
compared to the year ended December 31, 1995.
Due primarily to increased sales volume, cost of goods sold for the year
ended December 31, 1996 increased by $13.6 million, or 3.1%, over cost of goods
sold for the year ended December 31, 1995. As a result of cost containment and
reduction activities, cost of goods sold as a percentage of net sales improved
from 66.3% for the year December 31, 1995 to 64.7% for the year December 31,
1996.
Selling, general and administrative expenses for the year ended December
31, 1996 increased by $2.9 million, or 1.9%, over selling, general and
administrative expenses for the year ended December 31, 1995 due primarily to
increases in sales volume. However, these expenses as a percentage of sales
decreased from 23.2% for the year ended December 31, 1995 to 22.4% for the year
ended December 31, 1996 due in part to cost reduction and containment activities
and to the spreading of the fixed components of such expenses over a higher
sales volume.
Other expense decreased $11.1 million, to $30.5 million, for the year ended
December 31, 1996 from $41.6 million for the year ended December 31, 1995 due to
reduced interest expense and amortization of financing costs in 1996 as a result
of the redemption of the Debentures and as a result of the Prior Credit
Facility, entered into in February 1996, which had lower interest rates and
financing costs than the previous credit agreement.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $107.8 million for the year
ended December 31, 1997, which compared to $69.2 million provided by operating
activities for the comparable period in 1996. Net cash used in investing
activities was $85.0 million for the year ended December 31, 1997, compared to
net cash used of $79.4 million for the year ended December 31, 1996. The net
cash used in investing activities for the year ended December 31, 1997 consisted
of capital expenditures of $85.0 million while the net cash used in investing
activities during the year ended December 31, 1996, consisted of $61.6 million
for capital expenditures and $17.8 million for one acquisition. Net cash used in
financing activities was $16.5 million for the year ended December 31, 1997,
compared to $0.2 million used in financing activities for the comparable
15
<PAGE> 16
period in 1996. The use of cash in 1997 represented debt repayments, net of
borrowings, and costs associated with refinancing the Prior Credit Facility. The
use of cash in financing activities in 1996 represented debt repayments, net of
borrowings, and the effects of the initial public offering, the redemption of
the Debentures, the Series B Preferred Stock and Series E Preferred Stock and
costs associated with refinancing the then existing credit facility.
Net cash provided by operating activities was $69.2 million for the year
ended December 31, 1996, which compared to $67.8 million provided by operating
activities for the comparable period in 1995. Net cash used in investing
activities was $79.4 million for the year ended December 31, 1996, compared to
net cash used of $56.4 million for the year ended December 31, 1995. The net
cash used in investing activities for the year ended December 31, 1996,
consisted of $61.6 million for capital expenditures and $17.8 million for one
acquisition, while the net cash used in investing activities during the year
ended December 31, 1995 represented capital expenditures of $45.0 million and
one acquisition of $11.4 million. Net cash used in financing activities was $0.2
million for the year ended December 31, 1996, compared to $4.5 million used in
financing activities for the comparable period in 1995. The use of cash in
financing activities in 1996 represented debt repayments, net of borrowings and
the effects of the Company's initial public offering and the redemption of the
Debentures, the Series B Preferred Stock and the Series E Preferred Stock. The
use of cash in financing activities in 1995 represented debt repayments, net of
borrowings.
The Company's EBITDA (excluding PBC) was $113.0 million, $135.4 million and
$157.1 million in 1995, 1996 and 1997, respectively. EBITDA (excluding PBC) is
not a defined term under GAAP and is not an alternative to operating income or
cash flow from operations as determined under GAAP. The Company believes that
EBITDA (excluding PBC) provides additional information for determining its
ability to meet future debt service requirements; however, EBITDA (excluding
PBC) does not reflect cash available to fund cash requirements. EBITDA
(excluding PBC) is also one of the financial measures in the covenants contained
in the Credit Facility.
The Company anticipates that cash flow from operations and additional funds
available under the revolving facility in its Credit Facility will be sufficient
to meet its foreseeable requirements for working capital, capital expenditures
and other cash requirements.
The Company anticipates that its primary uses of cash in 1998 will be (i)
for capital expenditures for maintenance, replacement and acquisitions of
equipment, expansion of capacity, productivity improvements and product
development and (ii) to pay interest on, and to repay principal of, indebtedness
under the Credit Facility. The Company anticipates spending approximately
$90.0-100.0 million in 1998 for capital expenditures, principally related to
capacity expansion, new product development and productivity improvement
projects. The Credit Facility contains annual limits on the Company's capital
expenditures. The Company believes that such limits are sufficient to allow the
Company to undertake all anticipated capital projects. The Company will be
obligated to make principal and interest payments of approximately $45.0 million
under the Credit Facility in 1998, which the Company anticipates will be made
from cash flow from operations.
On August 7, 1997, the Company entered into the new Credit Facility
consisting of a $250.0 million term loan and a $300.0 million revolving credit
loan, each of which is scheduled to mature on December 31, 2003. The Credit
Facility, compared to the Prior Credit Facility, affords the Company greater
financial flexibility through (i) lower borrowing costs, as long as financial
ratios are maintained, (ii) greater borrowing capacity and (iii) less
restrictive limitations on capital expenditures, acquisitions and borrowings
outside of the United States. At December 31, 1997, the Company had
approximately $195.0 million of borrowing capacity available under the Credit
Facility. The refinancing of the Prior Credit Facility with the Credit Facility
resulted in an extraordinary charge of $6.0 million of deferred financing costs,
net of applicable income taxes, during 1997.
Borrowings under the Credit Facility bear interest, at the option of the
Company, at a rate per annum equal to (i) the Agent's Alternate Base Rate (as
defined in the Credit Facility) or (ii) 0.75% plus the Eurodollar rate per
annum. Interest payment dates vary depending on the interest rate option
selected by the Company, but generally interest is payable quarterly.
16
<PAGE> 17
The Credit Facility requires the Company to enter into additional interest
rate hedging arrangements to hedge against interest rate fluctuations. The cost
of such hedge agreements is amortized over their terms. The Company has entered
into an agreement which provides a ceiling on the LIBOR Rate (as defined in the
Credit Facility) on $137.0 million of indebtedness until June 30, 1998.
The Credit Facility restricts the Company from, among other things: (i)
incurring additional indebtedness (other than certain permitted indebtedness);
(ii) creating liens; (iii) guaranteeing indebtedness; (iv) merging or selling
substantially all of its assets; (v) declaring and paying certain dividends;
(vi) making certain investments and loans; and (vii) entering into certain
transactions with affiliates, in each case with certain exceptions customary for
credit facilities such as the Credit Facility.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted SFAS No. 128, "Earnings Per Share," in 1997. See Note 2
to the Consolidated Financial Statements. In 1998, the Company will adopt SFAS
No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information." The Company does not expect
adoption of these standards to have a material impact on its consolidated
financial statements.
17
<PAGE> 18
BUSINESS
The Company is a leading global designer, manufacturer and marketer of
electronic connectors and cable assembly products for applications primarily in
the telecommunications, computer and industrial markets. The Company's
connectors and cable assemblies are used to conduct signals (primarily data,
video and voice) in a wide range of sophisticated electronic applications
including: (i) telecommunications products such as cellular phones, pagers and
transmission and switching equipment; (ii) personal computing equipment and
peripherals such as notebook and desktop computers, printers, disk drives and
workstations; and (iii) large data processing equipment such as servers,
supercomputers, data communications systems, mainframe computers and
mini-computers. In 1997, approximately 54% of the Company's net sales were for
telecommunications applications and 37% were for computer applications. The
balance of the Company's net sales represent connectors used in a variety of
industrial and instrumentation applications.
The Company believes it is one of the four largest electronic connector,
socket and cable assembly manufacturers in the world, one of the world's top two
manufacturers of connectors for the telecommunications market, and one of the
world's top two manufacturers of connectors for the computer market. With 21
manufacturing and assembly facilities and three product development and
engineering facilities located in North America, Europe and Asia, the Company
sells its connector products to approximately 25,000 customers throughout the
world, including substantially all of the computer and telecommunications OEMs,
both directly through a Company-employed sales force and indirectly through a
global network of distributors and manufacturers' representatives. In 1997,
approximately 49% of the Company's net sales were in North America, 28% in
Europe and 23% in Asia. The Company's largest customers include Alcatel, Compaq,
Ericsson, Hewlett-Packard, IBM, Lucent, Motorola, NEC, Northern Telecom,
Philips, Quantum/MKE, SCI, Samsung, Seagate, Siemens GPT, Solectron, Sun
Microsystems, Viasystems and Western Digital.
Subsequent to the Initial Acquisition, the Company has made seven strategic
acquisitions. The most significant of these were the Lucent Acquisition in May
1994 and the Ericsson Acquisition in December 1996. These acquisitions
significantly expanded the Company's presence in the telecommunications sector,
broadened the Company's product lines and established the Company as a preferred
supplier with these two key customers. The other five acquisitions expanded both
the Company's customer base and its offerings of cable assemblies (used in both
telecommunications equipment and computers), sockets (used in computers) and
radio frequency and microwave connectors (used in telecommunications and other
equipment).
INDUSTRY OVERVIEW
Electronic connectors are electromechanical devices that allow an
electronic signal to pass from one device to another. They are used to connect
wires, cables, printed circuit boards, flat cable and other electronic
components to each other and to related equipment. OEMs in the electronics
industry must use connectors to complete the design and manufacture of their
products. The Company primarily competes in the telecommunications and computer
markets and, to a lesser extent, in the industrial and instrumentation markets.
18
<PAGE> 19
Industry sources estimate that the overall electronic connector industry
sales were approximately $28.7 billion for 1997. Information regarding the major
end user markets for connectors is presented in the table below.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
SALES PERCENT OF
(IN BILLIONS) TOTAL
<S> <C> <C>
Telecommunications........................................ $ 6.8 23.7%
Computer.................................................. 6.4 22.3
Datacom................................................... 3.7 12.9
Industrial and Instrumentation............................ 2.8 9.8
Consumer.................................................. 2.7 9.4
Auto...................................................... 2.6 9.1
Military.................................................. 1.5 5.2
Other..................................................... 2.2 7.6
------ -----
Total........................................... $28.7 100.0%
====== =====
</TABLE>
Source: Fleck Research, 1997
Demand for connector products has experienced substantial growth in recent
years and is expected to continue to grow in the future. The Company attributes
the expected growth in the demand for electronic connectors to the proliferation
of electronic systems and the development of new electronic products and
applications. In particular, the Company expects significant growth within the
industry from:
- the development of more complex and sophisticated electronic products in
established electronic markets, such as the markets for wireless
communications and personal computers;
- the proliferation of computer usage through the expansion of networking
and server systems and the advent of multi-media systems;
- the increase in global demand, particularly in emerging markets such as
China and India, for telecommunication infrastructure such as fixed line
and mobile telecommunications services; and
- the increasing utilization of electronic systems in products in which
such use has been historically absent or limited, such as automobiles,
home appliances and medical equipment.
The worldwide connector industry is highly fragmented with in excess of
2,000 worldwide manufacturers. The top ten manufacturers accounted for
approximately 37.2% of total connector sales in the year ended December 31,
1997. Relative to smaller competitors, larger multinational connector
manufacturers with an extensive global presence, such as the Company, benefit
from several competitive advantages, including: (i) economies of scale in
manufacturing, marketing and research and development; (ii) the ability to serve
efficiently the changing needs of large global OEMs; and (iii) the ability to
satisfy customers' ever-increasing demand for quality products in large volumes.
19
<PAGE> 20
MARKETS SERVED BY THE COMPANY
The Company's products are designed for use primarily in the
telecommunications and computer markets, and to a lesser extent, in the
industrial and instrumentation markets. The percentage of net sales derived from
each of these markets for 1997 is as follows:
<TABLE>
<CAPTION>
MARKET % PRODUCT APPLICATIONS
<S> <C> <C>
Telecommunications........................ 54 Mobile communications: microwave equipment,
cellular phones, hand-held radios, modems
and pagers.
Transmission and switching: telephone
switching equipment.
Computer.................................. 37 High-end data processing: supercomputers,
servers, data communications, mainframe
computers, mini-computers and related
peripherals such as disk drives and tape
drives. Personal computing: notebook
computers, desktop
computers, printers, disk drives and
workstations.
Industrial and instrumentation............ 5 Process control equipment, medical
equipment, instrumentation and testing
equipment.
Other..................................... 4 Military and aerospace equipment and
specialized automotive and consumer
electronics.
</TABLE>
NEW PRODUCT DEVELOPMENT
Approximately 35% of the Company's net sales for the year 1997 were
generated from products developed by the Company within the past five years.
