<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 16, 1998
REGISTRATION NO. 333 -
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AFC CABLE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3357 95-1517994
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
------------------------
50 KENNEDY PLAZA, SUITE 1250
PROVIDENCE, RHODE ISLAND 02903
(401) 453-2000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------
RAYMOND H. KELLER
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
AFC CABLE SYSTEMS, INC.
55 SAMUEL BARNET BOULEVARD
NEW BEDFORD, MASSACHUSETTS 02745
(508) 998-1131
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
Copies to:
<TABLE>
<S> <C>
DOUGLASS N. ELLIS, JR., ESQ. THOMAS G. GUNNING, P.C.
ROPES & GRAY PEABODY & BROWN
One International Place 101 Federal Street
Boston, Massachusetts 02110 Boston, Massachusetts 02110
(617) 951-7000 (617) 345-1000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share............ 1,725,000 Shares $37.41 $64,532,250 $19,037
</TABLE>
(1) Includes 225,000 shares which the Underwriters have the option to purchase
from the Company to cover over-allotments, if any. See "Underwriting."
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933 and based on
the average of the high and the low prices for such Common Stock on April 9,
1998 as reported on the Nasdaq National Market.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL , 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION BECOMES EFFECTIVE.
THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN
WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION
OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
1,500,000 SHARES
[LOGO]
AFC CABLE SYSTEMS, INC.
COMMON STOCK
Of the 1,500,000 shares of Common Stock offered hereby, 800,000 shares are
being sold by AFC Cable Systems,
Inc. ("AFC" or the "Company") and 700,000 are being sold by certain selling
stockholders (the "Selling
Stockholders"). See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale
of shares by the Selling Stockholders. The Common Stock is quoted on the Nasdaq
National Market under the symbol
"AFCX." On April 15, 1998, the last reported sale price for the Common Stock, as
reported on the Nasdaq National
Market, was $37.125 per share. See "Price Range of Common Stock."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 7.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
UNDERWRITING PROCEEDS TO SELLING
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
Total(3)...................... $ $ $ $
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company estimated
to be $300,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to a maximum of 225,000 additional shares of Common Stock to cover
over-allotments, if any. If such option is exercised in full, the total
"Price to Public," "Underwriting Discount" and "Proceeds to Company" will be
$ , $ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters and subject
to their right to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in Boston, Massachusetts on
or about , 1998.
TUCKER ANTHONY
INCORPORATED
ROBERT W. BAIRD & CO.
INCORPORATED
THE ROBINSON-HUMPHREY
COMPANY
The date of this Prospectus is , 1998
<PAGE>
SPECTRUM OF CORE PRODUCTS
PHOTO: OPTICAL ARMORED CABLE PHOTO: FIRE ALARM ARMORED CABLE
PHOTO: AFC CABLE SYSTEMS SOLUTIONS
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED
HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT
COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
--------------------------
The following trademarks are mentioned in the Prospectus: AC-90, HCF-90, MC
Lite, AC Lite, Home Run Cable, Super Neutral Cable, The Intelligent Floor, The
Intelligent Ceiling, AFC Cable Systems, America Cable Systems and Custom Cuts,
which are registered trademarks of the Company; and Fire Alarm/Control Cable,
which is a trademark of the Company. Other registered trademarks, including UL,
are the property of their respective owners.
2
<PAGE>
PROSPECTUS SUMMARY
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE STATEMENTS
INCLUDE, AMONG OTHERS, STATEMENTS RELATING TO FUTURE EVENTS OR THE FUTURE
FINANCIAL PERFORMANCE OF THE COMPANY. PROSPECTIVE INVESTORS ARE CAUTIONED THAT
SUCH STATEMENTS ARE ONLY EXPECTATIONS AND THAT ACTUAL EVENTS OR RESULTS MAY
DIFFER MATERIALLY. IN EVALUATING SUCH STATEMENTS, PROSPECTIVE INVESTORS SHOULD
SPECIFICALLY CONSIDER THE VARIOUS FACTORS IDENTIFIED IN THIS PROSPECTUS,
INCLUDING THE MATTERS SET FORTH UNDER THE CAPTION "RISK FACTORS," WHICH COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED IN SUCH
FORWARD-LOOKING STATEMENTS. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY
BY, AND SHOULD BE READ IN CONJUNCTION WITH, THE DETAILED INFORMATION AND
FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE
REQUIRES, REFERENCES HEREIN TO THE "COMPANY" OR "AFC" INCLUDE AFC CABLE SYSTEMS,
INC. AND ITS SUBSIDIARIES. UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS
PROSPECTUS (I) ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION TO
PURCHASE 225,000 SHARES OF COMMON STOCK, (II) REFLECTS THE ISSUANCE OF 50,000
SHARES OF COMMON STOCK PURSUANT TO THE EXERCISE OF STOCK OPTIONS UPON THE
CLOSING OF THIS OFFERING, (III) REFLECTS THE ISSUANCE OF 88,518 SHARES OF COMMON
STOCK PURSUANT TO THE CASHLESS EXERCISE OF A WARRANT PRIOR TO THE OFFERING AND
(IV) GIVES EFFECT TO THE FIVE-FOR-FOUR STOCK SPLIT OF THE COMMON STOCK EFFECTED
ON OCTOBER 20, 1997.
THE COMPANY
AFC Cable Systems, Inc. is a designer, manufacturer and supplier of
electrical, voice and data distribution products used primarily in the
construction and modernization of non-residential buildings. The Company's
products include prewired armored cable, flexible conduit, modular wiring
systems, lighting fixtures and controls, electrical fittings and specialty
coated metals. The Company believes its prewired armored cable and modular
wiring systems offer a total installed cost advantage over traditional, labor
intensive wiring methods by eliminating on-site installation time and labor
costs associated with bending, connecting and pulling wire through metal pipe.
AFC sells its products principally to leading distributors of electrical
products and also actively targets do-it-yourself ("DIY") retailers and original
equipment manufacturers ("OEMs"). The Company's net sales increased from $139.5
million in 1995 to $220.3 million in 1997, while income from operations
increased from $10.5 million in 1995 to $28.3 million over the same period.
The Company's business strategy is to extend its leadership position and
best serve its end-users by (i) promoting its armored cable, flexible wiring
systems and flexible conduit as the preferred alternatives to traditional labor
intensive pipe and wire method installations; (ii) penetrating the higher
margin, higher growth specialty application niche markets through the
development and introduction of new products; (iii) pursuing selective
acquisitions of companies with products complementary to the Company's existing
business in order to leverage its existing distribution network; (iv)
maintaining its position as a low cost producer in its major product lines
without sacrificing its reputation for high quality, innovative products; and
(v) maintaining and expanding relationships with its distributors, DIY retailers
and OEMs.
The Company believes that the total available domestic market for its
prewired armored cable and flexible conduit products was in excess of $1.0
billion in 1997. The Company estimates that conventional pipe and wire products
accounted for approximately 65% of this market and products such as those
manufactured by the Company accounted for the remaining approximately 35%. A
significant component of the Company's growth strategy is to convert the pipe
and wire portion of the overall market to the more efficient and cost-effective
solution provided by the Company's products. The Company is the leading
manufacturer of prewired armored cable in the United States, with approximately
45% of the sales in the domestic armored cable market based upon Company
estimates.
In order to penetrate higher margin, specialty application niche markets,
the Company focuses on the creation of proprietary value-added products
utilizing the Company's design and engineering expertise and
3
<PAGE>
various technologies. Recent examples of such products include color-coded
cables used for fire alarm systems, health care facilities and optical fiber.
The Company continues to expand its business through the acquisition of
companies with complementary product lines that it believes will benefit
significantly from the Company's existing distribution network. Through its
America Cable Systems Division, the Company continues to enhance its modular
wiring systems, including The Intelligent Floor and The Intelligent Ceiling,
which provide electrical, voice and data distribution throughout an entire
facility.
The Company is not aware of any definitive information about sizes, growth
rates or shares for its product markets or cost savings from use of its
products. The market size, market share and cost savings estimates contained in
this Prospectus have been developed by the Company from internal sources and
reflect the Company's current estimates. No assurance can be given, however,
regarding the accuracy of such estimates.
The Company's principal executive offices are located at 50 Kennedy Plaza,
Suite 1250, Providence, Rhode Island 02903, and its telephone number is (401)
453-2000.
RECENT DEVELOPMENTS
The Company's net sales for the three months ended March 28, 1998 increased
$17.5 million, or 36.6%, to approximately $65.3 million from $47.8 million for
the three months ended March 29, 1997. Income from operations increased
approximately $3.1 million, or 56.3%, to approximately $8.6 million from $5.5
million for the three months ended March 29, 1997. Net income increased
approximately $2.0 million, or 57.1%, to approximately $5.5 million from $3.5
million for the three months ended March 29, 1997. Basic earnings per share
increased $0.11, or 29.7%, to $0.48 from $0.37 for the three months ended March
29, 1997. Diluted earnings per share increased $0.10, or 27.8%, to $0.46 from
$0.36 for the three months ended March 29, 1997.
During 1997, the Company completed four acquisitions. In January, 1997, the
Company acquired B&B Electronics Manufacturing Company ("B&B"), a manufacturer
and direct marketer of electronic interfaces and connectors that facilitate data
communications, and Area Lighting Research, Inc. ("ALR"), a manufacturer of
photo-electric controls and electrical devices for the lighting control and
fixture industries. In April, 1997, the Company acquired Madison Sale
Corporation ("Madison"), a supplier of fittings for the electrical industry. In
November, 1997, the Company acquired the Federal Hose Division of FLEXFAB
Horizons International, Inc. ("Federal Hose"), a manufacturer and distributor of
flexible metal, plastic and fabric hoses, ducting and connectors. The
acquisition of B&B, ALR, Madison and Federal Hose are collectively referred to
herein as the "Acquisitions." To date, the Company has paid a total purchase
price of approximately $22.0 million in cash and approximately 159,902 shares of
Common Stock for the Acquisitions. The Company may be required to pay additional
consideration, in either cash or Common Stock, if B&B or Federal Hose meet
certain financial targets in future years. Of the Company's $220.3 million in
net sales for the year ended December 31, 1997, the Acquisitions accounted for
approximately $27.0 million. The Company's diluted earnings per share were $1.66
for the same period. On a pro forma basis, giving effect to the Acquisitions as
if they had occurred on January 1, 1997, the Company's net sales and diluted
earnings per share would have been $235.4 million and $1.70, respectively, for
the year ended December 31, 1997, of which the Acquisitions would have accounted
for approximately $42.1 million of net sales.
The Company has signed a letter of intent for the purchase of all of the
outstanding capital stock of a manufacturer of motion-activated lighting
controls. The total purchase price for this acquisition is expected to consist
of approximately $13.4 million in cash, $1.0 million in Common Stock, and the
assumption of approximately $2.6 million in debt. The Company is also expected
to pay additional consideration, in either cash or Common Stock, if certain
financial targets are met in future years. This acquisition is expected to be
completed during the second quarter of 1998, although there can be no assurance
that the acquisition will be completed during such period, if at all.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company.......... 800,000 shares
Common Stock Offered by the Selling
Stockholders............................... 700,000 shares
Common Stock to be Outstanding after the
Offering................................... 12,400,928 shares(1)
Use of Proceeds.............................. Investment in additional plant and production
equipment to expand manufacturing capacity,
upgrade of existing management information
systems, repayment of certain indebtedness
and general corporate purposes, including
potential acquisitions. See "Use of
Proceeds."
Nasdaq National Market Symbol................ AFCX
</TABLE>
- ------------------------
(1) Based on the number of shares outstanding as of March 31, 1998. Excludes (i)
1,182,845 shares of Common Stock reserved for issuance upon the exercise of
outstanding options at a weighted average exercise price of $18.08 per share
and (ii) 359,587 shares of Common Stock reserved for future grants of Common
Stock or options to purchase Common Stock under the Company's 1993 Stock
Option Plan for Non-Employee Directors, 1997 Equity Incentive Plan and 1998
Equity Incentive Plan.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997
--------- ---------- ---------- ---------- ----------
STATEMENTS OF INCOME DATA:
Net sales............................................. $ 89,890 $ 114,386 $ 139,483 $ 161,868 $ 220,264
Gross profit.......................................... 23,115 31,889 32,396 43,381 63,785
Income from operations(1)............................. 3,514 10,398 10,470 16,997 28,302
Net income............................................ 1,154 6,193 8,105 11,460 18,239
Basic earnings per common share....................... $ 0.27 $ 0.90 $ 0.92 $ 1.25 $ 1.71
Diluted earnings per common share..................... $ 0.27 $ 0.90 $ 0.90 $ 1.23 $ 1.66
Average shares outstanding and common stock
equivalents (basic)................................. 4,346 6,881 8,851 9,134 10,664
Average shares outstanding and common stock
equivalents (diluted)............................... 4,346 6,909 9,047 9,288 11,024
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
--------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(2)
---------- --------------
BALANCE SHEET DATA:
Cash and securities................................................................... $ 43,237 $ 65,874
Working capital....................................................................... 88,141 116,778
Total assets.......................................................................... 161,129 183,766
Total debt............................................................................ 10,350 4,350
Shareholders' equity.................................................................. 123,135 151,772
</TABLE>
- ------------------------
(1) For the short tax year from January 1 through December 23, 1993, the date of
the initial public offering of the Company's Common Stock, the Company
elected to be treated for income tax purposes as an S Corporation. The
amount shown includes $3,141,000 for the year ended December 31, 1993 for
owners' compensation and for distributions made to shareholders to pay
income taxes relating to when the Company existed as an S corporation.
(2) Adjusted to reflect (i) the exercise of options to purchase 50,000 shares of
Common Stock by a Selling Stockholder (ii) the issuance of 88,518 shares of
Common Stock upon the cashless exercise of a warrant and (iii) the sale of
the 800,000 shares of Common Stock offered by the Company hereby at an
assumed public offering price of $37.41 per share and the application of the
estimated net proceeds therefrom as described under "Use of Proceeds." See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
6
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE STATEMENTS
INCLUDE, AMONG OTHERS, STATEMENTS RELATING TO FUTURE EVENTS OR THE FUTURE
FINANCIAL PERFORMANCE OF THE COMPANY. PROSPECTIVE INVESTORS ARE CAUTIONED THAT
SUCH STATEMENTS ARE ONLY EXPECTATIONS AND THAT ACTUAL EVENTS OR RESULTS MAY
DIFFER MATERIALLY. IN EVALUATING SUCH STATEMENTS, PROSPECTIVE INVESTORS SHOULD
SPECIFICALLY CONSIDER THE VARIOUS FACTORS IDENTIFIED IN THIS PROSPECTUS,
INCLUDING THE MATTERS SET FORTH UNDER THE CAPTION "RISK FACTORS," WHICH COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED IN SUCH
FORWARD-LOOKING STATEMENTS.
SUBSTANTIAL PRICE COMPETITION, MARGIN MAINTENANCE AND PRICES OF RAW
MATERIALS. Price competition for the Company's core products is significant,
and the Company sells its products in accordance with prevailing market prices.
Copper rod is the principal raw material used in the Company's manufacturing
operations, accounting for approximately 28% of cost of goods sold for the year
ended December 31, 1997. The Company expects that copper will continue to
account for a significant portion of the cost of goods sold in the future.
Historically, the price of copper has fluctuated significantly (i.e. between
$86.85 and $130.10, and $76.60 and $122.00 per 100 pounds in 1996 and 1997,
respectively). The Company's other principal raw materials include steel and
aluminum, which collectively accounted for approximately 30% of cost of goods
sold for the year ended December 31, 1997. Although in the past these raw
materials have not been subject to the same degree of price volatility as
copper, there can be no assurance that significant fluctuations will not occur
in the future. The Company attempts to insulate its products from these price
fluctuations through improved purchasing procedures and appropriate selling
price adjustments. There can be no assurance, however, that the Company will be
able to maintain acceptable gross profit margins on product sales in the future
and, if it is unable to do so, its business, operating results and financial
condition could be materially adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Overview." The
Company does not currently engage in metal futures trading or other hedging
activities, but does have a producer supply contract, which currently expires on
December 31, 1998 and under which the Company purchases copper in any given
month at a price equal to the average copper selling prices, as determined by
the New York Commodity Exchange, for the month of shipment plus a premium. In
addition, the Company has an aluminum supply contract which expires on December
31, 1998. The Company may engage in hedging activities in the future as
management deems appropriate.
MANAGEMENT OF GROWTH. The Company has experienced rapid growth,
particularly during the last four years. The continued rapid growth of the
Company could place a significant strain on its management and other resources.
The Company anticipates that continued growth, if any, will require it to
continue to recruit, hire, train and retain a substantial number of new and
highly skilled product development, administrative, information technology,
finance, sales and marketing and support personnel. The Company's ability to
compete effectively and to manage future growth, if any, will depend on its
ability to continue to implement and improve operational, financial and
management information systems on a timely basis and to expand, train, motivate
and manage its work force. Should the Company continue to experience rapid
growth, there can be no assurance that the Company's personnel, systems,
procedures and controls will be adequate to support the Company's operations or
that management will adequately anticipate all demands that growth will place on
the Company. If the Company's management is unable to manage growth effectively,
the quality of the Company's products and its business, operating results and
financial condition could be materially adversely affected. See "--Integration
of Acquisitions" and "Business--Strategy."
INTEGRATION OF ACQUISITIONS. The Company intends to supplement its internal
growth by pursuing selective acquisitions of companies with products
complementary to its existing business. During the year ended December 31, 1997,
the Company acquired four companies and intends to consider future
7
<PAGE>
acquisitions in the industry, some of which may be material to the Company.
There can be no assurance, however, that the Company will be able to identify
and acquire suitable acquisition candidates on reasonable terms, if at all. The
Company competes for acquisition opportunities with other companies that have
significantly greater financial and management resources. Acquisitions,
particularly multiple acquisitions during any short period of time, involve
numerous risks, including difficulties in the assimilation of the operations,
technologies and products of the acquired companies, the diversion of
management's attention from other business concerns, risks of entering markets
in which the Company has no or limited direct prior experience, operating
companies in different geographical locations, and the potential loss of key
employees of the acquired companies. Future acquisitions by the Company could
result in potentially dilutive issuances of equity securities, the incurrence of
debt and contingent liabilities and amortization expenses related to goodwill
and other intangible assets, which could materially adversely affect the
Company's operating results and financial condition. There can be no assurance
that future acquisitions can be successfully integrated or that management will
be successful in managing the combined operations. See "--Management of Growth,"
"Use of Proceeds" and "Business--Strategy."
DEPENDENCE ON NEW PRODUCTS AND PRODUCT IMPROVEMENTS. The commercial
construction industry and the evolution of the modern workstation are
characterized by advances in electrical distribution and communications systems
which require ongoing improvements in the capabilities of wire and cable
products. The Company believes that its future success will depend in part upon
its ability to enhance existing products and to develop and manufacture new
products that meet or anticipate such changes. The failure to introduce new or
enhanced products on a timely and cost competitive basis could have an adverse
impact on the Company's business, operating results or financial condition.
MANUFACTURING CAPACITY. The Company is currently operating at or near
capacity in certain of its manufacturing facilities. Although the Company has
plans to open additional facilities and expand its capacity at others, there can
be no assurance that these additional facilities or expansions will be completed
on time and/or on budget, that the Company will not experience manufacturing
delays or problems, or that adequate equipment and personnel will be available
to operate these new facilities. The additional facilities and equipment will
also require substantial funds. The Company anticipates that the estimated net
proceeds of this offering, borrowings and existing cash will be adequate to fund
its planned expansions. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources." If the Company experiences significant delays or problems in
implementing its current plans, such delays or problems could have a material
adverse effect on the Company's business, results of operations or financial
condition.
VOLATILITY OF NEW CONSTRUCTION MARKET. The volatility of the
non-residential new construction market has a direct impact on sales of certain
of the Company's products. Certain regions of the United States have
experienced, and in the future may experience, significant economic recessions
that have reduced, or may reduce, the number of non-residential new construction
projects, which in turn could adversely affect the Company's business, operating
results and financial condition. The Company has historically derived a
substantial portion of its sales from the building modernization market, which
has not been significantly adversely affected by downturns in the
non-residential new construction market. There can be no assurance, however,
that the modernization market will not enter a downturn or that the Company's
sales will not be affected by future downturns in the non-residential new
construction market. The Company's sales have also been impacted from time to
time by unseasonable and excessive weather conditions that delay new
construction. There can be no assurance that such conditions will not have a
material adverse effect on the Company's operating results in the future.
COMPETITION. The Company faces competition from a number of national and
regional competitors, both in the armored cable and pipe and wire industries,
some of which have greater financial, engineering, research and development,
manufacturing and other resources than the Company. The Company's competitors
can be expected to continue to improve the design and performance of their
products and to
8
<PAGE>
introduce new products with competitive price and performance characteristics.
Although the Company believes that it has certain technological and other
advantages over its competitors, maintaining and leveraging any such advantages
will require continued investment by the Company in design and engineering,
development, marketing and customer service and support. There can be no
assurance that the Company will have sufficient resources to continue to make
such investments or that the Company will be successful in maintaining and
leveraging any such advantages. See "--Management of Growth" and
"Business--Competition."
RELIANCE ON INDEPENDENT SALES REPRESENTATIVES AND NONEXCLUSIVE
DISTRIBUTORS. The Company sells its products primarily to distributors through
a network of independent sales representatives who generally work on a
commission basis. The Company's top ten sales representatives accounted for
approximately 45% of sales for the year ended December 31, 1997. These
representatives are not under direct control of the Company, are not subject to
minimum purchase requirements and are not contractually obligated to carry the
Company's product lines exclusively or for any period of time. There can be no
assurance that the Company will be able to maintain its existing relationships
with these representatives, although the Company believes that the loss of any
one representative would not have a material adverse impact on the Company's
business. In addition, the distributors which ultimately sell the Company's
products could purchase and distribute products that compete with the Company's
products or cease purchasing the Company's products at any time. There can be no
assurance that the distributors will continue to distribute or recommend the
Company's products or do so successfully.
UPGRADE OF EXISTING COMPUTER INFRASTRUCTURE; YEAR 2000 ISSUE. The Company
is currently upgrading its existing computer infrastructure and is replacing its
accounting, manufacturing and other management information software in certain
divisions with an enterprise resource planning ("ERP") system. Although the
Company expects that the new computer hardware and the ERP software relating to
supply chain management will be installed by the end of 1998 (with all remaining
applications being installed by the end of 1999), there can be no assurance that
the Company will be able to achieve this installation on time and/ or on budget.
Further, the Company has never undertaken such a significant modification to its
information management systems and, accordingly, there can be no assurance that
the Company will not experience significant delays and/or compatibility problems
in the installation and testing of the ERP system. The new ERP system will also
require extensive training across all departments. Any delays or significant
problems with respect to installation or compatibility of the ERP system with
the Company's existing computer infrastructure or the failure to train the
Company's personnel on a timely or adequate basis could materially adversely
affect the Company's business, financial condition and results of operations.
Although the Company believes that Year 2000 operability issues will be
resolved by the upgrading of its existing computer infrastructure and the
transition to the ERP system, there can be no assurance that such efforts will
be successful in resolving all or any of Year 2000 operability issues. Further,
certain divisions of the Company will not have the ERP system installed.
Instead, those divisions are addressing the Year 2000 operability issue with
other software products and techniques to convert their information systems.
There can be no assurance, however, that these divisions will adequately address
the Year 2000 operability issue or that the proposed measures will properly
interface with the ERP system, if at all. The failure of these divisions to
adequately address the Year 2000 operability issue or the failure to implement
changes to their information systems that are compatible with the proposed ERP
system could materially adversely effect on the Company's business, financial
condition and results of operations. The Company could also be adversely
impacted by the Year 2000 operability issue if suppliers, customers and other
businesses do not address the issue successfully.
VOLATILITY OF STOCK PRICE. The market price of the Common Stock is subject
to significant fluctuations in response to variations in quarterly operating
results and other factors, such as announcements of acquisitions of other
businesses by the Company, technological innovations or new products by the
9
<PAGE>
Company or its competitors, changes in government regulations and codes relating
to use of the Company's products, developments in patent or other proprietary
rights, developments in the Company's relationships with its customers, partners
and suppliers, seasonality and general conditions in the market served by the
Company or by its customers, and other events or factors. In addition, the stock
market has in recent years experienced significant price fluctuations. These
fluctuations often have been unrelated to the operating performance of the
specific companies whose stock is traded. These fluctuations, as well as general
economic, market and political conditions, may adversely affect the market price
of the Common Stock. See "Price Range of Common Stock."
DEPENDENCE ON KEY MANAGEMENT PERSONNEL. The Company's long-term success and
its growth strategy depend on its senior management, particularly Ralph R.
Papitto, the Company's Chairman and Chief Executive Officer, Robert R. Wheeler,
the Company's President and Chief Operating Officer, and Raymond H. Keller, the
Company's Chief Financial Officer. The loss of service of one or more of the
Company's key senior management personnel could have an adverse effect on the
Company's business, financial condition and results of operations. See
"Management--Executive Officers and Directors."
CONTROL BY PRINCIPAL STOCKHOLDER. After this offering, Ralph R. Papitto,
the Chairman of the Board and Chief Executive Officer of the Company, will own
approximately 14.8% of the Company's outstanding Common Stock. As a result of
his ownership, Mr. Papitto will be in a position to exert significant influence
over actions of the Company which require stockholder approval and generally
direct the affairs of the Company, including potential acquisitions, sales and
changes in control of the Company. See "Principal and Selling Stockholders" and
"Description of Capital Stock."
ANTITAKEOVER PROVISIONS. Certain provisions of the Company's Restated
Certificate of Incorporation, as amended, the By-Laws and the Delaware General
Corporation Law (the "DGCL") could discourage potential acquisition proposals
and could delay or prevent a change in control of the Company. Such provisions,
which include supermajority voting requirements for specified business
combinations, a staggered Board of Directors, and the right of the Board of
Directors, without further stockholder approval, to issue preferred stock (the
"Preferred Stock") upon such terms and conditions, and having such rights,
privileges and preferences as the Board of Directors may determine, may have the
effect of deferring hostile takeovers or delaying or preventing changes in
control or management of the Company. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of any holders
of Preferred Stock that may be issued in the future. The Company has no present
plans to issue any Preferred Stock. See "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE. Sales of a substantial number of shares of
Common Stock in the public market following the offering (pursuant to Rule 144
under the Securities Act of 1933, as amended, or otherwise), as well as the
issuance of shares upon exercise of employee stock options, could adversely
affect the prevailing market price of the Common Stock and impair the Company's
ability to raise additional capital through the sale of equity securities. Based
on the number of shares outstanding as of March 31, 1998, approximately
1,909,461 shares held by the Company's executive officers, directors and certain
employees after completion of this offering will be eligible for sale under Rule
144 (although all of these shares are subject to lock-up agreements (the
"Lock-up Agreements") with the representatives of the Underwriters (the
"Representatives") that prohibit their transfer for a period of 180 days
following the date of this Prospectus without the prior written approval of the
Representatives). As of March 31, 1998, an additional 1,182,845 shares were
subject to outstanding options, of which 783,750 will be subject to the Lock-up
Agreements. See "Shares Eligible for Future Sale."
DIVIDEND POLICY. Since its initial public offering, the Company has not
declared or paid a cash dividend on its Common Stock and does not intend to do
so in the foreseeable future. The Company's current policy is to retain its
earnings, if any, to finance expansion and product development. Payment of
dividends in the future will depend on the earnings and financial condition of
the Company and such other factors as the Company's Board of Directors may
consider or deem appropriate at the time. See "Dividend Policy."
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 800,000 shares of
Common Stock offered by the Company hereby at an assumed public offering price
of $37.41 per share are estimated to be $28.1 million ($36.0 million if the
Underwriters' over-allotment option is exercised in full) after deducting
estimated offering expenses and underwriting discounts payable by the Company.
The Company will not receive any proceeds from the sale of Common Stock by the
Selling Stockholders.
The Company intends to use the net proceeds to fund the approximate $16.0
million cash portion of the purchase price for the potential acquisition of a
manufacturer of motion-activated lighting controls and to repay certain
indebtedness to be assumed in connection therewith. See "Summary--Recent
Developments." The Company will use the remaining proceeds and its existing cash
balance (i) to fund approximately $17.0 million in capital expenditures over the
next two years, mainly to expand manufacturing capacity and upgrade its
management information systems; (ii) to repay approximately $6.0 million of
indebtedness outstanding under its revolving credit facility with Fleet National
Bank, which credit facility terminates on March 31, 1999 and currently bears
interest at an average rate of 6.28%; and (iii) for working capital and general
corporate purposes, including potential acquisitions. Although the Company
currently has no commitments or understandings with respect to acquisitions
other than that discussed above and in "Summary--Recent Developments," the
Company regularly identifies and evaluates potential acquisitions of companies
that are complementary to its existing business. Pending such uses, the net
proceeds will be invested in government securities and other short-term,
investment-grade, interest-bearing instruments.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is quoted on the Nasdaq National Market under the
symbol "AFCX." The following table sets forth for the periods indicated the high
and low closing sale prices for the Common Stock as reported on the Nasdaq
National Market for the quarterly periods presented below, which periods
correspond to the Company's quarterly fiscal periods for financial reporting
purposes. The share prices in the following table reflect a five-for-four stock
split of the Company's Common Stock which took effect on October 20, 1997.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1996
First Quarter.................................................................................. $ 11.80 $ 9.50
Second Quarter................................................................................. 14.00 10.60
Third Quarter.................................................................................. 14.80 12.40
Fourth Quarter................................................................................. 19.10 13.60
1997
First Quarter.................................................................................. $ 21.40 $ 16.00
Second Quarter................................................................................. 22.40 15.50
Third Quarter.................................................................................. 28.40 21.10
Fourth Quarter................................................................................. 31.88 22.50
1998
First Quarter.................................................................................. $ 40.00 $ 27.75
Second Quarter (through April 15, 1998)........................................................ 40.13 36.00
</TABLE>
On April 15, 1998, the last sale price of the Common Stock as reported on
the Nasdaq National Market was $37.125 per share. As of April 15, 1998, there
were approximately 103 holders of record of the Common Stock.
DIVIDEND POLICY
Since its initial public offering in 1993, the Company has not declared or
paid a cash dividend on its Common Stock and does not intend to do so in the
foreseeable future. The Company's current policy is to retain its earnings, if
any, to finance expansion and product development.
11
<PAGE>
CAPITALIZATION
(IN THOUSANDS)
The following table sets forth the cash and securities, short-term
indebtedness and capitalization of the Company at December 31, 1997 (i) on an
actual basis and (ii) as adjusted to reflect the exercise of options to purchase
50,000 shares of Common Stock by a Selling Stockholder, the issuance of 88,518
shares of Common Stock upon the cashless exercise of a warrant, the issuance and
sale of 800,000 shares of Common Stock of the Company in this offering at an
assumed public offering price of $37.41 per share and the application of the net
proceeds therefrom as described under "Use of Proceeds." The following financial
information is qualified in its entirety by, and should be read in conjunction
with, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and detailed information and financial statements, including the
notes thereto, appearing elsewhere or incorporated by reference in this
Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
---------- -----------
Cash and securities...................................................................... $ 43,237 $ 65,874
---------- -----------
---------- -----------
Short-term debt:
Bank line of credit(1)................................................................. $ 6,230 $ 230
Current portion of long-term debt...................................................... 227 227
---------- -----------
Total short-term debt.............................................................. $ 6,457 $ 457
---------- -----------
---------- -----------
Long-term debt, net of current portion................................................... $ 3,893 $ 3,893
---------- -----------
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued Common stock,
$.01 par value, 15,000,000 shares authorized, 11,397,854 issued and outstanding(2);
12,336,372 shares issued and outstanding, as adjusted................................ 114 123
Additional paid-in capital............................................................. 79,110 107,738
Other.................................................................................. 1,021 1,021
Treasury stock, 6,411 shares at cost................................................... (92) (92)
Retained earnings...................................................................... 42,982 42,982
---------- -----------
Total shareholders' equity......................................................... 123,135 151,772
---------- -----------
Total capitalization............................................................. $ 127,028 $ 155,665
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) As of March 31, 1998 the outstanding balance on the Company's revolving
credit facility was approximately $5.0 million.
(2) Excludes 1,030,579 shares of Common Stock reserved for issuance upon the
exercise of outstanding options and warrants at a weighted average exercise
price of $13.27 per share.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial information is qualified in its entirety,
and should be read in conjunction with, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the other financial
information and the consolidated financial statements, including the notes
thereto, appearing elsewhere or incorporated by reference in this Prospectus.
The following selected financial data is derived from the Company's consolidated
financial statements which have been audited by Ernst & Young LLP, independent
auditors.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1995 1996 1997
---------- ---------- ----------
INCOME STATEMENT DATA:
Net sales.................................................................... $ 139,483 $ 161,868 $ 220,264
Cost of sales................................................................ 107,087 118,487 156,479
---------- ---------- ----------
Gross profit................................................................. 32,396 43,381 63,785
Selling, general and administrative expenses................................. 21,926 26,384 35,483
---------- ---------- ----------
Income from operations....................................................... 10,470 16,997 28,302
Other income, net............................................................ 3,040 2,291 1,949
Interest expense............................................................. 614 728 620
---------- ---------- ----------
Income before income taxes................................................... 12,896 18,560 29,631
Income taxes................................................................. 4,791 7,100 11,392
---------- ---------- ----------
Net income................................................................... $ 8,105 $ 11,460 $ 18,239
---------- ---------- ----------
---------- ---------- ----------
Basic earnings per common share.............................................. $ 0.92 $ 1.25 $ 1.71
---------- ---------- ----------
---------- ---------- ----------
Diluted earnings per common share............................................ $ 0.90 $ 1.23 $ 1.66
---------- ---------- ----------
---------- ---------- ----------
Average shares outstanding and common stock equivalents (basic).............. 8,851 9,134 10,664
Average shares outstanding and common stock equivalents (diluted)............ 9,047 9,288 11,024
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ----------
BALANCE SHEET DATA:
Cash and securities............................................................. $ 27,614 $ 31,488 $ 43,237
Working capital................................................................. 48,099 58,959 88,141
Total assets.................................................................... 84,784 97,923 161,129
Long term debt, net of current portion.......................................... 0 3,300 3,893
Total debt...................................................................... 6,925 5,570 10,350
Shareholders' equity............................................................ 61,311 72,990 123,135
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE STATEMENTS
INCLUDE, AMONG OTHERS, STATEMENTS RELATING TO FUTURE EVENTS OR THE FUTURE
FINANCIAL PERFORMANCE OF THE COMPANY. PROSPECTIVE INVESTORS ARE CAUTIONED THAT
SUCH STATEMENTS ARE ONLY EXPECTATIONS AND THAT ACTUAL EVENTS OR RESULTS MAY
DIFFER MATERIALLY. IN EVALUATING SUCH STATEMENTS, PROSPECTIVE INVESTORS SHOULD
SPECIFICALLY CONSIDER THE VARIOUS FACTORS IDENTIFIED IN THIS PROSPECTUS,
INCLUDING THE MATTERS SET FORTH UNDER THE CAPTION "RISK FACTORS," WHICH COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED IN SUCH
FORWARD-LOOKING STATEMENTS. THE FOLLOWING DISCUSSION IS QUALIFIED IN ITS
ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION WITH, THE DETAILED INFORMATION
AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS.