Developing new products requires substantial investments in research and
development. The Company targets research and development expenditures
specifically to broaden its product line and to expand its technical
capabilities in order to meet its customers' anticipated needs. In 1995, 1996
and 1997, the Company's research and development expenditures were $39.1
million, $42.3 million and $46.8 million, respectively. Of the $128.2 million
invested in research and development during the last three fiscal years, $79.3
million ($24.8 million, $26.1 million and $28.4 million in 1995, 1996 and 1997,
respectively) qualified for creation and application of new and improved
products and processes as defined in SFAS No. 2, "Accounting for Research and
Development Costs."
The Company had approximately 400 full-time employees at December 31, 1997
engaged in research, development and engineering functions, primarily at its
U.S., European and Asian research and development centers. In addition, the
Company has application engineers located at Lucent's Bell Laboratories ("Bell
Labs"). Through its access to Bell Labs, the Company is not only able to take
advantage of the research capabilities of the Bell Labs facility, but is also
able to provide support to and work closely with Lucent's engineers in the
advancement of Lucent's telecommunications equipment.
To fill the needs of its customers, the Company's product engineers work
with certain customers' in-house technical staffs in the early stages of product
development to design, produce and manufacture special products to meet the
specifications of particular applications. The manufacture of special products
permits the Company, through its research and development activities, to make
technological advances to provide the customer with a design solution to fit
such customer's needs, to gain marketing inroads with the customer with respect
to the Company's complete product line and, in some cases, to develop products
that can be sold to additional customers in the future. The Company currently
has significant ongoing projects with a variety of key customers in the computer
and telecommunications industries.
An example of the Company's product and market development efforts includes
the Company's Metral(TM) connector, originally developed in conjunction with
Lucent and Ericsson, which has become the industry standard for a variety of
telecommunications and computer applications. Other products developed by the
Company which have been industry standards include SPCI, PCMCIA, BergStik(TM)
and the modular jack.
20
<PAGE> 21
SALES AND MARKETING
The Company places a high priority on identifying and responding to its
customers' requirements on a timely basis. In order to ensure that the Company
is best positioned to respond to these requirements, it has developed a sales
and marketing strategy that utilizes global account managers, a highly trained
Company-employed direct sales force, independent distributors and independent
manufacturers' representatives.
Through its global account managers and direct sales force the Company is
able to develop strong ties to leading OEMs, who must use connectors to complete
the design and manufacture of their products. These ties enable the Company to
act as a partner in the design and development of new products and applications
for these customers. By becoming a partner in the design and development of new
products for its leading customers, the Company believes it can enhance its
relationships with these customers, achieve preferred supplier status and be
better positioned to anticipate its customers' future needs. In addition, the
Company has assigned industry market managers to high growth subsegments within
the telecommunications and computer market segments. These managers will
identify and work with leading technology and emerging technology companies in
order to remain at the forefront of technological development and position
itself to supply the connector requirements of these companies.
In addition to Company-employed sales staff, independent electronic
component distributors and independent manufacturers' representatives, the
Company utilizes a number of electronic and digital distribution techniques to
ensure easy access to, and ordering of, its products by the Company's customers.
Examples of such distribution techniques include automated access to Company
product information via facsimile, electronic publication of Company product
catalogues and access to Company product catalogues via the World Wide Web. By
accessing the Internet, the Company's customers' engineers are able to
electronically modify the Company's connector designs and send them via
electronic mail to the Company's engineers for further development.
21
<PAGE> 22
MANAGEMENT
Set forth below are the names of the Company's executive officers and each
such person's age, positions with the Company and his principal occupations and
business experience for the past five years.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
James N. Mills....................... 60 Chairman of the Board and Chief Executive
Officer
Timothy L. Conlon.................... 46 President and Chief Operating Officer of the
Company
David M. Sindelar.................... 40 Senior Vice President and Chief Financial
Officer of the Company
Joseph S. Catanzaro.................. 45 Chief Accounting Officer of the Company
</TABLE>
James N. Mills is Chairman of the Board and Chief Executive Officer of the
Company and has held such positions since November 1992. Mr. Mills also served
as President of the Company from November 1992 through June 1995. Mr. Mills is
the Chairman, President and Chief Executive Officer of Mills & Partners, Inc.,
an investment and management services firm headquartered in St. Louis. Mr. Mills
is also Chairman of the Board and Chief Executive Officer of International Wire
Holding Company and Viasystems Group, Inc. Mr. Mills was Chairman of the Board
and Chief Executive Officer of Jackson Holding Company 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. Mr. Mills was Executive Vice President of the Bussmann Division of the
McGraw-Edison Company from 1980 to 1984.
Timothy L. Conlon is President and Chief Operating Officer of the Company
and has held such positions since January 1997. Mr. Conlon also has served as
Executive Vice President and Chief Operating Officer of Berg Electronics Group,
Inc. since October 1993. Prior to joining the Company, Mr. Conlon was employed
as President of the Cutting and Welding Division of Thermadyne Industries, Inc.
from April 1993 to October 1993. Mr. Conlon also held various executive
positions with Thermadyne Industries, Inc. from July 1992 through April 1993.
Prior to joining Thermadyne Industries, Inc., Mr. Conlon spent nine years in the
connector industry including serving as General Manager of the Information
Technologies and Spectra Strip divisions of Amphenol Corporation from 1990
through July 1992 and President of Cambridge Products from 1988 through 1989.
David M. Sindelar is Senior Vice President and Chief Financial Officer of
the Company and has held such positions since November 1992. Mr. Sindelar is
also Senior Vice President and Chief Financial Officer of Mills & Partners,
Inc., International Wire Holding Company, and Viasystems 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 positions at Thermadyne Holdings Corporation
including Senior Vice President, Chief Financial Officer and Vice
President -- Corporate Controller and Controller.
Joseph S. Catanzaro is Chief Accounting Officer of the Company and Vice
President -- Finance of Berg Electronics Group, Inc. and has held such positions
since June 1996 and April 1993, respectively. Prior to joining the Company, Mr.
Catanzaro was employed by a petroleum trading company subsidiary of Mitsui & Co.
(USA), Inc. as Controller from 1990 through April 1993. From 1980 through 1989,
Mr. Catanzaro held several positions at Apex Oil Co., including Corporate
Controller.
22
<PAGE> 23
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding (i) the
beneficial ownership of the voting securities of the Company before and after
the Offering by each person who is known by the Company to own beneficially more
than 5% of the outstanding shares of Common Stock, by each of the directors and
certain executive officers of the Company, individually and as a group, and by
each other Selling Stockholder, and (ii) the number of shares of Common Stock
being offered by the Selling Stockholders in the Offering. The information set
forth below (i) assumes the conversion of all of the outstanding shares of Class
A Common Stock into shares of Common Stock and (ii) reflects the distribution
(the "HM Partnerships Distribution") by HM/Berg Partners, L.P., HM/Connectors,
L.P., HM/Berg/DB Partners, L.P., HM/Berg/TCL Partners, L.P. and HM/Berg/FC
Partners, L.P. (collectively referred to as the "HM Partnerships") to their
respective partners of an aggregate of 18,790,228 shares of Common Stock. The HM
Partnerships Distribution shall occur prior to the consummation of the Offering.
An aggregate of 9,100,874 shares of Common Stock distributed pursuant to the HM
Partnerships Distribution will be sold in the Offering by certain limited
partners of the HM Partnerships.
<TABLE>
<CAPTION>
SHARES OWNED BEFORE SHARES SHARES OWNED AFTER THE
OFFERING TO BE OFFERING
-------------------- SOLD IN ----------------------
NUMBER PERCENT THE OFFERING NUMBER PERCENT(1)
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS:
HM Parties(2)................................ 3,895,231 9.5 -- 3,895,231 9.5
c/o Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court
Suite 1600
Dallas, Texas 75201
DIRECTORS AND OFFICERS:
James N. Mills(3)............................ 2,466,904 6.0 519,750 1,947,154 4.7
Thomas O. Hicks(2)........................... 3,895,231 9.5 -- 3,895,231 9.5
Charles W. Tate(4)........................... 1,157,532 2.8 -- 1,157,532 2.8
Richard W. Vieser(5)......................... 117,320 * -- 117,320 *
Kenneth F. Yontz............................. 97,320 * -- 97,320 *
David M. Sindelar(6)......................... 489,932 1.2 103,950 385,982 *
W. Thomas McGhee(7).......................... 72,992 * -- 72,992 *
Timothy L. Conlon(8)......................... 79,124 * -- 79,124 *
All directors and executive officers as a
group (10 persons)(9)...................... 8,414,641 20.5 623,700 7,790,941 18.9
c/o Berg Electronics Corp.
101 South Hanley Road
St. Louis, Missouri 63105
OTHER SELLING STOCKHOLDERS:
American Airlines, Inc. Fixed Benefit Plans
Trust...................................... 417,734 1.0 417,734 -- --
CES Management Group, Inc. .................. 19,837 * 19,837 -- --
CIGNA Property & Casualty Insurance Co....... 232,844 * 232,844 -- --
Electronic Data Systems Corp................. 1,411,441 3.4 1,411,441 -- --
R.D. Hubbard................................. 175,600 * 43,900 131,700 *
Haroldson L. Hunt Jr. Trust Estate........... 175,601 * 175,601 -- --
Margaret Hunt Trust Estate................... 175,601 * 175,601 -- --
Hassie Hunt Trust............................ 186,258 * 186,258 -- --
Lyda Hunt -- Margaret Trusts(Al G. Hill,
Jr.)....................................... 46,565 * 46,565 -- --
Lamar Hunt Trust Estate...................... 98,793 * 98,793 -- --
Lyda Hunt -- Lamar Trusts.................... 98,793 * 98,793 -- --
Hunt Financial Group, LLC.................... 49,396 * 49,396 -- --
Insurance Company of North America........... 232,844 * 232,844 -- --
Lily Holding Limited......................... 317,398 * 317,398 -- --
Long Term Credit Bank of Japan, Ltd.......... 494,009 1.2 494,009 -- --
Lone Star Liquidating Trust.................. 808,481 2.0 808,481 -- --
Michall Co................................... 1,235,022 3.0 617,511 617,511 1.5
Missner Venture Partners II, L.P............. 59,512 * 20,829 38,683 *
National Fidelity Life Insurance Company..... 568,614 1.4 568,614 -- --
</TABLE>
- ---------------
(table continued on following page)
23
<PAGE> 24
<TABLE>
<CAPTION>
SHARES OWNED BEFORE SHARES SHARES OWNED AFTER THE
OFFERING TO BE OFFERING
-------------------- SOLD IN ----------------------
NUMBER PERCENT THE OFFERING NUMBER PERCENT(1)
<S> <C> <C> <C> <C> <C>
Schusterman/HM Investments and Jewish
Federation of Tulsa........................ 246,982 * 246,982 -- --
SGW Investments (U.S.A.), Inc................ 767,090 1.9 767,090 -- --
Swiss American Corporation................... 451,220 1.1 451,220 -- --
The Combined Master Retirement Trust......... 247,005 * 247,005 -- --
The Ohio National Life Insurance Co.......... 234,397 * 234,397 -- --
The Prudential Insurance Company of
America.................................... 351,234 * 351,234 -- --
Transpac Ventures 1, Ltd..................... 197,878 * 197,878 -- --
Wand/HMC Investments L.P..................... 569,747 1.4 170,924 398,823 *
Wabash Life Insurance Company................ 417,695 1.0 417,695 -- --
William L. Farrell........................... 47,590 * 47,590 -- --
Robert N. Mills.............................. 439,630 1.1 103,950 335,680 *
</TABLE>
- ---------------
* Represents less than 1%.
(1) Gives effect to the exercise of the over-allotment option granted by the
Selling Stockholders and Company to the Underwriter.
(2) Represents, immediately following the HM Partnerships Distribution: (i)
68,693 shares owned of record by Hicks Muse Fund I Incorporated ("Fund I");
(ii) 3,492,138 shares owned of record by Thomas O. Hicks; (iii) 331,968
shares owned of record by six children's trusts for which Mr. Hicks serves
as trustee; and (iv) 2,432 shares owned of record by an employee of Hicks,
Muse and subject to an irrevocable proxy in favor of Mr. Hicks. Mr. Hicks
is the controlling stockholder of Fund I and serves as Chairman of the
Board, President and Chief Executive Officer of Fund I. Accordingly, Mr.
Hicks may be deemed to be the beneficial owner of all of the shares owned
of record by Fund I. Messrs. John R. Muse, Charles W. Tate, and Jack D.
Furst serve as officers, directors and minority stockholders of Fund I and
as such, may be deemed to share the power to vote or dispose of shares of
Common Stock held by Fund I. Accordingly, Messrs. Hicks, Muse, Tate and
Furst may be deemed to be the beneficial owners of shares of Common Stock
owned by Fund I. In addition, Messrs. Muse and Furst own of record
2,042,791 and 1,087,221 shares of Common Stock, respectively, representing
approximately 5.0% and 2.7%, respectively, of the outstanding shares of
Common Stock. Each of Messrs. Hicks, Muse, Tate and Furst disclaims the
existence of a group and disclaims beneficial ownership of shares of Common
Stock not respectively owned of record by him.
(3) Includes 558,350 shares of Common Stock and 960,568 shares of Class A
Common Stock held by James N. Mills, and 947,986 shares of Class A Common
Stock which Mr. Mills has the power to vote by proxy.
(4) Includes 1,104,818 shares owned of record by Mr. Tate and 52,714 shares
owned of record by the Charles W. Tate 1992 Trust.
(5) Includes 48,660 shares owned of record by Mr. Vieser, 20,000 shares owned
of record by Mr. Vieser's spouse, and 48,660 shares of Common Stock subject
to options that are exercisable within 60 days. Mr. Vieser disclaims
beneficial ownership of shares of Common Stock not owned of record by him.
(6) Includes 133,950 shares of Common Stock and 282,990 shares of Class A
Common Stock owned of record by Mr. Sindelar, and 72,992 shares of Class A
Common Stock owned of record by two children's trusts of which Mr. Sindelar
serves as trustee. Mr. Sindelar disclaims beneficial ownership of shares of
Common Stock not owned of record by him.
(7) Includes 2,000 shares of Common Stock owned of record by the W. Thomas
McGhee Living Revocable Trust (the "McGhee Trust"), 24,992 shares of Class
A Common Stock owned of record by a trust for which Mr. McGhee's spouse
serves as trustee, 26,000 shares of Class A Common Stock owned of record by
the McGhee Trust, and 20,000 shares of Class A Common Stock owned of record
by the McGhee Family L.P. Mr. McGhee disclaims beneficial ownership of
shares of Class A Common Stock not owned by him.
(8) Includes 3,000 shares of Common Stock owned of record by three minor
children of which Mr. Conlon is the custodian, and 76,124 shares of Common
Stock subject to options that are exercisable within 60 days.
(9) Includes 8,307,321 outstanding shares of Common Stock owned beneficially by
the directors and executive officers and 107,320 shares of Common Stock
subject to options that are exercisable within 60 days.
24
<PAGE> 25
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company sells certain connectors and other products needed to
manufacture printed circuit boards and backpanel assemblies to Viasystems, Inc.
("Viasystems"). In December 1996, a wholly-owned subsidiary of Viasystems
acquired substantially all of the assets of the Interconnection Technologies
Unit of the Microelectronics Group (the "Lucent Division") of Lucent. Prior to
the acquisition by Viasystems of the Lucent Division, the Lucent Division
purchased certain electronic connections from the Company pursuant to a written
supply contract (the "Supply Agreement"). The Company and Viasystems have
continued to supply and purchase products on the same terms and conditions as
set forth in the Supply Agreement. Viasystems is controlled by Hicks, Muse,
through its affiliates, and managed by Mills and Partners, Inc. In addition,
certain of the Company's directors and executive officers have financial
interests in Viasystems. For the year ended December 31, 1997, the Company's net
sales to Viasystems were approximately $41.0 million. The Company expects to
continue to sell products to Viasystems on terms and conditions substantially
similar to the terms and conditions of the Supply Agreement, which the Company
believes to be comparable to the terms that would be reached in an arm's-length
transaction.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 60,000,000 shares
of Common Stock, 7,000,000 shares of Class A Common Stock and 28,500,000 shares
of preferred stock, of which 670,000 shares have been designated Series A Junior
Preferred Stock in connection with the Company's Rights Agreement. As of
February 4, 1998, there were outstanding 39,099,791 shares of Common Stock,
1,908,554 shares of Class A Common Stock and no shares of preferred stock.
PREFERRED STOCK
The Board of Directors is authorized without stockholder approval to issue
preferred stock from time to time in one or more series and to designate for
each such series the terms and conditions of any voting, dividend and conversion
or exchange rights; the amount payable on the series upon redemption and upon
the dissolution or distribution of the assets of the Company; and the rights,
qualifications, limitations or restrictions thereof pertaining to the series.
These rights and privileges could adversely affect the voting power of holders
of Common Stock, and the authority of the Board of Directors to issue preferred
stock without stockholder approval could have the effect of delaying, deferring
or preventing a change in control of the Company.
RIGHTS PLAN
On December 22, 1997, the Board of Directors of the Company declared a
dividend of one Preferred Stock Purchase Right (the "Right(s)") for each
outstanding share of Common Stock and each outstanding share of Class A Common
Stock of the Company. The dividend was paid as of January 8, 1998 to
stockholders of record on that date. Each right entitles the registered holder
to purchase from the Company one one-hundredth ( 1/100) of a share of a new
series of preferred shares of the Company, designated as Series A Junior
Preferred Stock ("Series A Junior Preferred Stock"), at a price of $115 per one
one-hundredth ( 1/100) of a share (the "Exercise Price"), subject to certain
adjustments. The description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement") between the Company and Harris Trust and
Savings Bank, as Rights Agent ("Rights Agent"), dated as of December 22, 1997.
Initially the Rights will not be exercisable, certificates will not be sent
to stockholders, and the Rights will automatically trade with the Common Stock
and the Class A Common Stock.
The Rights, unless earlier redeemed by the Board of Directors, become
exercisable upon the close of business on the day (the "Distribution Date")
which is the earlier of (i) the tenth day following a public announcement that a
person or group of affiliated or associated persons, with certain exceptions set
forth below, has acquired beneficial ownership of 15% or more of the outstanding
voting stock of the Company (an "Acquiring Person") and (ii) the tenth business
day (or such later date as may be determined by the Board of
25
<PAGE> 26
Directors prior to such time as any person or group of affiliated or associated
persons becomes an Acquiring Person) after the date of the commencement or
announcement of a person's or group's intention to commence a tender or exchange
offer the consummation of which would result in the ownership of 15% or more of
the Company's outstanding voting stock (even if no shares are actually purchased
pursuant to such offer); prior thereto, the Rights would not be exercisable,
would not be represented by a separate certificate, and would not be
transferable apart from the Company's Common Stock and Class A Common Stock, but
will instead be evidenced, with respect to any of the Common Stock or Class A
Common Stock certificates outstanding as of December 22, 1997, by such Common
Stock certificate with a copy of a Summary of Rights attached thereto. An
Acquiring Person does not include (A) the Company, (B) any subsidiary of the
Company, (C) any employee benefit plan or employee stock plan of the Company or
of any subsidiary of the Company, or any trust or other entity organized,
appointed, established or holding Common Stock for or pursuant to the terms of
any such plan, (D) any person who, as of December 22, 1997, was the beneficial
owner of 15% or more of the shares of voting stock of the Company then
outstanding (provided, however, that any such person shall become an Acquiring
Person if such person, from December 22, 1997, acquires beneficial ownership of
an additional 1% or more of the shares of voting stock of the Company, unless
such acquisition results from (i) any action or transaction approved by the
Board of Directors before such acquisition or (ii) a reduction in the number of
issued and outstanding shares of voting stock of the Company pursuant to a
transaction or transactions approved by the Board of Directors) or (E) any
person or group whose ownership of 15% or more of the shares of voting stock of
the Company then outstanding results solely from (i) any action or transaction
or transactions approved by the Board of Directors before such person or group
became an Acquiring Person or (ii) a reduction in the number of issued and
outstanding shares of voting stock of the Company pursuant to a transaction or
transactions approved by the Board of Directors (provided that any person or
group that does not become an Acquiring Person by reason of clause (i) or (ii)
above shall become an Acquiring Person upon acquisition of an additional 1% of
the Company's voting stock unless such acquisition of additional voting stock
will not result in such person or group becoming an Acquiring Person by reason
of such clause (i) or (ii)).
Until the Distribution Date (or earlier redemption or expiration of the
Rights), new Common Stock and Class A Common Stock certificates issued after
December 22, 1997 will contain a legend incorporating the Rights Agreement by
reference. Until the Distribution Date (or earlier redemption or expiration of
the Rights), the surrender for transfer of any of the Company's Common Stock or
Class A Common Stock certificates outstanding as of January 8, 1998 with or
without a copy of the Summary of Rights attached, will also constitute the
transfer of the Rights associated with the Common Stock or Class A Common Stock,
as the case may be, represented by such certificate. As soon as practicable
following the Distribution Date, separate certificates evidencing the Rights
("Right Certificates") will be mailed to holders of record of the Company's
Common Stock and to holders of the Company's Class A Common Stock, in each case,
as of the close of business on the Distribution Date and such separate
certificates alone will evidence the Rights from and after the Distribution
Date.
The Rights are not exercisable until the Distribution Date. The Rights will
expire at the close of business on December 21, 2007, unless earlier redeemed by
the Company as described below.
The Series A Junior Preferred Stock is non-redeemable and, unless otherwise
provided in connection with the creation of a subsequent series of preferred
stock, subordinate to any other series of the Company's preferred stock. The
Series A Junior Preferred Stock may not be issued except upon exercise of
Rights. Each share of Series A Junior Preferred Stock will be entitled to
receive when, as and if declared, a quarterly dividend in an amount equal to the
greater of $1.00 per share and 100 times the cash dividends per share declared
on the Company's Common Stock and Class A Common Stock. In addition, the Series
A Junior Preferred Stock is entitled to 100 times any non-cash dividends (other
than dividends payable in equity securities) declared on the Common Stock and
the Class A Common Stock, in like kind. In the event of liquidation, the holders
of Series A Junior Preferred Stock will be entitled to receive for each share, a
liquidation payment in an amount equal to the greater of $11,500 or 100 times
the payment made per share of Common Stock and the Class A Common Stock. Each
share of Series A Junior Preferred Stock will have 100 votes, voting together
with the Common Stock and the Class A Common Stock. In the event of any
26
<PAGE> 27
merger, consolidation or other transaction in which Common Stock or Class A
Common Stock is exchanged, each share of Series A Junior Preferred Stock will be
entitled to receive 100 times the amount received per share of Common Stock or
Class A Common Stock, as the case may be. The rights of Series A Junior
Preferred Stock as to dividends, liquidation and voting are protected by
anti-dilution provisions.
The number of shares of Series A Junior Preferred Stock issuable upon
exercise of the Rights is subject to certain adjustments from time to time in
the event of a stock dividend on, or a subdivision or combination of, the Common
Stock and the Class A Common Stock. The Exercise Price for the Rights is subject
to adjustment in the event of extraordinary distributions of cash or other
property to holders of Common Stock and Class A Common Stock.
Unless the Rights are earlier redeemed, in the event that, after the time
that a Person becomes an Acquiring Person, the Company were to be acquired in a
merger or other business combination (in which any shares of the Company's
Common Stock or Class A Common Stock are changed into or exchanged for other
securities or assets) or more than 50% of the assets or earning power of the
Company and its subsidiaries (taken as a whole) were to be sold or transferred
in one or a series of related transactions, the Rights Agreement provides that
proper provision will be made so that each holder of record of a Right will from
and after such date have the right to receive, upon payment of the Exercise
Price, that number of shares of common stock of the acquiring company having a
market value at the time of such transaction equal to two times the Exercise
Price. In addition, unless the Rights are earlier redeemed, if a person or group
(with certain exceptions) becomes the beneficial owner of 15% or more of the
Company's voting stock, the Rights Agreement provides that proper provision will
be made so that each holder of record of a Right, other than the Acquiring
Person (whose Rights will thereupon become null and void), will thereafter have
the right to receive, upon payment of the Exercise Price, that number of shares
of the Company's Series A Junior Preferred Stock having a market value at the
time of the transaction equal to two times the Exercise Price (such market value
to be determined with reference to the market value of the Company's Common
Stock as provided in the Rights Agreement). The Rights Agreement also grants the
Board of Directors the option, after any person or group acquires beneficial
ownership of 15% or more of the voting stock but before there has been a 50%
acquisition, to exchange one share of common stock for each then valid right
(which would exclude rights held by the Acquiring Person that have become void).
Fractions of shares of Series A Junior Preferred Stock (other than
fractions that are integral multiples of one one-hundredth ( 1/100) of a share)
may, at the election of the Company, be evidenced by depositary receipts. The
Company may also issue cash in lieu of fractional shares which are not integral
multiples of one one-hundredth ( 1/100) of a share.
At any time on or prior to the close of business on the tenth day after the
time that a person has become an Acquiring Person (or such later date as a
majority of the Board of Directors may determine), the Company may redeem the
Rights in whole, but not in part, at a price of $0.01 per Right ("Redemption
Price"). Immediately upon the effective time of the action of the Board of
Directors of the Company authorizing redemption of the Rights, the right to
exercise the Rights will terminate and the only right of the holders of the
Rights will be to receive the Redemption Price.