OVERVIEW
AFC is a designer, manufacturer and supplier of electrical, voice and data
distribution products used primarily in the construction and modernization of
non-residential buildings. The Company's products include prewired armored
cable, flexible conduit, modular wiring systems, lighting fixtures and controls,
electrical fittings and specialty coated metals.
Net sales of the Company's products are influenced by the level of
non-residential construction and building modernization and rehabilitation. Over
the past three years, the Company's annual net sales and total product footage
sold have increased faster than the growth in the new construction market. The
Company believes that the increase in net sales is attributable to greater
market acceptance of armored cable, flexible wiring systems, flexible conduit
and the Company's specialty cable products compared to pipe and wire
installation methods, the positive effect of acquisitions, higher expenditures
in the building modernization market and increased sales to DIY retailers and
OEM customers.
AFC's product mix significantly affects gross profit. Historically, the
Company supplied primarily traditional armored cable and flexible conduit. The
Company, however, has expanded its product offerings to increase sales of
specialty application cables and modular wiring systems which typically command
higher margins. The Company also has experienced a shift in sales from lower
margin AC-90 cable to higher margin Metal Clad (MC) Cable. This favorable shift
has been partially offset by increased demand in recent years for aluminum
armored cables, certain of which have relatively lower margins than steel
armored cables. Overall margins on aluminum armored cables, however, have
increased with the shift to the aluminum version of the MC Cable and as the
Company has improved the efficiency of its aluminum armoring manufacturing
processes.
Raw materials constitute a significant portion of cost of goods sold, with
copper rod, steel and aluminum accounting for approximately 58% of cost of goods
sold for the year ended December 31, 1997. The Company has attempted to minimize
its exposure to fluctuating prices of raw materials by implementing improved
purchasing practices, including extended supply contracts and multiple sourcing,
reengineering its products to optimize metal content within Underwriters
Laboratories' standards, and reacting more quickly with appropriate selling
price adjustments for related products. The Company does not currently engage in
any hedging activities.
The Company's products historically have been segregated into two
categories: (i) the Wire and Cable Division, which manufactures core armored
cable, flexible conduit and specialty cables, electrical fittings and specialty
coated metals and (ii) the America Cable Systems Division, which manufactures
flexible and premise wiring systems and related products. The Company recently
added to the Wire and Cable Division the flexible metal, fabric and plastic
hoses, ducting and connectors manufactured by Federal Hose and the electrical
fittings sold by Madison. Further, the electronic interfaces and connectors
manufactured by B&B
14
<PAGE>
and the lighting fixtures and controls and electrical devices manufactured by
ALR were added to the America Cable Systems Division.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentages
of the Company's net sales represented by certain income and expense items in
the Company's consolidated statements of income.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
Net sales......................................................................... 100.0% 100.0% 100.0%
Cost of goods sold................................................................ 76.8 73.2 71.0
--------- --------- ---------
Gross profit...................................................................... 23.2 26.8 29.0
Selling, general and administrative expenses...................................... 15.7 16.3 16.2
--------- --------- ---------
Income from operations............................................................ 7.5 10.5 12.8
Other income, net................................................................. 2.2 1.4 0.9
Interest expense.................................................................. 0.4 0.4 0.3
--------- --------- ---------
Income before income taxes........................................................ 9.2 11.5 13.5
Income taxes...................................................................... 3.4 4.4 5.2
--------- --------- ---------
Net income........................................................................ 5.8 7.1 8.3
--------- --------- ---------
--------- --------- ---------
</TABLE>
RECENT OPERATING RESULTS
The Company's net sales for the three months ended March 28, 1998 increased
approximately $17.5 million, or 36.6%, to approximately $65.3 million from $47.8
million for the three months ended March 29, 1997. Income from operations
increased approximately $3.1 million, or 56.3%, to approximately $8.6 million
from $5.5 million for the three months ended March 29, 1997. Net income
increased approximately $2.0 million, or 57.1%, to approximately $5.5 million
from $3.5 million for the three months ended March 29, 1997. Basic earnings per
share increased $0.11, or 29.7%, to $0.48 from $0.37 for the three months ended
March 29, 1997. Diluted earnings per share increased $0.10 , or 27.8% , to $0.46
from $0.36 for the three months ended March 29, 1997.
YEAR ENDED DECEMBER 31, 1997 VERSUS YEAR ENDED DECEMBER 31, 1996
NET SALES. Net sales for the year ended December 31, 1997 increased $58.4
million, or 36.1%, to $220.3 million from $161.9 million for the year ended
December 31, 1996. Net sales for the Wire and Cable Division increased by $36.7
million, or 25.4%, to $181.0 million for the year ended December 31, 1997 from
$144.3 million for the year ended December 31, 1996. The increase was
attributable primarily to higher sales of traditional armored cable and flexible
conduit products, higher margin speciality application cables, fittings and
connectors, and specialty coated metals products. Also contributing to this
increase were the sales attributable to Madison and Federal Hose, which were
acquired in April and November of 1997, respectively. Net sales for the America
Cable Systems Division increased by $21.7 million, or 129.9%, to $38.4 million
for the year ended December 31, 1997 from $16.7 million for the year ended
December 31, 1996. This increase is attributable to higher sales of modular
wiring systems as well as sales by ALR and B&B, both of which were acquired in
January, 1997.
GROSS PROFIT. Gross profit for the year ended December 31, 1997 increased
$20.4 million, or 47.0%, to $63.8 million from $43.4 million for the year ended
December 31, 1996. Gross margin increased to 29.0% for the year ended December
31, 1997 from 26.8% for the year ended December 31, 1996. This increase is
attributable to (i) improved operating efficiencies, (ii) more efficient
material utilization resulting from improved manufacturing processes, (iii)
decreased cost of raw materials through improved
15
<PAGE>
purchasing practices such as extended supply contracts and use of multiple
suppliers, (iv) increased sales of the Company's higher margin speciality
application cables, and (v) higher margins on certain of the products sold by
the companies acquired in 1997.
INCOME FROM OPERATIONS. Income from operations for the year ended December
31, 1997 increased $11.3 million, or 66.5%, to $28.3 million from $17.0 million
for the year ended December 31, 1996. Income from operations as a percentage of
net sales increased to 12.8% for the year ended December 31, 1997 from 10.5% for
the year ended December 31, 1996. This increase resulted from improved gross
margin, but was partially offset by an increase in compensation expense and
increases in freight costs and sales agent commissions, which generally rise in
proportion with net sales.
NET INCOME. Net income for the year ended December 31, 1997 increased $6.7
million, or 59.2%, to $18.2 million from $11.5 million for the year ended
December 31, 1996. Net income as a percentage of net sales increased to 8.3% for
the year ended December 31, 1997 from 7.1% for the year ended December 31, 1996.
This increase was primarily attributable to increased income from operations.
YEAR ENDED DECEMBER 31, 1996 VERSUS YEAR ENDED DECEMBER 31, 1995
NET SALES. Net sales for the year ended December 31, 1996 increased $22.4
million, or 16.1%, to $161.9 million from $139.5 million for the year ended
December 31, 1995. Net sales for the Wire and Cable Division increased by $19.9
million, or 16.0%, to $144.3 million for the year ended December 31, 1996 from
$124.4 million for the year ended December 31, 1995. Contributing to the
increase were additional sales of the Company's traditional armored cable and
flexible conduit products as well as increased sales of the Company's higher
margin specialty application cables. Also contributing to this increase were
higher sales of fittings and connectors and specialty coated metal products
introduced by the Company in early 1995. Net sales for the America Cable Systems
Division increased by $2.5 million, or 17.6%, to $16.7 million for the year
ended December 31, 1996 from $14.2 million for the year ended December 31, 1995.
This increase is attributable to improved demand for modular wiring systems,
including The Intelligent Floor and The Intelligent Ceiling products.
GROSS PROFIT. Gross profit for the year ended December 31, 1996 increased
$11.0 million, or 33.9%, to $43.4 million from $32.4 million for the year ended
December 31, 1995. Gross margin increased to 26.8% for the year ended December
31, 1996 from 23.2% for the year ended December 31, 1995. This increase is
attributable to (i) decreased cost of raw materials through more efficient
purchasing, lower market prices of commodities and improved manufacturing
processes resulting in better yields on materials and (ii) increased sales of
higher margin specialty application products.
INCOME FROM OPERATIONS. Income from operations for the year ended December
31, 1996 increased $6.5 million, or 62.3%, to $17.0 million from $10.5 million
for the year ended December 31, 1995. Income from operations as a percentage of
net sales increased to 10.5% for the year ended December 31, 1996 from 7.5% for
the year ended December 31, 1995. This increase resulted from improved gross
margin, partially offset by an increase in selling, general and administrative
expenses as a percent of net sales in 1996 compared to 1995. The increase in
selling, general and administrative expenses is attributable to increases in
freight costs, sales agent commissions, compensation expense and fees for
professional services.
NET INCOME. Net income for the year ended December 31, 1996 increased $3.4
million, or 41.4%, to $11.5 million from $8.1 million for the year ended
December 31, 1995. Net income as a percentage of net sales increased to 7.1% for
the year ended December 31, 1996 from 5.8% for the year ended December 31, 1995.
This increase was primarily due to increased income from operations, partially
offset by (i) a slight decline in other income, which consisted primarily of
income on investment securities, and (ii) a higher effective tax rate of 38.3%
for the year ended December 31, 1996 compared to 37.2% for the year ended
December 31, 1995 which was due to a higher marginal tax rate in 1996.
16
<PAGE>
SELECTED QUARTERLY STATEMENTS OF OPERATIONS DATA
The following table sets forth certain unaudited quarterly results of
operations data of the Company for each of the four quarters for the years ended
December 31, 1996 and 1997. The Company believes that this information has been
prepared on the same basis as the audited consolidated financial statements and
that all necessary adjustments, consisting only of the normal recurring
adjustments, have been included to present fairly the selected quarterly
information when read in conjunction with the audited consolidated financial
statements and the notes thereto included elsewhere or incorporated by reference
in this Prospectus. The operating results for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MAR. 30, JUNE 29, SEPT. 28, DEC. 31, MAR. 29, JUNE 28, SEPT. 27, DEC. 31,
1996 1996 1996 1996 1997 1997 1997 1997
--------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales...................... $ 33,885 $ 42,218 $ 41,559 $ 44,206 $ 47,787 $ 54,210 $ 56,704 $ 61,563
Gross profit................... 7,984 10,953 11,845 12,599 13,308 15,564 16,552 18,361
Income from operations......... 2,047 4,283 5,259 5,408 5,505 6,820 7,681 8,296
Net income..................... 1,636 2,904 3,350 3,570 3,460 4,387 4,978 5,414
Basic earnings per share....... $ 0.18 $ 0.32 $ 0.37 $ 0.39 $ 0.37 $ 0.41 $ 0.44 $ 0.48
Diluted earnings per share..... $ 0.18 $ 0.31 $ 0.36 $ 0.38 $ 0.36 $ 0.40 $ 0.43 $ 0.46
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's short-term liquidity needs have generally consisted of
operating capital necessary to finance inventories and receivables. Long-term
liquidity needs generally relate to capital expenditures necessary to expand the
production capacity of its manufacturing operations and to supplement its growth
through acquisitions. The Company has satisfied its short- and long-term
liquidity needs with cash generated from operations and proceeds from public
offerings of its Common Stock in 1995 and 1997, supplemented by available
borrowings under its revolving line of credit. The Company currently expects
that it will meet its ongoing working capital needs for the next twenty-four
months primarily with existing cash, cash generated from operations and the net
proceeds from this offering.
Cash generated from operations totaled $5.1 million and $11.5 million for
the years ended December 31, 1997 and 1996, respectively, and was attributable
primarily to increased profitability, although cash generated for the year ended
December 31, 1997 was partially offset by an increase in inventories and
accounts receivable. Cash used in operations was $1.3 million for the year ended
December 31, 1995, again primarily due to an increase in inventories and
accounts receivable. Working capital on December 31, 1997 was $88.1 million and
the ratio of current assets to current liabilities was 3.93 to 1.00. Working
capital on December 31, 1996 was $59.0 million and the ratio of current assets
to current liabilities was 4.08 to 1.00. The Company's average inventory of
$32.9 million for the year ended December 31, 1997 (including $8.0 million of
inventories of companies acquired during such period) represented an increase of
$12.9 million over the average inventory of $20.0 million for the year ended
December 31, 1996.
Accounts receivable at December 31, 1997 were $8.2 million higher than the
balance at December 31, 1996 due primarily to increased sales and to $6.3
million in accounts receivables of companies acquired during the year ended
December 31, 1997. For the year ended December 31, 1997, average day sales
outstanding were 55 compared to 56 for the year ended December 31, 1996. At
December 31, 1997, accounts receivable over 60 days represented 3.8% of accounts
receivable.
Capital expenditures for the year ended December 31, 1997 of $7.7 million
were mainly for new or replacement production equipment to increase
manufacturing capacity. Capital expenditures amounted to $7.0 million and $2.3
million for the years ended December 31, 1996 and 1995, respectively. For the
years ended December 31, 1997, 1996 and 1995, the Company leased certain
manufacturing equipment valued at
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$0.1 million, $1.7 million and $2.0 million, respectively. Capital expenditures
for the year ending December 31, 1998 are expected to be approximately $11.0
million, primarily for the expansion of manufacturing capacity and the upgrade
of management information systems.
At December 31, 1997, bank indebtedness under the Company's unsecured
revolving line of credit was $6.2 million. This revolving line of credit
terminates on March 31, 1999 and provides for direct borrowings of up to $25.0
million, including letter of credit borrowings up to $3.0 million. Up to $10.0
million of the line of credit may be used without the lender's prior consent for
business acquisitions. At December 31, 1997, letters of credit totaling
approximately $0.8 million were outstanding under the line of credit. Borrowings
under the line of credit averaged $3.8 million for the year ended December 31,
1997. The Company expects to pay the outstanding balance of the line of credit
with a portion of the net proceeds of the offering. See "Use of Proceeds."
Borrowings under the revolving line of credit are available at interest
rates equal to either the lender's base rate or the Eurodollar rate plus 0.5% to
1.25% for a fixed period of one, two, three, six or twelve months. At December
31, 1997, the weighted average cost of borrowings under the line of credit was
8.5%. The line of credit contains certain restrictive covenants, including the
requirement that the Company maintain minimum levels of tangible capital funds
and meet other specified ratio requirements.
During 1996, the Company was loaned the proceeds from the issuance of $3.57
million in IRBs by the Massachusetts Industrial Finance Agency for the purpose
of acquiring and refurbishing a 99,000 square-foot manufacturing facility in New
Bedford, Massachusetts, which secures the IRBs. The IRBs mature on July 24, 2016
and carry an average interest rate that adjusts on a weekly basis. The IRBs
carried an average interest rate of approximately 3.75% and 3.5% for the years
ended December 31, 1997 and 1996, respectively. In addition, an annual fee of
1.0% of the amount of an unsecured stand-by letter of credit is payable to the
bank holding the letter of credit and also acting as trustee under the terms of
the IRB issuance. The Company has the right to convert from the variable
interest rate to a fixed rate established at the time of conversion. The bonds
are payable in nineteen annual installments of $180,000 with a final payment of
$150,000 due at maturity, all funded through monthly payments of $15,000 to the
trustee over the twelve months preceding the installment due dates.
During 1997, the Company acquired four companies for a total cash purchase
price of approximately $22.0 million (subject to additional consideration if
certain financial targets are met) and approximately 159,902 shares of Common
Stock. Although the Company currently has no commitments with respect to
additional acquisitions other than that described under "Summary--Recent
Developments," the Company regularly evaluates potential acquisitions of
companies that are complementary to its existing business.
INFLATION AND FOREIGN EXCHANGE FLUCTUATION
The Company believes that inflation has not had a material effect on its
business, operating results or financial condition during the three-year period
ended December 31, 1997. While the Company does not believe that its business is
highly sensitive to inflation, there can be no assurance that future increases
in the rate of inflation would not have a material adverse effect on the
Company's operations.
The Company is currently not exposed to foreign exchange risk because
foreign sales are denominated in U.S. dollars to U.S.-based trading companies.
The Company may seek to manage any such future risk by entering into foreign
exchange contracts as management deems appropriate.
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BUSINESS
OVERVIEW
AFC is a designer, manufacturer and supplier of electrical, voice and data
distribution products used primarily in the construction and modernization of
non-residential buildings. The Company's products include prewired armored
cable, flexible conduit, modular wiring systems, lighting fixtures and controls,
electrical fittings and specialty coated metals. The Company believes its
prewired armored cable and modular wiring systems offer a total installed cost
advantage over traditional, labor intensive wiring methods by eliminating
on-site installation time and labor costs associated with bending, connecting
and pulling wire through metal pipe. The Company believes that the total
available domestic market for its prewired armored cable and flexible conduit
products was in excess of $1.0 billion in 1997. Conventional pipe and wire
products accounted for approximately 65% of this market and products such as
those manufactured by the Company accounted for the remaining approximately 35%.
A significant component of the Company's growth strategy is to convert the pipe
and wire portion of the overall market to the more efficient and cost effective
solution provided by the Company's products. The Company is the leading
manufacturer of prewired armored cable in the United States, with approximately
45% of the sales in the domestic armored cable market based upon Company
estimates. In addition to traditional armored cable products, the Company
focuses on the creation of proprietary value-added products utilizing the
Company's design and engineering expertise and various technologies. These
products include color-coded cables used for fire alarm systems and health care
facilities, as well as prewired modular wiring systems that are designed and
assembled for custom installations.
The Company's products can be separated into two broad categories: (i)
armored cable, flexible conduit, specialty cables, electrical fittings,
speciality coated metals and flexible metal fabric and plastic hoses, ducts and
connectors, all manufactured by the Wire and Cable Division and (ii) flexible
and premise wiring systems and related products and lighting fixtures and
controls manufactured by the America Cable Systems Division. The divisions are
vertically integrated in that many of the products manufactured in the America
Cable Systems Division utilize components, including cable remnants, produced in
the Wire and Cable Division.
Net sales of the Company's major products (excluding the Company's trucking
operations) for the year ended December 31, 1997 were as follows:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ARMORED CABLE $119.2 MILLION
<S> <C>
Flexible Conduit $23.6 million
Specialty Cable Products $20.2 million
Modular Wiring Systems $19.6 million
Custom Cuts, Fixture Whips and Others $3.9 million
Lighting Products $14.9 million
Other Cable Products $18.0 million
Wire and Cable Division
America Cable Systems Division
</TABLE>
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The Company believes that it is a leading national supplier of many of the
products that it manufactures. The following chart illustrates the Company's
gross sales by region for the year ended December 31, 1997:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SOUTH ATLANTIC 25%
<S> <C>
Mountain Pacific 13%
Mid Atlantic 24%
Mid West 14%
New England 8%
South Central 13%
International 3%
</TABLE>
INDUSTRY BACKGROUND
The manufacture and installation of electrical, voice and data distribution
products are subject to various building codes as well as safety and performance
standards set by industry groups and independent testing laboratories. The
National Electric Code ("NEC"), administered by the National Fire Protection
Association ("NFPA"), sets the minimum safety standards to which electrical
products are manufactured and installed in the United States. NEC standards are
enforced and supplemented by the appropriate state, county and municipal
authorities having jurisdiction. The federal government also sets specifications
(the "Federal Specifications") detailing the requirements for all electrical
products to be installed in federal buildings. In addition to building codes,
Underwriters Laboratories ("UL"), a nonprofit, independent organization,
operates a listing service for electrical and electronic materials and
equipment. UL listing is required by national and most electrical codes in the
United States. UL conformity assessment includes testing, evaluation and
certification, including a review of the manufacturer's facilities. The Canadian
Standard Associations ("CSA") and the British Approval Service for Cables
("BASEC") are the equivalent to UL in their respective countries. Most European
community countries generally rely on UL or BASEC approval and certification for
electrical products.
The NEC precludes the use of non-metallic sheathed cable in buildings of
three stories or higher. The conventional method of wiring a facility involves
the use of steel or aluminum pipe which is cut, bent and connected on site by
the electrical contractor. Once installed, wire is manually fed through the
pipe. An alternative to this pipe and wire method is prewired armored cable,
such as that manufactured by the Company. Although the use of prewired armored
cable provides several benefits over the pipe and wire method, the most
significant of which is the substantial reduction of installation labor costs,
the use of certain prewired armored cable products is not currently permitted by
local building codes in a limited number of municipalities, including Chicago,
San Antonio and Toledo.
STRATEGY
The Company's business strategy is to extend its leadership position and
best serve its end-users by (i) promoting its armored cable, flexible wiring
systems and flexible conduit as the preferred alternative to traditional labor
intensive pipe and wire method installations; (ii) penetrating the higher
margin, higher growth specialty application niche markets through the
development and introduction of new products;
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(iii) pursuing selective acquisitions of companies with products complementary
to the Company's existing business; (iv) maintaining its position as a low cost
producer in its major product lines without sacrificing its reputation for high
quality, innovative products; and (v) maintaining and expanding relationships
with its distributors, DIY retailers and OEMs.
CONTINUED PRODUCT PROMOTION. The Company is committed to the promotion of
armored cable, flexible wiring systems and flexible conduit as the preferred
alternative to traditional labor intensive pipe and wire installation methods.
The Company is continually educating electrical contractors and inspectors,
construction consultants, architects, vocational students and other end users
about the technological advantages and cost savings of armored cable and
flexible wiring systems in the electrical transmission and developing
communications markets. The Company estimates the installed cost savings of
armored cable systems over pipe and wire installations can range from 30% to 50%
depending on product type and contractor labor rates. The Company also has an
in-house telemarketing department that researches pending construction projects
in an effort to promote AFC's products and, if necessary, change project
specifications to allow for prewired armored cable products.
TARGET NICHE MARKETS. In order to penetrate higher margin, higher growth
specialty application niche markets, the Company has focused on the creation of
proprietary value added products. This strategy involves the successful transfer
of existing technology relating to its core products to new applications. For
example, the Company developed its Fire Alarm/Control Cable from its core
Metal-Clad (MC) Cable by adding a process-patented red stripe designed to
enhance identification by fire inspectors and prevent accidental disabling of
fire security systems. Specialty application cable products accounted for
approximately 9.2% and 10.5% of net sales for the years ended December 31, 1997
and 1996, respectively.
PURSUE COMPLEMENTARY ACQUISITIONS. The Company aggressively pursues
selective acquisitions of product lines, technologies or companies complementary
to its existing business and which the Company typically expects will be
accretive to earnings within the first twelve months of combined operations. For
example, the Company acquired B&B, a manufacturer and direct marketer of
electronic interfaces and connectors that facilitate data communications. In
addition to providing a high margin product line, B&B's direct mail and catalog
sales efforts serve as a complementary distribution channel for the Company's
other electrical products. The Company also recently acquired ALR, a
manufacturer of photo-electric controls and electrical devices for the lighting
control and fixture industries. While the acquisition of ALR diversified the
Company's existing product line, the Company believes that it can leverage its
existing distribution network to increase sales and margins of ALR's products.
See "Summary--Recent Developments."
MAINTAIN POSITION AS LOW COST PRODUCER. The Company strives to be the low
cost producer in its major product lines without sacrificing its reputation for
high quality, innovative products. AFC's vertically integrated manufacturing
operations enable it to source primary raw materials at favorable prices and
terms, control inventories and better manage lead times. In addition, the
Company has improved its purchasing practices by entering into extended supply
contracts and using multiple suppliers. The Company continually reengineers its
products to optimize metal content within UL standards without sacrificing the
quality of its products.
EXPAND AND ENHANCE DISTRIBUTION INFRASTRUCTURE. The Company believes that
its distributor relationships are essential to maintaining its competitive
position in the industry. The Company's sales and marketing personnel regularly
educate and train distributors, electrical contractors and engineers on the
technological and cost benefits of the Company's products, as well as update
them on new product line introductions. The Company also participates as a
preferred vendor in marketing and buying groups such as Affiliated Distributors
and IMARK, which were developed to increase the access of independent, local
distributors to products such as those manufactured by the Company. The Company
also maintains its own fleet of trucks which it uses to deliver its products to
its customers and for inter-plant transfers of materials. The Company has
recently hired a senior sales executive to coordinate the Company's sales
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<PAGE>
efforts to large national accounts that the Company is currently serving through
local or regional sales efforts.
PRODUCTS
WIRE AND CABLE DIVISION. Wire and Cable Division products are utilized for
construction (both new and reconstruction, renovation and tenant improvement
projects) of offices, commercial buildings, industrial plants, shopping centers,
multifamily dwellings, hotels and health care, educational and recreational
facilities. Wire and Cable Division products consist primarily of armored cable,
flexible conduit, specialty cables, flexible metal, plastic and fabric hoses,
ducting and connectors, electrical fittings and connectors and specialty
processed metals. Wire and Cable Division Products accounted for approximately
$181.0 million, or 82.2%, and approximately $144.3 million, or 89.1%, of the
Company's net sales for the years ended December 31, 1997 and 1996,
respectively.
Products manufactured by the Wire and Cable Division include the following:
- ARMORED CABLE is armor sheathed electrical cable that provides a versatile
and economical alternative to traditional pipe and wire. Fully
preassembled and tested, armored cable features excellent mechanical
protection, consistent color coding and a cost effective electrical
installation. Armored cable products are available in steel or aluminum
sheathing. Aluminum sheathed armored cable, which reduces a product's
weight by 30%, has gained wide customer acceptance over recent years due
to ease of preparation and installation and resulting cost savings. Sales
of armored cable were approximately $119.2 million, or 54.1%, and
approximately $96.2 million, or 59.4%, of the Company's net sales for the
years ended December 31, 1997 and 1996, respectively, representing year-
over-year growth of 23.9%.
METAL-CLAD (MC) Cable is a single, steel clad assembly used for power,
lighting, control and signal circuits. MC Cable has an internal insulated
solid copper ground wire for sensitive applications, including places of
public assembly such as convention halls and auditoriums. MC Cable is
available in a lighter weight aluminum version, MC Lite.
AC-90 is 90 DEG.C rated for branch circuits and feeders in commercial,
multi-unit residential and industrial applications and for hard wiring
fixtures and other high temperature applications. Designed for higher
thermal capability, AC-90 provides more usable power per conductor size.
AC-90 Lite is the line's lighter weight aluminum version.
- SPECIALTY CABLE products are specialized applications of the Company's
armored cable designed to meet a particular niche of the commercial
construction industry. Sales of specialty cable were approximately $20.2
million, or 9.2%, and approximately $17.0 million, or 10.5%, of the
Company's net sales for the years ended December 31, 1997 and 1996,
respectively, representing year-over-year growth of 18.8%.
HCF-90 is AC-90 cable that features a fully insulated ground wire
providing dual path grounding for branch circuits and feeders where a
dedicated ground is required. This product is designed primarily for
health care facilities and has a process-patented green striped armor
designed to enhance ease of installation and identification. HCF-90 is
available in a lighter weight aluminum version, HCF-90 Lite.
FIRE ALARM/CONTROL CABLE is MC Cable that features a process-patented red
striped armor that is designed to enhance identification by fire
inspectors and prevent accidental disabling of fire security systems.
SUPER NEUTRAL CABLE is MC Cable containing an oversized neutral conductor
for use in electrical systems in which nonlinear switching loads produce
additive, third order harmonic currents which may overload standard size
neutral conductors. Typical applications include computer systems,
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<PAGE>
business equipment, variable speed drives, electronic discharge lighting
and other switching mode power supplies.
JACKETED MC CABLE is MC Cable with an added polyvinyl chloride ("PVC")
jacket designed for maximum physical circuit protection and
identification, and is utilized for installations in wet locations, soil
and concrete.
HOME RUN CABLE is MC Cable that is designed to hold a 6, 8, 12 or 16 wire
insulated conductor assembly inside galvanized steel armor, and is
utilized for connection to power sources.
OPTICAL FIBER JACKETED CABLE is MC Cable that features a process patented
orange striped armor that is designed for specific control, signaling and
data communications applications, such as robotics, video conferencing
and local area networks.
- FLEXIBLE CONDUIT is wireless conduit that provides mechanical protection
for electrical wiring where flexibility is required. Flexible conduit can
be made of steel, aluminum or plastic and is used in a variety of
construction applications as an alternative to pipe. Sales of flexible
conduit were approximately $23.6 million, or 10.7%, and approximately
$20.7 million, or 12.8%, of the Company's net sales for the years ended
December 31, 1997 and 1996, respectively, representing year-over-year
growth of 14.0%.
REDUCED WALL FLEXIBLE CONDUIT provides the strength and durability of
heavy gauge pipe at 40% less weight. It installs easily and is available
in sizes from 5/16" to 4" diameter. The Company also offers a Reduced
Wall Flexible Aluminum Conduit that provides the strength and durability
of steel at one-third the weight.
LIQUID-TIGHT FLEXIBLE CONDUIT, which is offered in both metallic and
plastic versions, has been designed for use in factories, foundries and
assembly plants. It features a flexible conduit covered by a PVC jacket
and is resistant to oil, gasoline, salt spray and toxic fumes. It is
available in sizes from 3/8" to 4" diameter.
OTHER FLEXIBLE CONDUIT includes flexible metal, fabric and plastic hoses,
ducting and connectors made for diverse applications such as heavy duty
vehicles, material handling and heating and ventilation systems.
- OTHER PRODUCTS of the Wire and Cable Division contributed approximately
$18.0 million, or 8.2%, and approximately $10.4 million, or 6.4%, of the
Company's net sales for the years ended December 31, 1997 and 1996,
respectively, representing year-over-year growth of 73.0%. Other products
include the following:
SPECIALTY PROCESSED METAL products have developed as a result of the
Company's ability to handle, slit and coil metals and supply galvanized
strip steel and various alloys of aluminum oscillate coils to a variety
of customers primarily in the petroleum drilling industry.
FITTINGS AND CONNECTORS are designed to connect armored cable and conduit
to electrical junction boxes and to join multiple types of conduit. These
products compliment the Company's AC, MC and Liquid-Tight product lines.
AMERICA CABLE SYSTEMS DIVISION. America Cable Systems Division products
provide an integrated infrastructure for electrical, voice and data distribution
in a modular, plug-in fashion. The products are used primarily in office
buildings and retail centers with accessible ceilings and/or accessible floors,
and can be reused after retenanting or remodeling. America Cable Systems
Division products are completely preassembled for easy on-site installation and
are generally accompanied by detailed installation drawings produced by computer
aided drafting ("CAD") software. Therefore, these modular wiring products reduce
the time of initial installations, as well as the time required to make changes
in the office layout during the life of the building. The Company continues to
enhance its modular wiring systems used in broader
23
<PAGE>
premise wiring markets, which encompass combined voice, data and electrical
distribution. The Company also markets through its America Cable Systems
Division the lighting fixtures and controls manufactured by ALR and the
electronic interfaces and connectors manufactured by B&B. America Cable Systems
Division products have been listed and labeled where required in accordance with
UL and CSA standards and comply with the NEC. See "Quality Assurance." Sales of
America Cable Systems Division products were approximately $38.4 million, or
17.5%, and approximately $16.7 million, or 10.3%, of the Company's net sales for
the years ended December 31, 1997 and 1996, respectively.
Products manufactured by the America Cable Systems Division include the
following:
- MODULAR WIRING SYSTEMS provide fast and efficient installation for
applications such as offices, health care facilities, industrial
facilities and educational institutions that require repetitive patterns
of branch circuit lighting fixtures and power outlets as well as a high
degree of flexibility to meet future needs. The Company estimates that
facilities can be completely "fitted out" with an integrated building
electrical infrastructure for lighting and power with total installed cost
savings of up to 40% over traditional wiring methods. Modular wiring
systems include PDQ devices and support mechanisms to which Custom Cut
wiring is attached. PDQ System Components enable prefabrication of the
entire electrical branch circuit distribution network at the factory and
complete system delivery to the job site. Modular wiring systems also
include the Company's electronic interfaces and connectors that facilitate
data communication. The Company is focusing on advanced modular wiring
systems for the premise wiring market, including The Intelligent Floor and
The Intelligent Ceiling. Premise wiring systems are custom engineered and
pre-assembled by the Company for modular installation and have the ability
to supply the voice, data and electrical requirements throughout an entire
facility. Sales of modular wiring systems were approximately $19.6
million, or 8.9%, and approximately $12.5 million, or 7.7%, of the
Company's net sales for the years ended December 31, 1997 and 1996,
respectively, representing year-over-year growth of 56.8%.
- LIGHTING PRODUCTS include lighting fixtures and controls and electrical
devices for the lighting control and fixture industries, temporary
construction lights and high bay lighting systems. Sales of lighting
products were approximately $14.9 million, or 6.8%, and approximately $0.7
million, or 0.4%, of the Company's net sales for the years ended December
31, 1997 and 1996, respectively. The increase in sales is primarily
related to the recent acquisition of ALR.
- CUSTOM CUTS AND FIXTURE WHIPS AND OTHER PRODUCTS provide builders with
factory cut branch circuit wiring used to connect convenience power
receptacles and lighting fixtures on the job site. Custom Cuts and Fixture
Whips significantly reduce installation time for branch circuit power
distribution systems. Other products include power poles and prenumbered
and prebundled conductors. Sales of Custom Cuts, Fixture Whips and other
products were approximately $3.9 million, or 1.8%, and approximately $3.7
million, or 2.3%, of the Company's net sales for the years ended December
31, 1997 and 1996, respectively, representing year-over-year growth of
5.4%.
MARKETING
The Company's products are marketed through over 250 independent regional
sales representatives, including several located outside the United States.
Sales representatives do not exclusively market the Company's products. At
December 31, 1997, approximately 70 of the Company's domestic representatives
maintained product inventories on consignment. The independent sales
representatives are trained by the Company through a comprehensive marketing
program that includes a wide range of product literature, specification sheets
and technical brochures. The Company actively markets its advanced engineering
capabilities, including CAD, for custom designed integrated systems to
electrical contractors, construction engineers and building contractors. The
Company currently markets certain of its electronic interfaces and connectors
through direct mail and catalog sales and is considering expanding the scope of
its catalog offerings to certain of its core products. The Company advertises
certain of its product offerings in trade
24
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magazines and regularly participates in industry trade shows. The domestic sales
representatives are serviced by the Company's fleet of trucks and trailers,
which provide delivery and scheduled stock replenishment. The Company believes
that its internal trucking capability gives it a competitive advantage by
providing prompt delivery to its customers.
Commensurate with its strategy of promoting armored cable, flexible wiring
and flexible conduit as the preferred alternative to traditional labor intensive
pipe and wire installation methods, the Company has specifically focused its
marketing efforts at electrical contractors and inspectors, construction
consultants, architects and other end users. This marketing strategy is
particularly important to the marketing efforts of the America Cable Systems
Division as its products are often developed to custom specifications. The
Company's in-house telemarketing department and field representatives research
pending construction projects in an effort to change project specifications to
allow for the use of the Company's prewired armored cable products. The Wire and
Cable Division has had particular success with this specification strategy in
the area of specialty cable products where competition is relatively limited.
The Company expects to continue this marketing strategy as it develops new
products for broader premise wiring markets. The Company recently hired a senior
sales executive to coordinate the Company's sales efforts to large national
accounts that the Company is currently serving through local or regional sales
efforts.
Use of certain of the Company's armored cable products is not currently
permitted by local building codes in a limited number of municipalities,
including Chicago, San Antonio and Toledo. In several instances, the Company has
successfully illustrated to municipal building code authorities the benefits and
efficiencies of armored cable products over pipe and wire installations,
resulting in favorable changes in the particular municipality's building code.
For example, during the past three years, several municipalities, including
Charleston County, SC, Dade County, FL, Orange County, FL, the city of
Springfield, IL, the city of Tampa, FL and Sacramento County, CA, have amended
their building codes to approve the use of the Company's metal clad cables.
Although the Company expects to continue these efforts, there can be no
assurance that it will be successful in influencing other municipalities in
adopting similar code changes. The failure to obtain a change in these local
codes is not anticipated to have a material adverse effect on the Company's
business, operating results or financial condition.
CUSTOMERS
The Company sells its products primarily to distributors of electrical
products for resale to end users. Sales to distributors accounted for
approximately 80% and 87% of the Company's net sales during the years ended
December 31, 1997 and 1996, respectively. The Company's top ten customers have
traditionally accounted for approximately 30% of the Company's gross sales, with
no single customer accounting for more than five percent of gross sales. In
addition to sales to distributors, the Company directs significant marketing
efforts toward DIY retailers and OEMs. Sales to DIY retailers accounted for
approximately 7% of the Company's gross sales for each of the years ended
December 31, 1997 and 1996, and were comprised mostly of armored cable and
flexible conduit. Sales to OEMs accounted for approximately 9% and 6% of the
Company's gross sales for each of the years ended December 31, 1997 and 1996.
COMPETITION
The Company faces competition for many of its core armored cable products
and for those products manufactured by the America Cable Systems Division. The
Company, however, has experienced less competition with respect to many of its
specialty cable products. The Company's competitors include both manufacturers
of products similar to those of the Company and producers of alternative
electrical, voice and data distribution systems, predominantly pipe and wire.
The number and size of the Company's competitors varies depending on the product
line. Competition can be generally categorized as either national in scope, with
companies that have substantial financial, research and development,
manufacturing and marketing resources, or regional in scope, with companies that
have more limited product offerings but compete effectively on the basis of
price.
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The principal competitive factors in all product markets are price, quality,
product features, availability, customer support and distribution strength. The
relative importance of each of these factors varies depending on the specific
product category. As products mature, such as certain of the Company's core
armored cable products, competitive forces tend to drive down prices. In
contrast, the Company has been able to maintain higher margins on its specialty
cable products and certain of its products manufactured by the America Cable
Systems Division. There can be no assurances, however, that this trend will
continue. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
MANUFACTURING
The Company's manufacturing operations utilize a wide variety of raw
materials for which it has multiple commercial sources, and include a broad
variety of processes reflective of the Company's product diversity. See "--Raw
Materials." Operations for cable manufacturing at the Wire and Cable Division
include drawing copper wire; extruding wire; slitting and galvanizing steel and
aluminum used for armor; wrapping, twisting and cutting wire; armoring
conductors; and testing for conductor continuity and grounding. The Company's
manufacturing equipment allows for a wide assortment of product categories, with
armored cable diameters ranging from 1/4" to 2" and flexible conduit diameters
ranging from 5/16" to 4". The America Cable Systems Division manufacturing
operations primarily consist of metal stamping, riveting, custom wire cutting,
component assembly and packaging operations. This division utilizes proprietary
tooling in its assembly techniques. Manufacturing operations at the Company's
two divisions are vertically integrated, which enables the Company to source
primary raw materials at favorable prices and terms, control inventories and
better manage lead times. The America Cable Systems Division uses remnants from
the Wire and Cable Division in its manufacturing process, thereby reducing the
Company's overall scrap ratio.
The Company is currently operating at close to existing capacity levels at
certain of its facilities and expects to use a portion of the net proceeds from
the offering and its existing cash balance over the next twenty-four months for
additional equipment and facilities to expand manufacturing capacity. See "Risk
Factors--Manufacturing Capacity" and "Use of Proceeds."
RAW MATERIALS
Copper, steel and aluminum used in manufacturing represented approximately
58% of cost of goods sold for the year ended December 31, 1997. The principal
raw material used by the Company is copper, which is purchased in the form of
redrawn rod from several domestic producers. Price terms are based on monthly
average copper prices, as determined by the New York Commodity Exchange, plus a
premium. The Company intends to purchase the majority of its 1998 copper
requirements from two vendors. The Company expects this practice to continue in
the future. See "Risk Factors--Substantial Price Competition, Margin Maintenance
and Prices of Raw Materials."
Other raw materials used by the Company include aluminum, galvanized steel,
molding materials, PVC and nylon, for which the Company generally has either
alternative sources of supply or access to alternative materials. Supplies of
these materials are adequate and are expected to remain so for the foreseeable
future.
QUALITY ASSURANCE
The Company is committed to the philosophy that meeting industry standards
and codes is critical to its success, and its products are designed to satisfy
the safety and performance standards set by various industrial groups and
testing laboratories, including UL, CSA and BASEC.
The Company has implemented a Total Quality Management ("TQM") program which
is intended to maximize customer satisfaction while implementing cost effective
production methods. The Company's TQM program embodies an interlocking set of
procedures and practices that ensures employees in various
26
<PAGE>
departments are adequately trained and directed to continuously implement
improvements in quality, service and cost savings. In connection with its TQM
program, the Company has obtained ISO 9001 certification at two of its
facilities in New Bedford, Massachusetts and ISO 9002 certification at its
Byesville, OH facility. ISO 9001 certification is a standard developed by the
International Standards Organization that provides a management systems model
for process quality assurance in design, development, installation and service.
ISO 9002 is a quality systems model for quality assurance in production,
installation and service. The Company believes that ISO 9001 and 9002
certifications signify excellence in manufacturing and process integrity,
thereby serving as a competitive advantage and strengthening its marketing
efforts. There can be no assurance, however, that further certifications will be
granted. The Company believes that if additional certifications are not granted
at its other facilities, its business and competitive position will not be
materially adversely affected.
DEVELOPMENT, DESIGN AND ENGINEERING
The Company employs 53 draftsmen and engineers and 65 professional
technicians that are actively engaged in product and process development.
Development and design efforts often result from informal dialogues with major
electrical contractors, consulting engineers and facility managers, and
generally include product development, testing and analysis, component
development and testing, tooling design and resolution of process problems. The
Company fabricates some of the tooling and key machinery used in its cable
production.
The Company takes an active role in guiding industry standards. The Company
has representatives on the electrical section of the NFPA and the Industry
Advisory Council of UL and maintains ongoing relations with standards
enforcement organizations such as UL, the NFPA, the International Association of
Electrical Inspectors, the National Armored Cable Manufacturers Association and
the National Electrical Manufacturing Association.
PATENTS, TRADEMARKS AND OTHER INTELLECTUAL PROPERTY
The Company believes that its success depends more heavily on name
recognition, technical competence and the marketing abilities of its sales
representatives than on any individual patent, trademark or copyright.
Nevertheless, the Company intends to seek patent coverage for its products and
manufacturing technology where appropriate. The Company holds several patents
covering certain of its products and processes and also has several registered
trademarks. There can be no assurance, however, that the Company's patents will
provide adequate protection against competitors who develop or patent similar
technology. The Company has recently filed suit against one of its competitors
for infringement of the Company's process patented striped armored cable. The
Company has not received a response to this claim and there can be no assurance
that the Company's patent will not be successfully challenged and invalidated.
The Company also relies upon trade secret protection for its confidential
and proprietary information. The Company routinely enters into confidentiality
agreements with its employees. There can be no assurance, however, that others
will not independently obtain similar information and techniques or otherwise
gain access to the Company's trade secrets or that the Company can effectively
protect its trade secrets.
BACKLOG
The Company's business is characterized by short-term order and shipment
schedules rather than volume purchase contracts. Accordingly, the Company does
not consider backlog at any given date to be indicative of future sales.
Immediate delivery requirements and the nature of the Company's business
preclude any significant backlog.
27
<PAGE>
FACILITIES
The following table provides information with respect to the Company's
facilities:
<TABLE>
<CAPTION>
OWNED/
LOCATION FACILITY TYPE SQUARE FEET LEASED
- ----------------------------- ---------------------------------------------------------- ----------- ---------
<S> <C> <C> <C>
New Bedford, MA(1)........... Assembly--America Cable Systems Division, Fittings and 123,000 Owned
Connectors, Administration, Engineering
New Bedford, MA.............. Manufacturing--Conduit and Cable 71,700 Owned
New Bedford, MA.............. Manufacturing--Wire, Administration, Engineering 64,000 Owned
New Bedford, MA.............. Trucking, Warehousing, Administration 48,000 Leased
New Bedford, MA.............. Warehousing 15,000 Leased
Fullerton, CA................ Manufacturing--Conduit and Cable, Warehousing 59,800 Leased
Largo, FL.................... Manufacturing--Conduit and Cable 39,800 Leased
Largo, FL.................... Distribution Center 25,500 Leased
Ottawa, IL(2)................ Manufacturing--Connectors 21,000 Owned
Burlington, NJ............... Manufacturing--Conduit and Cable, Warehousing 84,500 Leased
Hackettstown, NJ............. Manufacturing--Lighting Fixtures and Electrical Devices, 30,000 Leased
Warehousing
Hackettstown, NJ............. Administration 10,000 Leased
Linden, NJ................... Distribution Center 23,800 Leased
Cleveland, OH................ Warehousing; Administration 20,700 Leased
Reno, NV..................... Distribution Center 28,000 Leased
Byesville, OH................ Manufacturing--Metal Processing 37,000 Leased
Painesville, OH.............. Administration; Manufacturing--Conduit 49,000 Leased
Bensalem, PA................. Manufacturing--Metal Processing 28,800 Leased
Providence, RI............... Administration 2,500 Leased
Dallas, TX................... Manufacturing--America Cable Systems Division 45,300 Leased
</TABLE>
- ------------------------
(1) This property secures the repayment of the proceeds received from the
issuance of $3.57 million in IRBs by the Massachusetts Industrial Finance
Agency in July 1996.
(2) This property secures the payment of a loan in the amount of $833,000.
The Company believes that its facilities are suitable for their present
intended purposes and adequate for the Company's current level of operations.
The Company, however, is operating at close to existing capacity levels at
certain of its facilities and expects to use a portion of the net proceeds from
the offering and its existing cash balance over the next twenty-four months for
additional equipment and facilities to expand manufacturing capacity. See "Risk
Factors--Manufacturing Capacity" and "Use of Proceeds." Additionally, the
Company is contemplating opening new distribution facilities to better serve its
customer base.
EMPLOYEES
At February 28, 1998, the Company had 1,205 full-time employees of which 540
employees were represented by labor unions. The Company's union contracts expire
July 31, 1998, June 30, 1999, February 4, 2000 and February 23, 2001. Of the
Company's employees, 856 are in manufacturing, 107 in administration, 98 in
distribution, 82 in engineering and 62 in sales and marketing. The Company has
not experienced any work stoppages at its plants and believes its current
relations with its employees are good.
ENVIRONMENTAL/LEGAL PROCEEDINGS
The Company is a party to various nonenvironmental legal proceedings and
administrative actions, all of which are incidental to the operations of the
Company. In the opinion of the Company's management,
28
<PAGE>
such proceedings and actions should not, individually or in the aggregate, have
a material adverse effect on the Company's financial condition or results of
operations.
Regarding environmental matters, owners and operators of sites containing
hazardous substances, as well as generators of hazardous substances, are subject
to broad liability under various federal and state environmental laws and
regulations, including liability for clean up costs and damages arising out of
past disposal activity. The principal raw material used by the Company is
copper, which is classified as a hazardous substance. In addition, prior to the
Company's acquisition of its present business, it was engaged in certain
activities that may have utilized other hazardous substances. Governmental
authorities may seek to impose liability regardless of fault or the legality of
the original disposal activity and regardless of whether the Company is
otherwise currently responsible for liabilities with respect to such activities.
The Company has been named in connection with certain proceedings relating to
various properties currently being investigated or remediated for environmental
problems arising therefrom. The Company's business was formerly operated as
American Flexible Conduit Company Inc. ("American"), a manufacturer of flexible
conduit and armored cable products, which commenced operations in 1926. In 1969,
Nortek, Inc. ("Nortek") purchased the assets and liabilities of American and
subsequently transferred this business to its Monogram Industries, Inc.
("Monogram") subsidiary, incorporated in Delaware in September 1969. In December
1989, a corporation controlled by Mr. Papitto purchased Monogram from Nortek.
The purchasing corporation and Monogram were subsequently merged, with Monogram
becoming the surviving corporation. In October 1993, the Company changed its
name to AFC Cable Systems, Inc. Prior to the sale of the stock of Monogram by
Nortek in December 1989, Monogram transferred to another subsidiary of Nortek
all the assets and liabilities associated with the businesses not related to the
Company's present business operations. In connection with the sale of the stock
of Monogram, Nortek agreed to indemnify the Company, subject to certain
limitations, for liabilities and obligations of Monogram unrelated to the
business operations of Nortek's American Flexible Conduit Division, which had
been transferred to the Company in connection with such sale. With the exception
of property discussed below located in New Bedford, Massachusetts (the
"Sullivan's Ledge Site"), all of the properties being investigated or remediated
are unrelated to the business operations acquired.
In 1984, the United States Environmental Protection Agency ("EPA") placed
the Sullivan's Ledge Site on the National Priorities List, which is a list of
sites that the EPA has ranked in terms of priority for remedial action pursuant
to the Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"). Under CERCLA, all owners and operators (former and current) and
generators can be found jointly and severally liable with respect to the
Sullivan's Ledge Site. In March 1990, the EPA requested information from the
Company, and the Company admitted that between 1960 and 1969, American, the
predecessor of the business currently operated by the Company, had disposed of
waste metal at the site. A number of responsible parties entered into a consent
decree with regard to a portion of the Sullivan's Ledge Site in June 1991 and,
subsequently, such parties as plaintiffs (the "Plaintiffs") have sought
contribution in the United States District Court for the District of
Massachusetts from twelve corporations, including the Company and Nortek,
neither of which were named as potentially responsible parties by the EPA. In
the consent decree, the EPA estimated the cost of remediation at the Sullivan's
Ledge Site to be approximately $10-$12 million. The Company has defended and
will continue to defend the action based upon its belief that its predecessors
contributed only DE MINIMIS amounts of waste material. On December 17, 1996, the
United States District Court for the District of Massachusetts entered a
judgment in favor of the Company with respect to this claim. As of March 31,
1998, there is an appeal pending with the U.S. Court of Appeals for the First
Circuit.
On March 12, 1998, The Township of Independence, New Jersey (the
"Township"), named one of the Company's wholly owned subsidiaries, ALR, in a
suit seeking compensation for expenses allegedly incurred by the Township in
connection with environmental contamination apparently caused by the predecessor
operator of the business of ALR. The Company believes that any amounts recovered
by the Township and other costs and expenses associated with this action are,
subject to certain limitations,
29
<PAGE>
covered by indemnification from the predecessor entity and its stockholders
under the related asset purchase agreement.
The Company is not able to predict with certainty the extent of its ultimate
liability with respect to any pending or future environmental matters. However,
the Company believes that any such liability with respect to the aforementioned
environmental matters will not have a material adverse effect upon its business,
financial condition or results of operations.
30
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of the
date hereof are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Ralph R. Papitto..................................... 71 Chairman of the Board, Chief Executive Officer and
Director
Robert R. Wheeler.................................... 53 President, Chief Operating Officer and Director
Raymond H. Keller.................................... 60 Vice President, Chief Financial Officer, Secretary,
Treasurer and Director
Anthony J. Santoro................................... 55 Director
Malcolm M. Donahue................................... 77 Director
</TABLE>
RALPH R. PAPITTO has been Chairman of the Board and a Director of the
Company since December 1989. Mr. Papitto has been Chief Executive Officer since
1995. Until 1990, Mr. Papitto was the Chairman of the Board, Chief Executive
Officer and a director of Nortek, an industrial conglomerate. Mr. Papitto
founded Nortek in 1967. In 1956, Mr. Papitto founded Glass-Tite Industries, Inc.
("Glass-Tite"), a manufacturer of electronic semiconductor components.
Glass-Tite was acquired by GTI Corporation in 1963. Mr. Papitto served as
Chairman of the Board of GTI Corporation until 1966. Mr. Papitto is also a
director of Lynch Corporation, a communications and multi-media services
company, and ACS Industries, Inc., a manufacturer of various industrial
products, and is also Chairman of the Board of Trustees of Roger Williams
University.
ROBERT R. WHEELER has been the President and Chief Operating Officer of the
Company since December 1995 and a Director of the Company since March 1996. Mr.
Wheeler was Executive Vice President and Chief Operating Officer of the Company
from October 1995 to December 1995. From 1992 to 1995, Mr. Wheeler served as
President and Chief Executive Officer of The North American Industrial Company
of BICC Cable, Inc.
RAYMOND H. KELLER has been Vice President and Chief Financial Officer of the
Company since December 1989 and a Director of the Company since October 1993.
From January 1989 until joining the Company, he served as the Vice President and
Chief Financial Officer of the American Flexible Conduit Division of Nortek.
Prior to that time, Mr. Keller held several positions with Microdot, Inc., a
multi-industry components manufacturer, most recently as Vice President and
Chief Financial Officer of the Microdot, Inc. operating companies. Mr. Keller
had been employed by Microdot, Inc. since 1972.
ANTHONY J. SANTORO has been a Director of the Company since October 1993.
Mr. Santoro has been President of Roger Williams University and Rogers Williams
University School of Law since August 1993 and served as Dean of Roger Williams
University School of Law from July 1992 to August 1993. Prior to that time, Mr.
Santoro served as Dean and Professor of Law at Widener University School of Law
from 1983 to 1992, Professor of Law at the University of Bridgeport School of
Law from 1976 to 1983 and Dean of the University of Bridgeport School of Law
from 1976 to 1980.
MALCOLM M. DONAHUE has been a Director of the Company since March 1996. Mr.
Donahue has been a Professor of Law at Suffolk University Law School since 1956.
From 1973 to 1991, Mr. Donahue was the Associate Dean of Suffolk University Law
School. Mr. Donahue also served as a director of Nortek, Inc. from 1988 to 1992.
31
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth the beneficial ownership of the Company's
Common Stock as of March 31, 1998 and as adjusted to reflect the sale of the
Common Stock being offered hereby (assuming no exercise of the Underwriters'
over-allotment option) by (i) each person or entity who is known by the Company
to own beneficially more than five percent (5%) of the outstanding shares of
Common Stock, (ii) each director and certain executive officers of the Company,
(iii) each Selling Stockholder and (iv) all directors and executive officers of
the Company as a group. The information as to each person has been furnished by
such person, and each person has sole voting power and sole investment power
with respect to all shares beneficially owned by such persons except as
otherwise indicated and subject to community property laws where applicable.
Unless otherwise indicated below, each person or entity listed maintains a
mailing address of c/o AFC Cable Systems, Inc., 55 Samuel Barnet Boulevard, New
Bedford, MA 02745.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED AFTER
PRIOR TO OFFERING(1) OFFERING(1)
----------------------- -----------------------
<S> <C> <C> <C> <C> <C>
SHARES TO BE
SOLD
NUMBER PERCENT IN OFFERING NUMBER PERCENT
---------- ----------- ---------------- ---------- -----------
FMR Corp......................................... 1,479,950 12.9% -- 1,479,950 11.9%
82 Devonshire Street
Boston, MA 02109
Wellington Management Company, LLP............... 637,500 5.6% -- 637,500 5.1%
75 State Street
Boston, MA 02129
Ralph R. Papitto (2)............................. 2,348,657 20.4% 500,000 1,848,657 14.8%
Robert R. Wheeler (3)............................ 89,081 * 50,000 39,081 *
Raymond H. Keller (4)............................ 62,399 * -- 62,399 *
Malcolm M. Donahue (5)........................... 3,274 * -- 3,274 *
Anthony J. Santoro (6)........................... 5,000 * -- 5,000 *
Aurelia A. Young (7)............................. 75,000 * 75,000 -- --
300 Commercial Street
Apartment #307
Boston, MA 02109
Ralph R. Papitto 1995 Trust
for David John Papitto (8)..................... 75,000 * 75,000 -- --
c/o State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
All Directors and Executive Officers of
the Company as a Group (5 persons) (9)......... 2,658,411 22.9% 550,000 1,958,411 15.6%
</TABLE>
- ------------------------
* Less than one percent.
(1) Based on 11,462,410 shares of Common Stock outstanding as of March 31, 1998
and approximately 12,400,928 shares of Common Stock outstanding after
completion of this offering.
(2) Includes 43,750 shares subject to stock options exercisable within sixty
days of the date hereof.
(3) Includes 61,250 shares subject to stock options exercisable within sixty
days of the date hereof (of which options to purchase 50,000 shares of
Common Stock are being exercised and the underlying shares are being sold in
the offering) and 19,977 shares of restricted stock on which forfeiture
provisions lapse with respect to 9,925 shares on March 11, 1999, and 5,026
shares on each of March 13, 1999 and March 13, 2000, and 1,050 shares held
pursuant to the Company's 401(k).
32
<PAGE>
(4) Includes 48,437 shares subject to stock options exercisable within sixty
days of the date hereof, 9,205 shares of restricted stock on which
forfeiture provisions lapse with respect to 3,358 shares on March 11, 1999,
2,923 on March 13, 1999 and 2,924 on March 13, 2000 and 672 shares held
pursuant to the Company's 401(k).
(5) Includes 2,500 shares subject to stock options exercisable within sixty days
of the date hereof.
(6) Includes 3,750 shares subject to stock options exercisable within sixty days
of the date hereof.
(7) Aurelia A. Young is the daughter of Ralph R. Papitto.
(8) David John Papitto is the son of Ralph R. Papitto.
(9) Includes the shares listed in (2)-(6) inclusive.
33
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 15,000,000 shares of
Common Stock, $.01 par value, and 1,000,000 shares of Preferred Stock, $.01 par
value (the "Preferred Stock"). As of March 31, 1998, there were 11,462,410
shares of Common Stock issued and outstanding and no shares of Preferred Stock
issued and outstanding. Subject to approval of the stockholders of the Company,
the Company intends to increase the number of its authorized shares of Common
Stock to 75,000,000.
COMMON STOCK
Holders of record of Common Stock are entitled to one vote for each share
held of record and do not have any preemptive, conversion or other rights to
subscribe for additional shares of Common Stock or any other securities of the
Company. There are no cumulative voting rights. Consequently, the holder or
holders of record of more than 50% of the outstanding shares of Common Stock can
elect all of the Company's Board of Directors. Immediately subsequent to the
offering, Mr. Papitto will hold approximately 14.8% of the Company's Common
Stock. As a result of his ownership, Mr. Papitto will be in a position to exert
significant influence over the affairs of the Company, including potential
acquisitions, sales and changes in control of the Company. See "Principal and
Selling Stockholders." Holders of record of Common Stock are entitled to such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. On liquidation, dissolution or winding up of the Company,
the holders of Common Stock are entitled to receive pro rata the net assets of
the Company remaining after the payment of all creditors and liquidation
preferences, if any. All issued and outstanding shares of Common Stock are, and
the shares offered hereby by the Company, when issued and paid for, will be
validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Company's Board of Directors is authorized, subject to any limitations
prescribed by law, from time to time to issue up to an aggregate of 1,000,000
shares of Preferred Stock in one or more series, each of such series to have
such voting powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other special rights, and
such qualifications, limitations or restrictions thereof, as shall be determined
by the Board of Directors in a resolution or resolutions providing for the issue
of such Preferred Stock. Thus, any series, may, if so determined by the Board of
Directors, have full voting rights with the Common Stock or superior or limited
voting rights, be convertible into Common Stock or another security of the
Company, and have such other relative rights, preferences and limitations as the
Company's Board of Directors shall determine. As a result, any class or series
of Preferred Stock could have rights which would adversely affect the rights of
the holders of the Common Stock. The shares of any class or series of Preferred
Stock need not be identical. The Company has no present intention to issue any
of its authorized shares of Preferred Stock. However, the issuance of a new
series of Preferred Stock, while providing desirable flexibility in connection
with possible acquisitions or other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or discouraging a third
party from acquiring, a majority of the outstanding voting stock of the Company.
REGISTRATION RIGHTS
In connection with the acquisition of B&B Electronics Manufacturing Company
("B&B"), the Company and the prior stockholders of B&B (the "Prior B&B
Stockholders") entered into a Registration Rights Agreement (the "B&B
Registration Agreement") with respect to the 75,000 shares of Common Stock
delivered to the Prior B&B Stockholders in partial payment of the purchase
price. In connection with the acquisition of the Federal Hose Division of
FLEXFAB Horizons International, Inc. ("FLEXFAB"), the Company also entered into
a Registration Rights Agreement with FLEXFAB (the
34
<PAGE>
"FLEXFAB Registration Rights Agreement") with respect to the 11,364 shares of
Common Stock delivered to FLEXFAB in partial payment of the Purchase Price. Each
of the B&B Registration Agreement and FLEXFAB Registration Rights Agreement
provides, subject to certain limitations, that if the Company registers any of
its Common Stock for its own account or for the account of other security
holders, the Prior B&B Stockholders and FLEXFAB are entitled to include their
shares of Common Stock in the registration. The Prior B&B Stockholders and
FLEXFAB have elected not to participate in the offering.
The Company expects to issue approximately 11,000 additional shares of
Common Stock of the Company to the Prior B&B Stockholders in connection with the
satisfaction of certain earnout payments relating to the year ended December 31,
1997. The additional shares of Common Stock are subject to the registration
rights set forth in the B&B Registration Agreement.
CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company's Certificate of Incorporation and By-Laws contain certain
provisions that are intended to enhance the likelihood of continuity and
stability in the composition of the Board of Directors of the Company and in the
policies formulated by the Board of Directors and to delay, defer or prevent a
change in control of the Company if the Board determines that such a change in
control is not in the best interest of the Company and its stockholders. These
provisions could have the effect of discouraging certain attempts to acquire the
Company or remove incumbent management even if some or a majority of the
Company's stockholders deemed such an attempt to be in the Company's best
interest.
Pursuant to the Certificate of Incorporation and By-Laws of the Company, the
Board of Directors of the Company is divided into three classes serving
staggered three year terms. Directors can be removed from office only for cause
and only by the affirmative vote of a majority of the voting power of the then
outstanding shares of capital stock of the Company entitled to vote generally in
the election of directors. Management believes that these provisions (the
"Provisions"), taken together, reduce the possibility that a third party could
effect a change in the composition of the Board of Directors of the Company
without the support of the incumbent board. The Provisions, however, may have
significant effects on the ability of stockholders of the Company to change the
composition of the incumbent board, to benefit from transactions which are
opposed by the incumbent board, to assume control of the Company or effect a
fundamental corporate transaction such as a merger. Nevertheless, although the
Company has not experienced any problems in the past with the continuity or
stability of the board, management believes that the Provisions help assure the
continuity and stability of the Company's policies in the future, since the
majority of the directors at any time will have prior experience as directors of
the Company.
The Certificate of Incorporation provides that so long as the Company has a
class of capital stock registered under the Securities Exchange Act of 1934, all
stockholder action must be effected at a duly called meeting, and not by a
consent in writing. The Certificate of Incorporation also prohibits any
stockholder from directly calling a special meeting of stockholders of the
Company.
The Certificate of Incorporation authorizes and the By-Laws establish
procedures, including advance notice procedures, with regard to the nomination,
other than by or at the direction of the Board of Directors, of candidates for
election as directors and with regard to certain matters to be brought before
meetings of stockholders of the Company. In general, notice must be received by
the Company not less than 60 days nor more than 90 days prior to the meeting and
must contain certain specified information concerning the stockholder submitting
the proposal and the persons to be nominated or the matters to be brought before
the meeting. In addition, the By-Laws require that any such nomination of
candidate for election as a director be accompanied by a petition signed by at
least 100 record holders of capital stock entitled to vote generally in the
election of directors, representing in the aggregate 1% or more of the
outstanding capital stock entitled to vote thereon. Such procedures also
authorize regulation of the order
35
<PAGE>
of business and conduct of stockholder meetings, the authority of the presiding
officer and attendance at such meetings.
The Certificate of Incorporation also contains supermajority voting
provisions intended to protect the Company's stockholders from certain possible
abuses in connection with unsolicited attempts to gain control of the Company.
These provisions require the affirmative vote of the holders of 80% of the
outstanding shares of capital stock of the Company entitled to vote generally in
the election of directors to approve a "Business Combination" (a broadly defined
term which includes mergers and other major corporate transactions) involving
the Company and a Related Person (as defined below). The special voting
requirements do not apply if the "continuing directors" (as defined in the
Certificate of Incorporation) approve the Business Combination or the
transaction in which a person becomes a Related Person. A "Related Person" is
defined as any individual, corporation, partnership, unincorporated association
or other person or entity, together with its affiliates and associates, which
beneficially owns (as defined in the Certificate of Incorporation) 5% or more of
the Company's outstanding voting stock but does not include persons and their
affiliates and associates who beneficially owned 5% or more of the Company's
outstanding voting stock on April 1, 1994. The Board of Directors is permitted
pursuant to the Certificate of Incorporation to consider special factors, such
as employee welfare and the future prospects of the Company, when evaluating
proposed tender or exchange offers or Business Combinations. The affirmative
vote of 80% of the outstanding shares of capital stock entitled to vote
generally in the election of directors, excluding shares beneficially owned by a
Related Person, is required to amend the provisions referred to above relating
to the approval of Business Combinations.
The requirement of a supermajority vote to approve Business Combinations
could enable a minority of the Company's stockholders to exercise veto powers
over such transactions. The Company's executive officers and directors will
retain beneficial ownership of approximately 15.6% of the Company's Common Stock
outstanding after the offering.
The Certificate of Incorporation provides that no director of the Company
shall be liable to the Company or its stockholders for monetary damages for any
breach of fiduciary duty, except to the extent otherwise required by Delaware
General Corporation Law ("DGCL"). This provision does not prevent stockholders
from obtaining injunctive or other equitable relief against directors nor does
it shield directors from liability under federal or state securities laws.
DELAWARE ANTITAKEOVER LAW
Generally, under Section 203 of the DGCL (the "Delaware antitakeover law"),
certain "business combinations" between a Delaware corporation and an
"interested stockholder" are prohibited for a three year period following the
date such stockholder became an interested stockholder, unless: (i) the
corporation has elected in its certificate of incorporation not to be governed
by the Delaware antitakeover law; (ii) the business combination was approved by
the board of directors of the corporation before the other party to the business
combination became an interested stockholder; (iii) upon consummation of the
transaction that made it an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
commencement of the transaction (excluding voting stock owned by directors who
are also officers or held in employee benefit plans in which the employees do
not have a confidential right to tender or vote stock held by the plan); or (iv)
the business combination was approved by the board of directors of the
corporation and ratified by two thirds of the voting stock which the interested
stockholder did not own. The three-year prohibition also does not apply to
certain business combinations proposed by an interested stockholder following
the announcement or notification of certain extraordinary transactions involving
the corporation and a person who had not been an interested stockholder during
the previous three years or who became an interested stockholder with the
approval of a majority of the corporation's directors. The term "business
combination" is defined generally to include mergers or consolidations between a
Delaware corporation and an "interested stockholder," transactions with an
"interested stockholder" involving the assets or stock of the corporation or its
majority-owned
36
<PAGE>
subsidiaries and transactions which increase an interested stockholder's
percentage ownership of stock. The term "interested stockholder" is defined
generally as those stockholders who become beneficial owners of 15% or more of a
Delaware corporation's voting stock. The Company has elected in its Certificate
of Incorporation not to be governed by the Delaware antitakeover law.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Boston EquiServe,
L.P.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, based upon the number of shares
outstanding as of March 31, 1998, the Company will have approximately 12,400,928
shares of Common Stock outstanding. Of these shares, all but 1,936,843 shares
will be freely tradeable without restriction or further registration under the
Securities Act of 1933, as amended (the "Securities Act"), except for any shares
purchased by an "affiliate" of the Company as that term is defined in Rule 144
under the Securities Act (an "Affiliate"). Any shares purchased in this offering
or in the open market by an Affiliate may not be resold except pursuant to an
effective registration statement filed by the Company or an applicable exemption
from registration, including an exemption under Rule 144.
The Company's 1993 Equity Incentive Plan, 1993 Stock Option Plan for
Non-Employee Directors and 1997 Equity Incentive Plan (collectively, the
"Plans") allow it to issue options and other awards covering up to an aggregate
of 1,125,000 shares of Common Stock to its directors, employees and consultants,
of which options for 835,312 shares are currently issued and outstanding,
subject to vesting, and of which 179,601 shares of restricted stock are issued
and outstanding and subject to forfeiture restrictions. The Company previously
filed registration statements under the Securities Act to register shares of
Common Stock reserved for issuance under the Plans. Subject to the volume
limitations applicable to Affiliates under Rule 144 and the Lock-up Agreements
described below, the shares registered under such registration statement are
available for sale in the open market, except to the extent that such shares are
subject to vesting restrictions with the Company.
The Company's Board of Directors has recently approved the 1998 Equity
Incentive Plan which will allow the Company to issue to its directors, employees
and consultants options and other awards covering up to an aggregate of 600,000
shares of Common Stock outstanding following the consummation of the offering.
The 1998 Equity Incentive Plan is subject to approval by the Company's
Stockholders at their annual meeting. Pending such approval, the Company has
authorized the issuance of options to purchase 350,500 shares of Common Stock to
certain employees and intends to file a registration statement under the
Securities Act to register the shares of Common Stock reserved for issuance
under the Plan.
In general, under Rule 144, a person, including an Affiliate, who has
beneficially owned restricted securities for at least one year is entitled to
sell, within any three-month period, a number of such shares that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock or
(ii) the average weekly trading volume in the Common Stock during the four
calendar weeks preceding the date on which notice of such sale is filed,
provided that certain requirements concerning availability of public
information, manner of sale and notice of sale are satisfied. In addition, under
Rule 144(k), a person who is not an Affiliate and has not been an Affiliate for
at least three months prior to the sale and who has beneficially owned
restricted securities for at least two years is entitled to sell such shares
immediately without compliance with the foregoing requirements of Rule 144. In
meeting the one- and two-year holding periods described above, a holder of
restricted securities can include the holding periods of a prior owner who was
not an Affiliate. The one- and two-year holding periods do not begin to run
until the full purchase price or other consideration is paid by the person
acquiring the restricted securities from the issuer or an Affiliate.