For as long as the Rights are then redeemable, the Company may, except with
respect to the redemption price or date of expiration of the Rights, amend the
Rights in any manner, including an amendment to extend the time period in which
the Rights may be redeemed. At any time when the Rights are not then redeemable,
the Company may amend the Rights in any manner that does not materially
adversely affect the interests of holders of the Rights as such.
Until a Right is exercised, the holder, as such, will have no rights as a
stockholder of the Company, including, without limitation, the right to vote or
to receive dividends.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group who attempts to acquire the Company on
terms not approved by the Company's Board of Directors. The Rights should not
interfere with any merger or other business combination approved by the Board
since they may be redeemed by the Company at $0.01 per Right at any time until
the close of business on the tenth day
27
<PAGE> 28
(or such later date as described above) after a person or group has obtained
beneficial ownership of 15% or more of the voting stock.
COMMON STOCK AND CLASS A COMMON STOCK
The holders of Common Stock and Class A Common Stock are entitled to one
vote for each share held of record on all matters submitted to a vote of
stockholders. Except as expressly required under the Delaware General
Corporation Law (the "DGCL"), the Common Stock and the Class A Common Stock will
vote together as a single class with respect to all matters to be voted on by
the Company's stockholders. Subject to preferential rights with respect to any
class or series of preferred stock, holders of Common Stock and Class A Common
Stock are entitled to receive ratably, on a share-for-share basis as if all
shares were of a single class, (i) ordinary dividends payable in cash out of the
current earnings of the Company and (ii) dividends in shares of Common Stock and
Class A Common Stock (or rights to subscribe for or purchase shares of Common
Stock and Class A Common Stock, as applicable, or securities or indebtedness
convertible into shares of Common Stock and Class A Common Stock, as
applicable); provided, however, that dividends payable in shares of Common Stock
(or rights to subscribe for or purchase shares of Common Stock or securities or
indebtedness convertible into shares of Common Stock) shall be paid only on
shares of Common Stock and dividends payable in shares of Class A Common Stock
(or rights to subscribe for or purchase shares of Class A Common Stock or
securities or indebtedness convertible into shares of Class A Common Stock)
shall be paid only on shares of Class A Common Stock. In the event of
liquidation, dissolution or winding up of the affairs of the Company, holders of
Common Stock are entitled to receive an amount in cash and/or property which has
an aggregate Fair Value (as defined in the Company's Certificate of
Incorporation) equal to the Conversion Price (as defined herein) before any
payment shall be made to holders of shares of Class A Common Stock. After
payment of the full cash amount due on shares of Common Stock as provided in the
immediately preceding sentence, holders of Common Stock and Class A Common Stock
shall share ratably on a share-for-share basis in all other distributions of
assets pursuant to any liquidation, dissolution or winding-up of the Company.
The holders of Common Stock and Class A Common Stock have no cumulative voting
rights. All outstanding shares of Common Stock and Class A Common Stock are
fully paid and non-assessable. All shares of Common Stock issuable upon
conversion of the Class A Common Stock will upon issuance be fully paid and
non-assessable.
Holders of Class A Common Stock are entitled at any time to convert their
shares of Class A Common Stock into shares of Common Stock at the rate of a
fraction of a share of Common Stock equal to the quotient of (A) the excess, if
any, of the Fair Value (as defined in the Certificate of Incorporation) of one
share of Common Stock over the Conversion Price divided by (B) the Fair Value of
the Common Stock, all computed as of the close of business on the date preceding
the date of conversion. In addition, shares of Class A Common Stock (i) may be
converted into shares of Common Stock at the option of the Company effective
immediately prior to the consummation of a Triggering Event (as defined herein)
and (ii) shall automatically be converted into shares of Common Stock on
February 26, 2003. "Conversion Price" means, as to any share of Class A Common
Stock on any date, the Base Price, as adjusted from time to time. "Base Price,"
as adjusted, means $2.035, and is subject to adjustment from time to time. "Base
Price" may be adjusted as follows: (i) if at any time the Company pays a
dividend on Common Stock (other than a dividend payable ratably on the Common
Stock and Class A Common Stock, as required, with respect to (a) ordinary
dividends payable out of the Company's current earnings and (b) dividends in
shares of Common Stock and Class A Common Stock, as applicable, or in securities
or indebtedness convertible into shares of Common Stock and Class A Common
Stock, as applicable), whether such dividend is payable in cash, property or
securities of the Company, the then applicable Base Price shall be reduced (but
not below zero), effective at the close of business on the record date for
determination of holders of Common Stock entitled to such dividend, by the per
share amount of such dividend, and (ii) if at any time the Company subdivides
the Common Stock and Class A Common Stock into a greater number of shares, or
combines the Common Stock and Class A Common Stock into a lesser number of
shares, or pays to the holders of Common Stock or Class A Common Stock a
dividend in Common Stock or Class A Common Stock, as applicable, the then
applicable Base Price shall be adjusted, effective at the close of business on
the effective date of such split or combination or the record date for
determination of the holders of Common Stock or Class A Common Stock
28
<PAGE> 29
entitled to such divided, by multiplying the Base Amount then in effect times a
fraction, (x) the numerator of which is the total number of shares of Class A
Common Stock outstanding immediately before such subdivision, combination or
dividend, and (y) the denominator of which is the total number of shares of
Class A Common Stock outstanding immediately after such subdivision, combination
or dividend. A "Triggering Event" is defined as any merger, consolidation or
other business combination of the Company with one or more other persons or
entities in which any such other person or entity is the Survivor (as defined in
the Certificate of Incorporation), or any sale of all or substantially all of
the assets of the Company and with respect to which cash and/or non-cash
consideration is to be distributed to holders of Common Stock; provided that, if
any such merger, consolidation, sale of assets or other business combination in
which holders of Common Stock receive cash or non-cash consideration in exchange
for Common Stock is structured so that the Company is the surviving entity, such
transaction shall nevertheless be deemed a Triggering Event. Notwithstanding the
foregoing, a merger, consolidation, sale of assets, or other business
combination referred to in the preceding sentence shall not constitute a
Triggering Event if Hicks, Muse and its affiliates shall beneficially own,
directly or indirectly, in excess of 50% of the outstanding Common Stock
(determined on a fully-diluted basis, exclusive of shares issuable upon
conversion of the Class A Common Stock) of the surviving entity (an "Exempt
Transaction"). Further, the terms of any Exempt Transaction shall provide that
the Class A Common Stock (or any other class of convertible common stock having
terms, as nearly as may reasonably be, identical to the terms of the Class A
Common Stock) shall remain outstanding after such Exempt Transaction.
SPECIAL PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS OF THE COMPANY
The Company's Certificate of Incorporation and Bylaws include certain
provisions that could have an anti-takeover effect. The provisions are intended
to enhance the likelihood of continuity and stability in the composition of the
Board of Directors and in the policies formulated by the Board of Directors.
These provisions also are intended to help ensure that the Board of Directors,
if confronted by a surprise proposal from a third party which has acquired a
block of stock of the Company, will have sufficient time to review the proposal
and appropriate alternatives to the proposal and to act in what it believes to
be the best interests of the stockholders.
Blank Check Preferred Stock. The Company's Certificate of Incorporation
provides that the Board of Directors of the Company may authorize the issuance
of up to 28,500,000 shares of preferred stock in one or more series and may
designate the dividend rate, voting rights and other rights, preferences and
restrictions of each such series; 670,000 shares of preferred stock have been
designated as Series A Junior Preferred Stock. See "-- Rights Plan" above.
Except as described in connection with the Rights Agreement, the Company has no
present intention to issue any preferred stock; however, the Company could issue
a series of preferred stock that could, depending on the terms of such series,
either impede or facilitate the completion or a merger, tender offer or other
takeover attempt. Although the Board of Directors is required to make any
determination to issue such stock based on its judgment as to the best interests
of the stockholders of the Company, the Board of Directors could act in a manner
that would discourage an acquisition attempt or other transaction that some, or
a majority, of the stockholders might believe to be in their best interests or
in which stockholders might receive a premium for their stock over the then
market price of such stock. The Board of Directors does not intend to seek
stockholder approval prior to any issuance of such preferred stock, unless
otherwise required by law or stock exchange rules.
Classified Board of Directors. The Certificate of Incorporation provides
for a Board of Directors divided into three classes of directors serving
staggered three-year terms. The classification of directors has the effect of
making it more difficult for stockholders to change the composition of the Board
of Directors in a relatively short period of time. At least two annual meetings
of stockholders, instead of one, will generally be required to effect a change
in a majority of the Board of Directors.
Number of Directors; Vacancies; Removal. The Certificate of Incorporation
provides that the Board of Directors will consist of at least five and no more
than six members. The number of directors constituting the entire Board of
Directors may be changed only by an amendment to the Certificate of
Incorporation. The Bylaws provide that the Board of Directors, acting by
majority vote of the directors then in office, may fill any
29
<PAGE> 30
newly created directorships or vacancies on the Board of Directors. Moreover,
under the DGCL, in the case of a corporation having a classified board,
stockholders may remove a director only for cause. This provision, when coupled
with the provision of the Bylaws authorizing the Board of Directors to fill
vacant directorships, will preclude a stockholder from removing incumbent
directors without cause and simultaneously gaining control of the Board of
Directors by filling the vacancies created by such removal with its own
nominees.
Stockholder Action by Written Consent; Special Meetings. The Certificate of
Incorporation prohibits action by stockholders by written consent in lieu of a
meeting. The Bylaws provide that special meetings of stockholders may be called
by a majority of the Board of Directors, the Chairman of the Board of Directors
or any holder or holders of at least 25% of the outstanding shares of the voting
capital stock of the Company.
Advance Notice Requirements for Stockholder Proposals and Director
Nominees. The Bylaws establish an advance notice procedure with regard to
business proposed to be submitted by a stockholder at any annual or special
meeting of stockholders of the Company, including the nomination of candidates
for election as directors. The procedure provides that a notice of proposed
stockholder business must be timely given in writing to the Secretary of the
Company prior to the meeting. In all cases, to be timely, notice relating to an
annual meeting must be received at the principal executive office of the Company
not less than 60 days nor more than 90 days before the first anniversary of the
prior year's annual meeting.
Notice to the Company from a stockholder who proposes to nominate a person
at a meeting for election as a director must contain all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Exchange Act, including such person's written consent
to being named in the proxy statement as a nominee and to serving as a director
if elected.
The chairman of a meeting of stockholders may determine that a person was
not nominated in accordance with the nomination procedure, in which case such
person's nomination will be disregarded. If the chairman of a meeting of
stockholders determines that other business was not properly brought before such
meeting in accordance with the Bylaw procedures, such business will not be
conducted at the meeting. Nothing in the nomination procedure or the business
procedure will preclude discussion by any stockholder of any nomination or
business properly made or brought before the annual or any other meeting in
accordance with the above-mentioned procedures.
Amendment of Bylaw Provisions. The Certificate of Incorporation provides
that Bylaw provisions may be adopted, altered, amended or repealed only by the
affirmative vote of two-thirds of the members of the Board of Directors or
holders of at least two-thirds of the outstanding shares of capital stock of the
Company, voting together as a single class, entitled to vote thereon.
Amendment of Certificate of Incorporation Provisions. The Certificate of
Incorporation requires the affirmative vote of the holders of at least
two-thirds of the outstanding shares of capital stock of the Company, voting
together as a single class, for any amendments of the Certificate of
Incorporation.
LIMITATIONS ON DIRECTOR LIABILITY
The Company's Certificate of Incorporation also contains certain provisions
permitted under the DGCL regarding liability of directors. These provisions
eliminate the personal liability of directors to the Company and its
stockholders for monetary damages for any breach of their fiduciary duties in
their capacity as directors, except for any breach of the duty of loyalty, for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, for liability under Section 174 of the DGCL (regarding
certain unlawful dividends, stock repurchases or stock redemptions), or for any
transaction from which the director derived an improper personal benefit. These
provisions do not eliminate a director's duty of care and do not affect the
availability of equitable remedies such as an action to enjoin or rescind a
transaction involving a breach of fiduciary duty. Moreover, these provisions do
not apply to claims against a director for violation of certain laws, including
the federal securities laws. The Company's Certificate of Incorporation further
provides that the Company shall indemnify its directors and officers, and may
indemnify any employee or agent of the
30
<PAGE> 31
Company, to the fullest extent permitted by the DGCL. The Company believes that
these provisions will assist the Company in attracting and retaining qualified
individuals to serve as directors and officers.