37
<PAGE>
The Company, its executive officers, directors, and certain employees,
certain of the Prior B&B Stockholders, and FLEXFAB, who in the aggregate hold
1,920,825 shares of Common Stock (after giving effect to the sale of the shares
of Common Stock hereby), have agreed for a period of 180 days after the date of
this Prospectus not to sell or otherwise dispose of any shares of Common Stock
or securities convertible into or exchangeable for Common Stock without the
prior written consent of the Representatives except for: (i) the sale of the
shares hereunder; (ii) the issuance by the Company of Common Stock pursuant to
the exercise of options under the Company's equity based plans; (iii) the grant
by the Company of stock options after the date of this Prospectus under the
Company's equity based plans; or (iv) transfers by gift, will or intestacy or to
immediate family members, provided that the transferee agrees to the same
limitations. In addition, Sutro & Co. Incorporated ("Sutro"), one of the
representatives of the underwriters of the Company's initial public offering,
has agreed for a period of 180 days after the date of this Prospectus not to
dispose of 16,018 shares of Common Stock without the prior written consent of
the Representatives. See "Underwriting."
The Prior B&B Stockholders and FLEXFAB are entitled to certain registration
rights. See "Description of Capital Stock--Registration Rights."
No prediction can be made as to the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price of
the Common Stock prevailing from time to time. Sales of significant amounts of
the Common Stock in the public market could adversely affect the market price of
the Common Stock.
38
<PAGE>
UNDERWRITING
The Underwriters named below have severally agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company and the
Selling Stockholders the number of shares of Common Stock set forth opposite
their respective names below. The Underwriters are committed to purchase and pay
for all such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
Tucker Anthony Incorporated..........................................................................
Robert W. Baird & Co. Incorporated...................................................................
The Robinson-Humphrey Company, LLC...................................................................
----------
Total............................................................................................ 1,500,000
----------
----------
</TABLE>
The Underwriters have advised the Company and the Selling Stockholders that
they propose to offer the Common Stock to the public on the terms set forth on
the cover page of this Prospectus. The Underwriters may allow selected dealers a
concession of not more than $ per share, and the Underwriters may allow,
and such dealers may re-allow, a concession of not more than $ per share
to certain other dealers. After the public offering, the price and concessions
and reallowances to dealers may be changed by the Underwriters. The Common Stock
is offered subject to receipt and acceptance by the Underwriters and to certain
other conditions, including the right to reject orders in whole or in part.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to a maximum of 225,000
additional shares of Common Stock to cover overallotments, if any. If the
Underwriters exercise such option, the Underwriters have severally agreed,
subject to certain conditions, to purchase such additional shares in
approximately the same proportion as set forth in the foregoing table. The
Underwriters may exercise such option only to cover over-allotments, if any, in
connection with this offering.
The Underwriters have informed the Company that they do not expect to make
any sales to accounts over which the Underwriters exercise discretionary
authority.
39
<PAGE>
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the several Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or will
contribute to payments the Underwriters may be required to make in respect
thereof.
The Company, its executive officers, directors, and certain employees,
certain of the Prior B&B Stockholders and FLEXFAB have agreed not to offer, sell
or otherwise dispose of any shares of Common Stock or any equity securities or
securities convertible into or exchangeable for equity securities or any
options, rights or warrants with respect to any equity securities for a period
of 180 days after the date of this Prospectus without the prior written consent
of the Representatives except for: (i) the sale of the shares hereunder; (ii)
the issuance by the Company of Common Stock pursuant to the exercise of options
under the Company's equity based plans; (iii) the grant by the Company of stock
options after the date of this Prospectus under the Company's equity based
plans; or (iv) transfers by gift, will or intestacy or to immediate family
members, provided that the transferee agrees to the same limitations. In
addition, Sutro has agreed for a period of 180 days after the date of this
Prospectus not to dispose of 16,018 shares of Common Stock without the prior
written consent of the Representatives. See "Shares Eligible for Future Sale."
The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Over-allotment involves syndicate
sales in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specific maximum. Syndicate covering
transactions involve purchases of the securities in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Representatives to reclaim a selling concession from a
syndicate member when the securities originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the securities to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered by the Company hereby
will be passed upon for the Company by Ropes & Gray, Boston, Massachusetts.
Certain legal matters will be passed upon for the Underwriters by Peabody &
Brown, Boston, Massachusetts.
EXPERTS
The consolidated financial statements and schedule of the Company at
December 31, 1996 and 1997, and for each of the three years in the period ended
December 31, 1997, appearing or incorporated by reference in this Prospectus and
the related Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
or incorporated by reference herein and in such Registration Statement, and are
included in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Exchange Act and
in accordance therewith files annual and quarterly reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information filed by the
Company with the Commission pursuant to the informational requirements of the
Exchange Act may be inspected and copied at the public reference facilities
maintained by the Commission at 450
40
<PAGE>
Fifth Street, N.W., Room 1024, Judiciary Plaza, Washington, D.C. 20549, as well
as at the Commission's Regional Offices at 7 World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding the
Company; the address of such site is http:// www.sec.gov. The Company's Common
Stock is quoted on the Nasdaq National Market. Reports, proxy and information
statements and other information concerning the Company can also be inspected at
the National Association of Securities Dealers, Inc. at 1735 K Street, N. W.,
Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 (including all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration Statement,
omits certain of the information contained in the Registration Statement and the
exhibits and schedules thereto on file with the Commission pursuant to the
Securities Act and the rules and regulations of the Commission thereunder. For
further information with respect to the Company and its Common Stock, reference
is made to the Registration Statement and the exhibits and schedules thereto.
Statements contained in this Prospectus regarding the contents of any agreement
or other document filed as an exhibit to the Registration Statement are not
necessarily complete, and in each instance reference is made to the copy of such
agreement filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. The Registration Statement,
including the exhibits and schedules thereto, can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and at certain of its Regional Offices
at 7 World Trade Center, Suite 1300, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission pursuant to the Exchange
Act are incorporated by reference in this Prospectus: (i) the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 as filed with
the Commission on March 31, 1998 (ii) the Company's Proxy Statement for the 1998
Annual Meeting of Stockholders and (iii) the description of the Company's Common
Stock contained in the Company's Registration Statement on Form 8-A filed under
Section 12 of the Exchange Act, including any amendment or report updating such
description. All documents filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, after the initial filing
of the Registration Statement and prior to the termination of this offering,
shall be deemed to be incorporated by reference herein and to be a part hereof
from the respective dates of the 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 is delivered, upon written or oral request of any such person, a
copy of any and all of such documents (other than exhibits to such documents
which are not specifically incorporated by reference into such documents).
Requests for such copies should be directed to the Chief Financial Officer, AFC
Cable Systems, Inc., 55 Samuel Barnet Boulevard, New Bedford, MA 02745
(Telephone Number (508) 998-1131).
41
<PAGE>
INDEX TO FINANCIAL STATEMENTS
ANNUAL FINANICAL STATEMENTS OF THE COMPANY:
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors........................................................ F-2
Consolidated Balance Sheets--December 31, 1996 and 1997............................... F-3
Consolidated Statements of Income--Years ended December 31, 1995, 1996, and 1997...... F-4
Consolidated Statements of Shareholders' Equity--Years ended December 31, 1995, 1996
and 1997............................................................................ F-5
Consolidated Statements of Cash Flows--Years ended December 31, 1995, 1996, and
1997................................................................................ F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
AFC Cable Systems, Inc.
We have audited the accompanying consolidated balance sheets of AFC Cable
Systems, Inc. as of December 31, 1997 and 1996 and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
AFC Cable Systems, Inc. at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Providence, Rhode Island
February 17, 1998
F-2
<PAGE>
AFC CABLE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
<S> <C> <C>
1996 1997
--------- ---------
<CAPTION>
($ IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (NOTE 1).......................................................... $ 980 $ 2,803
Marketable securities (NOTE 3).............................................................. 30,508 40,434
Accounts receivable, net of allowance for doubtful accounts and sales allowances of $3,140
in 1996 and $3,870 in 1997................................................................ 23,919 32,127
Inventories:
Finished goods............................................................................ 11,559 26,333
Work-in-process........................................................................... 3,702 7,385
Raw materials............................................................................. 5,665 6,219
--------- ---------
20,926 39,937
Current deferred taxes (NOTE 9)............................................................... 637 1,491
Other current assets.......................................................................... 1,121 1,439
--------- ---------
Total current assets.......................................................................... 78,091 118,231
Property, plant and equipment:
Land........................................................................................ 510 1,190
Buildings and improvements.................................................................. 8,754 10,173
Machinery and equipment..................................................................... 16,050 23,207
Furniture and fixtures...................................................................... 1,791 2,412
Construction in progress.................................................................... 83 364
--------- ---------
27,188 37,346
Less accumulated depreciation............................................................... 9,482 12,409
--------- ---------
Net property, plant and equipment............................................................. 17,706 24,937
Goodwill, net of accumulated amortization of $122 in 1996 and $373 in 1997.................... 1,175 16,497
Other long-term assets, net................................................................... 951 1,464
--------- ---------
Total assets.................................................................................. $ 97,923 $ 161,129
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt........................................................... $ 270 $ 227
Revolving credit note payable (NOTE 4)...................................................... 2,000 6,230
Accounts payable............................................................................ 12,471 12,536
Accrued expenses:
Payroll and employee benefits............................................................. 2,506 3,609
Other (NOTE 6)............................................................................ 1,885 7,488
--------- ---------
Total accrued expenses...................................................................... 4,391 11,097
--------- ---------
Total current liabilities..................................................................... 19,132 30,090
Long-term debt (NOTE 4)....................................................................... 3,300 3,893
Deferred income taxes (NOTE 9)................................................................ 1,547 1,570
Other long-term liabilities................................................................... 954 2,441
Commitments and contingencies (NOTES 7 AND 8)................................................. -- --
Shareholders' equity (NOTE 10):
Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued................... -- --
Common stock, $.01 par value, 15,000,000 shares authorized, 9,168,781 and 11,397,854 shares
issued and outstanding in 1996 and 1997, respectively..................................... 73 114
Paid-in capital............................................................................. 48,011 79,110
Other....................................................................................... 218 1,021
Treasury stock, 6,031 and 6,411 shares in 1996 and 1997, respectively, at cost.............. (82) (92)
Retained earnings........................................................................... 24,770 42,982
--------- ---------
Total shareholders' equity.................................................................... 72,990 123,135
--------- ---------
Total liabilities and shareholders' equity.................................................... $ 97,923 $ 161,129
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-3
<PAGE>
AFC CABLE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------
<S> <C> <C> <C>
1995 1996 1997
---------- ---------- ----------
<CAPTION>
($ IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net sales................................................................... $ 139,483 $ 161,868 $ 220,264
Cost of goods sold.......................................................... 107,087 118,487 156,479
---------- ---------- ----------
Gross profit................................................................ 32,396 43,381 63,785
Selling, general and administrative expenses................................ 21,926 26,384 35,483
---------- ---------- ----------
Income from operations...................................................... 10,470 16,997 28,302
Other income (expense):
Interest expense.......................................................... (614) (728) (620)
Investment income......................................................... 3,001 2,339 2,141
Other, net................................................................ 39 (48) (192)
---------- ---------- ----------
2,426 1,563 1,329
---------- ---------- ----------
Income before income taxes.................................................. 12,896 18,560 29,631
Income taxes (NOTE 9)....................................................... 4,791 7,100 11,392
---------- ---------- ----------
Net income.................................................................. $ 8,105 $ 11,460 $ 18,239
---------- ---------- ----------
---------- ---------- ----------
Basic earnings per common share (NOTE 11)................................... $ .92 $ 1.25 $ 1.71
---------- ---------- ----------
---------- ---------- ----------
Diluted earnings per common share (NOTE 11)................................. $ .90 $ 1.23 $ 1.66
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
AFC CABLE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
EARNINGS
COMMON PAID-IN TREASURY (ACCUMULATED
STOCK CAPITAL OTHER STOCK DEFICIT) TOTAL
----------- --------- --------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
($ IN THOUSANDS)
Balance at December 31, 1994................... $ 55 $ 25,871 $ (744) $ -- $ 5,205 $ 30,387
Net income for 1995............................ -- -- -- -- 8,105 8,105
Proceeds from issuance of 2,203,125 shares of
common stock................................. 18 21,906 -- -- -- 21,924
Repurchase of restricted stock, net............ -- -- -- (30) -- (30)
Amortization of compensation (NOTE 10)......... -- -- 191 -- -- 191
Exercise of stock options (NOTE 10)............ -- 140 -- -- -- 140
Adjustment to unrealized gains (losses) on
available-for-sale securities, net of tax.... -- -- 593 -- -- 593
Other.......................................... -- 1 -- -- -- 1
--- --------- --------- --- ------------ ----------
Balance at December 31, 1995................... 73 47,918 40 (30) 13,310 61,311
Net income for 1996............................ -- -- -- -- 11,460 11,460
Repurchase of restricted stock, net............ -- -- -- (52) -- (52)
Amortization of compensation (NOTE 10)......... -- -- 189 -- -- 189
Cancellation of 32,375 restricted shares....... -- (276) 276 -- -- --
Exercise of stock options and related tax
benefit (NOTE 10)............................ -- 369 -- -- -- 369
Adjustment to unrealized gains (losses) on
available-for-sale securities, net of tax.... -- -- (287) -- -- (287)
--- --------- --------- --- ------------ ----------
Balance at December 31, 1996................... 73 48,011 218 (82) 24,770 72,990
Net income for 1997............................ -- -- -- -- 18,239 18,239
Proceed from issuance of 1,937,500 shares of
common stock................................. 16 27,552 -- -- -- 27,568
Repurchase of restricted stock, net............ -- -- -- (10) -- (10)
Amortization of compensation (NOTE 10)......... -- -- 15 -- -- 15
Employee stock awards.......................... 1 651 -- -- -- 652
Exercise of stock options and warrants and
related tax benefit (NOTE 10)................ -- 647 -- -- -- 647
Issuance of 136,364 shares of common stock for
acquisitions and related fees (NOTE 2)....... 1 2,249 -- -- -- 2,250
Adjustment to unrealized gains (losses) on
available-for-sale securities, net of tax.... -- -- 788 -- -- 788
Five-for-four stock split effected in the form
of a dividend................................ 23 -- -- -- (27) (4)
--- --------- --------- --- ------------ ----------
Balance at December 31, 1997................... $ 114 $ 79,110 $ 1,021 $ (92) $ $42,982 $ 123,135
--- --------- --------- --- ------------ ----------
--- --------- --------- --- ------------ ----------
</TABLE>
See accompanying notes.
F-5
<PAGE>
AFC CABLE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
<CAPTION>
($ IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income....................................................................... $ 8,105 $ 11,460 $ 18,239
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation................................................................. 1,860 2,235 2,927
Amortization of intangibles.................................................. 195 776 251
Net gain on sale of property, plant and equipment............................ -- (54) --
Net gain realized on available-for-sale securities........................... (1,720) (618) (88)
Deferred income taxes........................................................ 12 77 (428)
Provision for bad debts...................................................... 76 263 209
Provision for sales allowances............................................... 480 719 193
Compensation expense for restricted stock and compensatory options........... 292 239 91
Increase (decrease) in cash arising from changes in assets and liabilities:
Accounts receivable...................................................... (2,694) (4,326) (2,935)
Inventories.............................................................. (6,732) (1,564) (14,001)
Other current assets..................................................... (289) (106) (197)
Other long-term assets................................................... (996) (431) (403)
Accounts payable......................................................... 899 631 (2,958)
Accrued payroll and employee benefits.................................... (80) 1,030 969
Other accrued liabilities................................................ (703) 974 1,747
Other long-term liabilities.............................................. -- 154 1,486
--------- --------- ---------
Net cash provided by (used in) operating activities.............................. (1,295) 11,459 5,102
INVESTING ACTIVITIES
Acquisitions, including expenses, less cash acquired (NOTE 2).................... -- -- (20,598)
Capital expenditures, net........................................................ (2,340) (6,970) (7,687)
Proceeds from sale of property, plant and equipment.............................. -- 195 --
Purchase of available-for-sale securities........................................ (44,907) (29,063) (47,505)
Proceeds from sale of available-for-sale securities.............................. 22,601 24,349 40,350
--------- --------- ---------
Net cash used in investing activities............................................ (24,646) (11,489) (35,440)
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from revolving line of credit borrowings................................ 52,948 60,615 94,375
Repayments of revolving line of credit borrowings................................ (49,523) (65,540) (90,145)
Proceeds from term loan.......................................................... -- 3,200 --
Repayment of term loan........................................................... -- (3,200) --
Proceeds from long-term debt..................................................... -- 3,570 --
Payments on long-term debt, including current portion............................ -- -- (271)
Proceeds from issuance of common stock........................................... 22,065 327 28,212
Purchase of treasury stock....................................................... (30) (52) (10)
--------- --------- ---------
Net cash provided by (used in) financing activities.............................. 25,460 (1,080) 32,161
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents............................. (481) (1,110) 1,823
Cash and cash equivalents at beginning of year................................... 2,571 2,090 980
--------- --------- ---------
Cash and cash equivalents at end of year......................................... $ 2,090 $ 980 $ 2,803
--------- --------- ---------
--------- --------- ---------
Supplemental schedule of cash flow information:
Cash paid during the year for interest....................................... $ 614 $ 814 $ 580
--------- --------- ---------
--------- --------- ---------
Cash paid during the year for income taxes................................... $ 5,863 $ 6,058 $ 10,103
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
F-6
<PAGE>
AFC CABLE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
AFC Cable Systems, Inc. (the Company) is a manufacturer of electrical
distribution products, including prewired armored cable, flexible conduit and
modular wiring systems used in the nonresidential construction electrical wiring
industry. The Company, through its wholly-owned subsidiaries, also manufacturers
and distributes photo controls for the lighting control and fixture industries,
electronic interfaces and connectors that facilitate data communications, and
flexible hoses, ducting and connections for diverse applications. The Company's
customers primarily consist of electrical supply wholesalers located throughout
the United States. The Company performs credit evaluations on all new customers
and generally does not require collateral. Credit losses are provided for in the
financial statements and consistently have been within management's
expectations.
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All intercompany balances and
transactions have been eliminated.
CASH EQUIVALENTS
Cash equivalents are defined as all short-term, highly-liquid investments
with an original maturity of three months or less.
MARKETABLE SECURITIES
Management determines the appropriate classification of marketable
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. All debt and equity securities have been classified as
available-for-sale.
Available-for-sale securities are carried at fair value based on quoted
market prices, with the unrealized gains and losses, net of tax, reported in a
separate component of shareholders' equity. The amortized cost of debt
securities in this category is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in investment
income. Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in investment
income. The cost of securities sold is based on the specific identification
method. Interest and dividends on securities classified as available-for-sale
are included in investment income.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost of substantially
all of the inventory is determined on a first-in, first-out (FIFO) basis.
F-7
<PAGE>
AFC CABLE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION
Property, plant and equipment are stated at cost. Depreciation is computed
on the straight-line method over the estimated lives of the assets as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................... 5 to 30
years
Machinery and equipment....................................... 3 to 10
years
Furniture and fixtures........................................ 5 to 10
years
</TABLE>
GOODWILL
Goodwill consists of the excess cost over the fair value of the assets of
acquired businesses (see Note 2) and is being amortized using the straight-line
method over periods of twenty to forty years.
SELF-INSURANCE
The Company is self-insured for its employee health and workers'
compensation plans. The plans, which are administered by insurance companies,
contain certain stop loss provisions that limit the Company's liability in the
event of catastrophic losses. Claims are accrued for as incurred based on
available claim information and management's estimate of claims incurred but not
yet reported.
STOCK COMPENSATION
The Company accounts for its stock compensation arrangements under the
provisions of APB 25, "Accounting for Stock Issued to Employees."
REVENUE RECOGNITION
The Company recognizes sales when goods are shipped to the customer.
ADVERTISING COSTS
Advertising costs are expensed as incurred and were $854,000, $950,000, and
$1,567,000 in 1995, 1996 and 1997, respectively.
EARNINGS PER SHARE
The Company has adopted Financial Accounting Standards Board Statement No.
128, "Earnings Per Share" ("FAS 128"), which was issued in 1997. FAS 128
requires the presentation of "basic earnings per share" and "diluted earnings
per share." Basic earnings per share represents net income divided by the
weighted average number of shares of common stock outstanding during the year.
Diluted earnings per share represents net income divided by weighted average
shares outstanding adjusted for the dilutive effect of the assumed exercise of
outstanding options and warrants. Earnings per share amounts for all periods
have been presented, and where appropriate, restated to conform to the
requirements of FAS 128.
F-8
<PAGE>
AFC CABLE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income" and Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company is currently
evaluating the effects of implementing these statements which are effective
beginning in 1998.
RECLASSIFICATION
Certain reclassifications were made to the 1995 and 1996 financial
statements in order that they may be consistent with the 1997 presentation.
2. ACQUISITIONS
During the year ended December 31, 1997, the Company made the acquisitions
set forth below, each of which has been accounted for as a purchase. The
consolidated financial statements of the Company include the operating results
of each business from the date of acquisition.
B&B ELECTRONICS MANUFACTURING COMPANY, INC.
On January 28, 1997, the Company acquired all of the outstanding stock of
Illinois-based B&B Electronics Manufacturing Company, Inc. ("B&B"), a
manufacturer and distributor of electronic interfaces and connectors that
facilitate data communications. The cost of B&B consisted of $4.2 million in
cash, 75,000 shares of the Company's common stock ($960,000), plus fees of
approximately $73,000, and assumed debt. Contingent consideration, which is in
addition to the above acquisition costs, will be paid to the seller of B&B for
certain earnings targets achieved by B&B for the year ended December 31, 1997,
and will be payable for subsequent annual periods if certain earnings targets
are met for such periods. The contingent consideration payable for the period
ended December 31, 1997, is approximately $600,000. Contingent consideration is
recorded as additional purchase price when the future earnings targets have been
met.
AREA LIGHTING RESEARCH, INC.
On January 31, 1997, the Company acquired certain assets and assumed certain
liabilities of New Jersey-based Area Lighting Research, Inc. ("ALR"), a
designer, manufacturer and distributor of photo controls and electrical devices
for the lighting control and fixture industries. The cost of ALR consisted of
$7.7 million in cash plus 50,000 shares of common stock issued in payment of
fees (approximately $1 million). Contingent consideration, in addition to the
above costs, is payable to the seller of ALR for certain financial targets
achieved by ALR for the year ended December 31, 1997. The contingent
consideration payable for the year ended December 31, 1997, is approximately
$400,000 and was recorded as additional purchase price.
F-9
<PAGE>
AFC CABLE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
2. ACQUISITIONS (CONTINUED)
MADISON EQUIPMENT COMPANY, INC.
On April 1, 1997, the Company acquired all of the outstanding stock of
Ohio-based Madison Sale Corporation, a supplier of fittings for the electrical
industry. Upon purchase, the name of the company was changed to Madison
Equipment Company, Inc. ("Madison"). The cost of Madison consisted of $2.0
million in cash plus approximately $85,000 in fees.
FEDERAL HOSE MANUFACTURING, INC.
On November 22, 1997, the Company acquired the assets and assumed certain
liabilities of Ohio-based Federal Hose Manufacturing, Inc. ("FHI"), a
manufacturer and distributor of flexible metal, plastic and fabric hoses,
ducting and connectors for diverse applications. The cost of FHI consisted of
$7.2 million in cash, 11,364 shares of the Company's common stock ($300,000)
plus fees of approximately $265,000. Contingent consideration is payable to the
seller of FHI based upon future earnings targets through December 31, 2000. The
purchase price allocation of FHI is preliminary.
The goodwill resulting from the above acquisitions will be amortized over 40
years, with the exception of the goodwill from the Madison acquisition, which
will be amortized over a 20-year period. Pro forma income statement data
assuming the acquisitions above were made at the beginning of 1996 and 1997, is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1996 1997
---------- ----------
<S> <C> <C>
($ IN THOUSANDS,
EXCEPT PER SHARE DATA)
Net sales......................................................... $ 197,427 $ 235,356
Income from operations............................................ 19,352 29,117
Net income........................................................ 12,795 18,754
Diluted earnings per common share................................. $ 1.36 $ 1.70
</TABLE>
The above pro forma information does not purport to represent the Company's
results of operations that would have been attained had the above acquisitions
in fact occurred at the beginning of the periods indicated or to project the
Company's results for any future period.
F-10
<PAGE>
AFC CABLE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
3. MARKETABLE SECURITIES
The following is a summary of securities held by the Company. All securities
are classified as available-for-sale.
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
($ IN THOUSANDS)
DECEMBER 31, 1996
U.S. corporate debt securities..................................... $ 1,509 $ 92 $ -- $ 1,601
U.S. treasury securities and obligations of U.S. Government
agencies......................................................... 26,193 52 (6) 26,239
Equity securities.................................................. 2,576 168 (76) 2,668
--------- ----------- ----- -----------
Total included in investments...................................... $ 30,278 $ 312 ($ 82) $ 30,508
--------- ----------- ----- -----------
--------- ----------- ----- -----------
DECEMBER 31, 1997
U.S. corporate debt securities..................................... $ 9,464 $ 329 ($ 3) $ 9,790
U.S. treasury securities and obligations of U.S. Government
agencies......................................................... 24,713 55 (2) 24,766
Equity securities.................................................. 4,894 1,096 (112) 5,878
--------- ----------- ----- -----------
Total included in investments...................................... $ 39,071 $ 1,480 ($ 117) $ 40,434
--------- ----------- ----- -----------
--------- ----------- ----- -----------
</TABLE>
F-11
<PAGE>
AFC CABLE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
3. MARKETABLE SECURITIES (CONTINUED)
The cost and fair market value of debt securities at December 31, 1996 and
1997, by contractual maturities, are shown below:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
----------------------
FAIR MARKET
COST VALUE
--------- -----------
<S> <C> <C>
($ IN THOUSANDS)
DECEMBER 31, 1996
Debt securities:
Maturing in one year or less........................................ $ 23,884 $ 23,948
Maturing between one year and five years............................ 2,762 2,780
Maturing after five years........................................... 1,056 1,112
--------- -----------
27,702 27,840
Equity securities..................................................... 2,576 2,668
--------- -----------
Total investments..................................................... $ 30,278 $ 30,508
--------- -----------
--------- -----------
DECEMBER 31, 1997
Debt securities:
Maturing in one year or less........................................ $ 15,031 $ 15,296
Maturing between one year and five years............................ 17,931 17,983
Maturing after five years........................................... 1,215 1,277
--------- -----------
34,177 34,556
Equity securities..................................................... 4,894 5,878
--------- -----------
Total investments..................................................... $ 39,071 $ 40,434
--------- -----------
--------- -----------
</TABLE>
Expected maturities will differ from contractual maturities because the
issuers of the securities may have the right to prepay obligations without
prepayment penalties. Realized gains and (losses) included in investment income
amounted to $1,720,000 in 1995 and $859,000 and ($241,000) in 1996, and $173,000
and $(85,000) in 1997.
4. SHORT AND LONG-TERM DEBT
REVOLVING CREDIT NOTE PAYABLE
The Company has an unsecured revolving line of credit agreement which
provides for direct borrowings of up to $25,000,000 of which up to $10,000,000
is available for business acquisitions, without the lender's prior consent. The
line of credit agreement provides for letter of credit borrowings of up to
$3,000,000, of which $821,000 is outstanding at December 31, 1997. A monthly fee
based on the unused portion of the credit facility is payable under the
agreement.
Borrowings under the line of credit are available at interest rates equal to
either the lender's base rate or the Eurodollar rate plus one half of one
percent to one and one quarter percent for a fixed period of one, two, three or
six months or one year. The Company has the option of electing the applicable
rate upon notification to the lender and as a result, portions of the
outstanding balance accrue interest at different rates. The weighted average
rate of outstanding short-term borrowings is 6.3% and 8.5% at
F-12
<PAGE>
AFC CABLE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
4. SHORT AND LONG-TERM DEBT (CONTINUED)
December 31, 1996 and 1997, respectively. The carrying value of the line of
credit approximates its fair value.
The line of credit contains certain restrictive covenants, which require
that the Company maintain minimum levels of tangible capital funds and meet
other specified ratio requirements.
LONG-TERM DEBT
During 1996, the Company received the proceeds from the issuance of $3.57
million in Industrial Revenue Bonds ("IRBs") through the Massachusetts
Industrial Finance Agency for the purpose of acquiring and refurbishing a 99,000
square-foot manufacturing facility in New Bedford, Massachusetts, which secures
the IRBs. The IRBs mature on July 24, 2016, and carry an interest rate
adjustable on a weekly basis. The IRBs carried an average interest rate of
approximately 3.5% and 3.75% for the years ended December 31, 1996 and 1997,
respectively. Additionally, an annual fee of 1.0% on the letter of credit
securing the bonds ($3.6 million at December 31, 1997) is paid to the bank
acting as trustee in the issuance of the bonds. The Company has the right to
convert from the weekly interest rate to a fixed rate established at the time of
conversion. The bonds are payable in 19 annual installments of $180,000 with a
final payment of $150,000 due at maturity funded through monthly payments of
$15,000 to the trustee over the twelve months preceding the installment due
dates. At December 31, 1996 and 1997, $3.3 million and $3.1 million,
respectively, of the total was classified as long-term debt. The carrying amount
of the bonds approximates fair value at December 31, 1997.
In addition, $774,000 of the $828,000 in debt assumed in the B&B acquisition
was classified as long-term at December 31, 1997. This represents a mortgage on
the facility occupied by B&B. The mortgage carries a fixed rate of 8% and
matures on February 20, 2012. The carrying amount approximates fair value at
December 31, 1997.
The following is a schedule of the principal portion of long-term debt
payments for the years beginning December 31, 1997, and after:
<TABLE>
<CAPTION>
($ IN
THOUSANDS)
---------------
<S> <C>
1998......................................................................... $ 227
1999......................................................................... 214
2000......................................................................... 218
2001......................................................................... 221
2002......................................................................... 224
Thereafter................................................................... 3,016
------
$ 4,120
------
------
</TABLE>
5. EMPLOYEE BENEFIT PLANS
The Company sponsors a Supplemental Executive Retirement Plan (the "Plan")
for senior management. The Plan is a defined contribution plan whereby
participant accounts are credited in an amount equal to a percentage, determined
by the Company, of each participant's compensation plus the participant's
allocable share of net earnings of the Plan. At December 31, 1996 and 1997, the
Company has
F-13
<PAGE>
AFC CABLE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
5. EMPLOYEE BENEFIT PLANS (CONTINUED)
assets (market value of $900,000 and $1,304,000, respectively), segregated in a
trust, available to meet the obligations of the Plan. Expenses for this plan
were approximately $190,000 for the year ended December 31, 1995 and $276,000
for each of the years ended December 31, 1996 and 1997. The total liability
under the Plan was approximately $976,000 and $1,334,000 at December 31, 1996
and 1997, respectively.
The Company also has seven defined contribution (401(k)) plans covering
substantially all employees. Contributions to the plans are based on a
percentage of the employee's compensation. The Company also participates in a
multi-employer defined contribution plan covering certain union employees. The
Company's expense under the 401(k) and multi-employer plans was approximately
$437,000, $449,000, and $699,000, for the years ended December 31, 1995, 1996,
and 1997, respectively.
6. OTHER ACCRUED EXPENSES
At December 31, 1996 and 1997, other accrued expenses consisted of the
following:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
($ IN THOUSANDS)
Accrued federal and state income taxes..................................... $ 257 $ 1,634
Investment margin liability................................................ -- 1,550
Other...................................................................... 1,628 4,304
--------- ---------
$ 1,885 $ 7,488
--------- ---------
--------- ---------
</TABLE>
The investment margin liability, which bears interest, represents borrowings
secured by the Company's marketable securities.
7. COMMITMENTS
The Company has various operating lease agreements for buildings and
equipment extending through December 2006. The following is a schedule of the
future minimum rental payments due under these leases:
<TABLE>
<CAPTION>
($ IN
THOUSANDS)
<S> <C>
1998......................................................................... $ 3,335
1999......................................................................... 2,535
2000......................................................................... 2,165
2001......................................................................... 1,862
2002......................................................................... 1,520
Thereafter................................................................... 2,218
-------
$ 13,635
-------
-------
</TABLE>
Rent expense amounted to $3,088,056, $3,738,390, and $3,863,045, in 1995,
1996, and 1997, respectively.
F-14
<PAGE>
AFC CABLE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
7. COMMITMENTS (CONTINUED)
In the normal course of business, the Company enters into purchase
agreements with certain raw material vendors. At December 31, 1997, the Company
has agreed to purchase approximately 100% of the 1998 copper usage from two
vendors.
8. CONTINGENCIES
The Company is a defendant in certain claims that relate to matters that
occurred prior to the present ownership. In accordance with the purchase and
sale agreement of the Company, the prior owner has indemnified the Company for
such claims and, accordingly, the matters are being defended by the prior owners
and its insurance companies. Management is of the opinion that these claims
relate to the prior owners and therefore will not have a material adverse effect
on the Company's financial position or results of operations.
Additionally, the Company is a party to one environmental matter and certain
other legal proceedings not covered by the indemnification. In the environmental
matter, a number of responsible parties entered into a consent decree with the
EPA in 1991 and subsequently, such parties as plaintiffs have sought
contribution from the Company, which was not named as a responsible party by the
EPA. The Company has admitted that a predecessor of the business currently
operated by the Company had disposed of a de minimus amount of waste at the
site. On December 17, 1996, the U.S. District Court for the District of
Massachusetts entered a judgment in favor of the Company with respect to this
claim. As of December 31, 1997, there is an appeal pending with the U.S. Court
of Appeals for the First Circuit.
9. INCOME TAXES
Deferred income taxes are recognized for the expected consequences of
temporary differences by applying enacted statutory rates, applicable to future
years, to differences between the financial reporting basis and tax basis of
assets and liabilities.
The principal reasons that the aggregate income tax provisions differ from
the U.S. statutory rate of 34% for the years ended December 31, 1995 and 1996
and 35% for the year ended December 31, 1997, are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
($ IN ($ IN ($ IN
THOUSANDS) THOUSANDS) THOUSANDS)
Income tax provision at
statutory rate.............. $ 4,385 34.0% $ 6,310 34.0% $ 10,371 35.0%
State taxes, net of federal
benefit..................... 380 3.0% 666 3.6% 1,082 3.7%
Other......................... 26 .2% 124 .7% (61) (.2%)
------ --------- ------ --------- ------- ---------
$ 4,791 37.2% $ 7,100 38.3% $ 11,392 38.5%
------ --------- ------ --------- ------- ---------
------ --------- ------ --------- ------- ---------
</TABLE>
F-15
<PAGE>
AFC CABLE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
9. INCOME TAXES (CONTINUED)
The components of the provision for income taxes for the years ended
December 31, 1995, 1996, and 1997, are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
($ IN THOUSANDS)
Current:
Federal..................................................... $ 4,154 $ 6,018 $ 10,072
State....................................................... 625 1,005 1,748
--------- --------- ---------
Total current................................................. 4,779 7,023 11,820
Deferred:
Federal..................................................... 53 58 (344)
State....................................................... (41) 19 (84)
--------- --------- ---------
Total deferred................................................ 12 77 (428)
--------- --------- ---------
Total......................................................... $ 4,791 $ 7,100 $ 11,392
--------- --------- ---------
--------- --------- ---------
</TABLE>
A summary of the significant components of the Company's deferred tax
liabilities and assets as of December 31, 1996 and 1997, follows:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
($ IN THOUSANDS)
Deferred tax liabilities:
Fixed assets............................................................. $ 1,857 $ 1,976
Marketable securities.................................................... 134 604
--------- ---------
Total deferred tax liabilities............................................. 1,991 2,580
Deferred tax assets:
Supplemental executive retirement plan................................... 389 523
Goodwill................................................................. 13 34
Stock compensation....................................................... 19 90
Inventory................................................................ 315 702
Allowance for doubtful accounts.......................................... 142 342
Accrued liabilities...................................................... 203 810
--------- ---------
Total deferred tax assets.................................................. 1,081 2,501
--------- ---------
Net deferred tax liabilities............................................... $ 910 $ 79
--------- ---------
--------- ---------
</TABLE>
10. SHAREHOLDERS' EQUITY AND STOCK AWARD PLANS
SHAREHOLDERS' EQUITY
In the Company's Initial Public Offering in December 1993, the Company sold
to the underwriters warrants to purchase up to 206,925 shares of common stock
(prior to giving effect to the October 20, 1997 five-for-four stock split) at an
exercise price equal to $12.00 per share. Such warrants are not transferable and
are exercisable through December 14, 1998. During 1997, warrants to purchase
103,462 shares (prior to giving effect to the October 20, 1997 five-for-four
stock split) were exercised. After giving effect to the
F-16
<PAGE>
AFC CABLE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
10. SHAREHOLDERS' EQUITY AND STOCK AWARD PLANS (CONTINUED)
October 20, 1997 stock split explained below, there are 129,328 shares of common
stock issuable upon exercise of remaining warrants at an exercise price of $9.60
per share.
As more fully described below, on September 16, 1997, the Company's Board of
Directors authorized a five-for-four split of the Company's common stock. All
references to number of shares, per share amounts, stock option data and prices
of the Company's common stock have been restated to present the effect of the
stock split.
On February 9, 1995, the Company completed the issuance of 1,875,000 shares
of common stock at a price of $10.80 per share. As part of this offering, the
Company granted the underwriters an option to purchase a maximum of 328,125
additional shares to cover over-allotments, which was exercised on February 9,
1995. Also on February 9, 1995, 312,500 shares of common stock were sold to the
public by certain shareholders of the Company at a price of $10.80.
On April 23, 1997, the Company completed the issuance of 1,562,500 shares of
common stock at a price of $15.40 per share. As part of this offering, the
Company granted the underwriters an option to purchase a maximum of 375,000
additional shares to cover over-allotments which was exercised in full on April
29, 1997. Also, on April 23, 1997, 937,500 shares of common stock were sold to
the public by certain shareholders of the Company at a price of $15.40.
On September 16, 1997, the Company's Board of Directors authorized a
five-for-four split of the Company's common stock effected in the form a 25
percent stock dividend distributed on October 20, 1997, to shareholders of
record on October 6, 1997. Shareholders' equity has been adjusted by
reclassifying from retained earnings to common stock the par value of the
additional shares arising from the split. The amount of cash paid in lieu of
fractional shares resulting from the split was also charged to retained
earnings.
STOCK AWARD PLANS
The Company has two equity incentive plans covering employees of the
Company; the AFC Cable Systems, Inc. 1993 Equity Incentive Plan and the AFC
Cable Systems, Inc. 1997 Equity Incentive Plan (collectively, the "Plans").
Under the Plans, the Company may grant stock options, stock appreciation rights,
restricted stock, unrestricted stock, deferred stock and performance stock
awards to key employees. Each of the Plans provides for the issuance of 500,000
shares of common stock. Options awarded under the Plans generally vest in equal
annual installments over either the four or the five years subsequent to the
date of grant. The options expire ten years after the date of grant.
The Company also has a stock plan covering non-employee directors; the AFC
Cable Systems, Inc. 1993 Stock Option Plan for Non-Employee Directors (the
"Directors' Plan"). Under the Directors' Plan, the Company may grant stock
options to non-employee directors which vest in equal annual installments over
the five years subsequent to the date of grant and expire ten years after date
of grant. The Directors' Plan provides for the issuance of 125,000 shares of
common stock.
F-17
<PAGE>
AFC CABLE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
10. SHAREHOLDERS' EQUITY AND STOCK AWARD PLANS (CONTINUED)
A summary of the status of stock options granted under all plans as of
December 31, 1995, 1996 and 1997, and changes during the years then ended is
presented below:
<TABLE>
<CAPTION>
1995 1996 1997
------------------------ ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
FIXED OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
- -------------------------------------------- --------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year............ 331,250 $ 7.98 370,000 $ 8.42 400,000 $ 9.03
Granted..................................... 56,250 10.80 100,000 10.80 557,500 16.70
Exercised................................... (17,500) 8.00 (40,000) 8.20 (39,062) 8.61
Canceled.................................... -- -- (30,000) 8.40 (17,187) 8.71
--------- ------ --------- ------ --------- ------
Outstanding at end of year.................. 370,000 $ 8.42 400,000 $ 9.03 901,251 $ 13.80
--------- ------ --------- ------ --------- ------
--------- ------ --------- ------ --------- ------
Options exercisable at year end............. 91,250 $ 7.99 128,125 $ 8.19 174,062 $ 8.53
--------- ------ --------- ------ --------- ------
--------- ------ --------- ------ --------- ------
Weighted-average fair value of options
granted during year....................... $ 4.46 $ 4.47 $ 6.98
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -------------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
AT REMAINING AVERAGE AT AVERAGE
RANGE OF DECEMBER 31 CONTRACTUAL EXERCISE DECEMBER 31 EXERCISE
EXERCISE PRICES 1997 LIFE (YRS.) PRICE 1997 PRICE
- -------------------------------------------------- ------------ --------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$5.60 to $10.60................................... 268,751 6.98 $ 8.14 142,812 $ 7.69
$12.00 to $17.80.................................. 556,250 8.96 15.06 31,250 12.38
$19.40 to $27.06.................................. 76,250 9.67 24.54 -- --
------------ ------------
901,251 174,062
------------ ------------
------------ ------------
</TABLE>
As discussed above, common stock may be granted to officers and key
employees on a restricted or unrestricted basis. At December 31, 1995, 1996, and
1997, restricted stock awards covering 61,875, 1,250 and 67,350 shares,
respectively, were outstanding. During 1995, 1996 and 1997, the restrictions
lapsed on 29,375, 28,250 and 1,250 shares, respectively, and 32,375 restricted
shares were forfeited during 1996. Employees vest in these restricted shares
ratably over periods of two to three years. The difference between the par value
and the fair market value of the stock on the date of grant was considered
compensation and was amortized ratably over the vesting period. The Company
repurchased, at fair market value, 3,110 shares, 2,917 shares and 380 shares of
vested restricted stock during 1995, 1996 and 1997, respectively, to provide
certain employees with the funds necessary to cover their tax withholdings from
the receipt of vested restricted shares.
The 67,350 shares of restricted stock outstanding at December 31, 1997,
which represent performance-based compensation for 1996, were awarded to
officers and key employees under the 1997 Plan.
F-18
<PAGE>
AFC CABLE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
10. SHAREHOLDERS' EQUITY AND STOCK AWARD PLANS (CONTINUED)
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (FAS No. 123), "Accounting for
Stock-Based Compensation." Accordingly, compensation cost has been recognized in
the financial statements only for stock options that are compensatory as defined
under APB 25. Had compensation cost for the Company's three stock option plans
been determined based on the fair value at the grant date for awards made in
1995, 1996 and 1997 consistent with the provisions of FAS No. 123, the Company's
net earnings and earnings per share would have been the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
($ IN THOUSANDS,
EXCEPT PER SHARE DATA)
Net income, as reported....................................... $ 8,105 $ 11,460 $ 18,239
Net income, pro forma......................................... 8,093 11,383 17,765
Basic earnings per common share, as reported.................. $ .92 $ 1.25 $ 1.71
Basic earnings per common share, pro forma.................... .91 1.25 1.67
Diluted earnings per common share, as reported................ $ .90 $ 1.23 $ 1.66
Diluted earnings per common share, pro forma.................. .90 1.23 1.62
</TABLE>
The fair values of the options were estimated at the date of grant using the
Black-Scholes option pricing model. The following assumptions were used for the
1995, 1996 and 1997 stock option grants:
<TABLE>
<CAPTION>
1995 1996 1997
GRANTS GRANTS GRANTS
---------- ---------- ----------
<S> <C> <C> <C>
Risk-free interest rate.................................. 5.8% 5.8% 5.7%
Expected option life..................................... 4.3 years 4.4 years 4.4 years
Expected market price volatility......................... 40% 40% 41%
Expected dividend yield.................................. 0% 0% 0%
</TABLE>
The effects on pro forma net income and earnings per common share of
expensing the estimated fair value of stock options are not necessarily
representative of the effects on reported net income for future years due to
such things as the vesting period of the stock options and the potential for
issuance of additional stock options in future years. Additionally, because FAS
No. 123 is applicable only to options granted subsequent to December 31, 1994,
its pro forma effect will not be fully reflected until 1998.
Shares of capital stock reserved for possible future issuance are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Options granted..................................................... 400,000 901,251
Options as yet ungranted............................................ 108,625 163,462
Qualified employee savings plans.................................... 625,000 625,000
---------- ----------
1,133,625 1,689,713
---------- ----------
---------- ----------
</TABLE>
F-19
<PAGE>
AFC CABLE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
11. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share for the years ended December 31:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ------------
<S> <C> <C> <C>
Net income (in thousands)................................................. $8,105 $11,460 $18,239
Basic average shares...................................................... 8,851,403 9,133,650 10,663,876
Effect of dilutive securities:
Stock options and stock awards 132,312 90,874 263,505
Stock warrants.......................................................... 63,640 63,791 89,162
Contingently issuable shares............................................ -- -- 6,998
---------- ---------- ------------
195,952 154,665 359,665
Dilutive average shares................................................... 9,047,355 9,288,315 11,023,541
---------- ---------- ------------
---------- ---------- ------------
Basic earnings per share.................................................. $0.92 $1.25 $1.71
---------- ---------- ------------
---------- ---------- ------------
Diluted earnings per share................................................ $0.90 $1.23 $1.66
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for 1996 and 1997 (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------
MARCH JUNE SEPTEMBER DECEMBER FULL
30 29 28 31 YEAR
--------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1996
Net sales............................................... $ 33,885 $ 42,218 $ 41,559 $ 44,206 $ 161,868
Income from operations.................................. 2,047 4,283 5,259 5,408 16,997
Net income.............................................. 1,636 2,904 3,350 3,570 11,460
Basic earnings per common share......................... $ 0.18 $ 0.32 $ 0.37 $ 0.39 $ 1.25
Diluted earnings per common share....................... $ 0.18 $ 0.31 $ 0.36 $ 0.38 $ 1.23
<CAPTION>
QUARTER ENDED
----------------------------------------------
MARCH JUNE SEPTEMBER DECEMBER FULL
29 28 27 31 YEAR
--------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1997
Net sales............................................... $ 47,787 $ 54,210 $ 56,704 $ 61,563 $ 220,264
Income from operations.................................. 5,505 6,820 7,681 8,296 28,302
Net income.............................................. 3,460 4,387 4,978 5,414 18,239
Basic earnings per common share......................... $ 0.37 $ 0.41 $ 0.44 $ 0.48 $ 1.71
Diluted earnings per common share....................... $ 0.36 $ 0.40 $ 0.43 $ 0.46 $ 1.66
</TABLE>
F-20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----------
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 7
Use of Proceeds............................ 11
Price Range of Common Stock................ 11
Dividend Policy............................ 11
Capitalization............................. 12
Selected Consolidated Financial Data....... 13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 14
Business................................... 19
Management................................. 31
Principal and Selling Stockholders......... 32
Description of Capital Stock............... 34
Shares Eligible for Future Sale............ 37
Underwriting............................... 39
Legal Matters.............................. 40
Experts.................................... 40
Available Information...................... 40
Incorporation of Certain Documents by
Reference................................ 41
Index to Financial Statements.............. F-1
</TABLE>
------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION
WITH THE OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING STOCKHOLDERS OR BY ANY UNDERWRITER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF OR THAT THERE HAVE NOT BEEN CHANGES IN THE AFFAIRS OF THE COMPANY
SINCE THAT DATE.
1,500,000 SHARES
[LOGO]
AFC CABLE SYSTEMS, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
, 1998
TUCKER ANTHONY
INCORPORATED
ROBERT W. BAIRD & CO.
INCORPORATED
THE ROBINSON-HUMPHREY
COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated costs (other than underwriting discounts and commissions) of
issuance and distribution of the securities being registered are as follows:
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 19,037
Nasdaq National Market Listing Fee................................ 17,500
NASD Filing Fee................................................... 6,954
Blue Sky Fee and Expenses......................................... 10,000
Transfer Agent and Registrar Fees and Expenses.................... 5,000
Accounting Fees and Expenses...................................... 60,000
Legal Fees and Expenses........................................... 100,000
Printing and Engraving............................................ 60,000
Miscellaneous..................................................... 21,509
---------
Total................................................... $ 300,000
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL provides that a corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 145 further provides that a corporation similarly may indemnify any such
person serving in any such capacity who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor, against expenses
actually and reasonably incurred in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Delaware Court of Chancery or
such other court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnification for such expenses which the Court of Chancery or such other
court shall deem proper.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
unlawful payment of dividends and unlawful stock purchase and redemption) or
(iv) for any transaction from which the director derived an improper personal
benefit.
II-1
<PAGE>
The Registrant's Certificate of Incorporation provides that the Company's
Directors shall not be liable to the Registrant or its stockholders for monetary
damages for breach of fiduciary duty as a director except to the extent that
exculpation from liabilities is not permitted under the DGCL as in effect at the
time such liability is determined. The Registrant's Certificate of Incorporation
further provides that the Registrant shall indemnify its directors and officers
to the fullest extent permitted by the DGCL.
The Underwriting Agreement provides for indemnification of the Company's
directors and officers by the Underwriters in certain circumstances.
The directors and officers of the Company are covered under directors' and
officers' liability insurance policies maintained by the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
The following exhibits are filed as a part of this Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
5.1 Opinion of Ropes & Gray.
10.1 1998 Equity Incentive Plan.
10.2 Change in Control Severance Benefit Plan.
23.1 Consent of Ropes & Gray (Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
24.1 Powers of Attorney (Page II-4).
27.1 Financial Data Schedule.
</TABLE>
(B) THE FOLLOWING FINANCIAL STATEMENT SCHEDULES OF THE COMPANY FOR THE THREE
YEARS ENDED DECEMBER 31, 1997 ARE INCORPORATED BY REFERENCE IN THIS REGISTRATION
STATEMENT:
Schedule II--Valuation and Qualifying Account of AFC Cable Systems, Inc. for
the three years ended December 31, 1997.
All other schedules are omitted because they are either inapplicable or the
information is included in the Financial Statements or the Notes thereto.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The Company hereby undertakes that:
II-2
<PAGE>
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at this
time shall be deemed to be the initial BONA FIDE offering thereof.
(3) For purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein
and the offering of such securities at that time shall be deemed to be the
initial BONA FIDE offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Providence, the State of
Rhode Island, on this day 15th of April, 1998.
AFC CABLE SYSTEMS, INC.
BY: /S/ RAYMOND H. KELLER
-----------------------------------------
RAYMOND H. KELLER,
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby authorizes Raymond H. Keller and Ralph R. Papitto, and each of them, with
full power to them, to execute in the name and on behalf of such person any
amendment (including any post-effective amendment) to this Registration
Statement (or any other registration statement for the same offering that is to
be effective upon filing pursuant to Rule 462(b) under the Securities Act) and
to file the same, with exhibits thereto, and other documents in connection
therewith, making such changes in this Registration Statement as the person(s)
so acting deems appropriate, and appoints each of such persons, each with full
power of substitution, attorney-in-fact to sign any amendment (including any
post-effective amendment) to this Registration Statement (or any other
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act) and to file the same, with
exhibits thereto, and other documents in connection therein.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ RALPH R. PAPITTO Chairman of the Board, April 15, 1998
- ------------------------------ Chief Executive Officer
Ralph R. Papitto and Director (Principal
Executive Officer)
/s/ ROBERT R. WHEELER President and Director April 15, 1998
- ------------------------------
Robert R. Wheeler
/s/ RAYMOND H. KELLER Vice President, Chief April 15, 1998
- ------------------------------ Financial Officer and
Raymond H. Keller Director (Principal
Financial and Accounting
Officer)
/s/ MALCOLM M. DONAHUE Director April 15, 1998
- ------------------------------
Malcolm M. Donahue
/s/ ANTHONY J. SANTORO Director April 15, 1998
- ------------------------------
Anthony J. Santoro
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
5.1 Opinion of Ropes & Gray.
10.1 1998 Equity Incentive Plan.
10.2 Change in Control Severance Benefit Plan.
23.1 Consent of Ropes & Gray (Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
24.1 Powers of Attorney (Page II-4).
27.1 Financial Data Schedule.
</TABLE>
<PAGE>
AFC CABLE SYSTEMS, INC.
1,500,000 Shares of Common Stock
UNDERWRITING AGREEMENT
Boston, Massachusetts
April __, 1998
TUCKER ANTHONY INCORPORATED
ROBERT W. BAIRD & CO. INCORPORATED
THE ROBINSON-HUMPHREY COMPANY, LLC
c/o Tucker Anthony Incorporated
One Beacon Street
Boston, MA 02108
Ladies and Gentlemen:
AFC Cable Systems, Inc., a Delaware corporation (the "Company"), and
certain shareholders of the Company named in Schedule B hereto (the "Selling
Shareholders") confirm their agreement with Tucker Anthony Incorporated ("Tucker
Anthony"), Robert W. Baird & Co. Incorporated ("Baird") and The
Robinson-Humphrey Company, LLC ("`Robinson-Humphrey"), and each of the other
underwriters, if any, named in Schedule A hereto (collectively, the
"Underwriters," which term shall also include any underwriter substituted as
hereinafter provided in Section 9), for whom Tucker Anthony, Baird and
Robinson-Humphrey are acting as representatives (in such capacity, Tucker
Anthony, Baird and Robinson-Humphrey are herein referred to as "you" or the
"Representatives"), with respect to the sale by the Company and the Selling
Shareholders and the purchase by the Underwriters, acting severally and not
jointly, of an aggregate of 1,500,000 shares of the Common Stock, $.01 par value
per share (the "Common Stock"), of the Company, of which 800,000 shares are to
be sold by the Company and 700,000 shares are to be sold by the Selling
Shareholders (collectively, the "Firm Shares"), and with respect to the grant by
the Company to the Underwriters, acting severally and not jointly, of the option
described in Section 2(b) hereof to purchase from the Company all or any part of
225,000 additional shares of Common Stock for the purpose of covering
over-allotments, if any. The Firm Shares and all or any part of the shares of
Common Stock subject to the option described in Section 2(b) hereof (the
"Optional Shares") are hereinafter collectively referred to as the "Stock."
As the Representatives, you have advised the Company and the Selling
Shareholders (a) that you are authorized to enter into this Underwriting
Agreement (this "Agreement") on behalf of the several Underwriters, and (b) that
the several Underwriters are willing, acting severally and not jointly, to
purchase the numbers of Firm Shares set forth opposite their respective names in
Schedule A, plus their pro rata portion of the Optional Shares if you elect to
exercise the over-allotment option, in whole or in part, for the accounts of the
several Underwriters.
The following terms, when used in this Agreement, shall have the meanings
indicated: "Commission" means the Securities and Exchange Commission;
"Securities Act" means the Securities Act of 1933, as amended and the rules and
regulations promulgated thereunder (the "Rules"); "Exchange Act" means the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder; "Effective Date" means each date that the Registration
Statement (as defined herein) or any post-effective amendment or amendments to
the Registration Statement became or become effective; "Execution Time" means
the date and the time that this Agreement is executed and delivered by the
parties hereto; "Preliminary Prospectus" means any preliminary prospectus
referred to in Section 1(a) below with respect to the offering of the Stock, and
any preliminary prospectus included in the Registration Statement at the
Effective Date that omits Rule 430A Information (as defined below). "Prospectus"
means the final prospectus containing the Rule 430A Information; "Registration
Statement" means the registration statement referred to in Section 1(a) below,
<PAGE>
including exhibits and financial statements and schedules, in the form in which
it has or shall become effective and, if any post-effective amendment thereto
becomes effective before any Closing Date (as defined in Section 3), shall also
mean such registration statement as so amended on such date;. "Rule 430A
Information" means information with respect to the Stock and the offering
thereof permitted to be omitted from the Registration Statement when it becomes
effective pursuant to Rule 430A. Any reference herein to the Registration
Statement, the Prospectus, any amendment or supplement thereto or any
Preliminary Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein, and any reference herein to the terms
"amend," "amendment" or "supplement" with respect to the Registration Statement
or Prospectus shall be deemed to refer to and include the filing of any document
with the Commission deemed to be incorporated by reference therein. Such terms
shall also include Rule 430A Information deemed to be included therein at the
Effective Date, as provided by Rule 430A. "Rule 424" and "Rule 430A" refer to
such rules under the Securities Act.
1. Representations, Warranties and Agreements of the Company and the
Selling Shareholders.
(a) The Company represents and warrants to, and agrees with, each of
the Underwriters as of the date hereof and as of each Closing Date, as defined
in Section 3(b) hereof, as follows:
(i) The Company meets the requirements for the use of Form S-3
under the Securities Act, and has filed with the Commission a registration
statement, including related preliminary prospectuses, on Form S-3 (No.
333-_______) for the registration of the Stock under the Securities Act. The
Company may have filed one or more amendments to the Registration Statement,
including the related Preliminary Prospectuses. Copies of such Registration
Statement and each such amendment to such Registration Statement, each such
Preliminary Prospectus, each document incorporated by reference therein and each
exhibit to the Registration Statement and documents incorporated by reference
therein have been delivered to you. The Company will next file with the
Commission either, before effectiveness of the Registration Statement, a further
amendment thereto (including the form of final prospectus) or, after
effectiveness of the Registration Statement, the Prospectus in accordance with
Rules 430A and 424(b)(1) or (4). As filed, such amendment and form of final
prospectus, or such Prospectus shall include all Rule 430A Information and,
except to the extent you agree in writing to a modification, shall be in all
substantive respects in the form furnished to you prior to the Execution Time
or, to the extent not completed at the Execution Time, shall contain only such
specific additional information and other changes (beyond that contained in the
latest Preliminary Prospectus) as the Company has advised you in writing, prior
to the Execution Time, will be included or made therein.
(ii) Each Preliminary Prospectus, when filed, complied and
conformed in all material respects with the applicable requirements of the
Securities Act and the Rules and did not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading. The
Commission has not issued any order suspending or preventing the use of any
Preliminary Prospectus or instituted proceedings for that purpose. On the
Effective Date, the Registration Statement did or will, and when the Prospectus
is first filed (if required) in accordance with Rule 424(b), and on each Closing
Date, the Prospectus (and any supplements thereto) will, comply and conform in
all material respects with the applicable requirements of the Securities Act and
the Rules; on the Effective Date and each Closing Date, the Registration
Statement did not or will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading, and the Prospectus, on the
Effective Date, if not filed pursuant to Rule 424(b), did not or will not, and
on the date of any filing pursuant to Rule 424(b) and on each Closing Date, the
Prospectus (and any supplements thereto) will not, include any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in light of the circumstances under
-2-
<PAGE>
which there were made, not misleading. The documents incorporated by reference
in the Registration Statement, the Prospectus, any amendment or supplement
thereto or any Preliminary Prospectus, when they became or become effective
under the Securities Act or were or are filed with the Commission under the
Exchange Act, as the case may be, conformed or will conform in all material
respects with the requirements of the Securities Act or the Exchange Act, as
applicable, and the Rules, and as of the date any such document was or is filed
with the Commission under the Exchange Act such document did not omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, provided, however, that the Company makes no
representations or warranties as to information contained in the section
entitled "Underwriting" or the legends appearing on the inside front cover of
the Prospectus contained in the Registration Statement and in the Prospectus, in
reliance upon, and in conformity with, written information furnished to the
Company by or on behalf of any Underwriter through the Representatives,
specifically for use in the preparation thereof.
(iii) The accountants whose report appears in the Prospectus
are independent accountants as required by the Securities Act and the Rules. The
financial statements and schedules (including the related notes) included in the
Registration Statement, any Preliminary Prospectus or the Prospectus, present
fairly the financial condition, results of operations and cash flows of the
entities purported to be shown thereby at the dates and for the periods
indicated and have been prepared in accordance with the Rules and generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated, and all adjustments thereto necessary for a fair presentation
of the results for such periods have been made. The financial and other
information of the Company set forth in the Prospectus under the captions
"Summary Financial Data", "Capitalization", "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" fairly present, on the basis stated in the Prospectus, the
information included therein. Neither the Company nor any of the Subsidiaries,
as defined in Section 1(a)(v) hereof, has any material contingent obligation
which is not disclosed in the Registration Statement.
(iv) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with full power and authority (corporate and other) to own or lease
its properties and conduct its business as described in the Prospectus, and is
duly qualified to do business and is in good standing in each jurisdiction in
which such qualification is required except for such jurisdictions where the
failure to so qualify would not have a material adverse effect on the business,
results of operations, prospects, condition (financial or otherwise) or material
assets or properties of the Company and the Subsidiaries, taken as a whole.
(v) The subsidiaries of the Company listed in Exhibit 21.1 to
the Annual Report on Form 10-K of the Company for the year end December 31, 1997
as filed with the Commission on March 31, 1998 (the "1997 Form 10-K") and
incorporated by reference in the Registration Statement (the "Subsidiaries")
have been duly organized and are validly existing as corporations in good
standing under the laws of their respective states of incorporation, with full
power and authority (corporate and other) to own or lease their respective
properties and conduct their respective businesses as described in the
Prospectus, and are duly qualified to do business and are in good standing in
each jurisdiction in which such qualification is required except for such
jurisdictions where the failure to so qualify would not have a material adverse
effect on the business, results of operations, prospects, condition (financial
or otherwise) or material assets or properties of the Company and the
Subsidiaries, taken as a whole.
(vi) The capitalization of the Company at December 31, 1997 is
as set forth under the caption "Capitalization" in the Prospectus, and the
Common Stock conforms to the description thereof contained under the caption
"Description of Capital Stock" in the Prospectus. The Stock conforms in all
respects to statements with respect thereto contained in the Registration
Statement and the Prospectus. All outstanding shares of Common Stock
-3-
<PAGE>
have been, and the Stock (upon delivery and payment therefor in the manner
described in this Agreement) will be, duly authorized, validly issued, fully
paid and nonassessable with no personal liability attaching to the ownership
thereof and none of the shares of Common Stock have been and the Stock will not
be issued in violation of any preemptive or similar right. Except as disclosed
in the Prospectus, there are no preemptive rights, rights of first refusal or
other rights to subscribe for or to purchase, or any restriction upon the voting
or transfer of, any shares of Common Stock pursuant to the Company's Restated
Certificate of Incorporation, as amended, Bylaws or other governing documents or
any agreement or other instrument to which the Company or any Subsidiary is a
party or by which any of them or any of their properties may be bound. Except as
disclosed in the Registration Statement and the Prospectus, there are no
outstanding rights, warrants or options to acquire, or instruments convertible
into or exchangeable for, or agreements or understandings with respect to the
sale or issuance of, any shares of capital stock of the Company.
(vii) All of the outstanding shares of capital stock of the
Subsidiaries are owned by the Company, free and clear of any claim, lien,
encumbrance, equity, security interest or other restriction whatsoever. The
Company does not own or control, directly or indirectly, any corporation,
association or other entity other than those listed in Exhibit 21.1 to the 1997
Form 10-K.
(viii) Except as waived, no holder of any security of the
Company has the right to have any security owned thereby included in the
Registration Statement, or to demand registration of any security owned
thereby, during the period ending 180 days after the date of the Prospectus.
Each director and executive officer of the Company, each Selling Shareholder
who is not also a director or executive officer and certain of the prior
stockholders of (i) B&B Electronics Manufacturing Company, Inc. and (ii)
FLEXFAB Horizons International, Inc. has delivered to the Representatives
such person's enforceable written agreement that such person will not, for a
period of 180 days after the date of the Prospectus, transfer or otherwise
dispose of, or offer or contract to sell, offer to otherwise dispose of,
directly or indirectly, any Common Stock or any rights to purchase or acquire
Common Stock, or any securities convertible into or exchangeable for Common
Stock, without the prior written consent of Tucker Anthony. In addition,
Sutro & Co. Incorporated has delivered to the Representatives its enforceable
written agreement that it will not for a period of 180 days after the date of
the Prospectus, transfer or otherwise dispose of any Warrant Shares (as
defined in that certain Warrant delivered by the Company to it in connection
with the Company's Initial Public Offering) without the prior written consent
of Tucker Anthony.
(ix) Except as disclosed in the Registration Statement and the
Prospectus, since the respective dates as of which information is given in the
Registration Statement and the Prospectus, (A) neither the Company nor any
Subsidiary has incurred any liabilities or obligations other than in the
ordinary course of business, direct or contingent, or entered into any
transactions, material, individually or in the aggregate, to the Company and the
Subsidiaries, taken as a whole; (B) there has not been any change in the capital
stock of the Company, including but not limited to, any payment or declaration
of any dividends or any other distribution with respect to any shares of the
capital stock of the Company; (C) there has not been any material adverse change
or any development involving a prospective material adverse change in the
business, results of operations, prospects, condition (financial or otherwise)
or material assets or properties of the Company and the Subsidiaries, taken as a
whole, whether or not arising from transactions in the ordinary course of
business and whether or not covered by insurance.
(x) None of the execution or delivery hereof or consummation
of the transactions contemplated pursuant to this Agreement, including, without
limitation, the issuance, sale and delivery of the Firm Shares and the Optional
Shares, if any, to be sold by the Company, will result in a violation of,
conflict with, or constitute a default under, or require consent or waiver under
or cause acceleration or give any party the right to cause acceleration of, the
Company's obligations under its Restated Certificate of Incorporation, as
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<PAGE>
amended, Bylaws or other governing documents, or any material agreement,
indenture, mortgage, deed of trust, note or other instrument to which the
Company or any Subsidiary is a party or by which any of them is bound, or to
which any of their respective properties is subject, violate any law, rule,
administrative regulation or decree of any court or any governmental agency or
body having jurisdiction over the Company, any Subsidiary, or any of their
respective properties, or result in the creation or imposition of any material
lien, charge, encumbrance, security interest, claim or other restriction of any
nature whatsoever upon any property or asset of the Company or any Subsidiary.
Except for permits and similar authorizations required under the Securities Act
and the securities or Blue Sky laws of certain jurisdictions, including Canadian
and provincial securities laws and the National Association of Securities
Dealers, Inc. (such permits and authorizations having been obtained), no
consent, approval, authorization or order of any court, governmental agency or
body, financial institution or other person or entity is required in connection
with the consummation of the transactions contemplated pursuant to this
Agreement.
(xi) Neither the Company nor any Subsidiary is, nor with the
giving of notice or lapse of time or both would be (A) in violation of or in
default under, any material agreement, indenture, mortgage, deed of trust, note
or other instrument to which the Company or any Subsidiary is a party or by
which either is bound, or to which any of their respective properties is
subject, (B) in violation of any term or provision of its Restated Certificate
of Incorporation or Bylaws, or (C) in violation of, or in default with respect
to, any law, rule, regulation, order, judgment or decree applicable to the
Company, the violation of which, individually or in the aggregate, would have a
material adverse effect upon the business, results of operations, prospects,
condition (financial or otherwise) or material assets or properties of the
Company and the Subsidiaries, taken as a whole.
(xii) Each of the Company and the Subsidiaries has filed all
federal, state, local and foreign tax returns that are required to be filed or
has received valid extensions with respect thereto and has paid all taxes and
all assessments to the extent that the same have become due except for
assessments being contested in good faith and for which full reserves have been
established. No tax assessment or deficiency has been made or proposed against
the Company or any Subsidiary, nor has the Company or any Subsidiary received
any notice of any proposed assessment or deficiency. The charges, accruals and
reserves shown in the financial statements included in the Registration
Statement and the Prospectus in respect of taxes for all fiscal periods to date
are adequate based on current tax laws and Generally Accepted Accounting
Principles. There is no unpaid assessment or, to the Company's knowledge,
proposal by any taxing authority for additional taxes for which the Company or
any Subsidiary does not have adequate reserves for any fiscal year.
(xiii) With such exceptions as are not material or have been
disclosed in the Registration Statement and the Prospectus, (A) each of the
Company and the Subsidiaries is in compliance with all applicable federal, state
and local laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants, and (B) there are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without limitation,
the release, emission, discharge or disposal of any chemicals, pollutants,
contaminants, wastes, toxic substances or petroleum products, that might
reasonably be expected to result in the imposition of liability on the Company
or any Subsidiary.
(xiv) Except as disclosed in the Registration Statement and
the Prospectus, there is no litigation, arbitration, action, suit, proceeding or
investigation before or by any court or by any public, regulatory or
governmental agency, body or board, domestic or foreign, pending or threatened
or contemplated against, or involving the assets, properties or business of or
otherwise affecting, the Company or any Subsidiary which (A) if determined
adversely to the Company, could have, individually or in the aggregate, a
material adverse effect on the value or the operation of any such assets or
properties, or on the business, results of operations, prospects, condition
(financial or otherwise) or material assets or properties of the Company and the
Subsidiaries, taken as a whole, or (B) might prevent the
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<PAGE>
consummation of the transactions contemplated by this Agreement. The aggregate
of all pending legal, governmental and regulatory proceedings to which the
Company or any Subsidiary is a party or which affect any of their respective
properties and which are not described in the Registration Statement and the
Prospectus, including, without limitation, ordinary routine litigation
incidental to the business of the Company or any Subsidiary, would not
reasonably be expected to have a material adverse effect on the business,
results of operations, prospects, condition (financial or otherwise) or material
assets or properties of the Company and the Subsidiaries, taken as a whole.