DELAWARE TAKEOVER STATUTE
Section 203 of the DGCL ("Section 203") prohibits certain persons
("Interested Stockholders") from engaging in a "business combination" with a
Delaware corporation for three years following the date such persons become
Interested Stockholders. Interested Stockholders generally include (i) persons
who are the beneficial owners of 15% or more of the outstanding voting stock of
the corporation and (ii) persons who are affiliates or associates of the
corporation and who hold 15% or more of the corporation's outstanding voting
stock at any time within three years before the date on which such person's
status as an Interested Stockholder is determined. Subject to certain
exceptions, a "business combination" includes, among other things, (i) mergers
and consolidations, (ii) the sale, lease, exchange, mortgage, pledge, transfer
or other disposition of assets having an aggregate market value equal to 10% or
more of either the aggregate market value of all assets of the corporation
determined on a consolidated basis or the aggregate market value of all the
outstanding stock of the corporation, (iii) transactions that result in the
issuance or transfer by the corporation of any stock of the corporation to the
Interested Stockholder, except pursuant to certain exercises, exchanges,
conversions, distributions or offers to purchase with respect to securities
outstanding prior to the time that the Interested Stockholder became such and
that, generally, do not increase the Interested Stockholder's proportionate
share of the stock of any class or series of the corporation, (iv) any
transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series, or securities
convertible into the stock of any class or series, of the corporation that is
owned directly or indirectly by the Interested Stockholder, or (v) any receipt
by the Interested Stockholder of the benefit (except proportionately as a
stockholder) of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation.
Section 203 does not apply to a business combination if (i) before a person
becomes an Interested Stockholder, the board of directors of the corporation
approves the transaction in which the Interested Stockholder became an
Interested Stockholder or approves the business combination, (ii) upon
consummation of the transaction that resulted in the Interested Stockholder
becoming an Interested Stockholder, the Interested Stockholder owns at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commences (other than certain excluded shares), or (iii) following a transaction
in which the person became an Interested Stockholder, the business combination
is (a) approved by the board of directors of the corporation and (b) authorized
at a regular or special meeting of stockholders (and not by written consent) by
the affirmative vote of the holders of at least two-thirds of the outstanding
voting stock of the corporation not owned by the Interested Stockholder.
The foregoing provisions of the DGCL and the Company's Certificate of
Incorporation and Bylaws could have the effect of discouraging others from
attempting hostile takeovers of the Company and, as a consequence, they may also
inhibit temporary fluctuations in the market price of the Common Stock that
often result from actual or rumored hostile takeover attempts. Such provisions
may also have the effect of preventing changes in the management of the Company.
It is possible that such provisions could make it more difficult to accomplish
transactions which stockholders may otherwise deem to be in their best
interests.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Harris Trust and
Savings Bank.
31
<PAGE> 32
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated
February 6, 1998 (the "Underwriting Agreement"), Donaldson, Lufkin & Jenrette
Securities Corporation (the "Underwriter") has agreed to purchase from the
Selling Stockholders all of the 10,325,028 Shares offered hereby.
The Underwriting Agreement provides that the obligations of the Underwriter
to purchase and accept delivery of the shares of Common Stock offered hereby are
subject to approval by its counsel of certain legal matters and to certain other
conditions. The Underwriter is obligated to purchase and accept delivery of all
the shares of Common Stock offered hereby if any are purchased.
The Underwriter initially proposes to offer the shares of Common Stock in
part directly to the public at the public offering price set forth on the cover
page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $0.25 per share.
The Underwriter may allow, and such dealers may re-allow, to certain other
dealers a concession not in excess of $0.10 per share. After the initial
offering of the Common Stock, the public offering price and other selling terms
may be changed by the Underwriter at any time without notice.
The Company and the Selling Stockholders granted to the Underwriter an
option, which the Underwriter has exercised in full, to purchase an aggregate of
448,914 and 897,829 additional shares of Common Stock, respectively, at the
public offering price less underwriting discounts and commissions. The
Underwriter exercised such option solely to cover over-allotments made in
connection with the Offering.
The Company, its wholly-owned subsidiary, Berg Electronics Group, Inc. and
the Selling Stockholders have agreed to indemnify the Underwriter against
certain liabilities, including liabilities under the Securities Act, or to
contribute to payments that the Underwriter may be required to make in respect
thereof.
Each of the Company, its executive officers and directors and certain
stockholders of the Company (including the Selling Stockholders) has agreed not
to (i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences associated with the
ownership of any Common Stock (regardless of whether any of the transactions
described in clause (i) or (ii) is to be settled by the delivery of Common
Stock, or such other securities, in cash or otherwise) for a period of 90 days
after the date of this Prospectus without the prior written consent of the
Underwriter; provided that the Company may grant stock options under its
existing stock option plan, issue Common Stock upon the exercise of an option or
warrant outstanding as of the date of the Underwriting Agreement or issue Common
Stock or securities convertible into or exercisable for shares of Common Stock
in connection with an acquisition or business combination so long as the
recipient of any such securities agrees in writing to be bound by the foregoing
restrictions for the remainder of such 90-day period. Holders of 11,456,884
shares of Common Stock and 1,479,026 shares of Class A Common Stock have agreed
to the foregoing restrictions. In addition, during such period, the Company has
also agreed not to file any registration statement with respect to the
registration of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock without the prior written consent
of the Underwriter.
The Common Stock is listed on the NYSE under the symbol "BEI."
Other than in the United States, no action has been taken by the Company,
the Selling Stockholders, or the Underwriter that would permit a public offering
of the shares of Common Stock offered hereby in any jurisdiction where action
for that purpose is required. The shares of Common Stock offered hereby may not
be offered or sold, directly or indirectly, nor may this Prospectus or any other
offering material or advertisements in connection with the offer and sale of any
such shares of Common Stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
rules and regulations of such jurisdiction. Persons into whose possession this
Prospectus comes are advised to inform themselves about and to observe any
restrictions relating to the Offering and the distribution of this
32
<PAGE> 33
Prospectus. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any shares of Common Stock offered hereby in any
jurisdiction in which such an offer or a solicitation is unlawful.
In connection with the Offering, the Underwriter may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Specifically, the Underwriter may overallot the Offering creating a syndicate
short position. The Underwriter may bid for and purchase shares of Common Stock
in the open market to cover such syndicate short position or to stabilize the
price of the Common Stock. These activities may stabilize or maintain the market
price of the Common Stock above independent market levels. The Underwriter is
not required to engage in these activities and may end any of these activities
at any time.
LEGAL MATTERS
Certain legal matters with respect to the Shares offered hereby will be
passed upon for the Company by Weil, Gotshal & Manges LLP, Dallas, Texas. R.
Scott Cohen, a partner at such firm, owns 7,166 shares of Common Stock. Vinson &
Elkins L.L.P., Dallas, Texas, is acting as counsel for the Underwriter.
EXPERTS
The audited consolidated financial statements and schedules of the Company
included in, and incorporated by reference into, this Prospectus, to the extent
and for the periods indicated in their reports, have been audited by Arthur
Andersen LLP, independent public accountants, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
33
<PAGE> 34
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Berg Electronics Corp.
Report of Arthur Andersen LLP, Independent Public
Accountants............................................ F-2
Consolidated Balance Sheets as of December 31, 1996 and
1997................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1995, 1996 and 1997....................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1995, 1996 and 1997........... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997....................... F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE> 35
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Berg Electronics Corp.:
We have audited the accompanying consolidated balance sheets of Berg
Electronics Corp. (a Delaware corporation) and subsidiaries as of December 31,
1996 and 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 audits 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 Berg Electronics Corp. and
subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
January 27, 1998
F-2
<PAGE> 36
BERG ELECTRONICS CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents............. $ 8,999 $ 11,994
Accounts receivable, less allowance of
$3,703 and $3,657, respectively.... 104,134 118,331
Inventories........................... 91,823 96,022
Prepaid expenses and other............ 13,935 16,890
-------- --------
Total current assets.......... 218,891 243,237
-------- --------
Property, plant and equipment........... 259,905 285,767
Deferred financing costs................ 14,896 4,414
Intangible assets....................... 174,860 165,437
Other assets............................ 13,455 5,791
-------- --------
Total assets.................. $682,007 $704,646
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
obligations........................ $ 33,912 $ 26,786
Accounts payable...................... 60,822 76,779
Accrued payroll and payroll taxes..... 23,497 24,969
Accrued and other liabilities......... 47,168 56,882
Accrued interest...................... 3,746 2,328
Income taxes payable.................. 8,586 12,788
-------- --------
Total current liabilities..... 177,731 200,532
-------- --------
Long-term obligations, less current
maturities............................ 324,646 316,544
Other liabilities....................... 40,738 51,686
Stockholders' equity:
Common stock, par value $.01 per
share, 38,250,476 and 39,099,791
shares, respectively, issued and
outstanding........................ 382 391
Class A common stock, par value $.01
per share, 2,768,582 and 1,908,554
shares, respectively, issued and
outstanding........................ 28 19
Paid in capital......................... 116,094 116,563
Retained earnings....................... 19,836 52,062
Cumulative translation adjustments...... 2,552 (33,151)
-------- --------
Total stockholders' equity.... 138,892 135,884
-------- --------
Total liabilities and
stockholders' equity......... $682,007 $704,646
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE> 37
BERG ELECTRONICS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales............................... $ 667,249 $ 704,669 $ 785,150
Operating expenses:
Cost of goods sold.................... 442,276 455,869 505,706
Selling, general and administrative... 154,756 157,682 169,936
Amortization of intangible assets..... 11,182 12,011 15,409
Net periodic postretirement
benefits........................... 2,271 1,272 1,830
----------- ----------- -----------
Operating income........................ 56,764 77,835 92,269
Other income (expense):
Interest expense...................... (34,609) (28,350) (26,755)
Amortization of deferred financing
costs.............................. (6,286) (3,388) (2,019)
Other, net............................ (738) 1,239 (1,185)
----------- ----------- -----------
Income before income tax provision and
extraordinary items................... 15,131 47,336 62,310
Income tax provision.................... 5,802 18,391 24,120
----------- ----------- -----------
Income before extraordinary items....... 9,329 28,945 38,190
Extraordinary items -- loss on early
extinguishment of debt, net of income
tax of $0, $12,443 and $3,734,
respectively.......................... -- (18,664) (5,964)
----------- ----------- -----------
Net income.............................. 9,329 10,281 32,226
Preferred stock:
Accretion and dividends............... (14,741) (5,469) --
Excess of fair value over book value
of redemption and purchase......... -- (21,866) --
----------- ----------- -----------
Net income (loss) applicable to common
shares................................ $ (5,412) $ (17,054) $ 32,226
=========== =========== ===========
Earnings per common share -- basic
Income (loss) before extraordinary
items.............................. $ (0.21) $ 0.04 $ 0.93
=========== =========== ===========
Net income (loss)..................... $ (0.21) $ (0.44) $ 0.79
=========== =========== ===========
Earnings per common share -- diluted
Income (loss) before extraordinary
items.............................. $ (0.21) $ 0.04 $ 0.92
=========== =========== ===========
Net income (loss)..................... $ (0.21) $ (0.44) $ 0.78
=========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE> 38
BERG ELECTRONICS CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
PREFERRED COMMON PAID IN RETAINED TRANSLATION
STOCK STOCK CAPITAL EARNINGS ADJUSTMENTS TOTAL
--------- ------ --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994.............. $ 45 $260 $ 115,051 $ 2,101 $ 12,002 $ 129,459
Exercise of stock options............. 30 30
Preferred stock dividends............. 6 (6) --
Series B preferred stock accretion.... 1,500 (1,500) --
Change in cumulative translation
adjustments........................ 5,522 5,522
Net income............................ 9,329 9,329
---- ---- --------- ------- -------- ---------
Balance, December 31, 1995.............. $ 51 $260 $ 116,575 $ 9,930 $ 17,524 $ 144,340
Exercise of stock options............. 223 223
Preferred stock dividends............. 1 (1) --
Series B preferred stock accretion.... 375 (375) --
Preferred stock purchase and
redemption......................... (52) (142,953) (143,005)
Net proceeds from IPO................. 150 146,883 147,033
Costs of IPO.......................... (5,008) (5,008)
Change in cumulative translation
adjustments........................ (14,972) (14,972)
Net income............................ 10,281 10,281
---- ---- --------- ------- -------- ---------
Balance, December 31, 1996.............. $ -- $410 $ 116,094 $19,836 $ 2,552 $ 138,892
Exercise of stock options............. 197 197
Tax benefit upon exercise of stock
options............................ 272 272
Change in cumulative translation
adjustments........................ (35,703) (35,703)
Net income............................ 32,226 32,226
---- ---- --------- ------- -------- ---------
Balance, December 31, 1997.............. $ -- $410 $ 116,563 $52,062 $(33,151) $ 135,884
==== ==== ========= ======= ======== =========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE> 39
BERG ELECTRONICS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------------------
1995 1996 1997
------------ ------------ ---------
<S> <C> <C> <C>
Cash flows provided by (used in)
operating activities:
Net income............................ $ 9,329 $ 10,281 $ 32,226
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Extraordinary items................ -- 31,107 9,698
Depreciation....................... 42,761 44,237 47,578
Amortization and other non-cash
charges.......................... 19,739 16,671 19,258
Change in assets and liabilities,
net of acquisitions:
Accounts receivable.............. (24,226) 8,706 (26,670)
Inventories...................... (8,339) (10,982) (12,089)
Prepaid expenses and other....... 648 (5,873) (3,574)
Accounts payable................. 23,242 (7,610) 21,048
Accrued and other liabilities.... 4,944 (2,591) 12,686
Other, net....................... (335) (14,735) 7,601
--------- --------- ---------
Net cash from operating activities...... 67,763 69,211 107,762
--------- --------- ---------
Cash flows provided by (used in)
investing activities:
Acquisitions.......................... (11,375) (17,844) --
Capital expenditures, net............. (45,046) (61,556) (85,010)
--------- --------- ---------
Net cash from investing activities...... (56,421) (79,400) (85,010)
--------- --------- ---------
Cash flows provided by (used in)
financing activities:
Proceeds from issuance of long-term
obligations........................ 15,150 405,393 495,035
Repayment of long-term obligations.... (19,658) (384,662) (510,475)
Financing costs....................... -- (25,208) (1,235)
Proceeds from issuance of common
stock.............................. 30 223 197
Net proceeds from IPO................. -- 147,033 --
Redemption and purchase of preferred
stock.............................. -- (143,005) --
--------- --------- ---------
Net cash from financing activities...... (4,478) (226) (16,478)
--------- --------- ---------
Effect of exchange rate changes on
cash.................................. 756 (187) (3,279)
--------- --------- ---------
Net change in cash and cash
equivalents........................... 7,620 (10,602) 2,995
Cash and cash equivalents at beginning
of period............................. 11,981 19,601 8,999
--------- --------- ---------
Cash and cash equivalents at end of
period................................ $ 19,601 $ 8,999 $ 11,994
========= ========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE> 40
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. THE COMPANY
Berg Electronics Corp., including its wholly-owned subsidiary Berg
Electronics Group, Inc. ("Berg"), (together, the "Company"), is a leading global
designer, manufacturer and marketer of electronic connectors and cable assembly
products for applications primarily in the computer, telecommunications and
industrial markets. Berg Electronics Corp., a Delaware corporation, was formed
on November 4, 1992, to participate in the Initial Acquisition (defined below).