(xv) Each of the Company and the Subsidiaries has all
necessary consents, authorizations, approvals, orders, certificates and permits
(collectively, "Permits") of and from, and has made all declarations and filings
with, all federal, state, local and other governmental authorities, all
self-regulatory organizations and all courts and other tribunals, to own, lease,
license and use its properties and assets and to conduct its business in the
manner described in the Prospectus, except to the extent that the failure to
obtain or file would not individually or in the aggregate have a material
adverse effect on the Company and the Subsidiaries, taken as whole.
(xvi) All executed agreements or copies of executed agreements
filed or incorporated by reference as exhibits to the Registration Statement to
which the Company or any of the Subsidiaries is a party or by which any of them
may be bound or to which any of their respective assets, properties or
businesses may be subject have been duly and validly authorized, executed and
delivered by the Company and such Subsidiaries, and, assuming due authorization,
execution and delivery by the other parties thereto, constitute the legal, valid
and binding agreements of the Company and such Subsidiaries enforceable against
the Company and such Subsidiaries in accordance with their respective terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law). The descriptions in
the Registration Statement of contracts and other documents are accurate in all
material respects, and there are no contracts or other documents that are
required by the Securities Act to be described in the Registration Statement or
filed or incorporated by reference as exhibits to the Registration Statement
that are not described or filed or incorporated by reference as required, and
the exhibits that have been filed or incorporated by reference are complete and
correct copies of the documents of which they purport to be copies.
(xvii) Each of the Company and the Subsidiaries owns or
possesses adequate licenses or other rights to use all patents, patent
applications, copyrights, copyright applications, trademarks, trademark
applications, service marks, trade names and other know-how, proprietary
knowledge, and similar intellectual property (collectively, "Intangibles")
necessary for the conduct of its business as described in the Registration
Statement and the Prospectus and, except as disclosed to the Underwriters in
writing neither the Company nor any Subsidiary has received any notice of
infringement or conflict with (or knows of any infringement or conflict with)
asserted rights of others with respect to any Intangibles. All software and
hardware used in the Company's business prior to, during and after the year 2000
and shall not cause any business interruptions or adverse effects on the
business, results of operations, prospects, condition (financial or otherwise)
or material assets or properties of the Company and the Subsidiaries, taken as a
whole.
(xviii) Each of the Company and the Subsidiaries has good and
marketable title to all items of real property and good and marketable title to
all personal property owned by it, in each case clear of all liens, encumbrances
and defects except as are disclosed in the Registration Statement and the
Prospectus or as do not materially affect the value of such property and do not
interfere with the use made or proposed to be made or proposed to be made of
such property by the Company or any Subsidiary. Any real or personal property or
buildings held under lease by the Company or a Subsidiary are held by it under
valid,
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<PAGE>
existing and enforceable leases with such exceptions as are not material and do
not interfere with the use made or proposed to be made of such property or
buildings.
(xix) Each of the Company and the Subsidiaries has insurance
or indemnity agreements with financially responsible insurers of the types and
in the amounts adequate for its business and consistent with insurance or
indemnity coverage maintained by companies of similar size and engaged in
similar businesses.
(xx) Neither the Company nor any Subsidiary, nor any of their
respective officers, directors or affiliates has taken or will take, directly or
indirectly, any action designed to cause or result in, or that has constituted
or might reasonably be expected to constitute, the stabilization or manipulation
of the price of any security of the Company.
(xxi) The Stock is authorized for quotation on the Nasdaq
National Market ("Nasdaq National Market "). Quotations and last sale data with
respect to the Company's Common Stock are reported on the Nasdaq National Market
under the symbol "AFCX" and the Company knows of no currently existing reason or
set of facts which is likely to result in the inability or refusal to quote the
Common Stock or the Stock.
(xxii) All necessary corporate action has been duly and
validly taken by the Company to authorize the execution, delivery and
performance of this Agreement. This Agreement has been duly authorized, executed
and delivered by the Company and constitutes the valid and binding agreement of
the Company and is enforceable against the Company in accordance with its terms
except to the extent that rights to indemnity under this Agreement may be
limited by federal or state securities laws and except as limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws or equitable principles
relating to or limiting creditors' rights generally. The Registration Statement
and the filing of the Registration Statement with the Commission have been duly
authorized by and on behalf of the Company, and the Registration Statement has
been duly executed pursuant to such authorization by and on behalf of the
Company.
(xxiii) Except as contemplated by this Agreement or as
disclosed in the Registration Statement or the Prospectus, no person has the
right to any payment in connection with the sale of the Stock resulting from any
acts of the Company or any Subsidiary.
(xxiv) Except as disclosed in the Registration Statement and
the Prospectus, no transaction has occurred between or among the Company or any
Subsidiary, on the one hand, and any of the Company's or any Subsidiary's
officers or directors or any affiliate or affiliates of any such officer or
director, on the other hand, that is required to be so disclosed, including, but
not limited to, any outstanding loans, advances or guaranties of indebtedness by
the Company or any Subsidiary to or for the benefit of any affiliates of the
Company or any Subsidiary or any of the officers or directors of the Company or
any Subsidiary, or any family member of any of them.
(xxv) Neither the Company, any Subsidiary nor any officers or
directors, acting on behalf of the Company or any Subsidiary has within the past
five years (A) made any payment outside the ordinary course of business to any
purchasing or selling agent or person charged with similar duties of any entity
to which the Company or any Subsidiary sells or from which the Company or any
Subsidiary buys products for the purpose of influencing such agent or person to
buy products from or sell products to the Company or any Subsidiary, or (B)
except as set forth in the Registration Statement and Prospectus, engaged in any
transaction, maintained any bank account or used any corporate funds except for
transactions, bank accounts and funds which have been and are reflected in the
normally maintained books and records of the Company or any Subsidiary.
(xxvi) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (A) transactions are
executed in accordance
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<PAGE>
with management's general or specific authorization, (B)
transactions are recorded as necessary in order to permit preparation of
financial statements in accordance with generally accepted accounting principles
and to maintain accountability for assets, (C) access to assets is permitted
only in accordance with management's general or specific authorization, or (D)
the recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xxvii) Except as disclosed in the Registration Statement and
Prospectus, no labor problem exists with the Company's employees or with
employees of any Subsidiary or is imminent that could adversely affect the
Company and the Subsidiaries, taken as a whole, except for grievances that have
been made, none of which individually or in the aggregate, if adversely
determined, would reasonably be expected to materially adversely affect the
Company and the Subsidiaries, taken as a whole, and there is no existing or
imminent labor disturbance by the employees of any of the Company's or any
Subsidiary's principal suppliers, contractors or customers that would have a
material adverse effect on the Company and the Subsidiaries, taken as a whole.
(xxviii) The Company is in compliance in all material respects
with all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for
which the Company would have any liability; the Company has not incurred and
does not expect to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company would have any liability that is intended to be qualified
under Section 401(a) of the Code is so qualified in all material respects and
nothing has occurred, whether by action or failure to act, which would cause the
loss of such qualification.
(xxix) The Company has not distributed and will not distribute
any offering material in connection with the offering and sale of the Stock,
other than the Prospectus, any Preliminary Prospectus, the Registration
Statement and other materials permitted by the Securities Act.
(xxx) Neither the Company nor any Subsidiary is an investment
company or controlled by an investment company within the meaning of the
Investment Company Act of 1940, as amended or an investment adviser within the
meaning of the Investment Advisers Act of 1940, as amended.
Any certificates signed by an officer of the Company and delivered to
the Representatives or to counsel for the Underwriters shall also be deemed a
representation and warranty of the Company to the Underwriters as to the matters
covered thereby. Any certificate delivered by the Company to its counsel for
purposes of enabling such counsel to render the opinions referred to in Section
6(e) will also be furnished to the Underwriters and counsel for the Underwriters
and shall be deemed to be additional representations and warranties by the
Company to the Underwriters as to the matters covered thereby.
(b) Each of the Selling Shareholders severally represents and warrants
to and agrees with, each of the Underwriters and the Company as of the date
hereof and as of each Closing Date, as defined in Section 3(b) hereof as
follows:
(i) Such Selling Shareholder owns the Stock to be sold by such
Selling Shareholder, free of any liens, encumbrances, equities and claims, and
has full right, power and authority to effect the sale and delivery of such
Stock; and upon the delivery of and payment for such Stock pursuant to this
Agreement, ownership thereof, free of any liens, encumbrances, equities and
claims, will be transferred to the several Underwriters.
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<PAGE>
(ii) No consents, approvals, authorizations and orders of any
court or regulatory body is necessary for the execution and delivery by such
Selling Shareholder of this Agreement, the Power of Attorney and Custody
Agreement (as hereafter defined) and for the sale and delivery of the Stock to
be sold by such Selling Shareholder hereunder (except such consents and
authorizations as may be required under the Securities Act, state securities
laws or Blue Sky Laws or securities laws of Canada or the provinces of Canada)
in connection with the public offering of the Stock, have been obtained. Such
Selling Shareholder has full right, power and authority to enter into this
Agreement, the Power of Attorney and the Custody Agreement and to sell, assign,
transfer, and deliver the Stock to be sold by such Selling Shareholder
hereunder. This Agreement, the Power of Attorney and the Custody Agreement have
been duly executed and delivered by such Selling Shareholder, and each such
document is a valid, binding and legally enforceable obligation of such Selling
Shareholder in accordance with its terms, except insofar as rights to indemnity
or contribution hereunder may be limited by federal or state securities laws and
except as limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws or equitable principles relating to or limiting creditors' rights
generally.
(iii) Neither the sale of Stock to be sold by such Selling
Shareholder hereunder, nor the execution, delivery and performance of this
Agreement and the Power of Attorney will result in a breach or violation of any
material term or provision of, or constitute a default under any statute (to the
best of such Selling Shareholder's knowledge), any material (individually or in
the aggregate) indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which such Selling Shareholder is a party or by which
such Selling Shareholder is bound, or any order, rule or regulation of any court
or governmental agency or body having jurisdiction over such Selling Shareholder
or over any of such Selling Shareholder's properties.
(iv) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to cause or result in, or that has
constituted or might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company. Such Selling
Shareholder has not distributed and will not distribute any prospectus or other
offering material in connection with the offering and sale of the Stock.
(v) Each Selling Shareholder listed in Schedule C hereto (a
"Principal Selling Shareholder") has no reason to believe that the
representations and warranties of the Company contained in this Section 1 are
not true and correct, is familiar with the Registration Statement and has no
knowledge of any material fact, condition or information not disclosed in the
Registration Statement which has adversely affected or may adversely affect the
business of the Company or any of the Subsidiaries; and the sale of the Firm
Shares by such Selling Shareholder pursuant hereto is not prompted by any
information concerning the Company or any of the Subsidiaries which is not set
forth in the Registration Statement.
(vi) Certificates in negotiable form representing all of the
Stock to be sold by such Selling Shareholder hereunder have been placed in
custody under a Custody Agreement ("Custody Agreement"), which Custody Agreement
has been duly executed and delivered by such Selling Shareholder to The First
National Bank of Boston, as custodian ("Custodian"), and such selling
stockholder has executed a Power of Attorney ("Power of Attorney") which
appoints Raymond H. Keller and Ralph R. Papitto, as such Selling Shareholder's
attorney-in-fact ("Attorney-In-Fact") with authority to execute and deliver this
Agreement on behalf of such Selling Shareholder, to determine the purchase price
to be paid by the Underwriters to the Selling Shareholders as provided in
Section 3 hereof, to authorize the delivery of the Stock to be sold by such
Selling Shareholder hereunder, and otherwise to act on behalf of such Selling
Shareholder in connection with the transactions contemplated by this Agreement
and the Custody Agreement.
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<PAGE>
(vii) The Stock represented by the certificates held in
custody for such Selling Shareholder under the Custody Agreement are subject to
the interests of the Underwriters hereunder. The arrangements made by such
Selling Shareholder under such Custody Agreement, and the appointment by such
Selling Shareholder of the Attorney-In-Fact by the Power of Attorney, are
irrevocable. The obligations of a Selling Shareholder shall not be terminated by
any act or deed of the Selling Shareholder or operation of law or the occurrence
of any event whatsoever, including but not limited to the death, incompetency or
other disability of the Selling Shareholder; or, in the case of a trust, the
death, incapacitation, resignation or removal of any trustee or trustees or the
termination of such trust; or, in the case of any estate, the death,
incapacitation, resignation or removal of any executor or administrator. If any
such event should occur, before the delivery of the Stock hereunder,
certificates representing the Stock shall be delivered on behalf of such Selling
Shareholder in accordance with the terms and conditions of this Agreement and of
such Power of Attorney, and all actions taken by such Attorney-In-Fact pursuant
to the Power of Attorney shall be as valid as if such event had not occurred,
regardless of whether or not the Custodian, the Attorney-In-Fact, or any of
them, shall have received notice of such event.
2. Purchase and Sale of Securities.
(a) On the basis of the representations, warranties, covenants and
agreements contained in this Agreement, but subject to the terms and conditions
herein set forth, the Company and the Selling Shareholders agree to sell the
Firm Shares to the several Underwriters. Each of the Underwriters agrees,
severally and not jointly, to purchase from the Company and the Selling
Shareholders, at a purchase price of $_____ per share (the "Initial Price"), the
number of Firm Shares set forth opposite the name of such Underwriter on
Schedule A hereto plus any additional number of Firm Shares that such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 9 hereof. The number of Firm Shares to be purchased by each Underwriter
from the Company and each Selling Stockholder shall be as nearly as practicable
in the same proportion to the total number of Firm Shares being sold by the
Company and each Selling Stockholder as the number of Firm Shares being
purchased by each Underwriter bears to the total number of Firm Shares to be
sold hereunder. The obligations of the Company and of each of the Selling
Shareholders shall be several and not joint.
(b) In addition, upon written notice from you to the Company not more
than once within thirty (30) days after the date of the Prospectus, and on the
basis of the representations, warranties, covenants and agreements herein
contained, but subject to the terms and conditions herein set forth, the Company
agrees to sell to the Underwriters and each Underwriter agrees, severally and
not jointly, to purchase from the Company the number of Optional Shares (which
may be some or all of the Optional Shares) specified in such notice at the
purchase price per share set forth in Section 2(a) in the same proportion as the
number of Firm Shares set forth opposite such Underwriter's name in Schedule A
hereto bears to the total number of Firm Shares (subject to adjustment by you to
eliminate fractions). The Optional Shares may be purchased by the Underwriters
only for the purpose of covering over-allotments made in connection with the
sale of the Firm Shares. No Optional Shares shall be sold or delivered unless
the Firm Shares previously have been, or simultaneously are, sold and delivered,
and if the Optional Shares are to be purchased on the First Closing Date the
written notice from you must be delivered at least two business days prior to
the First Closing Date. The right to purchase the Optional Shares or any portion
thereof may be surrendered and terminated at any time upon notice by you to the
Company.
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<PAGE>
3. Delivery of and Payment for Stock.
(a) Delivery by the Company and the Custodian of the Firm Shares to you
for the respective accounts of the Underwriters shall be made at the offices of
Tucker Anthony, One Beacon Street, Boston, Massachusetts at 10:00 a.m., Boston
time, on the fourth` business day following the date of this Agreement (unless
postponed pursuant to Section 8 or 9 hereof), or at such other place, time and
on such other date, not later than 10 business days after the date of this
Agreement, as shall be agreed upon by you and the Company (such time and date of
delivery being referred to herein as the "First Closing Date"). Payment of the
purchase price for the Firm Shares shall be by wire transfer in immediately
available funds to the Company for the Firm Shares sold by the Company and to
the Custodian (in such names as the Custodian may request) for the Firm Shares
sold by the Selling Shareholders in each case against delivery of certificates
therefore.
(b) In the event the option with respect to the Optional Shares is
exercised, delivery by the Company of the Optional Shares to you for the
respective accounts of the Underwriters shall be made at the offices of Tucker
Anthony specified in paragraph (a) of this Section 3 at the time and on the date
(which may be the same date as, but in no event shall be earlier than, the First
Closing Date) set forth in the notice referred to in Section 2(b) hereof (such
time and date of delivery being referred to herein as an "Option Closing Date").
Payment of the purchase price for the Optional Shares shall be by wire transfer
in immediately available funds to the Company for the Optional Shares sold by
the Company against delivery of certificates therefor. The First Closing Date
and the Option Closing Date are collectively referred to herein as the "Closing
Date").
(c) Certificates evidencing the Stock shall be in definitive, fully
registered form, shall bear no restrictive legends and shall be registered in
such names and shall be in such denominations as the Representatives shall
request at least two full business days prior to the First Closing Date or, in
the case of Optional Shares, on the day of each notice of exercise of the option
to purchase Optional Shares set forth in Section 2(b) hereof and shall be made
available to you for checking and packaging, at such place as is designated by
you, on the second full business day before the First Closing Date or, in the
case of Optional Shares, the Option Closing Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Stock for sale to the public as set forth in
the Prospectus.
5. Certain Agreements of the Company and the Selling Shareholders.
(a) The Company covenants and agrees with each Underwriter that:
(i) The Company will use its best efforts to cause the
Registration Statement, and any amendment thereof, if not effective at the
Execution Time, to become effective as promptly as possible. If the Registration
Statement has become or becomes effective pursuant to Rule 430A, or filing of
the Prospectus is otherwise required under Rule 424(b), the Company will file
the Prospectus, properly completed, pursuant to Rule 424(b) within the time
period prescribed and will provide evidence satisfactory to you of such timely
filing. The Company will promptly advise you (A) when the Registration Statement
shall have become effective, (B) when any amendment thereof shall have become
effective, (C) of any request by the Commission for any amendment or supplement
of the Registration Statement or the Prospectus or for any additional
information, (D) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or the institution or
threatening of any proceeding for that purpose and (E) of the receipt by the
Company of any notification with respect to the suspension of the qualification
of the Stock for sale in any jurisdiction or the initiation or threatening of
such stop order or suspension and, if issued, to obtain as soon as possible its
withdrawal. The Company will not file any amendment to the Registration
Statement or supplement to the Prospectus without your prior consent. The
Company shall prepare and file with the Commission, promptly upon
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your request, any amendment to the Registration Statement or supplement to the
Prospectus that may be necessary or advisable in connection with the
distribution of the Stock by you, and use its best efforts to cause the same to
become effective as promptly as possible.
(ii) The Company shall, during the period of time when a
Prospectus relating to the Stock is required to be delivered under the
Securities Act and the Rules, comply with all requirements imposed by the
Securities Act and the Rules as is necessary to permit the continuance of sales
of or dealings in the Stock in accordance with the provisions hereof and of the
Prospectus. The Company consents to the use of the Prospectus included in the
Registration Statement or any amendment or supplement thereto by the several
Underwriters and by all dealers to whom the Stock may be sold, in connection
with the offering or sale of the Stock and for such period of time thereafter as
the Prospectus is required by law to be delivered in connection therewith.
(iii) As soon as practicable, but not later than the
Availability Date (as defined below), the Company will make generally available
to its security holders in the manner contemplated by Rule 158(b) of the
Securities Act an earning statement covering a period of at least 12 months
beginning after the Effective Date that will satisfy the provisions of Section
11(a) of the Securities Act. For purposes of the preceding sentence,
"Availability Date" means the 45th day after the end of the fourth fiscal
quarter following the fiscal quarter that includes the Effective Date, except
that, if such fourth fiscal quarter is the last quarter of the Company's fiscal
year, "Availability Date" means the 90th day after the end of such fourth fiscal
quarter.
(iv) The Company will furnish to you copies of the
Registration Statement (three of which will be signed and will include all
exhibits), each Preliminary Prospectus, the Prospectus and all amendments and
supplements to such documents, in each case as soon as available in such
quantities as you reasonably request.
(v) The Company will cooperate with the Underwriters and
counsel to the Underwriters to arrange for the qualification of the Stock for
sale under the laws of such jurisdictions as you designate and will continue
such qualifications in effect so long as required for the distribution of the
Stock, except that in connection therewith the Company shall not be required to
qualify as a foreign corporation or to execute a general consent to service of
process in any jurisdiction.
(vi) The Company will comply with all registration, filing and
reporting requirements of the Exchange Act and the Nasdaq National Market that
may from time to time apply to the Company.
(vii) The Company will apply net proceeds from the offering
received by it in the manner set forth under "Use of Proceeds" in the
Prospectus.
(viii) For a period of five years following the date of this
Agreement, the Company will furnish to you and, upon request, to each of the
other Underwriters, without charge, as soon as available, (A) copies of such
financial statements and other periodic and special reports as the Company may
from time to time distribute generally to the holders of its Common Stock and to
furnish to you a copy of each annual or other report it shall be required to
file with the Commission under the Exchange Act, and (B) from time to time, such
other information of a public nature concerning the Company as you, or such
other Underwriters, may reasonably request.
(ix) Whether or not this Agreement becomes effective or is
terminated or the sale of the Stock to the Underwriters is consummated, the
Company shall pay or cause to be paid (A) all costs and expenses (including
stock transfer or similar taxes) incurred in connection with the delivery to the
several Underwriters of the Stock, (B) all fees, costs and expenses (including,
without limitation, fees and expenses of the Company's accountants and counsel)
in connection with the preparation, printing, filing, delivery and shipping of
the
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Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), each Preliminary Prospectus as amended or
supplemented and the delivery and shipping of this Agreement and other
underwriting documents including Blue Sky Memoranda, and Selected Dealer
Agreements, (C) all costs, filing fees, and expenses, the registration or
qualification of the Stock for offer and sale under the securities or Blue Sky
laws of the various jurisdictions referred to in Section 5(a)(v) herein,
including the fees and disbursements of counsel to the Underwriters in
connection with such registration and qualification and the preparation,
printing, distribution and shipment of preliminary, supplementary and final Blue
Sky Memoranda, (D) the filing fee of the National Association of Securities
Dealers, Inc. ("NASD"), (E) all costs and expenses incurred in connection with
the preparation of materials used in connection with a "road show" or other
presentation to potential investors, (F) the cost of printing certificates
representing the Stock, (G) the cost and charges of any transfer agent or
registrar, (H) the furnishing (including costs of shipping and mailing) to you
and to the Underwriters of copies of all reports and information required by
Section 5(a)(viii) hereof, and (I) all other costs and expenses of the Company
incident to the performance of its obligations hereunder that are not otherwise
provided for in this Section. To the extent, if at all, that any Selling
Shareholder engages special legal counsel to represent it in connection with
this offering, the fees and expenses of such counsel shall be borne by such
Selling Shareholder, except as otherwise provided in the registration rights
agreements between the Company and certain Selling Shareholders.
(x) So long as the Company's Stock is registered under the
Exchange Act, the Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar (which may be the
same entity as the transfer agent) for its Common Stock.
(xi) For at least five years after the date of this Agreement,
the Company will use its best efforts to maintain insurance with financially
responsible insurers of the types and in the amounts that it deems adequate for
its business and consistent with insurance coverage maintained by companies of
similar size and engaged in similar businesses.
(xii) The Company will not register with the Commission,
offer, sell, contract to sell or otherwise dispose of any additional shares of
its Common Stock or any security convertible into or exchangeable for its Common
Stock without the prior written consent of Tucker Anthony for 180 days after the
date of the Prospectus, except issuances by the Company pursuant to the grant of
options and the issuance of shares pursuant to the Company's equity-based plans
described in the Registration Statement or copies of which have been delivered
to the Underwriters or their counsel or pursuant to the exercise of warrants
outstanding on the date hereof.
(xiii) The Company will take such steps as shall be necessary
to ensure that neither the Company nor any Subsidiary is an investment company
or controlled by an investment company within the meaning of the Investment
Company Act of 1940, as amended or an investment adviser within the meaning of
the Investment Adviser Act of 1940, as amended.
(b) Each of the Selling Shareholders covenants and agrees with each
Underwriter that:
(i) They will promptly notify the Representatives of any
information which comes to such Selling Shareholder's attention which would
cause such Selling Shareholder to have reason to believe that his or her
representations, warranties and statements in this Agreement are not accurate in
all material respects.
(ii) In order to document the Underwriters' compliance with
the reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 and the Interest and Dividend Tax Compliance Act of
1983 with respect to the transactions herein
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<PAGE>
contemplated, each of the Selling Shareholders agrees to deliver to you prior to
or at the Closing Date a properly completed and executed United States Treasury
Department Form W-9 (or other applicable form or statement specified by Treasury
Department regulations in lieu thereof).
6. Closing Conditions. The obligations of the Underwriters to purchase the
Firm Shares and the Optional Shares, as the case may be, at any Closing Date,
and the other obligations of the Underwriters hereunder will be subject, in your
reasonable discretion, to the accuracy of the representations and warranties on
the part of the Company and the Selling Shareholders herein, both at the
Execution Time and at and as of each Closing Date, the accuracy, in your
reasonable discretion, of the statements of Company officers made pursuant to
the provisions hereof, and the timely performance by the Company and the Selling
Shareholders of their obligations hereunder and to the following additional
conditions precedent:
(a) If the Registration Statement is not effective at the time of
execution of this Agreement, the Registration Statement shall have become
effective not later than 5:00 p.m. Boston time on the date of this Agreement or
at such later date and time as you may approve in writing. If the Company has
elected to rely upon Rule 430A of the Rules, the price of the Stock and any
other information previously omitted from the effective Registration Statement
pursuant to such Rule 430A shall have been transmitted to the Commission for
filing pursuant to Rule 424(b) of the Rules within the prescribed time period,
and, prior to the Closing Date, the Company shall have provided evidence
satisfactory to the Representatives of such timely filing, or a post-effective
amendment providing such information shall have been promptly filed and declared
effective in accordance with the requirements of Rule 430A of the Rules. No
order preventing or suspending the use of any Preliminary Prospectus or the
Prospectus shall have been made or shall be in effect and no order suspending
the effectiveness of the Registration Statement or any post-effective amendment
thereof shall have been issued and no proceeding for the issuance of such an
order shall have been initiated or threatened by the Commission or any Blue Sky
or other securities authority or any jurisdiction, and any request on the part
of the Commission or any Blue Sky or other securities authority of any
jurisdiction for additional information (to be included in the Registration
Statement or Prospectus or otherwise) shall have been disclosed to you and
complied with to the reasonable satisfaction of you and counsel to the
Underwriters.
(b) You shall not have advised the Company that the Registration
Statement or the Prospectus contains an untrue statement of fact which, in your
opinion, is material or omits to state a fact which, in your opinion, is
material or is required to be stated therein or is necessary to make the
statements therein not misleading.
(c) At the Execution Time and at each Closing Date, you shall have
received a letter, dated the date of delivery thereof, of Ernst & Young in form
and substance satisfactory to you, confirming that they are independent public
accountants with respect to the Company within the meaning of the Securities Act
and the applicable Rules and stating in effect that:
(i) The financial statements and schedules audited by them and
included in the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the Securities Act and
the related Rules;
(ii) The amounts under the headings "Summary Financial
Information" and "Selected Financial Data" included in the Registration
Statement and the Prospectus agree with the corresponding amounts in the audited
and unaudited financial statements of the Company from which such amounts were
derived;
(iii) On the basis of performing the procedures specified by
the American Institute of Certified Public Accountants for review of interim
financial information as
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<PAGE>
described in SAS 71, and a reading of the latest available unaudited financial
statements of the Company and certain other information, inspection of the
minutes of the meetings of the stockholders and the Board of Directors of the
Company, inquiries of certain officials of the Company who have responsibility
for financial and accounting matters of the Company as to transactions and
events subsequent to the date of the latest audited financial statements
included in the Registration Statement and the Prospectus and such other
inquiries and procedures as may be specified in such letter, nothing came to
their attention which caused them to believe that:
(A) As of a specified date not more than five days
prior to the date of delivery of such letter, there were
any changes in the capital stock of the Company or any
increase in long-term debt of the Company, or any
decreases in net current assets or stockholders' equity of
the Company, as compared with amounts shown on the
Company's 1997 unaudited financial statements;
(B) For the period from December 31, 1997 to a
specified date not more than five days prior to the date
of delivery of such letter, there were any decreases in
combined net sales or decreases in income from operations
or the total or per share amounts of net income, or any
decreases or increases, as the case may be, in other items
specified by you, in each case as compared with comparable
periods in the preceding year, except in each case for
increases or decreases which the Registration Statement
and the Prospectus disclose, have occurred or may occur;
and
(C) They have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other
financial information contained in the Registration
Statement and the Prospectus (in each case to the extent
that such dollar amounts, percentages and other financial
information are derived from the general accounting
records of the Company or are derived directly from such
records by analysis or computation) with the results
obtained from a reading of such general accounting records
and other procedures specified in such letter and have
found such dollar amounts, percentages and other financial
information to be in agreement with such results, except
as otherwise specified in such letter.
(d) You shall have received from Ernst & Young a letter, in accordance
with A.U. Section 9325-Auditing Interpretations of Section 325 (February 1989)
of the American Institute of Certified Public Accountants (the
"Interpretation"), stating that in planning and performing their audit of the
audited financial statements included or incorporated by reference in the
Registration Statement, they noted no matters involving the Company's internal
control structure and its operation that they consider to be material weaknesses
as defined in the interpretation.
(e) On each Closing Date, you shall have received a written opinion,
dated such Closing Date, of Ropes & Gray, counsel for the Company, in form and
substance satisfactory to the Underwriters, to the effect that:
(i) The Company is a corporation duly organized, validly
existing and in good standing under the laws of Delaware, with corporate power
to own its properties and conduct its business as described in the Prospectus,
and is duly qualified and in good standing as a foreign corporation in each
jurisdiction in which the Company maintains an office or owns or leases
property;
(ii) The Subsidiaries are corporations duly organized, validly
existing and in good standing under the laws their respective states of
incorporation, with corporate power to own their respective properties and
conduct their respective businesses, and are duly
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<PAGE>
qualified and in good standing as foreign corporations in each jurisdiction in
which the Company maintains an office or owns or leases property; and all of the
outstanding shares of capital stock of the Subsidiaries are owned directly by
the Company free and clear of any claim, lien, encumbrance, equity, security
interest or other restriction;
(iii) The Company has all requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
under this Agreement, and to issue and sell the Stock;
(iv) This Agreement has been duly and validly authorized,
executed and delivered by or on behalf of the Company;
(v) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Capitalization table contained in the
Prospectus for the date set forth thereunder (with the exception of shares of
restricted stock disclosed in the footnote thereto). The Stock and the other
shares of Common Stock issued and outstanding on the date of such opinion have
been, duly authorized and validly issued and are fully-paid and nonassessable,
with no personal liability attaching to the ownership thereof. The authorized,
issued and outstanding stock of the Company conforms in all material respects to
the statements in relation thereto contained in the Registration Statement and
the Prospectus. The form of Certificate used to evidence the Stock is in due and
proper form. The issuance of the Stock to the Underwriters is not subject to (A)
statutory preemptive rights or voting or transfer restrictions, (B) preemptive
rights or voting or transfer restrictions under the Company's Restated
Certificate of Incorporation, as amended, or Bylaws or, (C) to such counsel's
knowledge, any contractual preemptive rights or voting or transfer restrictions
(other than pursuant to federal and state securities laws);
(vi) None of (A) the execution, delivery, and performance of
this Agreement, (B) the consummation of the transactions contemplated by this
Agreement, including, without limitation, the issuance, sale and delivery of the
Firm Shares and the Optional Shares, if any, or (C) compliance with the terms
and provisions of this Agreement will (1) conflict with or result in a breach or
default or require consent under any agreement listed as an exhibit to the 1997
Form 10-K or the Registration Statement, (2) violate or conflict with any
provisions of the Restated Certificate of Incorporation, as amended, or Bylaws
of the Company, (3) violate any judgment, decree or order known to such counsel,
or law or regulation, of any court or governmental agency, entity or
instrumentality binding upon the Company or any Subsidiary or any of their
properties, except that such counsel need express no opinion as to state
securities or Blue Sky laws or (4) require obtaining the consent or
authorization for, or filing with, any governmental agency or entity or any
court except such as have been obtained and made under the Securities Act and
such as may be required under state securities or Blue Sky laws as to which such
counsel need express no opinion; such counsel need express no opinion in this
paragraph (vi) as to compliance with the anti-fraud provisions of the federal or
state securities laws;
(vii) To such counsel's actual knowledge, no default exists,
and no event has occurred which, with notice or lapse of time or both, would
constitute a default, in the due performance and observance of any term,
covenant or condition of any material indenture, mortgage, agreement or
instrument to which the Company or any Subsidiary a party or by which the
Company or any Subsidiary or any of their respective properties or assets may be
bound or affected except for such default or event which, individually or taken
together with all such other defaults or events, would not have a material
adverse effect on the business, results of operations, prospects, condition
(financial or otherwise) or the material assets or properties of the Company and
the Subsidiaries taken as a whole;
(viii) To such counsel's actual knowledge, neither the Company
nor any Subsidiary is in violation of any term or provision of its Restated
Certificate of Incorporation or Bylaws or of any judgment, decree, or order
known to such counsel;
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<PAGE>
(ix) The Registration Statement, the Preliminary Prospectus
and the Prospectus and each amendment or supplement thereto (except for the
financial statements and notes and schedules thereto and other financial or
accounting information included therein, as to which such counsel expresses no
opinion) comply as to form in all material respects with the requirements of the
Securities Act and the Rules; and the documents incorporated by reference in the
Registration Statement, the Preliminary Prospectus and the Prospectus and each
amendment or supplement thereto, when they became effective under the Act or
were filed with the Commission under the Exchange Act, as the case may be,
complied as to form in all material respects with the requirements of the
Securities Act or the Exchange Act, as applicable, and the Rules;
(x) To the knowledge of such counsel, all contracts,
agreements and other documents of a character required to be described in the
Prospectus or documents incorporated therein by reference or filed as exhibits
to the Registration Statement or documents incorporated therein by reference
have been so described or filed as exhibits;
(xi) The Registration Statement is effective under the
Securities Act, and any required filing of the Prospectus or any supplement
thereto pursuant to Rule 424(b) has been made in the manner and within the time
period required by Rule 424(b). To such counsel's knowledge, no order suspending
the effectiveness of the Registration Statement, or any post-effective amendment
thereof, has been issued and no proceedings therefor have been instituted or are
threatened, pending or contemplated;
(xii) To the knowledge of such counsel, there are no legal or
governmental proceedings or investigations pending or threatened to which the
Company or any Subsidiary is or would be a party or to which any of their
respective property is subject (A) which are required to be described in the
Registration Statement or the Prospectus or documents incorporated therein by
reference and which are not so described or (B) which might prevent the
consummation of the transactions contemplated by this Agreement;
(xiii) To the knowledge of such counsel, except as described
in the Prospectus, no holder of any security of the Company has any right to
require or participate in the registration under the Securities Act of the
Common Stock or any other security to be effected by the Registration Statement
except for such rights as have been waived;
(xiv) To the extent that the statements contained in the
Prospectus under the headings "Risk Factors-Antitakeover Provisions", "Risk
Factor-Shares Eligible for Future Sale", "Business-Environmental/Legal
Proceedings", "Description of Capital Stock" and "Shares Eligible For Future
Sale" refer to matters of law or summarize the status of litigation or summarize
the provisions of statutes, regulations, contracts, agreements or other
documents, such statements have been reviewed by such counsel, are accurate and
correct in all material respects and fairly present the status of any such
litigation and such provisions purported to be summarized;
(xv) The Company is not, and will not become as a result of
the transactions contemplated by this Agreement, an "Investment Company" as
defined in the Investment Company Act of 1940, as amended; and
In addition, such counsel shall state that, although such counsel is not
passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement and the Prospectus (except as specified elsewhere in such counsel's
opinion), and based upon such counsel's examination and participation in
discussions with your representatives and those of the Company and its
independent accountants, in which the business and affairs of the Company and
the contents of the Registration Statement and Prospectus were discussed, no
facts have come to the attention of such counsel which lead such counsel to
believe that the Registration Statement at the time it became effective (except
with respect to the financial statements and notes and schedules thereto and
other financial or accounting information, as to which such counsel
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<PAGE>
shall not be required to express any belief) contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or that the
Prospectus as amended or supplemented (except with respect to the financial
statements and notes and schedules thereto and other financial or accounting
information, as to which such counsel shall not be required to make any
statement) on the date thereof and on the Closing Date contained any untrue
statements of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; further, no facts have come to the
attention of such counsel to cause it to believe that any document incorporated
by reference in the Registration Statement, the Prospectus, any amendment or
supplement thereto or any Preliminary Prospectus, as of the date of the filing
thereof with the Commission, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading and no facts have come to the
attention of such counsel that cause it to believe that on the Closing Date,
such incorporated documents taken as a whole contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading (it being understood
that such counsel need express no view with respect to the financial statements
and schedules, related notes, and other financial and statistical data included
or incorporated by reference in any Preliminary Prospectus, the Registration
Statement (including any exhibit thereto) or the Prospectus or any amendment or
supplement thereto).
In rendering such opinion, such counsel may rely as to matters governed by
the laws of states other than Massachusetts or Delaware or Federal laws of the
United States of America on local counsel in such jurisdiction. As to factual
matters, such counsel may rely on certificates obtained from officers of the
Company and the Subsidiaries and from public officials.
(f) On each Closing Date, you shall have received a written opinion or
opinions dated such Closing Date, of Ropes & Gray, counsel for the Principal
Selling Shareholders, and separate counsel for each of the other Selling
Shareholders to the effect that:
(i) This Agreement has been duly authorized, executed and
delivered by each of the Selling Shareholders (through their duly authorized
attorney-in-fact);
(ii) The Power of Attorney has been duly authorized and
executed, and delivered by each of the Selling Shareholders and, pursuant to
such Power of Attorney, each Selling Shareholder has authorized its
attorney-in-fact to carry out the transactions contemplated in this Agreement on
its behalf, and to deliver the shares of Stock being sold by it pursuant to this
Agreement; and
(iii) Immediately prior to the Closing Date, each Selling
Shareholder was the sole registered owner of the shares of Stock to be sold by
such Selling Shareholder; each Selling Shareholder has full legal right, power
and authority, and any approval required by law (other than any approval
required by the applicable state securities and Blue Sky laws) to sell, assign,
transfer and deliver the shares of Stock to be sold by such Selling Shareholder
in the manner provided in this Agreement and the respective Selling Shareholders
Power of Attorney; upon registration of the shares of Stock to be sold by the
Selling Shareholders in the names of the Underwriters in the stock records of
the Company, assuming the Underwriters purchased such Stock in good faith and
without notice of any adverse claim within the meaning of Section 8-302 of the
Massachusetts Uniform Commercial Code, the Underwriters will have acquired all
rights of such Selling Shareholders in the shares of Stock being sold by them
free of any adverse claim, any lien in favor of the Company, and any
restrictions on transfer imposed by the Company; and the owner of such Stock, if
other than the Selling Shareholders, is precluded from asserting against the
Underwriters the ineffectiveness of any unauthorized endorsement.
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(g) On each Closing Date, you shall have received from Peabody & Brown,
counsel for the Underwriters, such opinion or opinions, dated such Closing Date,
with respect to the incorporation of the Company, the validity of the Stock, the
Registration Statement, the Prospectus and other related matters as you may
require, and the Company shall have furnished to such counsel such documents as
they reasonably request for the purpose of enabling them to pass upon such
matters.
(h) On each Closing Date, you shall have received a certificate, dated
such Closing Date, of the chief executive officer and the principal financial
officer of the Company, in which such officers shall state that the
representations and warranties of the Company in this Agreement are true and
correct on and as of the date of this Agreement and such Closing Date, that the
Company has complied with all agreements and satisfied all conditions on its
part to be performed or satisfied hereunder at or before such Closing Date, that
no stop order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted or are
contemplated by the Commission and that, after the date of the most recent
financial statements in the Prospectus, there has been no material adverse
change in the financial position or results of operations of the Company except
as set forth in or contemplated by the Prospectus or as described in such
certificate.
(i) On each Closing Date, you shall have received a certificate, dated
such Closing Date, of the Selling Shareholders through the Attorney-In-Fact
designated in the Power of Attorney, in which the Attorney-In-Fact shall state
on behalf of the Selling Shareholders that the representations and warranties of
the Selling Shareholders in this Agreement are true and correct on and as of the
date of this Agreement and such Closing Date, and that each of the Selling
Shareholders have complied with all agreements and satisfied all conditions on
their part to be performed or satisfied hereunder at or before such Closing
Date.
(j) On each Closing Date, you shall have received a letter, dated such
Closing Date, of Ernst & Young that meets the requirements of subsection (c) of
this Section (or that brings down to date and confirms matters set forth in such
letter delivered pursuant to subsection (c)), except that the specified date
referred to in such subsection will be not more than five days before such
Closing Date for purposes of this subsection.
(k) You shall have received an agreement (i) from each director and
executive officer, each Selling Stockholder who is not also a director or
executive officer and certain of the prior stockholders designated by you of
(i) B&B Electronics Manufacturing Company and (ii) FLEXFAB Horizons
International, Inc. in form and substance satisfactory to you, that such
person will not offer, sell or otherwise dispose of any shares of the
Company's Common Stock or any security convertible into or exchangeable for
such Common Stock and (ii) from Sutro & Co. Incorporated in form and
substance satisfactory to you, that it will not offer, sell or otherwise
dispose of certain Warrant Shares (as defined in a certain warrant delivered
by the Company to it in connection with the Company's initial public
offering), in each instance without the prior written consent of Tucker
Anthony for 180 days after the date of the Prospectus.
(l) The Stock delivered on the Closing Date shall have been duly
listed, subject to notice of official issuance, on the Nasdaq National Market.
The Company will furnish you with such conformed copies of such opinions,
certificates, letters and documents as you reasonably request.
If any of the conditions specified in this Section 6 shall not have been
fulfilled in all respects when made as provided in this Agreement, or if any of
the opinions and certificates mentioned above or elsewhere in this Agreement
shall not be in all respects reasonably satisfactory in form and substance to
you and your counsel, you may cancel this Agreement and all obligations of the
Underwriters hereunder at, or at any time prior to, any Closing
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Date. Notice of such cancellation shall be given to the Company in writing or by
telephone or facsimile confirmed in writing.
The obligations of the Company and the Selling Shareholders to sell and
deliver the portion of the Stock required to be delivered as and when specified
in this Agreement are subject to the condition that at the Closing Date or the
Option Closing Date, as the case may be, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and in effect
or proceedings therefor initiated or threatened.
7. Indemnification and Contribution.
(a) The Company and each Selling Shareholder, jointly and severally,
will indemnify and hold harmless each Underwriter, each of its officers and
directors against any losses, claims, damages or liabilities, joint or several,
to which such Underwriter, officer or director may become subject, under the
Securities Act, the Exchange Act or otherwise (including, without limitation,
all costs of disputing or defending any such claim or action or any amount paid
in settlement thereof and all reasonable costs of investigation in connection
therewith), insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, the Prospectus, or any amendment or supplement thereto, or any
related Preliminary Prospectus, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or (ii) any
untrue statement or alleged untrue statement of a material fact contained in any
application or other document or communication executed by or on behalf of the
Company or the Selling Shareholders or based upon written information furnished
by or on behalf of the Company or the Selling Shareholders filed in any
jurisdiction in order to qualify the Stock under the securities or Blue Sky laws
thereof or filed with the Commission or any securities exchange, or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse each Underwriter, officer or director for any legal or other expenses
reasonably incurred by such Underwriter, officer or director in connection with
investigating or defending any such losses, claims, damages, liabilities or
actions as such expenses are incurred; provided, however, that (x) with respect
to the indemnity of each Selling Shareholder, other than the Principal Selling
Shareholders listed on Schedule C hereto, the indemnity shall, in each case,
apply only to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue statement, or
omission or alleged omission made in the Registration Statement, any Preliminary
Prospectus or the Prospectus in reliance upon and in conformity with written
information furnished by such Selling Shareholder specifically for use in the
preparation thereof; (y) the Company and the Selling Shareholders will not be
liable in any such case to the extent that any such losses, claims, damages or
liabilities arise out of or are based upon an untrue statement or alleged untrue
statement in or omission or alleged omission from the information included under
the heading "Underwriting" in the Prospectus in reliance upon and in conformity
with written information furnished to the Company and the Selling Shareholders
by you or by or on behalf of any Underwriter through you specifically for
inclusion therein and (z) the Company and the Selling Shareholders will not be
liable to any Underwriter, officer or director under this section with respect
to any Preliminary Prospectus to the extent that any loss, claim, damage or
liability of such person results from the fact that such Underwriter sold shares
of Stock to a person to whom there was not given or sent, at or prior to the
written confirmation of such sale, a copy of the Prospectus or of the Prospectus
as then amended or supplemented in any case where such delivery is required by
the Securities Act if the Company has previously furnished copies thereof to
such Underwriter and the loss, claim, damage or liability of such Underwriter,
officer or director results from an untrue statement or omission of a material
fact contained in the Preliminary Prospectus which was corrected in the
Prospectus (or the Prospectus as amended or supplemented). In no event, however,
shall the liability of any Selling Shareholder for indemnification under this
Section 7(a) exceed the net proceeds received by such Selling Shareholder from
the Underwriters in the offering.
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(b) Each Underwriter, severally and not jointly, will indemnify and
hold harmless the Company and the Selling Shareholders against any losses,
claims, damages or liabilities to which the Company or the Selling Shareholders
may become subject, under the Securities Act, the Exchange Act or otherwise
(including, without limitation, all costs of disputing or defending such claim
or action or any amount paid in settlement thereof and all reasonable costs of
investigation in connection therewith), insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related Preliminary Prospectus, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that any such
losses, claims, damages or liabilities arise out of or are based upon any untrue
statement or alleged untrue statement or omission or alleged omission from the
information included under the heading "Underwriting" in the Prospectus in
reliance upon and in conformity with written information furnished to the
Company by you or by or on behalf of any Underwriter through you specifically
for use therein, and will reimburse any legal or other expenses reasonably
incurred by the Company or the Selling Shareholders in connection with
investigating or defending any such losses, claims, damages, liabilities or
actions as such expenses are incurred, and provided, further, that the
obligation of each Underwriter to indemnify the Company (including any
controlling person, director or officer thereof) shall be limited to the net
proceeds received by the Company from such Underwriter.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof, enclosing a copy of all papers served. No indemnification provided for
in this Section 7 shall be available to any party which shall fail to give
notice as provided in this Section 7(c) if the party to which notice was not
given was unaware of the proceeding to which such notice would have related and
was prejudiced by the failure to give such notice but the omission so to notify
such indemnifying party of any such action, suit or proceeding shall not relieve
such indemnifying party from any liability that such indemnifying party may have
to any indemnified party for contribution or otherwise than under this Section
7. In case any such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, assume the
defenses thereof, with counsel satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof and the approval by the indemnified party of such
counsel, the indemnifying party will not be liable to such indemnified party
under this Section for any legal or other expenses, except as provided below.
The indemnified party shall have the right to employ its counsel in any such
action, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the employment of counsel by such indemnified
party has been authorized in writing by the indemnifying parties, (ii) the
indemnified party shall have reasonably concluded that there may be a conflict
of interest between the indemnifying parties and the indemnified party in the
conduct of the defense of such action (in which case the indemnifying parties
shall not have the right to direct the defense of such action on behalf of the
indemnified party) or (iii) the indemnifying parties shall not have employed
counsel to assume the defense of such action within a reasonable time after
notice of the commencement thereof, in each of which cases the fees and expenses
of counsel shall be at the expense of the indemnifying parties. Anything in this
Section 7 to the contrary notwithstanding, an indemnifying party shall not be
liable for any settlement of any action, suit, proceeding or claim effected
without its written consent, which consent shall not be unreasonably withheld.
If a claim, action, suit or proceeding is settled with such consent or if there
be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the
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<PAGE>
indemnified party from and against any loss, liability, claim, damage or
expense by reason of such settlement or judgment.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in subsection (a) or (b)
above is due in accordance with its terms but for any reason is held to be
unavailable, the Company, the Selling Shareholders and the Underwriters shall
contribute to the aggregate losses, claims, damages, liabilities, and expenses
(including, without limitation, legal and other expenses incurred in connection
with, and any amount paid in settlement of, any action, suit, proceeding or
litigation, or any claim, but after deducting any contribution received by the
Company from persons other than the Underwriters, such as persons who control
the Company within the meaning of the Securities Act, officers of the Company
who signed the Registration Statement and directors of the Company, who may also
be liable for the contribution) to which the Company, the Selling Shareholders
and one or more of the Underwriters may be subject in such proportion as is
appropriate to reflect the relative benefits received by the Company, the
Selling Shareholders and the Underwriters from the offering of the Stock or, if
such allocation is not permitted by applicable law or indemnification is not
available as a result of the indemnifying party not having received notice as
provided in Section 7 hereof, then each such indemnifying party shall contribute
to such amount paid or payable to such indemnified party in such proportion as
is appropriate to reflect not only such relative benefits but also the relative
fault of the Company, the Selling Shareholders and the Underwriters in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities, or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company, the
Selling Shareholders and the Underwriters shall be deemed to be in the same
proportion as (a) the total proceeds from the offering (net of underwriting
discounts but before deducting expenses) received by the Company and the Selling
Shareholders, as set forth in the table on the cover page of the Prospectus,
bear to (b) the underwriting discounts received by the Underwriters, as set
forth in the table on the cover page of the Prospectus. The relative fault of
the Company, the Selling Shareholders or the Underwriters, shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact related to information supplied by the Company, the
Selling Shareholders or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, the Selling Shareholders and the
Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 7(d) were determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to above. Notwithstanding the provisions of this Section 7(d), in no
case shall (i) any Underwriter (except as otherwise agreed among the
Underwriters) be liable or responsible for any amount in excess of the
underwriting discount applicable to the Stock purchased by such Underwriter
hereunder and (ii) any Selling Shareholder be liable or responsible for any
amount in excess of the net proceeds received by such Selling Stockholder from
the Underwriters in the offering, provided, however, that no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Any party entitled to contribution
will, promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against another party or parties under this Section 7(d), notify such
party or parties from whom contribution shall be sought, but the omission so to
notify such party or parties from whom contribution may be sought shall not
relieve the party or parties from whom contribution may be sought from any other
obligation such party or parties may have hereunder or otherwise than under this
Section 7(d). No party shall be liable for contribution with respect to any
action, suit, proceeding or claim settled without its written consent. The
Underwriters' obligations to make contributions pursuant to this Section 7(d)
are several in proportion to their respective underwriting commitments and not
joint.
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<PAGE>
(e) The obligations of the Company and the Selling Shareholders under
this Section shall be in addition to any liability that the Company or the
Selling Shareholders may otherwise have and shall extend, upon the same terms
and conditions, to each person, if any, who controls any Underwriter within the
meaning of the Securities Act or the Exchange Act. The obligations of the
Underwriters under this Section shall be in addition to any liability the
respective Underwriters may otherwise have and shall extend, upon the same terms
and conditions, to each director of the Company, to each officer of the Company
who has signed the Registration Statement and to each person, if any, who
controls the Company within the meaning of the Securities Act or the Exchange
Act.
(f) It is understood that the indemnifying party shall, in connection
with any one action, suit, or proceeding or separate but substantially similar
or related actions, suits, or proceedings in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the reasonable
fees and expenses of only one separate firm of attorneys (in addition to any
local counsel) at any time for all indemnified parties not having actual or
potential differing interests among themselves, which firm shall be designated
by a majority of such indemnified parties.
8. Default by the Company or the Selling Shareholders.
(a) If the Company or the Selling Shareholders shall fail on the First
Closing Date or, if any Optional Shares are to be purchased, any Subsequent
Closing Date, as the case may be, to sell and deliver the number of Firm Shares
or Optional Shares, as the case may be, which the Company or the Selling
Shareholders is obligated to sell hereunder, then, at the option of the
Underwriters, this Agreement shall terminate without any liability on the part
of any Underwriter for such termination.
(b) In the event of a default by the Company or the Selling
Shareholders under this Section 8, the Underwriters shall have the right to
postpone the First Closing Date or, if any Optional Shares are to be purchased,
any Subsequent Closing Date, as the case may be, for a period not exceeding
seven days in order to effect any required changes in the Registration Statement
or Prospectus or in any other documents or arrangements.
(c) No action taken pursuant to this Section 8 shall relieve the
Company or the Selling Shareholders from any liability, if any, in respect of
such default.
9. Substitution of Underwriters. If one or more of the Underwriters shall
fail (other than for a reason sufficient to justify the cancellation or
termination of this Agreement under Sections 6, 8 or 10 hereof) to purchase on
any Closing Date the shares of Stock agreed to be purchased on such Closing Date
by such Underwriter or Underwriters, you may find one or more substitute
underwriters to purchase such Stock or make such other arrangements as you may
deem advisable or one or more of the remaining Underwriters may agree to
purchase such Stock in such proportions as may be approved by the
Representatives, in each case upon the terms set forth in this Agreement. If no
such arrangements have been made by the close of business on the business day
following such Closing Date:
(a) If the number of shares of Stock to be purchased by the defaulting
Underwriters on such Closing Date shall not exceed 10% of the Stock that all the
Underwriters are obligated to purchase on such Closing Date, then each of the
nondefaulting Underwriters shall be obligated to purchase such shares on the
terms herein set forth in proportion to their respective obligations hereunder;
provided, however, that in no event shall the maximum number of shares of Stock
that any Underwriter has agreed to purchase pursuant to Section 1 hereof be
increased pursuant to this Section 9 by more than one-ninth of such number of
shares without the written consent of such Underwriter, or
(b) If the number of shares of Stock to be purchased by the defaulting
Underwriters on such Closing Date shall exceed 10% of the Stock that all the
Underwriters are obligated to purchase on such Closing Date, then the Company
shall be entitled to an
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<PAGE>
additional business day with which it may, but is not obligated to, find one or
more substitute Underwriters reasonably satisfactory to you to purchase such
shares of Stock upon the terms set forth in this Agreement.
In any such case, either you or the Company shall have the right to
postpone the applicable Closing Date for a period of not more than five business
days in order that necessary changes and arrangements (including any necessary
amendments or supplements to the Registration Statement or Prospectus) may be
effected by you and the Company and the Company agrees to prepare and file
promptly any amendment or supplement to the Registration Statement or the
Prospectus which in the opinion of counsel to the Underwriters may thereby be
made necessary. If the number of shares of Stock to be purchased on such Closing
Date by such defaulting Underwriter or Underwriters shall exceed 10% of the
shares of Stock that all the Underwriters are obligated to purchase on such
Closing Date, and none of the nondefaulting Underwriters or the Company shall
make arrangements pursuant to this Section 9 within the period specified for the
purchase of the shares of Stock that the defaulting Underwriters agreed to
purchase, this Agreement shall terminate with respect to the shares of Stock to
be purchased on such Closing Date without liability on the part of any
nondefaulting Underwriter to the Company and without liability on the part of
the Company, except in both cases as otherwise provided for herein in Sections 7
and 11 hereof. The provisions of this Section shall not in any way affect the
liability of any defaulting Underwriter to the Company or the nondefaulting
Underwriters arising out of such default. The term "Underwriter" as used in this
Agreement shall include any party substituted under this Section 9 as if such
party had originally been a party to this Agreement and had been allocated the
aggregate number of (i) such Stock actually purchased by such party as a result
of its original commitment to purchase Stock, plus (ii) Stock purchased pursuant
to this Section 9.
10. Termination. This Agreement may be terminated by you by notice to the
Company and the Selling Shareholders (a) at any time prior to the earlier of (i)
the time the Stock is released by you for sale by notice to the Underwriters, or
(ii) 11:30 a.m. on the first business day following the date of this Agreement.
The obligations of the several Underwriters to purchase the Stock also may be
terminated at any time on or prior to any Closing Date by notice to the Company,
from a Representative at any time if in the discretion of the Representatives at
or before any Closing Date, upon or prior to such dates: (i) there shall have
occurred any material loss to or interference with the businesses or properties
of the Company or any Subsidiary from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor dispute or any
legal or governmental proceeding, or any material adverse change, or any
development involving a prospective material adverse change (including, without
limitation, a change in management or control of the Company) or in the
condition (financial or otherwise), business, prospects, capitalization, net
worth or results of operations of the Company or any Subsidiary; (ii) trading in
the Stock has been suspended by the Commission or trading generally on the New
York Stock Exchange or on the American Stock Exchange has been suspended or
limited, or minimum or maximum ranges for prices of securities shall have been
fixed, or maximum ranges for prices of securities have been required, by such
exchanges or by order of the Commission, the NASD or any other governmental or
regulatory authority; (iii) any banking moratorium has been declared by federal
or Massachusetts or New York bank authorities; (iv) any domestic or
international event or act or occurrence shall have occurred that shall have
materially disrupted, or in your opinion will in the future materially disrupt,
the securities market; (v) there shall have occurred any new outbreak or
material escalation of hostilities or other calamity or crisis the effect of
which on the financial markets of the United States is such as to make it, in
your judgment, inadvisable or impracticable to proceed with the offering; or
(vi) there shall be such a material adverse change in general financial,
political or economic conditions or the effect of international conditions on
the financial markets in the United States as to make it, in your judgment,
inadvisable or impracticable to market the Stock.
11. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of (i)
the
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<PAGE>
Company or its officers, (ii) the Selling Shareholders or (iii) the several
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation, or statement as to the
results thereof, made by or on behalf of any Underwriter, the Company, the
Selling Shareholders or any of their respective representatives, officers, or
directors or any controlling person, and will survive delivery of and payment
for the Stock. Upon termination of this Agreement, the Company shall remain
responsible for the expenses to be paid or reimbursed by them pursuant to
Section 5(a)(ix) and the respective obligations of the Company, the Selling
Shareholders and the Underwriters pursuant to Section 7 shall remain in effect,
and if the Agreement is terminated after the First Closing Date, the
representations and warranties in Section 1 and all obligations under Section 5
shall also remain in effect. If the purchase of the Stock by the Underwriters is
not consummated for any reason other than solely because of the termination of
this Agreement pursuant to Sections 9 and 10, the Company will reimburse the
Underwriters for all out-of-pocket expenses (including fees and disbursements of
counsel) incurred by them in connection with the offering of the Stock.
12. Applicable Law; Consent to Jurisdiction. This Agreement shall be
governed by, and construed in accordance with, the laws of The Commonwealth of
Massachusetts without giving effect to choice or conflict of law principles. If
any action or proceeding shall have been brought by the Company, the Selling
Shareholders or by any of the Underwriters in order to enforce any right or
remedy under this Agreement or relating to or arising out of the transactions
contemplated hereby, the Company, the Selling Shareholders and each of the
Underwriters hereby consent to, and agree to submit to, the jurisdiction of the
state courts of The Commonwealth of Massachusetts and of any United States
federal court sitting in Massachusetts, and waive any claim of improper venue or
forum non conveniens as to any such action or proceeding. The Company, the
Selling Shareholders and each Underwriter hereby irrevocably agree that process
in any such action or proceeding may be served in the manner provided by
Massachusetts law for service on foreign corporations or other entities.
13. Notices. All notices and communications hereunder may be mailed or
transmitted by any standard form of telecommunication and, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given when delivered to a notice party hereto at the address specified
herein or at the address subsequently communicated in writing to the notice
parties. Notices to the Underwriters shall be directed to the Representatives
c/o Tucker Anthony Incorporated, One Beacon Street, Boston, Massachusetts 02108,
Attention Mark L. Bono, Managing Director, with a copy to Peabody & Brown, 101
Federal Street, Boston, Massachusetts 02110, Attention Thomas G. Gunning, P.C.
Notices to the Company shall be directed to AFC Cable Systems, Inc., 50 Kennedy
Plaza, Providence, RI 02903, Attention Raymond H. Keller, Chief Financial
Officer, with a copy to Ropes & Gray, One International Place, Boston,
Massachusetts 02110, Attention Douglas N. Ellis, Esq. Notices to the Selling
Shareholders shall be directed to Raymond H. Keller, Attorney-in fact, c/o AFC
Cable Systems, Inc., 50 Kennedy Plaza, Providence, RI 02903. In each case a
notice party may change its address for notice hereunder by a written
communication to the other notice parties.
14. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective personal representatives,
successors and to the extent provided in Section 7 herein the officers and
directors and controlling persons referred to in Section 7(e), and no other
person will have any right or obligation hereunder.
15. Representation of Underwriters. You will act for the several
Underwriters in connection with this financing, and any action under this
Agreement taken by the jointly will be binding upon all of the Underwriters.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
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<PAGE>
17. Entire Agreement. This Agreement and the Schedules hereto contain the
entire agreement between the parties hereto in connection with the subject
matter hereof and supersede all prior agreements, written and verbal, with
respect to such subject matter.
18. Amendment. This Agreement and the Schedules hereto may not be amended,
modified or altered without the written agreement of the Company, the Selling
Shareholders and the Representatives.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us one of the counterparts hereof, whereupon it will
become a binding agreement among the Company, the Selling Shareholders and the
several Underwriters in accordance with its terms.
Very truly yours,
AFC CABLE SYSTEMS, INC.
By:____________________________________
Name:_________________
Title:__________________
Selling Shareholders
By:____________________________________
Attorney-in-Fact:_______________________
Agreed for themselves and on behalf of and as
the Representatives of the other
Underwriters named in Schedule A hereto.
TUCKER ANTHONY INCORPORATED
ROBERT W. BAIRD & CO. INCORPORATED
THE ROBINSON-HUMPHREY COMPANY, LLC
By: TUCKER ANTHONY INCORPORATED
By:__________________________________
Name:_________________
Title:__________________
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<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of Firm
Shares to Be
Underwriters Purchased
- ------------ ----------
<S> <C>
Tucker Anthony Incorporated
Robert W. Baird & Co. Incorporated
The Robinson-Humphrey Company, LLC
Total...........................................1,500,000
</TABLE>
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<PAGE>
SCHEDULE B
Schedule of Selling Shareholders
<TABLE>
<CAPTION>
Number of Firm Shares
Selling Shareholder to be sold
------------------- ---------------------
<S> <C>
Ralph R. Papitto 500,000
Robert R. Wheeler 50,000
Ralph R. Papitto 1995 Trust 75,000
for David John Papitto
Aurelia A. Young 75,000
Total 700,000
</TABLE>
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<PAGE>
SCHEDULE C
Schedule of Principal Selling Shareholder
Ralph R. Papitto
Robert R. Wheeler
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<PAGE>
Exhibit 5.1
April 16, 1998
AFC Cable Systems, Inc.
50 Kennedy Plaza, Suite 1250
Providence, Rhode Island 02903
Ladies and Gentlemen:
This opinion is furnished to you in connection with a registration
statement on Form S-3 (the "Registration Statement) filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended, for the registration of 1,725,000 shares of Common Stock, par value
$0.01 per share (the "Shares"), of AFC Cable Systems, Inc., a Delaware
corporation (the "Company"). The Shares are to be sold pursuant to an
Underwriting Agreement (the "Underwriting Agreement") to be entered into among
the Company, the Selling Stockholders named in Schedule B to the Underwriting
Agreement (the "Selling Stockholders"), and Tucker Anthony Incorporated, Robert
W. Baird & Co. Incorporated and The Robinson-Humphrey Company, LLC, as
representatives of the several underwriters named in Schedule A to the
Underwriting Agreement.
We have acted as counsel for the Company and the Selling Stockholders in
connection with the sale by the Company and the Selling Stockholders of the
Shares. For purposes of our opinion, we have examined and relied upon such
documents, records, certificates and other instruments as we have deemed
necessary.
We express no opinion as to the applicability of, compliance with or effect
of federal law or the law of any jurisdiction other than the General Corporation
Law of the State of Delaware.
Based upon the foregoing, we are of the opinion that (i) the Shares have
been duly authorized, (ii) the Shares being sold by the Selling Stockholders
have been validly issued and are fully paid and non-assessable and (iii) when
issued and sold by the Company in accordance with the terms of the Underwriting
Agreement, the Shares being sold by the Company will have been validly issued
and will be fully paid and non-assessable.
<PAGE>
2
AFC Cable Systems, Inc. April 16, 1998
We hereby consent to the filing of this opinion as part of the Registration
Statement and to the use of our name therein and in the related prospectus under
the caption "Legal Matters."
This opinion is to be used only in connection with the offer and sale of
the Shares while the Registration Statement is in effect.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
<PAGE>
AFC CABLE SYSTEMS, INC.
1998 EQUITY INCENTIVE PLAN
1. PURPOSE
The purpose of this Equity Incentive Plan (the "Plan") is to advance
the interests of AFC Cable Systems, Inc. (the "Company") and its subsidiaries by
enhancing their ability to attract and retain employees and other persons or
entities who are in a position to make significant contributions to the success
of the Company and its subsidiaries through ownership of shares of the Company's
common stock, $.01 par value ("Stock"), and cash incentives.
The Plan is intended to accomplish these goals by enabling the Company
to grant Awards in the form of Options, Stock Appreciation Rights, Restricted
Stock or Unrestricted Stock Awards, Deferred Stock Awards or Performance Awards,
or combinations thereof, all as more fully described below.
2. ADMINISTRATION
Unless otherwise determined by the Board of Directors of the Company
(the "Board"), the Plan will be administered by a Committee of the Board
designated for such purpose (the "Committee"). The Committee shall consist of at
least two directors. A majority of the members of the Committee shall constitute
a quorum, and all determinations of the Committee shall be made by a majority of
its members. Any determination of the Committee under the Plan may be made
without notice or meeting of the Committee by a writing signed by a majority of
the Committee members. During such times as the Stock is registered under the
Securities Exchange Act of 1934 (the "1934 Act"), all members of the Committee
shall be "non-employee directors" within the meaning of Rule 16b-3 promulgated
under the 1934 Act and "outside directors" within the meaning of Section
162(m)(4)(C)(i) of the Internal Revenue Code of 1986, as amended (the "Code").
The Committee will have authority, not inconsistent with the express
provisions of the Plan and in addition to other authority granted under the
Plan, to (a) grant Awards at such time or times as it may choose; (b) determine
the size of each Award, including the number of shares of Stock subject to the
Award; (c) determine the type or types of each Award; (d) determine the terms
and conditions of each Award; (e) waive compliance by a holder of an Award with
any obligations to be performed by such holder under an Award and waive any
terms or conditions of an Award; (f) amend or cancel an existing Award in whole
or in part (and if an award is canceled, grant another Award in its place on
such terms and conditions as the Committee shall specify), except that the
<PAGE>
Committee may not, without the consent of the holder of an Award, take any
action under this clause with respect to such Award if such action would
adversely affect the rights of such holder; (g) prescribe the form or forms of
instruments that are required or deemed appropriate under the Plan, including
any written notices and elections required of Participants (as defined below),
and change such forms from time to time; (h) adopt, amend and rescind rules and
regulations for the administration of the Plan; and (i) interpret the Plan and
decide any questions and settle all controversies and disputes that may arise in
connection with the Plan. Such determinations and actions of the Committee, and
all other determinations and actions of the Committee made or taken under
authority granted by any provision of the Plan, will be conclusive and will bind
all parties. Nothing in this paragraph shall be construed as limiting the power
of the Committee to make adjustments under Section 7.3 or Section 8.6.
3. EFFECTIVE DATE AND TERM OF PLAN
The Plan will become effective on the date on which it is approved by
the stockholders of the Company. Awards may be made prior to such stockholder
approval if made subject thereto. No Award may be granted under the Plan after
May 13, 2008, but Awards previously granted may extend beyond that date.
4. SHARES SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 8.6, the aggregate number
of shares of Stock that may be delivered under the Plan will be 600,000. If any
Award requiring exercise by the Participant for delivery of Stock terminates
without having been exercised in full, or if any Award payable in Stock or cash
is satisfied in cash rather than Stock, the number of shares of Stock as to
which such Award was not exercised or for which cash was substituted will be
available for future grants.
Subject to Section 8.6(a), the maximum number of shares of Stock as to
which Options or Stock Appreciation Rights may be granted to any Participant in
any one calendar year is 250,000, which limitation shall be construed and
applied consistently with the rules under Section 162(m) of the Code.
Stock delivered under the Plan may be either authorized but unissued
Stock or previously issued Stock acquired by the Company and held in treasury.
No fractional shares of Stock will be delivered under the Plan.
5. ELIGIBILITY AND PARTICIPATION
Each key employee of the Company or any of its subsidiaries (an
"Employee") and each other person or entity (including without limitation
non-Employee directors of the Company or a subsidiary of the Company) who, in
the opinion of the Committee, is in a position to make a significant
contribution to the success of the Company or its subsidiaries will be eligible
to receive
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<PAGE>
Awards under the Plan (each such Employee, person or entity receiving an Award,
"a Participant"). A "subsidiary" for purposes of the Plan will be a corporation
in which the Company owns, directly or indirectly, stock possessing 50% or more
of the total combined voting power of all classes of stock.
6. TYPES OF AWARDS
6.1. OPTIONS
(a) NATURE OF OPTIONS. An Option is an Award giving the recipient the
right on exercise thereof to purchase Stock.
Both "incentive stock options," as defined in Section 422(b) of the
Code (any Option intended to qualify as an incentive stock option being
hereinafter referred to as an "ISO"), and Options that are not ISOs, may be
granted under the Plan. ISOs shall be awarded only to Employees. An Option
awarded under the Plan shall be a non-ISO unless it is expressly designated as
an ISO at time of grant.
(b) EXERCISE PRICE. The exercise price of an Option will be determined
by the Committee subject to the following:
(1) The exercise price of an ISO or an Option intended to
qualify as performance based compensation under Section 162(m) of the
Code shall not be less than 100% of the fair market value of the Stock
subject to the Option, determined as of the time the Option is granted.
(2) In no case may the exercise price paid for Stock which is
part of an original issue of authorized Stock be less than the par
value per share of the Stock.
(c) DURATION OF OPTIONS. The latest date on which an Option may be
exercised will be the tenth anniversary of the day immediately preceding the
date the Option was granted, or such earlier date as may have been specified by
the Committee at the time the Option was granted.