The Company had no operations prior to the Initial Acquisition. The Company's
year end is December 31.
On February 26, 1993, the Company acquired certain assets and assumed
certain liabilities of the Connector Systems Business of the Electronics
Division of E.I. duPont de Nemours and Company (the "Predecessor") for a total
consideration of $385,057 (the "Initial Acquisition"), which included an
agreement not to compete, plus fees and expenses relating to the Initial
Acquisition and related financing. The results of operations of the Business
have been included in the consolidated financial statements since the date of
the Initial Acquisition.
Since the Initial Acquisition, the Company has made seven strategic
acquisitions. The largest of these occurred on May 23, 1994, when the Company
acquired certain assets and related liabilities of the Connector System Business
of the AT&T Microelectronics Division of AT&T Corp. (now Lucent Technologies,
Inc.) ("Lucent") for a total consideration of $84,500 (the "Lucent Acquisition")
which included fees and expenses relating to the Lucent Acquisition and related
financing.
During 1996, the Company implemented a recapitalization plan (the
"Recapitalization Plan"), among other things, to reduce interest expense and
preferred stock dividend requirements and to improve the Company's operating and
financial flexibility. The Recapitalization Plan included the redemption and
purchase of Series B Preferred Stock (as defined below) and Series E Preferred
Stock (as defined below), the redemption and purchase of the Debentures (as
defined below), the refinancing of the Amended and Restated Credit Agreement
dated as of May 23, 1994, with Chemical Bank, N.A., as Agent, and certain other
banks as parties thereto (the "Amended Credit Agreement"), the 1-for 4.11
reverse stock split effective February 2, 1996 and the initial public offering
of 14,950,000 shares of the Company's common stock, par value $0.01 per share
(together, the "Recapitalization").
During 1997, the Company entered into a new credit facility agreement (the
"Credit Facility") that was used to extinguish and replace the credit agreement
dated February 29, 1996, as amended December 18, 1996 (the "IPO Credit
Facility"). The Credit Facility reduces the Company's borrowing costs and
improves the Company's operating and financial flexibility. See Notes 6 and 7
herein for further discussion.
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, except for the Company's interest in a joint
venture in India which is accounted for under the equity method and is
insignificant to the consolidated financial statements. All significant
intercompany accounts and transactions have been eliminated. In addition,
certain prior year amounts have been reclassified to conform to current year
presentation.
Revenue Recognition
Sales and related cost of goods sold are recognized when goods are shipped
to the customer or, in the case of consignment inventories at customer sites,
when the customer uses product from the consigned quantities.
F-7
<PAGE> 41
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Certain U.S. inventories are valued at the lower of cost or market (LCM),
with cost being determined using the last-in, first-out (LIFO) method. Other
U.S. and non-U.S. inventories are valued at the LCM, with cost being determined
using the average cost method. Elements of cost in inventory include raw
materials, direct labor and manufacturing overhead. A portion of inventory is
financed at its fair market value and is included in inventories at its fair
market value. The related financing obligation is included in accounts payable.
Property, Plant and Equipment
Property, plant and equipment is stated at cost net of accumulated
depreciation. Depreciation is calculated using the straight-line method. The
average estimated useful lives utilized in calculating depreciation are as
follows: buildings -- 25 years; machinery and equipment -- 5 to 12 years; autos
and trucks -- 3 years; office furniture and fixtures -- 2 to 3 years.
Foreign Currency Translation
Local currencies have been designated as the functional currencies for all
subsidiaries. Accordingly, assets and liabilities of foreign subsidiaries are
translated at the rates of exchange at the balance sheet date. Income and
expense items of these subsidiaries are translated at average monthly rates of
exchange. The resultant translation gains or losses are included in the
component of stockholders' equity designated cumulative translation adjustments
on the Consolidated Balance Sheets.
Related Party Transactions
The Company has entered into an Amended and Restated Monitoring and
Oversight Agreement ("Agreement") with Hicks, Muse, Tate & Furst Incorporated
("Hicks, Muse") (an affiliate of the Company). The Agreement provides that the
Company shall pay Hicks, Muse an annual fee, for ten years, of the greater of
$700 or one-tenth of one percent (0.1%) of the previous year's net sales. In
addition, the Agreement entitles Hicks, Muse to an acquisition advisory fee
equal to 1.5% of the purchase price of any acquisition effected by the Company.
The Company sells certain connectors and other products needed to
manufacture printed circuit boards and back panel assemblies to Viasystems,
Inc., ("Viasystems"). Viasystems is controlled by Hicks, Muse, through its
affiliates, and managed by Mills & Partners, Inc. In addition, certain of the
Company's directors and executive officers have financial interests in
Viasystems. In 1997, the Company's sales to Viasystems were approximately
$41,000. The Company sells products to Viasystems on terms and conditions which
the Company believes to be comparable to terms that would be reached in an arm's
length transaction.
Net Income (Loss) per Common Share
On October 20, 1997, the Company completed a 2-for-1 split of its common
stock, par value $0.01 (the "Common Stock"), and Class A common stock, par value
$0.01 (the "Class A Common Stock"), effected as a 100% stock dividend to holders
of record on September 29, 1997. All share and per share data in the
accompanying Consolidated Financial Statements and these Notes to Consolidated
Financial Statements for all periods presented have been retroactively restated
to give effect to this split.
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share." All per
share amounts have been calculated in accordance with SFAS No. 128 using the
weighted average number of shares outstanding during each period, adjusted for
the impact of common stock equivalents using the treasury stock method when the
effect is dilutive. All per share data has been retroactively restated in
accordance with SFAS No. 128.
F-8
<PAGE> 42
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Statements of Cash Flows
For purposes of the Consolidated Statements of Cash Flows, the Company
considers investments purchased with an original maturity of three months or
less to be cash equivalents. Interest and income taxes paid for the year ended
December 31, 1995, are approximately $36,300 and $3,200, respectively, for the
year ended December 31, 1996, are approximately $27,100 and $3,300,
respectively, and for the year ended December 31, 1997, are approximately
$28,200 and $4,000, respectively.
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.
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 net sales and expenses during the
reporting period. Actual results could differ from those estimates.
3. INVENTORIES
The composition of inventories is as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Raw materials........................... $36,395 $28,414
Work-in-process......................... 23,810 31,536
Finished goods.......................... 31,618 36,072
------- -------
Total......................... $91,823 $96,022
======= =======
</TABLE>
The carrying value of inventories valued at LIFO, at December 31, 1996 and
1997, is approximately $43,200 and $46,900, respectively, and its current cost
is approximately $34,200 and $31,500, respectively.
4. PROPERTY, PLANT AND EQUIPMENT
The composition of property, plant and equipment at December 31 is as
follows:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Land and buildings...................... $ 89,553 $ 89,478
Machinery, equipment and other.......... 298,484 360,812
--------- ---------
388,037 450,290
Less: Accumulated depreciation.......... (128,132) (164,523)
--------- ---------
$ 259,905 $ 285,767
========= =========
</TABLE>
F-9
<PAGE> 43
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INTANGIBLE ASSETS
Intangible assets are amortized on a straight-line basis over various
estimated useful lives. The composition of intangible assets at December 31 is
as follows:
<TABLE>
<CAPTION>
AMOUNT
-------------------
1996 1997 LIFE
-------- -------- ----
<S> <C> <C> <C>
Goodwill................................................ $134,387 $134,387 40
Patented technology..................................... 42,618 46,228 5-17
Unpatented technology................................... 15,542 15,542 3-17
Covenants not to compete................................ 5,150 5,150 5
Software................................................ 3,400 3,400 5
Other................................................... 5,344 5,344 5-20
Supply agreement........................................ 6,800 6,800 10
-------- --------
213,241 216,851
Less: Accumulated amortization.......................... (38,381) (51,414)
-------- --------
$174,860 $165,437
======== ========
</TABLE>
Goodwill represents purchase price in excess of net tangible and identified
intangible assets acquired in acquisitions. The Company generally assesses the
recoverability of its intangible assets primarily based on its current and
anticipated future undiscounted cash flows. At December 31, 1997, the Company
does not believe there has been any impairment of its intangible assets.
6. DEFERRED FINANCING COSTS
At December 31, 1997, deferred financing costs consists of aggregate fees
and expenses of $5,235 incurred in connection with the Credit Facility dated
August 7, 1997, and other financing arrangements. These fees are being amortized
over the terms of the related borrowing and/or financial instrument on a
straight line basis.
7. LONG-TERM OBLIGATIONS
The composition of long-term obligations at December 31 is as follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Credit Facility:
Term Loan................................................. $332,500 $237,500
Revolving Credit Loan..................................... 16,000 93,000
Other (Interest rates 1%-5%)................................ 10,058 12,830
-------- --------
$358,558 $343,330
Less: Current maturities.................................... (33,912) (26,786)
-------- --------
Total............................................. $324,646 $316,544
======== ========
</TABLE>
F-10
<PAGE> 44
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The schedule of principal payments on long-term obligations at December 31,
1997, is as follows:
<TABLE>
<S> <C>
1998........................................................ $ 26,786
1999........................................................ 32,535
2000........................................................ 44,962
2001........................................................ 50,891
2002........................................................ 57,160
Thereafter.................................................. 130,996
--------
Total............................................. $343,330
========
</TABLE>
EXISTING FINANCING
On August 7, 1997, the Company entered into a new credit facility agreement
that was used to replace the IPO Credit Facility. The refinancing resulted in
the write-off of $9,698 of deferred financing costs. This write-off, net of
income tax, is classified as an extraordinary item on the Consolidated
Statements of Operations for the year ended December 31, 1997.
The Credit Facility consists of a $250,000 term loan (the "Term Loan") and
a $300,000 revolving credit loan (the "Revolver"). Borrowings under the Credit
Facility are secured by first priority mortgages and liens on substantially all
of the material assets of the Company and its domestic subsidiaries and by
pledges of a portion of the capital stock of the foreign subsidiaries. As of
December 31, 1996 and 1997, the Company had approximately $10,000 and $11,200,
of standby letters of credit outstanding under the IPO Credit Facility and the
Revolver, respectively. The Credit Facility contains several financial covenants
that, among other things, require the Company to maintain certain financial
ratios and restrict the Company's ability to incur indebtedness, make capital
expenditures and pay dividends. The commitment fee on the unused portion of the
Revolver is 0.25% per annum on the average daily unused balance.
Mandatory principal payments under the Term Loan are due in semi-annual
installments beginning on December 31, 1997, and continuing until the final
payment is due on December 31, 2003. Amounts outstanding under the Revolver are
due December 31, 2003.
Borrowings under the Credit Facility bear interest, at the option of the
Company, at a rate per annum equal to (i) the Agent's Alternate Base Rate (as
defined in the Credit Facility) or (ii) 0.75% plus the Eurodollar rate per
annum. Interest payment dates vary depending on the interest rate option
selected by the Company, but generally, interest is payable quarterly.
The Credit Facility requires the Company to enter into interest rate
hedging arrangements to hedge against interest rate fluctuations. The Company
has entered into an agreement which provides a ceiling of 8.5% on the LIBOR rate
on $137,000 of indebtedness until June 30, 1998. The costs of the hedge
agreements are amortized over their terms.
Other long-term obligations primarily relate to mortgages on two recently
acquired production facilities.
PRIOR FINANCING
On February 29, 1996, the Company entered into the IPO Credit Facility that
among other things, refinanced the Amended Credit Agreement and resulted in the
write off of $12,755 of deferred financing costs. This write off, net of income
tax, is classified with other extraordinary items in the Consolidated Statement
of Operations for the year ended December 31, 1996.
11 3/8% Guaranteed Senior Subordinated Debentures due 2003 (the
"Debentures") were issued under an indenture, dated April 28, 1993 (the
"Indenture"). The Debentures represented unsecured general obligations of the
Company and were subordinate to all Senior Debt (as defined in the Indenture) of
the Company. On
F-11
<PAGE> 45
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
April 8, 1996, the Company redeemed $30,000 aggregate principal amount of
Debentures (the "Debenture Redemption") for approximately $34,487 including
accrued and unpaid interest and a redemption premium thereon, in accordance with
the terms of the Indenture dated as of October 29, 1993, as amended. On April 9,
1996, the Company purchased all of the outstanding Debentures not redeemed by
the Company pursuant to the Debenture Redemption for approximately $82,590. The
redemption and purchase of the Debentures resulted in the write off of $4,900 of
deferred financing costs. This write off, net of income tax, is classified with
other extraordinary items in the Consolidated Statement of Operations for the
year ended December 31, 1996. Additionally, the redemption and purchase premium
and the related fees and expenses of the Debenture Redemption and purchase,
totaling $13,452, are classified with other extraordinary items, net of income
tax, in the Consolidated Statement of Operations for the year ended December 31,
1996.
8. STOCKHOLDERS' EQUITY
At December 31, 1996 and 1997, the authorized capital stock of the Company
consisted of 60 million shares of Common Stock, 7 million shares of Class A
Common Stock and 28.5 million shares of preferred stock, of which 670,000 shares
were designated, in 1997, as Series A Junior Preferred Stock ("Series A
Preferred 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 may be converted into Common Stock at the option of the Company upon the
occurrence of a Triggering Event (as defined) or on February 26, 2003. Such
conversion is 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. 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.
On December 22, 1997, the Company adopted a rights plan (the "Rights Plan")
and, pursuant to the Rights Plan, declared a dividend of one preferred stock
purchase right (the "Rights") on each outstanding share of Common Stock and each
outstanding share of Class A Common Stock. The dividend is payable to holders of
record as of January 8, 1998. Under certain conditions, each Right may be
exercised to purchase one one-hundredth ( 1/100) share of Series A Preferred
Stock at an exercise price of $115, subject to certain adjustments. The Rights
may only be exercised on the tenth day after a public announcement that a party
has acquired beneficial ownership of 15% or more of the Company's outstanding
voting stock or made an offer to acquire such beneficial ownership, subject to
certain exceptions. Prior to that time, the Rights are not transferable apart
from the Company's Common Stock or Class A Common Stock. The Rights, which do
not have voting rights, expire on December 21, 2007, and may be redeemed by the
Company at a price of $0.01 per Right at any time prior to their expiration or
prior to the tenth day after the acquisition of 15% of the Company's outstanding
voting stock (or at such later date as may be authorized by the Company's Board
of Directors).
In the event that the Company is acquired in a merger or other business
combination transaction, provision shall be made so that each holder of record
of a Right shall have the right to receive, upon exercise thereof at the then
current exercise price, that number of shares of common stock of the acquiring
company having a market value at the time of the transaction equal to two times
the exercise price of the Right. In addition, in the event that a party becomes
the beneficial owner of 15% or more of the Company's outstanding voting stock,
provision shall be made that each holder of record of a Right, other than the
acquiring person, will have the right to receive, upon payment of the exercise
price, that number of shares of the Company's preferred stock having a market
value at the time of the transaction equal to two times the exercise price (such
market value to be determined with reference to the market value of the
Company's Common Stock and Class A Common Stock as provided in the Rights Plan).
After a party acquires 15% beneficial ownership
F-12
<PAGE> 46
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
but before there has been a 50% acquisition, the Board of Directors has the
option to exchange one share of Common Stock for each then valid Right,
excluding Rights held by the acquiring party.
On October 29, 1997, the Company filed a Registration Statement on Form S-3
with the Securities and Exchange Commission, and as amended November 13, 1997,
to register 8,911,304 shares of its Common Stock on behalf of certain selling
stockholders. Sale of shares under this offering is expected to be completed
during 1998.
On March 6, 1996, the Company consummated the sale of 14,950,000 shares of
its Common Stock in its initial public offering. The Company received net
proceeds of approximately $147,033 from the offering.
In 1993, the Company adopted a qualified and non-qualified stock option
plan (the "Option Plan") which provided for the granting of up to 906,436 shares
of Common Stock to key officers and employees of the Company. In December 1997,
the Board of Directors approved an amendment to the Option Plan which provides
for granting an additional 1,500,000 shares of Common Stock. Under the Option
Plan, as amended, a total of 2,406,436 shares are provided for granting. The
amendment to the Option Plan is subject to shareholder approval at the Annual
Meeting in May 1998. Under the Option 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 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.
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. Had
compensation cost for the Option Plan been determined based upon the fair value
at the grant date for awards under those plans consistent with the methodology
prescribed under SFAS No. 123, the Company's net income, net income (loss)
applicable to common shares and diluted earnings (loss) per common share would
approximate the pro forma amounts below:
<TABLE>
<CAPTION>
1995 1996 1997
------- -------- --------
<S> <C> <C> <C> <C>
Net income.................................... As reported $ 9,329 $ 10,281 $ 32,226
Pro forma $ 9,302 $ 10,203 $ 32,137
Net income (loss) applicable to common As reported $(5,412) $(17,054) $ 32,226
shares......................................
Pro forma $(5,439) $(17,132) $ 32,137
Diluted earnings (loss) per common share...... As reported $ (0.21) $ (0.44) $ 0.78
Pro forma $ (0.21) $ (0.44) $ 0.78
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions in 1995,
1996 and 1997, respectively: (i) dividend yield of 0% in all years; (ii)
expected volatility of 30.0%, 30.0% and 37.5%; (iii) risk free interest rate
ranging from 5.9% to 7.5%, in 1995, 5.5% to 6.4% in 1996 and 5.7% to 6.5% in
1997; and (iv) expected life of 10 years.
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1995. Additional awards in future years are anticipated.
F-13
<PAGE> 47
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Changes in the status of the Option Plan are summarized below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE OPTIONS OPTIONS
PRICE PER SHARE OUTSTANDING VESTED
--------------- ----------- -------
<S> <C> <C> <C>
December 31, 1994............................... $ 2.54 664,232 108,514
Granted....................................... $ 9.66 82,726 --
Vested........................................ -- -- 121,168
Exercised..................................... $ 2.05 (14,598) (14,598)
Lapsed........................................ $ 2.05 (51,094) --
------ --------- -------
December 31, 1995............................... $ 3.45 681,266 215,084
Granted....................................... $11.93 88,660 --
Vested........................................ -- -- 159,584
Exercised..................................... $ 3.00 (40,872) (40,872)
Forfeited..................................... $ 9.66 (9,732) --
Lapsed........................................ $ 2.05 (17,544) (1,946)
------ --------- -------
December 31, 1996............................... $ 4.51 701,778 331,850
Granted....................................... $19.52 798,167 --
Vested........................................ -- -- 123,107
Exercised..................................... $ 3.70 (53,284) (53,284)
Lapsed........................................ $ 4.71 (13,138) --
------ --------- -------
December 31, 1997............................... $12.89 1,433,523 401,673
====== ========= =======
</TABLE>
The weighted average grant-date fair value of options granted during 1995,
1996 and 1997 was $5.54, $6.65 and $19.52 per share, respectively. The weighted
average exercise price of options vested at December 31, 1996 and 1997, is $2.85
and $3.82 per share, respectively. The table below summarizes options
outstanding at December 31, 1997.
<TABLE>
<CAPTION>
OPTIONS EXERCISE WEIGHTED AVERAGE
OUTSTANDING PRICE LIFE REMAINING
- ----------- -------- ----------------
<C> <C> <S>
412,880.. $ 2.055 5.6 years
60,826... 4.705 6.6
121,650.. 9.66 7.7
40,000... 14.6875 9.0
203,732.. 14.625 9.1
56,000... 25.5625 9.8
538,435.. 20.75 10.0
</TABLE>
As discussed in Note 2 herein, the Company adopted SFAS No. 128 in 1997. In
accordance with SFAS No. 128, the following tables reconcile net income (loss)
and weighted average shares outstanding to the amounts used to calculate basic
and diluted earnings (loss) per share for each of the years ended December 31,
1995, 1996 and 1997.
<TABLE>
<CAPTION>
NET INCOME PER SHARE
(LOSS) SHARES AMOUNT
---------- ---------- ---------
FOR THE YEAR ENDED DECEMBER 31, 1995
-------------------------------------
<S> <C> <C> <C>
BASIC AND DILUTED EARNINGS PER SHARE
Loss available to common stockholders............. $(5,412) 25,978,648 $(0.21)
======= ========== ======
</TABLE>
F-14
<PAGE> 48
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
NET INCOME PER SHARE
(LOSS) SHARES AMOUNT
---------- ---------- ---------
FOR THE YEAR ENDED DECEMBER 31, 1996
-------------------------------------
<S> <C> <C> <C>
Net Loss.......................................... $(17,054) $(0.44)
Less: Extraordinary items......................... (18,664) (0.48)
-------- ------
BASIC EARNINGS PER SHARE
Income available to common stockholders........... 1,610 38,491,476 0.04
Assumed exercise of options (treasury method)..... -- 281,811 --
-------- ---------- ------
DILUTED EARNINGS PER SHARE
Income available to common stockholders........... $ 1,610 38,773,287 $ 0.04
======== ========== ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------
<S> <C> <C> <C>
Net Income........................................ $ 32,226 $ 0.79
Less: Extraordinary item.......................... (5,964) (0.14)
-------- ------
BASIC EARNINGS PER SHARE
Income available to common stockholders........... 38,190 41,035,554 0.93
Assumed exercise of options (treasury method)..... -- 360,989 --
-------- ---------- ------
DILUTED EARNINGS PER SHARE
Income available to common stockholders........... $ 38,190 41,396,543 $ 0.92
======== ========== ======
</TABLE>
Basic earnings (loss) per common share was computed by dividing net income
(loss) by the weighted average shares of common stock outstanding during the
year. Diluted loss per share for 1995 did not include the effect of the assumed
exercise of options issued and outstanding as the effect was antidilutive.
Diluted earnings (loss) per common share for 1996 and 1997 were determined
assuming the options issued and outstanding were exercised as of the later of
January 1 of the respective year or the grant date. Options to purchase 56,000
shares of Common Stock at $25.56 per share and 538,435 shares at $20.75 per
share were outstanding during the third and fourth quarters and the fourth
quarter, respectively, but were not included in the computation of diluted
earnings per share because the exercise price of such options was greater than
the average market price of the Common Stock. These options, which expire in
September 2007 and December 2007, respectively, were outstanding at December 31,
1997. For 1996 and 1997, diluted loss per common share for extraordinary items
was $(0.48) and $(0.14), respectively. As a result of adoption of SFAS No. 128,
the Company restated reported earnings (loss) per share for 1995 and 1996. This
accounting change had no impact on previously reported earnings per share data.
Dividends on the Company's Series B Preferred Stock, par value $0.01 per
share, ("Series B Preferred Stock") were payable at an annual rate of $2 per
annum per share. Dividends were payable quarterly on February 28, May 31, August
31, and November 30. The Company, at its option, could pay quarterly dividends
on the Series B Preferred Stock for any or all dividend payments until February
28, 1998, and if the Amended Credit Agreement prohibited the payment of cash
dividends, until February 28, 2000, by issuing additional shares of Series B
Preferred Stock, having a $25 per share liquidation value. Dividends for the
November 1993 and the February, May, August and November 1994 dividend dates
were paid by issuing 173,258 additional shares of Series B Preferred Stock in
1994. Dividends for the February, May, August and November 1995 dividend dates
were paid by issuing 151,502 additional shares of Series B Preferred Stock in
1995.