(d) EXERCISE OF OPTIONS. An Option will become exercisable at such time
or times, and on such conditions, as the Committee may specify. The Committee
may at any time and from time to time accelerate the time at which all or any
part of the Option may be exercised. Any exercise of an Option must be in
writing, signed by the proper person and delivered or mailed to the Company,
accompanied by (1) any documents required by the Committee and (2) payment in
full in accordance with paragraph (e) below for the number of shares for which
the Option is exercised.
(e) PAYMENT FOR STOCK. Stock purchased on exercise of an Option must be
paid for as follows: (1) in cash or by check (acceptable to the Company in
accordance with guidelines
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established for this purpose), bank draft or money order payable to the order of
the Company or (2) if so permitted by the Committee at or after the grant of the
Option or by the instrument evidencing the Option, (i) through the delivery of
shares of Stock which have been held for at least six months (unless the
Committee approves a shorter period) and which have a fair market value equal to
the exercise price, (ii) by delivery of an unconditional and irrevocable
undertaking by a broker to deliver promptly to the Company sufficient funds to
pay the exercise price, or (iii) by any combination of the foregoing permissible
forms of payment.
(f) DISCRETIONARY PAYMENTS. If (i) the market price of shares of Stock
subject to an Option (other than an Option which is in tandem with a Stock
Appreciation Right as described in Section 6.2) exceeds the exercise price of
the Option at the time of its exercise, and (ii) the person exercising the
Option so requests the Committee in writing, the Committee may in its sole
discretion cancel the Option and cause the Company to pay in cash or in shares
of Common Stock (at a price per share equal to the fair market value per share)
to the person exercising the Option an amount equal to the difference between
the fair market value of the Stock which would have been purchased pursuant to
the exercise (determined on the date the Option is canceled) and the aggregate
exercise price which would have been paid.
6.2. STOCK APPRECIATION RIGHTS.
(a) NATURE OF STOCK Appreciation Rights. A Stock Appreciation Right (or
"SAR") is an Award entitling the holder on exercise to receive an amount in cash
or Stock or a combination thereof (such form to be determined by the Committee)
determined in whole or in part by reference to appreciation, from and after the
date of grant, in the fair market value of a share of Stock. SARs may be based
solely on appreciation in the fair market value of Stock or on a comparison of
such appreciation with some other measure of market growth such as (but not
limited) to appreciation in a recognized market index. The date as of which such
appreciation or other measure is determined shall be the exercise date unless
another date is specified by the Committee.
(b) GRANT OF STOCK APPRECIATION RIGHTS. Stock Appreciation Rights may
be granted in tandem with, or independently of, Options granted under the Plan.
(1) RULES APPLICABLE TO TANDEM AWARDS. When Stock Appreciation
Rights are granted in tandem with Options, (a) the Stock Appreciation
Right will be exercisable only at such time or times, and to the
extent, that the related Option is exercisable and will be exercisable
in accordance with the procedure required for exercise of the related
Option; (b) the Stock Appreciation Right will terminate and no longer
be exercisable upon the termination or exercise of the related Option,
except that a Stock Appreciation Right granted with respect to less
than the full number of shares covered by an Option will not be reduced
until the number of shares as to which the related Option has been
exercised or has terminated exceeds the number of shares not covered by
the Stock Appreciation Right; (c) the Option will terminate and no
longer be exercisable upon the exercise of the
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related Stock Appreciation Right; and (d) the Stock Appreciation Right
will be transferable only with the related Option.
(2) EXERCISE OF INDEPENDENT STOCK APPRECIATION RIGHTS. A Stock
Appreciation Right not granted in tandem with an Option will become
exercisable at such time or times, and on such conditions, as the
Committee may specify. The Committee may at any time accelerate the
time at which all or any part of the Right may be exercised.
Any exercise of an independent Stock Appreciation Right must be in writing,
signed by the proper person and delivered or mailed to the Company, accompanied
by any other documents required by the Committee.
6.3. RESTRICTED AND UNRESTRICTED STOCK.
(a) GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of
the Plan, the Committee may grant shares of Stock in such amounts and upon such
terms and conditions as the Committee shall determine subject to the
restrictions described below ("Restricted Stock").
(b) RESTRICTED STOCK AGREEMENT. The Committee may require, as a
condition to an Award, that a recipient of a Restricted Stock Award enter into a
Restricted Stock Award Agreement, setting forth the terms and conditions of the
Award. In lieu of a Restricted Stock Award Agreement, the Committee may provide
the terms and conditions of an Award in a notice to the Participant of the
Award, on the stock certificate representing the Restricted Stock, in the
resolution approving the Award, or in such other manner as it deems appropriate.
(c) TRANSFERABILITY AND OTHER RESTRICTIONS. Except as otherwise
provided in this Section 6.3, the shares of Restricted Stock granted herein may
not be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated until the end of the applicable period or periods established by
the Committee and the satisfaction of any other conditions or restrictions
established by the Committee (such period during which a share of Restricted
Stock is subject to such restrictions and conditions is referred to as the
"Restricted Period"). Except as the Committee may otherwise determine under
Section 7.1 or Section 7.2, if a Participant dies or suffers a Status Change (as
defined at Section 7.2(a)) for any reason during the Restricted Period, the
Company may purchase the shares of Restricted Stock subject to such restrictions
and conditions for the amount of cash paid by the Participant for such shares;
PROVIDED, that if no cash was paid by the Participant such shares of Restricted
Stock shall be automatically forfeited to the Company.
During the Restricted Period with respect to any shares of Restricted
Stock, the Company shall have the right to retain in the Company's possession
the certificate or certificates representing such shares.
(d) REMOVAL OF RESTRICTIONS. Except as otherwise provided in this
Section 6.3, a share of Restricted Stock covered by a Restricted Stock grant
shall become freely transferable by the
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Participant upon completion of the Restricted Period, including the passage of
any applicable period of time and satisfaction of any conditions to vesting. The
Committee, in its sole discretion, shall have the right at any time immediately
to waive all or any part of the restrictions and conditions with regard to all
or any part of the shares held by any Participant.
(e) VOTING RIGHTS, DIVIDENDS AND OTHER DISTRIBUTIONS. During the
Restricted Period, Participants holding shares of Restricted Stock granted
hereunder may exercise full voting rights and shall receive all regular cash
dividends paid with respect to such shares. Except as the Committee shall
otherwise determine, any other cash dividends and other distributions paid to
Participants with respect to shares of Restricted Stock, including any dividends
and distributions paid in shares, shall be subject to the same restrictions and
conditions as the shares of Restricted Stock with respect to which they were
paid.
(f) OTHER AWARDS SETTLED WITH RESTRICTED STOCK. The Committee may, at
the time any Award described in this Section 6 is granted, provide that any or
all the Stock delivered pursuant to the Award will be Restricted Stock.
(g) UNRESTRICTED STOCK. Subject to the terms and provisions of the
Plan, the Committee may grant shares of Stock free of restrictions under the
Plan in such amounts and upon such terms and conditions as the Committee shall
determine.
(h) NOTICE OF SECTION 83(b) ELECTION. Any Participant making an
election under Section 83(b) of the Code with respect to Restricted Stock must
provide a copy thereof to the Company within 10 days of filing such election
with the Internal Revenue Service.
6.4. DEFERRED STOCK.
A Deferred Stock Award entitles the recipient to receive shares of
Stock to be delivered in the future. Delivery of the Stock will take place at
such time or times, and on such conditions, as the Committee may specify. The
Committee may at any time accelerate the time at which delivery of all or any
part of the Stock will take place. At the time any Award described in this
Section 6.4 is granted, the Committee may provide that, at the time Stock would
otherwise be delivered pursuant to the Award, the Participant will instead
receive an instrument evidencing the Participant's right to future delivery of
Deferred Stock.
6.5. PERFORMANCE AWARDS; PERFORMANCE GOALS.
(a) NATURE OF PERFORMANCE AWARDS. A Performance Award entitles the
recipient to receive, without payment, an amount in cash or Stock or a
combination thereof (such form to be determined by the Committee) following the
attainment of Performance Goals (as hereinafter defined). Performance Goals may
be related to personal performance, corporate performance, departmental
performance or any other category of performance established by the Committee.
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The Committee will determine the Performance Goals, the period or periods during
which performance is to be measured and all other terms and conditions
applicable to the Award.
(b) OTHER AWARDS SUBJECT TO PERFORMANCE CONDITION. The Committee may,
at the time any Award described in this Section 6.5 is granted, impose the
condition (in addition to any conditions specified or authorized in this Section
6 or any other provision of the Plan) that Performance Goals be met prior to the
Participant's realization of any payment or benefit under the Award. Any such
Award made subject to the achievement of Performance Goals (other than an Option
or SAR) shall be treated as a Performance Award for purposes of Section 6.5(c)
below.
(c) LIMITATIONS AND SPECIAL RULES. In the case of any Performance Award
intended to qualify for the performance-based remuneration exception described
in Section 162(m)(4)(C) of the Code and the regulations thereunder (an "Exempt
Award"), the Committee shall in writing preestablish specific Performance Goals.
A Performance Goal must be established prior to passage of 25% of the period of
time over which attainment of such goal is to be measured. "Performance Goal"
means criteria based upon any one or more of the following (on a consolidated,
divisional, subsidiary, line of business or geographical basis or in
combinations thereof): (i) sales; revenues; assets; expenses; earnings before or
after deduction for all or any portion of interest, taxes, depreciation or
amortization, whether or not on a continuing operations or an aggregate or per
share basis; return on equity, investment, capital or assets; inventory level or
turns; one or more operating ratios; borrowing levels, leverage ratios or credit
rating; market share; capital expenditures; cash flow; stock price; stockholder
return; or any combination of the foregoing; or (ii) acquisitions and
divestitures (in whole or in part); joint ventures and strategic alliances;
spin-offs, split-ups and the like; reorganizations; recapitalizations,
restructurings, financings (issuance of debt or equity) and refinancings;
transactions that would constitute a Change of Control; or any combination of
the foregoing. A Performance Goal and targets with respect thereto determined by
the Committee need not be based upon an increase, a positive or improved result
or avoidance of loss. The maximum Exempt Award payable to any Participant in
respect of any such Performance Goal for any year shall not exceed $2,500,000.
Payment of Exempt Awards based upon a Performance Goal for the year ending
December 31, 2004 and thereafter is conditioned upon reapproval by Employer's
shareholders no later than Employer's first meeting of shareholders in the year
ending December 31, 2003.
7. EVENTS AFFECTING OUTSTANDING AWARDS
7.1. DEATH.
If a Participant dies, the following will apply:
(a) All Options and Stock Appreciation Rights held by the Participant
immediately prior to death, to the extent then exercisable, may be exercised by
the Participant's executor or administrator or the person or persons to whom the
Option or Right is transferred by will or the applicable laws of descent and
distribution, at any time within the one year period ending with the
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first anniversary of the Participant's death (or such shorter or longer period
as the Committee may determine), and shall thereupon terminate. In no event,
however, shall an Option or Stock Appreciation Right remain exercisable beyond
the latest date on which it could have been exercised without regard to this
Section 7. Except as otherwise determined by the Committee, all Options and
Stock Appreciation Rights held by a Participant immediately prior to death that
are not then exercisable shall terminate at death.
(b) Except as otherwise determined by the Committee, all Restricted
Stock held by the Participant must be transferred to the Company (and, in the
event the certificates representing such Restricted Stock are held by the
Company, such Restricted Stock will be so transferred without any further action
by the Participant) in accordance with Section 6.3(c).
(c) Any payment or benefit under a Deferred Stock Award or Performance
Award to which the Participant was not irrevocably entitled prior to death will
be forfeited and the Award canceled as of the time of death, except as otherwise
determined the Committee.
7.2. TERMINATION OF SERVICE (OTHER THAN BY DEATH).
If a Participant who is an Employee ceases to be an Employee for any
reason other than death or retirement with consent of the Company after
attainment of age 65, or if there is a termination (other than by reason of
death) of the consulting, service or similar relationship in respect of which a
non-Employee Participant was granted an Award hereunder (such termination of the
employment or other relationship being hereinafter referred to as a "Status
Change"), the following will apply:
(a) Except as otherwise determined by the Committee, all Options and
Stock Appreciation Rights held by the Participant that were not exercisable
immediately prior to the Status Change shall terminate at the time of the Status
Change. Any Options or Rights that were exercisable immediately prior to the
Status Change will continue to be exercisable for a period of three months (or
such longer period as the Committee may determine), and shall thereupon
terminate, unless the Award provides by its terms for immediate termination in
the event of a Status Change (unless otherwise determined by the Committee) or
unless the Status Change results from a discharge for cause which in the opinion
of the Committee casts such discredit on the Participant as to justify immediate
termination of the Award. In no event, however, shall an Option or Stock
Appreciation Right remain exercisable beyond the latest date on which it could
have been exercised without regard to this Section 7. For purposes of this
paragraph, in the case of a Participant who is an Employee, a Status Change
shall not be deemed to have resulted by reason of (i) a sick leave or other bona
fide leave of absence approved for purposes of the Plan by the Committee, so
long as the Employee's right to reemployment is guaranteed either by statute or
by contract, or (ii) a transfer of employment between the Company and a
subsidiary or between subsidiaries, or to the employment of a corporation (or a
parent or subsidiary corporation of such corporation) issuing or assuming an
option in a transaction to which Section 424(a) of the Code applies.
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(b) Except as otherwise determined by the Committee, all Restricted
Stock held by the Participant at the time of the Status Change must be
transferred to the Company (and, in the event the certificates representing such
Restricted Stock are held by the Company, such Restricted Stock will be so
transferred without any further action by the Participant) in accordance with
Section 6.3(c) above.
(c) Any payment or benefit under a Deferred Stock Award or Performance
Award to which the Participant was not irrevocably entitled prior to the Status
Change will be forfeited and the Award cancelled as of the date of such Status
Change unless otherwise determined by the Committee.
7.3. CERTAIN CORPORATE TRANSACTIONS.
Except as otherwise provided by the Committee at the time of grant, in
the event of a consolidation or merger in which the Company is not the surviving
corporation or which results in the acquisition of substantially all the
Company's outstanding Stock by a single person or entity or by a group of
persons and/or entities acting in concert, or in the event of the sale or
transfer of substantially all the Company's assets or a dissolution or
liquidation of the Company (a "covered transaction"), the following rules shall
apply:
(a) Subject to paragraph (b) below, all outstanding Awards requiring
exercise will cease to be exercisable, and all other Awards to the extent not
fully vested (including Awards subject to conditions not yet satisfied or
determined) will be forfeited, as of the effective time of the covered
transaction, provided that the Committee may in its sole discretion (but subject
to Section 7.4), on or prior to the effective date of the covered transaction,
(1) make any outstanding Option and Stock Appreciation Right exercisable in
full, (2) remove the restrictions from any Restricted Stock, (3) cause the
Company to make any payment and provide any benefit under any Deferred Stock
Award or Performance Award and (4) remove any performance or other conditions or
restrictions on any Award; or
(b) With respect to an outstanding Award held by a participant who,
following the covered transaction, will be employed by or otherwise providing
services to an entity which is a surviving or acquiring entity in the covered
transaction or an affiliate of such an entity, the Committee may at or prior to
the effective time of the covered transaction, in its sole discretion and in
lieu of the action described in paragraph (a) above, arrange to have such
surviving or acquiring entity or affiliate assume any Award held by such
participant outstanding hereunder or grant a replacement award which, in the
judgment of the Committee, is substantially equivalent to any Award being
replaced.
7.4. CHANGE OF CONTROL PROVISIONS.
(a) IMPACT OF EVENT. Notwithstanding any other provision of the Plan to
the contrary, in the event of a Change of Control:
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(1) ACCELERATION OF OPTIONS AND SARs. Any Options and SARs
outstanding as of the date such Change of Control is determined to have
occurred and which are not then exercisable shall become exercisable to
the full extent of the original grant, and all shares of Restricted
Stock which are not otherwise vested shall vest. Holders of Performance
Awards granted hereunder as to which the relevant performance period
has not ended as of the date such Change of Control is determined to
have occurred shall be entitled at the time of such Change of Control
to receive a cash payment per Performance Award equal to the full value
of the cash component of such Award (if any) plus the fair market value
of Stock included in such Award.
(2) RESTRICTION ON APPLICATION OF PLAN PROVISIONS APPLICABLE
IN THE EVENT OF TERMINATION OF EMPLOYMENT. After a Change of Control,
Options and SARs shall not be terminated as a result of a termination
of employment other than by reason of death, disability (as determined
by the Company) or retirement for seven months following such
termination of employment or until expiration of the original terms of
the Option or SAR, whichever period is shorter.
(3) RESTRICTION ON AMENDMENT. In connection with or following
a Change of Control, neither the Committee nor the Board may impose
additional conditions upon exercise or otherwise amend or restrict an
Option, SAR, share of Restricted Stock or Performance Award, or amend
the terms of the Plan in any manner adverse to the holder thereof,
without the written consent of such holder.
Notwithstanding the foregoing, if any right granted pursuant to this
Section 7.4 would make a Change of Control transaction ineligible for pooling of
interests accounting under applicable accounting principles that but for this
Section 7.4 would otherwise be eligible for such accounting treatment, the
Committee shall have the authority to substitute stock for the cash which would
otherwise be payable pursuant to this Section 7.4 having a fair market value
equal to such cash.
(b) DEFINITION OF CHANGE OF CONTROL. A "Change of Control" shall be
deemed to have occurred if (i) any corporation, person or other entity (other
than the Company, a majority-owned subsidiary of the Company, any employee
benefit plan maintained by the Company or any of its subsidiaries or members of
the Board on the date the Plan is approved by the stockholders of the Company),
including a "group" as defined in Section 13(d)(3) of the 1934 Act becomes the
beneficial owner of Stock representing more than twenty-five percent of the
voting power of the Company (other than by consolidation or merger) or (ii)
within any 24 consecutive month period, persons who were members of the Board
immediately prior to such 24-month period, together with any persons who were
first elected as directors (other than as a result of any settlement of a proxy
or consent solicitation contest or any action taken to avoid such a contest)
during such 24- month period by or upon the recommendation of persons who were
members of the Board immediately
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prior to such 24-month period and who constituted a majority of the Board at the
time of such election, cease to constitute a majority of the Board.
8. GENERAL PROVISIONS
8.1. DOCUMENTATION OF AWARDS.
Awards will be evidenced by such written instruments, if any, as may be
prescribed by the Committee from time to time. Such instruments may be in the
form of agreements to be executed by both the Participant and the Company, or
certificates, letters or similar instruments, which need not be executed by the
Participant but acceptance of which will evidence agreement to the terms
thereof.
8.2. RIGHTS AS A STOCKHOLDER, DIVIDEND EQUIVALENTS.
Except as specifically provided by the Plan, the receipt of an Award
will not give a Participant rights as a stockholder; the Participant will obtain
such rights, subject to any limitations imposed by the Plan or the instrument
evidencing the Award, only upon the issuance of Stock. However, the Committee
may, on such conditions as it deems appropriate, provide that a Participant will
receive a benefit in lieu of cash dividends that would have been payable on any
or all Stock subject to the Participant's Award had such Stock been outstanding.
Without limitation, the Committee may provide for payment to the Participant of
amounts representing such dividends, either currently or in the future, or for
the investment of such amounts on behalf of the Participant.
8.3. CONDITIONS ON DELIVERY OF STOCK.
The Company will not be obligated to deliver any shares of Stock
pursuant to the Plan or to remove restriction from shares previously delivered
under the Plan (a) until all conditions of the Award have been satisfied or
removed, (b) until, in the opinion of the Company's counsel, all applicable
federal and state laws and regulation have been complied with, (c) if the
outstanding Stock is at the time listed on any stock exchange or The Nasdaq
National Market, until the shares to be delivered have been listed or authorized
to be listed on such exchange or market upon official notice of notice of
issuance, and (d) until all other legal matters in connection with the issuance
and delivery of such shares have been approved by the Company's counsel. If the
sale of Stock has not been registered under the Securities Act of 1933, as
amended, the Company may require, as a condition to exercise of the Award, such
representations or agreements as counsel for the Company may consider
appropriate to avoid violation of such Act and may require that the certificates
evidencing such Stock bear an appropriate legend restricting transfer.
If an Award is exercised by the Participant's legal representative, the
Company will be under no obligation to deliver Stock pursuant to such exercise
until the Company is satisfied as to the authority of such representative.
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8.4. TAX WITHHOLDING.
The Company will withhold from any cash payment made pursuant to an
Award an amount sufficient to satisfy all federal, state and local withholding
tax requirements (the "withholding requirements").
In the case of an Award pursuant to which Stock may be delivered, the
Committee will have the right to require that the Participant or other
appropriate person remit to the Company an amount sufficient to satisfy the
withholding requirements, or make other arrangements satisfactory to the
Committee with regard to such requirements, prior to the delivery of any Stock
or removal of restrictions thereon. If and to the extent that such withholding
is required, the Committee may permit the Participant or such other person to
elect at such time and in such manner as the Committee provides to have the
Company hold back from the shares to be delivered, or to deliver to the Company,
Stock having a value calculated to satisfy the withholding requirement. The
Committee may make such share withholding mandatory with respect to any Award at
the time such Award is made to a Participant.
If at the time an ISO is exercised the Committee determines that the
Company could be liable for withholding requirements with respect to the
exercise or with respect to a disposition of the Stock received upon exercise,
the Committee may require as a condition of exercise that the person exercising
the ISO agree (a) to provide for withholding under the preceding paragraph of
this Section 8.4, if the Committee determines that a withholding responsibility
may arise in connection with tax exercise, (b) to inform the Company promptly of
any disposition (within the meaning of section 424(c) of the Code) of Stock
received upon exercise, and (c) to give such security as the Committee deems
adequate to meet the potential liability of the Company for the withholding
requirements and to augment such security from time to time in any amount
reasonably deemed necessary by the Committee to preserve the adequacy of such
security.
8.5. TRANSFERABILITY OF AWARDS.
Unless otherwise permitted by the Committee, no Award (other than an
Award in the form of an outright transfer of cash or Unrestricted Stock) may be
transferred other than by will or by the laws of descent and distribution .
8.6. ADJUSTMENTS IN THE EVENT OF CERTAIN TRANSACTIONS.
(a) In the event of a stock dividend, stock split or combination of
shares, recapitalization or other change in the Company's capitalization, or
other distribution to holders of Stock other than normal cash dividends, after
the effective date of the Plan, the Committee will make any appropriate
adjustments to the maximum number of shares that may be delivered under the Plan
under the first paragraph of Section 4 above and to the limits described in the
second paragraph of Section 4 and in Section 6.5(c).
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(b) In any event referred to in paragraph (a), the Committee will also
make any appropriate adjustments to the number and kind of shares of Stock or
securities subject to Awards then outstanding or subsequently granted, any
exercise prices relating to Awards and any other provision of Awards affected by
such change. The Committee may also make such adjustments to take into account
material changes in law or in accounting practices or principles, mergers,
consolidations, acquisitions, dispositions or similar corporate transactions, or
any other event, if it is determined by the Committee that adjustments are
appropriate to avoid distortion in the operation of the Plan; PROVIDED, that
adjustments pursuant to this sentence shall not be made to the extent it would
cause any Award intended to be exempt under Section 162(m)(4)(c) of the Code to
fail to be so exempt.
(c) In the case of ISOs, the adjustments described in (a) and (b) will
be made only to the extent consistent with continued qualification of the Option
under Section 422 of the Code (in the case of an ISO) or Section 162(m) of the
Code.
8.7. EMPLOYMENT RIGHTS, ETC.
Neither the adoption of the Plan nor the grant of Awards will confer
upon any person any right to continued retention by the Company or any
subsidiary as an Employee or otherwise, or affect in any way the right of the
Company or subsidiary to terminate an employment, service or similar
relationship at any time. Except as specifically provided by the Committee in
any particular case, the loss of existing or potential profit in Awards granted
under the Plan will not constitute an element of damages in the event of
termination of an employment, service or similar relationship even if the
termination is in violation of an obligation of the Company to the Participant.
8.8. DEFERRAL OF PAYMENTS.
The Committee may agree at any time, upon request of the Participant,
to defer the date on which any payment under an Award will be made.
8.9. PAST SERVICES AS CONSIDERATION.
Where a Participant purchases Stock under an Award for a price equal to
the par value of the Stock the Committee may determine that such price has been
satisfied by past services rendered by the Participant.
9. EFFECT, AMENDMENT AND TERMINATION
Neither adoption of the Plan nor the grant of Awards to a Participant
will affect the Company's right to grant to such Participant awards that are not
subject to the Plan, to issue to such Participant Stock as a bonus or otherwise,
or to adopt other plans or arrangements under which Stock may be issued to
Employees.
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The Committee may at any time or times amend the Plan or any
outstanding Award for any purpose which may at the time be permitted by law, or
may at any time terminate the Plan as to any further grants of Awards, provided
that (except to the extent expressly required or permitted by the Plan) no such
amendment will, without the approval of the stockholders of the Company,
effectuate a change for which stockholder approval is required in order for the
Plan to continue to qualify for the award of ISOs under Section 422 of the Code
or for the award of performance-based compensation under Section 162(m) of the
Code.
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AFC CABLE SYSTEMS, INC.
Change in Control Severance Benefit
Plan for Key Employees
March 11, 1998
AFC Cable Systems, Inc. (the "Company") desires to assure that it and
its subsidiaries (the "Employer") will have the benefit of the continued service
and experience of certain of their key employees designated as hereinafter
provided ("Employees," or individually, the "Employee") and to assure Employer
and the Employee of the continuity of management of the Company and Employer in
the event of any actual or threatened change in control of the Company and
adopts this plan (the "Plan") to provide such assurances.
1. DESIGNATED EMPLOYEES. Employees entitled to participate in the Plan
shall be those designated from time to time by the Board of Directors of the
Company.
2. AGREEMENT OF EMPLOYEES. Designated Employees in order to participate
in the Plan must enter into written agreements with Employer with respect to
participation in the Plan in a form prescribed by Employer, which need not be
the same for all such Employees and which may provide for reduced benefits or
less favorable terms than are provided for in this Plan generally and which
shall contain, among other things, the agreement of such Employees that in the
event any person ("Person"), as that term is defined or used in Sections 13(d)
or 14(d)(2) of the Securities Exchange Act of 1934 ("Exchange Act"), begins a
tender or exchange offer, solicitation of proxies from the Company's security
holders or takes other actions to effect a Change in Control (as hereinafter
defined), such Employee will not voluntarily terminate his employment with
Employer until such Person has abandoned or terminated such efforts to effect a
Change in Control or until a Change in Control has occurred.
3. CHANGE IN CONTROL. For purposes of this Plan, a "Change in Control"
shall be deemed to have occurred if and when
(a) The Company ceases to be a publicly owned corporation
having at least five hundred (500) stockholders; or
(b) There occurs any event or series of events that would be
required to be reported as a change in control in response to Item 1(a)
on a Form 8-K filed by the Company under the Exchange Act or in any
other filing by the Company with the Securities and Exchange Commission
unless the Person acquiring control is or is an affiliate of such
Employee; or
<PAGE>
(c) The Company executes an agreement of acquisition, merger
or consolidation which contemplates that after the effective date
provided for in the agreement, all or substantially all of the business
and/or assets of the Company shall be controlled by another corporation
or other entity; provided, however, for purposes of this paragraph (c)
that (i) if such an agreement requires as a condition precedent
approval by the Company's stockholders of the agreement or transaction,
a Change in Control shall not be deemed to have taken place unless and
until such approval is secured and (ii) if the voting stockholders of
such other corporation or entity shall, immediately after such
effective date, be substantially the same as the voting stockholders of
the Company immediately prior to such effective date, the execution of
such agreement shall not, by itself, constitute a "Change in Control";
or
(d) Any Person (which does not include Employee or any
affiliate of the Company as of the date of adoption of this Plan)
becomes the beneficial owner, directly or indirectly (either as a
result of the acquisition of securities or as the result of an
arrangement or understanding, including the holding of proxies, with or
among security holders), of securities of the Company representing
twenty-five (25%) or more of the votes that could then be cast in an
election for members of the Company's Board of Directors unless within
fifteen (15) days of being advised that such ownership level has been
reached, a majority of the Continuing Directors then in office adopts a
resolution approving the acquisition of that level of securities
ownership by such Person; or
(e) During any period of twenty four (24) consecutive months,
commencing after the effective date of this Plan, individuals who at
the beginning of such twenty-four-month period were directors of the
Company shall cease to constitute at least a majority of the Company's
Board of Directors, unless the election of each director who was not a
director at the beginning of such period has been approved in advance
by directors representing at least two-thirds of (i) the directors then
in office who were directors at the beginning of the twenty-four-month
period or (ii) the directors specified in clause (i) plus directors
whose election has been so approved by directors specified in clause
(i).
For purposes of this Plan, directors of the Company shall be
"Continuing Directors" if they were directors at the beginning of any such
twenty-four-month period or were approved in the manner provided in paragraph
(e) of this Section 3.
4. BENEFIT UPON A CHANGE IN CONTROL. Within thirty (30) days following
a Change in Control, regardless of whether an Employee's employment has been
terminated, the Company shall pay to the Employee an amount equal to twenty
percent (20%) of the annual rate of his basic salary immediately prior to the
Change in Control.
5. SEVERANCE BENEFIT. If during a period of twenty four (24) months
following a Change in Control, either (i) the employment of Employee is
terminated by Employer or (ii) there is a
-2-
<PAGE>
material adverse change in the terms of the employment of Employee which
entitles Employee to treat any such change as such a termination as hereinafter
provided, Employee shall be entitled to receive severance pay at an annual rate
equal to (i) his basic salary at the annual rate in effect immediately prior to
any such Change in Control (or, if higher, immediately prior to such
termination), plus (ii) the highest amount of bonus or incentive compensation
paid or payable in cash or stock (valued as of the date of such bonus) to
Employee (irrespective of any decision to defer any payment with respect
thereto) for any one of the three calender years prior to such Change in Control
(or, if higher, immediately prior to such termination), such severance pay to be
paid for the twenty-four-month period following such termination in the same
manner as Employee's basic salary was paid immediately prior to such termination
and to be subject to appropriate tax withholding. For example, if Employee's
basic salary was $100,000 immediately prior to a Change in Control, his highest
bonus in the prior three years was $20,000 and he is paid monthly, his severance
pay for each of the twenty four (24) months following termination would be
$10,000. Payment of such amount shall be considered severance pay in
consideration of past services, services subsequent to Employee's designation
under this Plan and continued services during a period while any such Change in
Control is pending and thereafter and is not to be reduced by compensation or
income received by Employee from any other employment or other source.
In the event of such a termination, Employee shall continue for a
period of twenty four (24) months after termination to be covered at the expense
of Employer by the same or equivalent hospital, medical, accident, disability
and life insurance coverages as he was covered immediately prior to such
termination; provided, however, that in lieu of such coverage, Employee may
elect to be paid in cash, within fifteen (15) days after such termination, an
amount equal to Employer's cost of providing such coverages during such period.
Notwithstanding the foregoing, all payments to which Employee would be
entitled under this Plan shall be reduced to the extent necessary so that he
shall not be liable for the federal excise tax levied on certain "excess
parachute payments" under Section 4999 of the Internal Revenue Code.
Following a Change in Control, a material adverse change in the terms
of employment of Employee by Employer which Employee is entitled to treat as a
termination by Employer for purposes of this Plan includes:
(a) Without Employee's express written consent, assignment of
Employee to any duties inconsistent with his position, duties and
responsibilities and status with Employer immediately prior to a Change
in Control; or
(b) A reduction by the Employer in Employee's base salary as
in effect immediately prior to a Change in Control;
-3-
<PAGE>
(c) A failure by Employer to continue any cash or stock bonus
or incentive plans in which Employee is entitled to participate
immediately prior to a Change in Control or a modification of any such
plans with the result that the cash or stock bonus or incentive
compensation ("Bonus") paid to Employee for any calendar year in which
such Change in Control occurs or in the subsequent twenty-four-month
period is less than the average Bonus awarded Employee for the three
years prior to the Change in Control (or such shorter period as he has
been employed by Employer); or
(d) Without Employee's express written consent, the Employer's
requiring Employee to be based anywhere other than within twenty-five
(25) miles of his office location immediately prior to a Change in
Control, except for required travel on the Employer's business to an
extent substantially consistent with his business travel obligations
immediately prior to a Change in Control; or
(e) The failure by the Employer to continue in effect any
benefit or compensation plan, stock ownership plan, stock purchase
plan, stock option plan, life insurance plan, health-and-accident plan
or disability plan in which Employee is participating at the time of a
Change in Control (or plans providing Employee with substantially
similar benefits), or the taking of any action by the Employer which
would adversely affect Employee's participation or materially reduce
his benefits under any of such plans; or
(f) The taking of any action by the Employer which would
deprive Employee of any material fringe benefit enjoyed by him
immediately prior to a Change in Control or the failure by the Employer
to provide him with the number of paid vacation days to which he is
then entitled in accordance with the Employer's normal vacation policy
in effect immediately prior to a Change in Control; or
(g) The failure by the Employer or the Company to obtain the
written agreement to perform the Company's obligations under this Plan
by any successor of the Company; or
(h) Any breach by the Company or Employer of any provision of
this Plan.
6. LIMITED EFFECT. This Plan, any agreement entered into pursuant
hereto and payment of severance benefits hereunder shall not give Employee any
right of continued employment, and no right to any compensation or benefits from
the Company or Employer except the right specifically stated herein for certain
severance pay benefits in the event of a Change in Control at a time when
Employee is still employed by Employer and is a designated Employee under this
Plan, shall not limit Employer's right to terminate Employee's employment at any
time prior to a Change in Control, with or without cause, or to terminate
Employees designation as an Employee under this Plan, except as may be otherwise
provided in a written employment agreement between Employee and Employer, and
shall not confer on Employee any right to severance pay except in the event as
specifically provided for herein.
-4-
<PAGE>
7. TERMINATION. This Plan and the employee benefits described herein
may be terminated as to all Employees or as to any specific Employee at any time
by the Company acting by a majority of the Continuing Directors then in office;
provided that no such termination occurring after or 180 days prior to a Change
in Control shall have occurred shall terminate or effect the rights of any
Employee hereunder.
8. INDEMNIFICATION. Employer agrees to pay all costs and expenses
incurred by Employee in connection with the enforcement of his rights under this
Plan and will indemnify and hold harmless Employee from and against any damages,
liabilities and expenses (including without limitation fees and expenses of
counsel) incurred by Employee in connection with any litigation or threatened
litigation, including any regulatory proceedings, arising out of the making,
performance or enforcement of this Plan.
9. GOVERNING LAW. This Plan and agreements made with Employees
hereunder shall be governed by the laws of the State of Rhode Island and
Providence Plantations.
-5-
<PAGE>
EXHIBIT 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated February 17, 1998, in the Registration Statement
(Form S-3) and related Prospectus of AFC Cable Systems, Inc. for the
registration of 1,725,000 shares of its common stock.
ERNST & YOUNG LLP
Providence, Rhode Island
April 15, 1998
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