Dividends on the Series E Preferred Stock, par value $0.01 per share,
("Series E Preferred Stock") were payable at an annual rate of $3.34375 per
annum per share prior to May 1, 2005 and $3.6250 per share from and including
May 1, 2005 increasing quarterly by $.125 per share provided that in no event
shall the dividend rate exceed $5.00 per share. Dividends were payable quarterly
on February 1, May 1, August 1, and November 1 (each a "Dividend Payment Date").
The Company, at its option, could pay quarterly dividends on the Series E
Preferred Stock for any or all dividend payments prior to May 1, 1998, and if
the Amended
F-15
<PAGE> 49
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Credit Agreement prohibited the payment of cash dividends, prior to May 1, 2000,
by issuing additional shares of Series E Preferred Stock, which will be valued
at $25 per share. Dividends for the November 1993 and February, May, August and
November 1994 Dividend Payment Dates were paid by issuing 410,510 additional
shares of Series E Preferred Stock in 1994. Dividends for the February, May,
August and November 1995 Dividend Payment Dates were paid by issuing 378,135
additional shares of Series E Preferred Stock in 1995.
On March 18, 1996, the Company redeemed 50% of the outstanding shares of
the Series E Preferred Stock including accrued and unpaid dividends and a
redemption premium thereon for approximately $44,253 (the "Series E Preferred
Redemption"). On March 19, 1996, the Company purchased all of the outstanding
shares of Series E Preferred Stock not purchased by the Company pursuant to the
Series E Preferred Redemption for approximately $47,819. Also, on March 19,
1996, the Company redeemed all of the outstanding shares of the Company's Series
B Preferred Stock including accrued and unpaid dividends thereon for
approximately $50,933.
9. INCOME TAXES
The provision for income taxes, excluding the effects of extraordinary
items, for the years ended December 31 consists of the following:
<TABLE>
<CAPTION>
1995 1996 1997
------ -------- -------
<S> <C> <C> <C>
Current:
Federal.............................................. $ -- $ -- $ 444
State................................................ 117 38 104
Foreign.............................................. 3,767 5,904 7,309
Deferred:
Federal.............................................. 554 7,710 10,226
State................................................ -- 1,205 1,308
Foreign.............................................. 1,364 3,534 4,729
------ -------- -------
5,802 18,391 24,120
Tax benefit in extraordinary items................... -- (12,443) (3,734)
------ -------- -------
Total expense................................ $5,802 $ 5,948 $20,386
====== ======== =======
</TABLE>
Reconciliation between the statutory income tax rate and effective tax rate
is summarized below:
<TABLE>
<CAPTION>
1995 1996 1997
------ -------- -------
<S> <C> <C> <C>
U.S. Federal statutory rate............................ $5,145 $ 16,094 $21,185
State taxes, net of Federal benefit.................... 117 215 1,549
Foreign taxes in excess of U.S. statutory rate......... 540 1,992 1,267
Other.................................................. -- 90 119
------ -------- -------
$5,802 $ 18,391 $24,120
====== ======== =======
</TABLE>
F-16
<PAGE> 50
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of significant temporary differences representing deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Accrued liabilities not yet deductible.................... $ 5,866 $ 7,997
Postretirement benefits................................... 9,685 10,293
Net operating losses carried forward...................... 24,394 9,361
Other..................................................... 749 2,116
-------- --------
40,694 29,767
-------- --------
Deferred tax liabilities:
Amortization.............................................. 23,258 22,413
Contingent bank loans..................................... 2,800 --
Depreciation.............................................. 7,495 12,750
LIFO inventory valuation.................................. 3,420 5,945
Other..................................................... 6,870 3,577
-------- --------
43,843 44,685
-------- --------
Net deferred tax liability.................................. $ (3,149) $(14,918)
======== ========
</TABLE>
The Company's net operating losses carried forward expire over varying
periods ranging from 5 to 15 years.
Domestic and foreign income before income tax provision for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Domestic............................................... $ 701 $20,718 $30,626
Foreign................................................ 14,430 26,618 31,684
</TABLE>
The Company has not recognized a deferred tax liability for the
undistributed earnings of its foreign subsidiaries because the Company does not
expect those unremitted earnings to reverse and become taxable to the Company in
the foreseeable future.
10. RETIREMENT BENEFITS
Pension coverage for employees of the Company's non-U.S. subsidiaries is
provided, to the extent deemed appropriate, through separate plans. Obligations
under such plans are systematically provided for by depositing funds with
trustees, under insurance policies or by book reserves. The Company has a
voluntary 401(k) savings plan designed to enhance the existing retirement
program covering eligible domestic employees. The costs of these plans recorded
in the Consolidated Financial Statements are approximately $3,500, $4,500 and
$3,600 and for 1995, 1996 and 1997, respectively.
The Company provides postretirement health care and other benefits to
qualifying domestic retirees. Most international employees are covered by
government sponsored programs and the cost to the Company is not significant.
The Company does not fund retiree health care benefits in advance and has the
right to modify these plans in the future.
F-17
<PAGE> 51
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic postretirement benefit cost (NPPBC) for the years ended
December 31 includes the following components:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Service cost............................................. $1,037 $ 909 $1,277
Interest cost............................................ 1,455 951 1,118
Amortization of net gain................................. (221) (588) (565)
------ ------ ------
NPPBC.................................................... $2,271 $1,272 $1,830
====== ====== ======
</TABLE>
The plan's status at December 31 is as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Expected postretirement benefit obligation (EPBO)........... $29,719 $33,071
------- -------
Actuarial present value of benefit obligation:
Retirees.................................................. $ 515 $ 513
Fully eligible active participants........................ 3,649 4,708
Other active participants................................. 9,845 10,711
------- -------
Accumulated postretirement benefit obligation (APBO)........ 14,009 15,932
Plan assets................................................. -- --
------- -------
Unfunded APBO............................................... 14,009 15,932
Unrecognized net gain....................................... 11,477 11,124
------- -------
Accrued postretirement benefit cost......................... $25,486 $27,056
======= =======
</TABLE>
The postretirement benefit obligation was determined by application of the
terms of the plan, together with relevant actuarial assumptions for active
employees. (The Predecessor retained the obligations for retirees at the Initial
Acquisition). Health care cost trends are projected at annual rates grading from
8.0% in 1997 down to 6.0% in 2010 and later for the 1996 calculation. Healthcare
cost trends are projected at annual rates grading from 8.5% in 1998 down to
5.75% in 2010 and later for the 1997 calculation. The effect of a 1% annual
increase in these assumed cost trend rates would increase the APBO at December
31, 1996 and 1997, by a total of $2,864 and $3,087, respectively, and the
service and interest cost components of the NPPBC for the year ended December
31, 1996 and 1997, by a total of $545 and $584, respectively. The assumed
discount rate used in determining the APBO was 8.0% and 7.75% in 1996 and 1997,
respectively. The assumed rate of increase in compensation levels used was 4.75%
in 1996 and 1997. As no assets have been segregated and restricted for payment
of postretirement benefits, the expected return on plan assets is $0. The
postretirement benefit accrual is included in other long-term liabilities on the
Consolidated Balance Sheets.
The Company does not provide any other significant postemployment benefits.
F-18
<PAGE> 52
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMITMENTS
The Company leases certain buildings and transportation and other
equipment. Total rental expense under operating leases is $6,500, $5,800 and
$6,900 in 1995, 1996 and 1997, respectively. Future minimum lease payments under
capital and operating leases for years ending December 31 are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
<S> <C> <C>
1998........................................................ $2,030 $6,500
1999........................................................ 1,020 5,000
2000........................................................ 1,000 3,600
2001........................................................ 20 2,900
2002........................................................ 20 2,300
Thereafter.................................................. 10 7,600
------
Total minimum lease payments.............................. 4,100
Less amount representing interest......................... 400
------
Present value of net minimum lease payments............... $3,700
======
</TABLE>
From time to time, the Company engages in short-term hedging activities to
reduce its exposure to precious metals price fluctuations and foreign currency
fluctuations. Such hedging activities are not material, and gains and losses
from such operations are not significant. There can be no assurance that these
hedging operations will eliminate or substantially reduce the risk.
12. 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 financial condition and results of
operations.
13. RESEARCH AND DEVELOPMENT
Research, development and engineering expenditures for the creation and
application of new products and processes were approximately $24,800, $26,100
and $28,400 in 1995, 1996 and 1997, respectively.
14. BUSINESS SEGMENT INFORMATION
The Company operates in one business segment -- electrical and electronic
connection devices -- which are sold throughout many diverse markets.
The Company's operations are worldwide and can be grouped into several
geographic regions. Operations outside the United States are conducted through
wholly owned subsidiaries of the Company that function within assigned,
principally national, markets. The subsidiaries manufacture regionally where
required by market conditions and/or customer demands, however substantial
interregion and intraregion sales occur.
F-19
<PAGE> 53
BERG ELECTRONICS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pertinent financial data by major geographic regions is as follows:
<TABLE>
<CAPTION>
INTERCOMPANY OPERATING
NET SALES SALES INCOME (LOSS) TOTAL ASSETS
--------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
North America: 1995..................... $339,248 $ 70,447 $34,872 $ 573,038
1996..................... 381,967 88,138 44,380 569,266
1997..................... 384,877 109,853 57,428 589,167
Europe: 1995..................... $159,501 $ 25,895 $ 7,562 $ 159,576
1996..................... 155,083 37,166 13,306 167,720
1997..................... 216,807 35,177 15,868 178,908
Asia/Pacific: 1995..................... $168,500 $ 44,559 $14,830 $ 146,562
1996..................... 167,619 35,700 20,149 155,357
1997..................... 183,466 44,650 18,973 146,427
Eliminations: 1995..................... $ -- $(140,901) $ (500) $(210,836)
1996..................... -- (161,004) -- (210,336)
1997..................... -- (189,680) -- (209,856)
Total: 1995..................... $667,249 $ -- $56,764 $ 668,340
1996..................... 704,669 -- 77,835 682,007
1997..................... 785,150 -- 92,269 704,646
</TABLE>
As a result of the Lucent Acquisition, Lucent became a significant customer
of the Company. In 1995, 1996 and 1997, sales to Lucent were approximately
$110,500, $124,700 and $87,700, respectively. The Company entered into a
five-year supply agreement with Lucent in connection with the Lucent Acquisition
and believes that Lucent will remain an important customer in the foreseeable
future.
15. UNAUDITED QUARTERLY DATA
<TABLE>
<CAPTION>
DILUTED EARNINGS
NET INCOME (LOSS) PER
(LOSS) BEFORE SHARE BEFORE
EXTRAORDINARY NET EXTRAORDINARY
NET SALES GROSS PROFIT ITEMS INCOME (LOSS) ITEMS
--------- ------------ ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter: 1995............... $160,300 $54,484 $ 4,040 $ 4,040 $ 0.01
1996............... 180,118 61,914 5,555 (13,109) (0.70)
1997............... 188,511 67,892 8,646 8,646 0.21
Second Quarter: 1995............... $164,346 $57,906 $ 2,215 $ 2,215 $(0.05)
1996............... 178,063 61,931 7,612 7,612 0.18
1997............... 202,505 71,783 9,845 9,845 0.23
Third Quarter: 1995............... $170,829 $55,298 $ 3,040 $ 3,040 $(0.02)
1996............... 172,537 60,336 6,560 6,560 0.16
1997............... 195,792 68,610 8,208 2,244 0.20
Fourth Quarter: 1995............... $171,774 $57,285 $ 34 $ 34 $(0.14)
1996............... 173,951 64,619 9,218 9,218 0.22
1997............... 198,342 71,159 11,491 11,491 0.28
</TABLE>
F-20
<PAGE> 54
[ART WORK]
<PAGE> 55
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY OF THE SELLING
STOCKHOLDERS OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY THE COMMON STOCK BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information................. 3
Reference Data........................ 3
Incorporation of Certain Documents by
Reference........................... 3
Prospectus Summary.................... 4
Risk Factors.......................... 8
Use of Proceeds....................... 11
Market for Common Stock and Dividend
Policy.............................. 11
Selected Historical Financial Data.... 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 13
Business.............................. 18
Management............................ 22
Principal and Selling Stockholders.... 23
Certain Relationships and Related
Transactions........................ 25
Description of Capital Stock.......... 25
Underwriting.......................... 32
Legal Matters......................... 33
Experts............................... 33
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
10,325,028 SHARES
[BERG ELECTRONICS LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
FEBRUARY 6, 1998
======================================================
